Va. House of Delegates Passes Bill Authorizing Exclusive Forum Selection Bylaws

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By Yin Wilczek

Feb. 4 — The Virginia House of Delegates has passed a bill—HB 1878—that would allow corporations to adopt bylaws designating Virginia or the jurisdiction in which they have their principal office as the sole forum for derivative and other actions.

The House passed the bill Jan. 28 with 98 votes, with no members voting against it or abstaining. It has been referred to the Senate Committee on Commerce and Labor.

Virginia is among several states that are considering the issue of corporate bylaws that limit shareholder lawsuits. Last year, Oklahoma became the first state to adopt a law mandating the shifting of fees in derivative actions. 

Meanwhile, the Delaware General Assembly is expected by May or June to limit the scope of fee-shifting bylaws after the state Supreme Court concluded in ATP Tour Inc. v. Deutscher Tennis Bund that such bylaws may be valid and enforceable. 

Scope of Lawsuits 

The Virginia bill—sponsored by Del. Terry Kilgore (R-Scott)—would allow companies to adopt forum selection bylaws with respect to:

• any derivative action brought on the company's behalf;

• any action alleging the breach of duties by current or former officers and directors; or

• any action against the company or former or current officers and directors arising under the Virginia Code relating to stock and nonstock corporations.

 

The bill also contains a multitude of other corporate governance revisions. It would establish procedural requirements for lawsuits on matters related to elections, voting and the appointment and removal of officers and directors, and address the qualifications for nomination to and membership on boards.

While the bill seems likely to pass the Senate, given the margin in the House, Stanford law professor Joseph Grundfest told Bloomberg BNA that the legislation is unlikely to constitute a major shift in the law for at least two reasons.

“First, its effect seems to be limited to corporations that are chartered and headquartered in Virginia,” which is not a huge slice of corporate market capitalization, Grundfest said. “Second, the courts appear to be reaching the conclusion that forum selection provisions are enforceable all on their own, without a need for express statutory recognition of that fact.”

Delaware courts, among others, have generally OK'd exclusive forum selection clauses.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The bill is available at http://lis.virginia.gov/cgi-bin/legp604.exe?151+ful+HB1878E+hil.