Amici Curiae Brief of Professors Joseph A. Grundfest and Mohsen Manesh in Lee v. Fisher (Ninth Circuit En Banc) with Concurring Letter from Former Delaware Chief Justices, Justices, Chancellors, and Vice Chancellors
35 Pages Posted: 30 Nov 2022
Date Written: November 28, 2022
In Lee v. Fisher, a unanimous Ninth Circuit panel upheld enforcement of a forum selection bylaw requiring that derivative shareholder claims be filed in Delaware state court, even if the provision effectively precludes derivative shareholder suits under Section 14(a) of the Securities Exchange Act of 1934. Lee creates a circuit split with a divided Seventh Circuit panel in Seafarers Pension Plan v. Bradway, which only months earlier refused to enforce an identical forum selection provision.
This brief, filed in connection with the Ninth Circuit’s en banc review of Lee, argues that, as a foundational matter, there is no private right of action to bring a derivative claim under Section 14(a). A derivative Section 14(a) claim is implied, not express. It is a creature of the judicial imagination rooted in the dicta of J. I. Case Co. v. Borak, not in any Supreme Court holding. The federal derivative remedies duplicate state law remedies, and the federal claim itself must look to state law for its very existence, as well as for the definition of its critical metes and bounds. The Supreme Court commands that implied private rights be narrowly construed. Enforcing an implied private right based on dicta that generate redundant remedies in a cause of action that is existentially contingent on state law, not on federal law, is not narrow construction. It is sprawling overreach. Plaintiffs thus have no standing to pursue an implied derivative Section 14(a) claim, and the court need not even address the enforceability of the forum selection provision.
But even if the implied right is recognized, the forum selection provision should be enforced. The Delaware Supreme Court’s recent decision in Salzberg v. Sciabaccucci establishes that DGCL Section 115 is irrelevant to a corporate forum provision governing Section 14(a) claims. Indeed, Salzberg confirms that the defendant-corporation’s forum provision, directing all derivative lawsuits to the courts of Delaware, is both valid and enforceable against shareholders.
Appended to the brief is a letter from Former Delaware Chief Justices, Justices, Chancellors, and Vice Chancellors concurring with amicis’ interpretations of Delaware law.
Keywords: Corporate Law, Securities Law, Contract Law, Delaware, Securities Regulation, Securities Exchange Act, Securities Litigation
JEL Classification: K12, K22, K23, G38
Suggested Citation: Suggested Citation