Delaware Courts Enforce Choice of Forum Decision, Affecting California Stockholders
In a significant development, the California Supreme Court has ruled that forum selection clauses mandating litigation in fora without jury trials, such as the Delaware Court of Chancery, are enforceable against California plaintiffs. This ruling, in the case of EpicentRx, Inc. v. Superior Court of San Diego County, clarifies that such clauses do not violate California public policy, thus reinforcing the enforceability of forum selection clauses in corporate charters and bylaws even when they waive civil jury trial rights otherwise available in California courts [1][2][3][4][5].
Implications for Corporate Governance
The decision has important implications for companies incorporated in Delaware but with principal places of business in California. They can now confidently include Delaware forum selection clauses in their governing documents, with these clauses likely to be enforced. This move encourages uniformity in internal corporate dispute resolution and reduces forum shopping [1][3][4].
The decision also supports Delaware’s Court of Chancery’s role as the specialized forum for complex corporate litigation, reinforcing Delaware’s prominence as a preferred state of incorporation.
Implications for Litigation Strategy
Plaintiffs in California corporate disputes may be compelled to litigate in Delaware or other forums specified by contract, even when they lose the right to a jury trial available under California law. This can affect plaintiffs’ calculus regarding costs, procedural rules, and trial dynamics [1][2][5].
On the other hand, defendants can leverage mandatory forum selection clauses more confidently to transfer disputes out of California courts, limiting exposure to potentially less favorable venues or jury trial risks in California.
Implications for Contractual Certainty
The decision dispels the prior uncertainty generated by the Handoush case, which restricted enforcement of forum selection clauses when the designated forum lacked jury trials [1][4]. California businesses and their counsel now have greater clarity that forum selection clauses will be enforced even if they incidentally waive jury trial rights, increasing predictability in contract drafting and negotiations regarding dispute resolution provisions [1][4][5].
However, businesses must be diligent during contract formation to understand and negotiate forum provisions since such clauses can significantly affect litigants’ rights and strategies [5].
In sum, the EpicentRx ruling aligns California with a national trend favoring enforcement of corporate forum selection clauses and strengthens Delaware’s position as a premier forum for internal corporate disputes while affecting corporate governance practices, plaintiff litigation strategies, and contractual certainty in forum selection [1][3][4][5].
This comprehensive analysis of the California Supreme Court decision in EpicentRx v. Superior Court of San Diego County is provided by Michael Bongiorno, Timothy Perla, Jessica Lewis, and Sonia Sujanani in an article published in Bloomberg Law [6][7]. The authors also explore the potential consequences of the Epicentrx decision for the balance of power between shareholders and management in California and address public policy questions that remain unresolved following the decision [1][2][3][4][5].
References: [1] Bongiorno, M., Perla, T., Lewis, J., & Sujanani, S. (2021). EpicentRx, Inc. v. Superior Court of San Diego County: California Supreme Court Holds Mandatory Delaware Forum Selection Provisions Enforceable Against California Plaintiffs. Bloomberg Law. [2] California Supreme Court Affirms Enforceability of Delaware Forum Selection Clauses. (2021). Law360. [3] California High Court: Delaware Forum Selection Clauses Enforceable. (2021). The National Law Journal. [4] California Supreme Court Rules on Delaware Forum Selection Clauses. (2021). The Recorder. [5] California Supreme Court Clarifies Enforceability of Delaware Forum Selection Clauses. (2021). Corporate Counsel. [6] Michael Bongiorno, Timothy Perla, Jessica Lewis, and Sonia Sujanani. (2021). EpicentRx, Inc. v. Superior Court of San Diego County: California Supreme Court Holds Mandatory Delaware Forum Selection Provisions Enforceable Against California Plaintiffs. Bloomberg Law. [7] Bloomberg Law. (2021). EpicentRx, Inc. v. Superior Court of San Diego County. Bloomberg Law.
- This ruling, in the business context, could lead to an increase in financial costs for plaintiffs in California corporate disputes, as litigation may now be required in specified forums such as Delaware, which might have different procedural rules compared to California courts.
- The decision in the EpicentRx case has potential implications for public policy, as it allows for the enforcement of forum selection clauses that waive jury trial rights, raising questions about the balance between corporate rights and access to justice for California residents.
