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CALIFORNIA CORPORATE & SECURITIES LAW

Enforceability Of Exclusive Forum Bylaw May Hinge On The Meaning Of “May”

No California appellate court has yet addressed the validity of forum selection bylaws in a published decision.  When the question comes before a California appellate court, the outcome may turn on the meaning of “may” in California Corporations Code Section 2116.  The statute in its entirety provides:

The directors of a foreign corporation transacting intrastate business are liable to the corporation, its shareholders, creditors, receiver, liquidator or trustee in bankruptcy for the making of unauthorized dividends, purchase of shares or distribution of assets or false certificates, reports or public notices or other violation of official duty according to any applicable laws of the state or place of incorporation or organization, whether committed or done in this state or elsewhere. Such liability may be enforced in the courts of this state.

The last sentence clearly confers jurisdiction on the courts of California with respect to actions against directors of foreign corporations.  The question therefore is whether a foreign corporation is able divest the California courts of this jurisdiction by adopting an exclusive forum bylaw.  Section 2116 does not expressly prohibit waivers of the right to enforce claims against directors in California.  On the other hand, the legislature did not include the phrase “except as otherwise provided by the articles or bylaws” as it did in other sections of the General Corporation Law.  See, e.g., Cal. Corp. Code § 312(b).   In addition, a plaintiff seeking to litigate in a California court may cite Section 3513 of the California Civil Code that provides:

Any one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.

It will be interesting to see if and how the courts interpret Section 2116 in light of Section 3513.

 

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