Get thee to (Federal) Court

Wong v. Restoration Robotics, No. A161489 (D1d2 Apr. 28, 2022).

In Cyan, Inc. v. Beaver County Employees Retirement Fund, 138 S.Ct. 1061 (2018), the U.S. Supreme Court confirmed that claims brought under the federal Securities Act of 1933 can be brought in both state and federal court, and if brought in the former, are not removable. ’33 Act claims are the most common vehicle used for challenging disclosures made in connection with IPOs, so Bay Area courts—San Mateo Superior in particular—see a lot of them.

Companies reacted to Cyan by adding provisions to their articles of incorporation requiring that, notwithstanding Cyan, suits need to be brought in federal, not state, courts. Because a company’s articles are treated like a contract between it and its stockholders, these “federal forum provisions,” which the Court here calls FPP’s, are basically treated like contractual forum selection clauses, which are, in most instances, enforceable under California state law. And notably, in 2020, the Supreme Court of Delaware —where most of IPO’ing companies are incorporated—determined that FPP’s are an appropriate term to include in a corporation’s articles under Delaware state law. See Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. 2020).

The trial court here initially denied a forum nonconveniens motion. But after Salzberg, it granted a renewed motion, finding that the FPP in the defendant’s charter was enforceable. Plaintiff appealed. But the Court of Appeal affirms, rejecting a grab bag of challenges under state law, the ’33 Act, and the commerce clause of the U.S. Constitution. That stuff is mostly outside the scope for me. But this case clearly stands for the proposition that when parties have a legit choice between a state and federal forum, they can enforcibly chose one or the other in a contract. Even a contract that's basically foisted on one of the parties such as a corporation’s articles.

Affirmed.