It was entirely predictable that last spring, after Safeway announced that it had agreed to accept a $9.2 billion offer from the private equity firm Cerberus Capital, shareholders would rush to file suits challenging the deal. As you know, shareholder M&A suits have become an inevitable consequence of merger announcements, and, to the frustration of defendants, are often brought in more than one jurisdiction — which has meant, in years past, that if defendants couldn’t persuade judges to defer to other courts, they sometimes had to defend against the same claims by multiple plaintiffs firms in multiple courts.
Defendants thought they’d at least solved the multiforum problem a year ago, when then Chancellor Leo Strine ruled in Boilermakers v. Chevron that corporations may adopt and enforce bylaws requiring shareholders to bring suits in Delaware. The plaintiffs firms that had challenged bylaws adopted by Chevron and Fedex decided not to appeal Strine’s decision to the Delaware Supreme Court, though the state justices may yet have a say on Chevron’s forum selection clause via a parallel shareholder suit that was filed in federal court in San Francisco. (U.S. District Judge William Alsup has said he may certify the bylaw validity to the Delaware Supreme Court in that case.) Under prevailing Delaware precedent, the only way forum selection bylaws wouldn’t work for Delaware corporations was if judges in other jurisdictions refused to honor the provisions.
So far, all of the out-of-state judges to consider Delaware forum selection bylaws have deferred to the provisions — with the California state judge presiding over a wing of the Safeway litigation the latest to rule that a forum bylaw is enforceable. (Sullivan & Cromwell has a client alert describing all four decisions; I first heard about the S&C memo from The Chancery Daily.)
The California ruling, by Judge Wynne Carvill of Alameda County Superior Court, is particularly good news for Delaware corporations that have adopted or are contemplating a forum selection bylaw amendment directing shareholder litigation to Chancery Court. And now lawyers for Safeway and Cerberus are using it to try to erase yet more Safeway shareholder M&A class actions in federal court. It’s worth paying attention to what happens next in this case: If the Safeway shareholder litigation turns out to be a paradigm of M&A class actions in the age of forum selection clauses, plaintiffs lawyers are going to be collecting less in deal taxes than they’re accustomed to.
Safeway’s board adopted its forum selection bylaw amendment in October 2013, after the company began exploring a sale but before any agreement with Cerberus. That deal was announced on March 6, and, almost immediately, seven shareholders sued in Delaware and four others in Alameda County. The Delaware cases were consolidated before Vice-Chancellor Travis Laster, who appointed Bernstein Litowitz Berger & Grossmann, Grant & Eisenhofer, Kessler Topaz Meltzer & Check and Saxena White as lead counsel (with another four firms as members of an “executive committee”). Safeway agreed to expedited discovery in the Delaware litigation.