In Juul Labs, Inc. v. Grove, 2020 Del. Ch. LEXIS 264 (Del. Ch. Aug. 13, 2020) (Laster, V.C.), the Delaware Court of Chancery held that the “internal affairs doctrine” bars a stockholder of a Delaware corporation headquartered in a foreign jurisdiction from seeking to inspect corporate books and records pursuant to the statutory law of that foreign jurisdiction.  The stockholder is limited instead to the inspection rights and remedies under Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220.  This decision has the potential to provide greater certainty to Delaware corporations headquartered in other states that Delaware law will govern all aspects of stockholders’ rights, although it remains to be seen whether the courts of those other states will enforce Delaware law in a similarly limiting fashion.
Continue Reading Delaware Court of Chancery Applies the Internal Affairs Doctrine to Deny Stockholder Inspection Rights Under a Foreign State’s Law

Rule 23.1 of the Delaware Court of Chancery Rules requires a plaintiff asserting a shareholder derivative action to plead “with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the reasons for the plaintiff’s failure to obtain the action or for not making the effort” (emphasis added).  In Elburn v. Albanese, 2020 Del. Ch. LEXIS 156 (Del. Ch. Apr. 21, 2020), the Delaware Court of Chancery (Slights, V.C.), addressed the “fundamental,” but rarely asked, “question of what is required to plead a fact ‘with particularity’ under Rule 23.1.”  In addressing this question, the Court applied authority interpreting the particularity requirement set forth in Rule 9(b) of the Court of Chancery Rules holding that the standard is met so long as the plaintiff pleads particularized facts sufficient to apprise the defendants of the basis for the claim.  The Court declined to require the pleading of “so-called ‘newspaper facts’—who, what, when, where and how” —in all cases under Rule 23.1, holding that even under Rule 9(b) such details are not required in all cases.  The Court’s analysis in Elburn recognizes that a shareholder plaintiff’s burden to plead specific facts varies depending on the plaintiff’s reasonable access to the facts underlying his or her theory of demand futility.
Continue Reading Delaware Court of Chancery Addresses Pleading ‘With Particularity’ Under Rule 23.1

In Chufen Chen v. Dunkin’ Brands, Inc., No. 18-CV-3087, 2020 WL 1522826 (2d Cir. Mar. 31, 2020), the United States Court of Appeals for the Second Circuit held that the act of registering as a foreign corporation under Section 1301 of the New York Business Corporation Law (“BCL”) does not constitute consent to general personal jurisdiction in the courts of the State.  In reaching its holding, the Court held that the United States Supreme Court’s decision in Daimler AG v. Bauman, 571 U.S. 117 (2014), effectively overruled the New York courts’ long-held interpretation that registering under BCL § 1301(a) constituted consent to general personal jurisdiction.  This decision provides clarity to companies doing business in New York but headquartered and incorporated outside the State that they will not ordinarily be subject to personal jurisdiction in New York state and federal courts.
Continue Reading Second Circuit Holds that Registering to do Business in New York Under Section 1301 of the Business Corporation Law Does Not Constitute Consent to General Personal Jurisdiction in New York Courts

In Sciabacucchi v. Salzberg, No. 346, 2019, 2020 WL 1280785 (Del. Mar. 18, 2020), the Delaware Supreme Court reversed a Delaware Court of Chancery (Laster, V.C.) decision declaring invalid a federal forum selection provision in a Delaware corporation’s charter or bylaws.  The federal forum selection provision was intended to require claims by investors under the Securities Act of 1933 (“1933 Act”) to be brought solely in federal court, thereby avoiding the likelihood of defending duplicate, concurrent state and federal court 1933 Act claims.  The Delaware Supreme Court’s decision provides clear guidance to companies preparing for securities offerings for implementing a tool to limit the cost of defending duplicative 1933 Act litigation.
Continue Reading Delaware Supreme Court Confirms That Federal Forum Provision Is Facially Valid, Reversing Court of Chancery

In High River Limited Partnership v. Occidental Petroleum Corp., C.A. No. 2019-0403-JRS, 2019 WL 6040285 (Del. Ch. Nov. 14, 2019) (Slights, V.C.), the Delaware Court of Chancery held that a stockholder’s mere disagreement with a business decision of a board of directors and intent to pursue a bone fide proxy contest is not a “proper purpose” to support a demand to inspect the corporation’s books and records under Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220. By declining the stockholder’s invitation to adopt a “new rule entitling stockholders to inspection documents under Section 220 if they can show a credible basis that the information sought would be material in the prosecution of a proxy contest,” this decision clarifies what had been a “murky” legal landscape under Section 220.
Continue Reading Delaware Court of Chancery Holds that a Stockholder’s Disagreement with a Board’s Business Judgment and Intent to Pursue a Proxy Contest is Not a “Proper Purpose” for a Section 220 Demand

Sinatra may have found success in the city that never sleeps, but a California court has just made it more difficult for any party doing business with a California resident to do the same.  At least, when it comes to resolving disputes without a jury in a New York courtroom, or in the courtroom of any other jurisdiction that enforces pre-dispute jury trial waivers.  This case will be of major interest to commercial lenders, and other businesses, who prefer to use states like New York and Delaware as their jurisdiction of choice for governing law and adjudicating disputes.

While it is well-settled law in California that pre-dispute contractual jury waivers are unenforceable (see, e.g., Grafton Partners L.P. v. Superior Court (2005) 36 Cal. 4th 944 (“Grafton”)), in most instances forum selection and choice-of-law provisions have been respected by California courts. However, the Court of Appeal for the First Appellate District recently expanded upon Grafton in Handoush v. Lease Financing Group, LLC. The Court dealt a commercial equipment lessor a significant blow by holding that the equipment lessee who signed a lease agreement with the lessor that was governed by New York law, identified New York as the appropriate forum for resolving disputes and included a pre-dispute jury waiver (which is enforceable under New York law), was nevertheless entitled to a trial by jury in California.
Continue Reading Start Spreadin’ the News: California Court Says No to New York, New York; Rejects Forum Selection Clause

In the aftermath of Equifax’s data breach, a federal court recently found that allegations of poor cybersecurity coupled with misleading statements supported a proper cause of action. In its decision, the U.S. District Court for the Northern District of Georgia allowed a securities fraud class action case to continue against Equifax. The lawsuit claims the company issued false or misleading statements regarding the strength and quality of its cybersecurity measures. In their amended complaint, the plaintiffs cite Equifax’s claims of “strong data security and confidentiality standards” and “a highly sophisticated data information network that includes advanced security, protections and redundancies,” when, according to the plaintiffs’ allegations, Equifax’s cybersecurity practices “were grossly deficient and outdated” and “failed to implement even the most basic security measures.” The court found that data security is a core aspect of Equifax’s business and that investors are likely to review representations on data security when making their investment decisions.
Continue Reading Court Finds Cybersecurity-Related Claims Sufficient in Securities Class Action

Section 220 of the Delaware General Corporation Law, 8 Del. C. § 220, provides that any stockholder of a Delaware corporation “shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from . . . the corporation’s stock ledger, a list of its stockholders, and its other books and records.”  Whether emails and other electronically stored information (“ESI”) created and maintained by the corporation constitute “other books and records” within the meaning of Section 220 has been a matter of some uncertainty.  Recent decisions from the Delaware Courts provide useful guidance to practitioners on this question.
Continue Reading Delaware Courts Address Production of Emails and Other Electronically Stored Information In Response to Section 220 Demands

In Drulias v. 1st Century Bancshares, Inc., No. H045049, 2018 WL 6735137 (Cal. App. Dec. 21, 2018), the California Court of Appeal, Sixth Appellate District, affirmed an order staying a stockholder lawsuit brought in the Superior Court of California, Santa Clara County, on forum non conveniens grounds based upon enforcement of an exclusive Delaware forum selection bylaw. This decision confirms that California courts will enforce forum selection bylaws designating Delaware as the exclusive venue for intra-corporate claims. 
Continue Reading California Court of Appeal Enforces Delaware Forum Selection Bylaw

In Sciabacucchi v. Salzberg, C.A. No. 2017-0931-JTL, 2018 WL 6719718 (Del. Ch. Dec. 19, 2018), the Delaware Court of Chancery (Laster, V.C.) held that a forum-selection provision in a Delaware corporation’s charter or bylaws which purported to govern external investor claims not involving the internal affairs of the corporation are not authorized under Delaware law. Thus, the Court declared ineffective a provision in a certificate of incorporation requiring any claim brought against it under the Securities Act of 1933 (“1933 Act”) to be filed in federal court. This decision clarifies the limits on the scope of forum selection provisions enacted by Delaware corporations.
Continue Reading Delaware Court of Chancery Declares Ineffective Exclusive Federal Forum Provision for 1933 Act Claims