September 23, 2021

NY Court Enforces Federal Forum Bylaw

In response to the SCOTUS’s 2018 Cyan decision upholding the ability of plaintiffs to bring Securities Act claims in state court, many companies have adopted federal form bylaws providing that federal courts will be the exclusive forum for bringing claims arising under the Securities Act.  Last year, the Delaware Supreme overruled the Chancery Court and held that these federal forum bylaws were permissible under Delaware law.  Since that time, federal forum bylaws have served as the basis for several California state courts to dismiss Section 11 claims.  Now, this recent blog from Kevin LaCroix reports that a New York court has joined them. Here’s the intro:

In an important development affirming the use of federal forum provisions (FFP) to avoid duplicative parallel state court securities lawsuits, a New York state court judge has granted the securities suit defendants’ motion to dismiss based on the FFP in the corporate defendant’s charter. The ruling appears to be the first in New York – indeed, the first outside of California – to enforce an FFP. The New York court’s enforcement of the FFP is a significant step in companies’ efforts to try to avoid the duplicative litigation problems caused by the U.S. Supreme Court’s March 2018 decision in Cyan.

Kevin points out that the decision is significant because the vast majority of the post-Cyan state court securities class action lawsuits were filed in either California or New York. If federal forum bylaws are enforceable in both of these jurisdictions, Section 11 plaintiffs may find themselves in a bit of a box.

John Jenkins