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Exclusive Forum Bylaws



Should corporations be allowed to create bylaws in which they limit where they can be sued, especially by their shareholders?

That is one way of looking at the issue in NORTH v. McNAMARA. It concerns specifically what are called "shareholder derivative actions" -- actions in which the litigating shareholder derives his standing from the corporate person itself.  These are the cases in which company managements have long been eager to keep their disputes with shareholders in the (to them friendly) confines of the Delaware Chancery Court where possible.

A court in Oregon recently (August 2014) refused to enforce a forum selection bylaw in litigation over TriQuint SemiConductor Inc. It found suspicious the bylaw in question because the board adopted this forum selection rule at the very same meeting where it approved entering into a particular merger, the merger to which some stockholders objected. The board seemed obviously not to be declaring a general rule about the best forum but to be creating a new rule in order to shield a new critical decision from unwanted scrutiny, and the latter smells fishier than the former.

Still more recently (September 2014) a court in Ohio in the McNAMARA case in regard to Chemed Corp., upheld a quite similar forum selection bylaw.

The Ohio court is in accord with the general trend in such cases, the Oregon court is an outlier.

No editorializing today, just getting this into my blog as an aid to memory.

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