Salzberg v. Sciabacucchi
| Citation | 227 A.3d 102 |
| Decision Date | 18 March 2020 |
| Docket Number | No. 346, 2019,346, 2019 |
| Parties | Matthew B. SALZBERG, Julie M.B. Bradley, Tracy Britt Cool, Kenneth A. Fox, Robert P. Goodman, Gary R. Hirshberg, Brian P. Kelley, Katrina Lake, Steven Anderson, J. William Gurley, Marka Hansen, Sharon McCollam, Anthony Wood, Ravi Ahuja, Shawn Carolan, Jeffrey Hastings, Alan Hendricks, Neil Hunt, Daniel Leff, and Ray Rothrock, Defendants Below, Appellants, and Blue Apron Holdings, Inc., Stitch Fix, Inc., and Roku, Inc., Nominal Defendants Below, Appellants, v. Matthew SCIABACUCCHI, on behalf of himself and all others similarly situated, Plaintiff Below, Appellee. |
| Court | United States State Supreme Court of Delaware |
William B. Chandler, III, Esquire (argued), Bradley D. Sorrels, Esquire, Lindsay Kwoka Faccenda, Esquire, Andrew D. Berni, Esquire, WILSON SONSINI GOODRICH & ROSATI, P.C., Wilmington, Delaware; Boris Feldman, Esquire, David J. Berger, Esquire, WILSON SONSINI GOODRICH & ROSATI, P.C., Palo Alto, California; Attorneys for Defendants-Appellants Katrina Lake, Steven Anderson, J. William Gurley, Marka Hansen, Sharon McCollam, Anthony Wood, Ravi Ahuja, Shawn Carolan, Jeffrey Hastings, Alan Hendricks, Neil Hunt, Daniel Leff, Ray Rothrock, Stitch Fix, Inc., and Roku, Inc.
Catherine G. Dearlove, Esquire, Anthony M. Calvano, Esquire, Tyre Tindall, Esquire, RICHARDS LAYTON & FINGER, P.A., Wilmington, Delaware; Michael G. Bongiorno, Esquire, WILMER CUTLER PICKERING HALE & DORR, LLP, New York, New York; Timothy J. Perla, Esquire, WILMER CUTLER PICKERING HALE & DORR, LLP, Boston, Massachusetts; Attorneys for Defendants-Appellants Matthew B. Salzberg, Julie M.B. Bradley, Tracy Britt Cool, Kenneth A. Fox, Robert P. Goodman, Gary R. Hirshberg, Brian P. Kelley, and Blue Apron Holdings, Inc.
Kurt M. Heyman, Esquire, Melissa N. Donimirski, Esquire, Aaron M. Nelson, Esquire, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware; Jason M. Leviton, Esquire, Joel A. Fleming, Esquire (argued), Lauren Godles Milgroom, Esquire, Amanda R. Crawford, Esquire, BLOCK & LEVITON LLP, Boston, Massachusetts; Attorneys for Plaintiff-Appellee Matthew Sciabacucchi.
Before SEITZ, Chief Justice; VALIHURA, VAUGHN, and TRAYNOR, Justices; and KARSNITZ, Judge,* constituting the Court en Banc.
We are asked to determine the validity of a provision in several Delaware corporations’ charters requiring actions arising under the federal Securities Act of 1933 (the "Securities Act" or "1933 Act") to be filed in a federal court. Blue Apron Holdings, Inc., Roku, Inc., and Stitch Fix, Inc. are all Delaware corporations that launched initial public offerings in 2017. Before filing their registration statements with the United States Securities and Exchange Commission (the "SEC"), each company adopted a federal-forum provision. An example of such a federal-forum provision (or "FFP") provides:
Unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring any interest in any security of [the Company] shall be deemed to have notice of and consented to [this provision].1
Appellee Matthew Sciabacucchi ("Appellee") bought shares of each company in its initial public offering or a short time later. He then sought a declaratory judgment in the Court of Chancery that the FFPs are invalid under Delaware law. The Court of Chancery held that the FFPs are invalid because the "constitutive documents of a Delaware corporation cannot bind a plaintiff to a particular forum when the claim does not involve rights or relationships that were established by or under Delaware's corporate law."2 Because such a provision can survive a facial challenge under our law, we REVERSE .
The Securities Act of 1933 requires persons offering securities for sale to the public to file a registration statement3 that makes "full and fair disclosure of relevant information."4 The 1933 Act creates private rights of action so that purchasers of securities can enforce the registration and disclosure requirements of the 1933 Act.5 Unlike some other securities laws for which there are no private rights of action, the statute provides that private plaintiffs may bring their claims under the 1933 Act in either federal or state courts.6 The statute also bars the removal of such actions from state court to federal court.7 Thus, if a plaintiff chooses to bring an action under the 1933 Act in state court, a defendant cannot change the forum.8
Section 12(a)(1)9 of the 1933 Act "imposes strict liability for violating" the securities registration requirements, which "are the heart of the Act."10 Section 1111 "allows purchasers of a registered security to sue certain enumerated parties in a registered offering when false or misleading information is included in a registration statement."12 A plaintiff who purchased a security issued under a registration statement "need only show a material misstatement or omission to establish his prima facie case."13 In addition to the issuer, other defendants, including the corporation's directors,14 are also potentially liable, although they may avoid liability by proving a due diligence defense.15
Section 12 (a)(2)16 "provides similar redress where the securities at issue were sold using prospectuses or oral communications that contain material misstatements or omissions."17 Liability under Section 12 (a)(2) extends to "statutory sellers," including a person who "passed title, or other interest in the security, to the buyer for value" or "successfully solicited the purchase of a security, motivated at least in part by a desire to serve his own financial interests or those of the securities’ owner."18 Section 15 imposes liability on an individual or entity that "controls any person liable" under Sections 11 or 12.19
Concerns over "perceived abuses of the class-action vehicle in litigation involving nationally traded securities" prompted Congress to adopt the Private Securities Litigation Reform Act in 1995 ("PSLRA").20 The provisions of the PSLRA, aimed at the "Reduction of Abusive Litigation," "limit recoverable damages and attorney's fees, provide a ‘safe harbor’ for forward-looking statements, impose new restrictions on the selection of (and compensation awarded to) lead plaintiffs, mandate imposition of sanctions for frivolous litigation, and authorize a stay of discovery pending resolution of any motion to dismiss."21 But the PSLRA 22
Some corporations preferred to litigate 1933 Act claims in federal court and began adopting forum-selection provisions that designated the federal courts as the exclusive forum for such claims.23 Each of the companies in this appeal is a Delaware corporation that launched a 2017 initial public offering. Before filing their registration statements with the SEC, each company adopted a federal-forum provision in its certificate of incorporation, designating the federal courts as the exclusive forum for the resolution of claims under the 1933 Act.
Roku's and Stitch Fix's federal-forum provisions provided:
Unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring any interest in any security of [the Company] shall be deemed to have notice of and consented to [this provision].24
Blue Apron's provision differed slightly:
Unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law , be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to [this provision].25
Appellee bought shares of common stock of each company, either in the initial public offering or a short time later. On December 29, 2017, he filed a putative class-action complaint in the Court of Chancery against the individuals who had served as the companies’ directors since they went public, and named the companies as nominal defendants. The complaint sought a declaratory judgment that the federal-forum provisions are invalid under Delaware law.
The Court of Chancery granted the motion for summary judgment. In reaching that result, the court examined its 2013 decision in Boilermakers Local 154 Retirement Fund v. Chevron Corp. ,26 this Court's 2014 decision in ATP Tour, Inc. v. Deutscher Tennis Bund ,27 federal case law, and what the Court of Chancery described as "first principles" of Delaware corporate law. The court decided that the "constitutive documents of a Delaware corporation cannot bind a plaintiff to a particular forum when the claim does not involve rights or relationships that were established by or under Delaware's corporate law."28 Because "the Federal Forum Provisions attempt to accomplish that feat," the court held that the federal-forum provisions are "ineffective and invalid."29
This Court reviews the Court of Chancery's decision to grant summary judgment de novo .30 A court may grant summary judgment only if, based on the...
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