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Federal Courts Need Not Honor Delaware Venue-Choice Bylaw, judge says

Publication Date: 
January 17, 2011
Source: 
Westlaw News & Insight
Author: 
Frank Reynolds

Professor Joseph A. Grundfest is quoted in the following article on corporate governance. Frank Reynolds reports: In a first-of-its-kind decision, a federal judge in San Francisco has refused to enforce Oracle Corp.'s bylaw that requires all shareholder derivative litigation against the software giant to be brought in the Delaware Chancery Court.

U.S. District Judge Richard Seeborg said federal courts need not be swayed by such venue-choice bylaws that are based on state law, especially where, as here, they were unilaterally adopted by directors who were involved in the alleged wrongdoing that is the subject of the affected litigation.

The order issued by the Northern District of California judge rebuffed Oracle’s bid to dismiss two related shareholder suits that claimed its officers and directors allowed fraudulent practices that exposed the company to charges by the federal government.

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Former Securities and Exchange Commission member Joseph Grundfest promoted the idea last fall in an address to Delaware's bench and bar.

Grundfest, now a Stanford Law School professor and renowned securities law expert, said corporate governance cases lag behind contract and employment law, where agreements commonly specify the court that will decide disputes.