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.

Jury Trial Waiver Kills Contractual Forum Selection

Handoush v. Lease Finance Group, LLC, No. A150863 (D1d3 Oct. 31, 2019)

The right to civil jury trial in California is kind of a big deal. In this case, the Court of Appeal holds that California courts won’t enforce a venue selection provision in a contract that also contains a jury trial waiver that the selected venue would uphold. 

Read about it in full in the piece I wrote for Kirkland with my partner David Klein.

State Civil Procedure in the Shadow of the Oar of Admiralty

Korman v. Princess Cruise Lines, No. B290681 (D2d4 Feb. 14, 2019)

This is kind of interesting. Admiralty law is basically a body of federal common law. So it makes sense that, under 28 U.S.C. § 1333, federal courts have subject matter jurisdiction in admiralty cases. But that statute also has language—something called the “saving to suitors” clause—that has been read to preserve concurrent state court jurisdiction for in personam (but not in rem) admiralty cases. And while there’s some debate, many courts—including the Ninth Circuit—say the savings to suitors clause creates a procedural, but not a jurisdictional, bar to removal of admiralty cases to federal court if there’s not an independent basis for federal subject matter jurisdiction. See Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1069 (9th Cir. 2001).

Fairwell to California-Forum Going-Private Litigation

Drulias v. 1st Century Bancshares, Inc., No. H045049 (D6 Dec. 21, 2018)

Most public companies are incorporated in Delaware. Which means that, under the internal affairs doctrine, Delaware law governs the relations between the company, its officers and directors, and its stockholders. But the modern understanding of the internal affairs doctrine does not generally require litigation over those issues to be brought in the courts of the state of incorporation. Indeed, California’s codification of the doctrine in Corporations Code § 2116 specifically says that duties arising under the corporate law of out of state corporations “may be enforced in the courts of this state.” 

Part of the Delaware brand, however, is the Court of Chancery, a special court of super smart corporate law savvy judges who have the reputation of being able to resolve emergency disputes over Delaware corporate law in like three days by issuing a 300 page opinion with 523 footnotes. I have litigated there. It’s impressive. So most Delaware companies would prefer to resolve their shareholder cases in Delaware, instead of some random state court that is less laser focused on the finer points of Delaware corporate law.

Plaintiffs, however, don’t always agree. Especially when a Delaware court would likely toss a case on the pleadings. So Delaware companies started amending their bylaws to require shareholder disputes to be litigated in Delaware courts. And several years ago Delaware’s courts—ever protective of their brand—held that was a valid thing to do. But up till now no published California decision had addressed whether a Delaware forum selection bylaw was adequate to curtail litigation that was nonetheless filed in California state court.

The Court of Appeal does so here. It explains that the enforcibility of the forum selection is an issue of Delaware law, which has been resolved. Nor are there any valid reasons for a California court to refrain from honoring that selection. Although § 2116 permits California courts to assume jurisdiction over cases arising under the corporate law of other states, it does not give stockholders an absolute right to litigate here. Nor are there any fairness concerns that overwhelm the bylaw’s choice of Delaware forum. When an investor decides to invest in a Delaware corporation, it is perfectly reasonable for him or her to expect that the corporation will require shareholder disputes to be resolved in the Courts of the jurisdiction that best knows the law that governs the dispute.

Affirmed.

Employer: Texas Venue Same as Calfironia (Yeah, that's the Ticket ...)

Verdugo v. Alliantgroup, L.P. No. G049139 (D4d3 as modified June 25, 2015)

Plaintiff, a Californian, is suing her Texas-headquartered employer. Plaintiff’s employment contract has a Texas choice of law and lays venue in Austin. But Plaintiff’s wage-and-hour claims arise from California statutes that can’t be waived. Under the circumstances, the usual presumption—that a court will enforce a contractual choice of venue—gets reversed. The venue provision will only be enforced if the moving party can show that the contractual venue will not diminish Plaintiff’s unwaivable statutory rights in any way.

In assessing whether Defendant met its burden, the court of appeal here pauses to part company with Hall, v. Superior Court, 150 Cal. App. 3d 411, 416 (1983) and America Online, Inc. v. Superior Court, 90 Cal. App. 4th 1, 11 (2001), which hold that the analysis does not entail a comparison between California law and the substantive law of the contractual state. Even given, however, that a moving party can meet its burden by showing that the contractual forum would definitely apply California law or identical standards under its own state law, Defendant didn’t satisfy that burden here. The most it would say was that a Texas court would probably apply California law. But Defendant also “carefully preserved its ability to argue to a Texas court that it should apply Texas law,” and even “hinted at its intention to do so by seeking to downplay the significance of the statutory rights [plaintiff] seeks to enforce through this action.” Moreover, Defendant did not establish that substantive Texas law affords statutory rights identical to the California Labor Code provisions on which plaintiff’s suit is based.

Reversed.