Corporate Governance, Collective Action, and Contractual Freedom: Justifying Delaware's New Restrictions on Private Ordering

56 Pages Posted: 2 Aug 2016 Last revised: 10 Aug 2017

See all articles by Jonathan Rohr

Jonathan Rohr

University of Tennessee, Knoxville, College of Law (deceased)

Date Written: February 1, 2017


Prior to the 2015 amendments to the Delaware General Corporation Law, fee-shifting and forum selection provisions held much promise for Delaware corporations that sought to limit their exposure to a rising tide of multi-jurisdictional shareholder litigation. With the 2015 amendments, however, the Delaware legislature significantly restricted the ability of the state’s corporations to include fee-shifting and forum selection provisions in their organizational documents and, in doing so, repudiated a series of cases upholding the inclusion of such provisions in corporate bylaws. Delaware corporations can no longer include fee-shifting provisions in their organizational documents; forum selection provisions are acceptable, but only if they allow litigation to proceed in Delaware. For a business-friendly jurisdiction that generally favors contractual freedom and private ordering, this was an extraordinary step. Some commentators have looked to interest group politics and the influence of the Delaware bar as an explanation; others have argued that this issue has exposed flaws with Delaware’s longstanding contractual view of the corporation.

This Article takes a different approach to Delaware’s new restrictions on private ordering by focusing on the effect that fee-shifting and non-Delaware forum selection provisions would have on the benefits that result from having public adjudication of shareholder disputes in the Delaware courts. It argues that as to these benefits, such provisions present a collective action problem and that Delaware’s new limitations on private ordering are best seen as a preventative measure. This is not to say that Delaware should have ignored the detrimental trends in shareholder litigation. Instead, that task has appropriately fallen to the Delaware courts, which have adopted a new, more skeptical stance toward the settlement practices that drove the crisis. Together, Delaware’s new legislation and its new approach to the settlement of shareholder litigation strike an appropriate balance between the need to address the recent explosion in frivolous, multi-jurisdictional filings and the importance of maintaining the benefits that come from the adjudication of shareholder disputes.

Suggested Citation

Rohr, Jonathan, Corporate Governance, Collective Action, and Contractual Freedom: Justifying Delaware's New Restrictions on Private Ordering (February 1, 2017). 41 Del. J. Corp. L. 803 (2017), Available at SSRN:

Jonathan Rohr (Contact Author)

University of Tennessee, Knoxville, College of Law (deceased)

1505 West Cumberland Avenue
Knoxville, TN 37996
United States

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