In a recent decision, Lee v. Fisher, No. 21-15923 (9th Cir. 2023), a broad panel of the U.S. Court of Appeals for the Ninth Circuit upheld the district court’s ruling to dismiss a shareholder derivative action against global retailer, The Gap, Inc. Led by plaintiff Noelle Lee, the charges alleged that the company’s embedded forum selection clause in its bylaws was in violation of the Securities Exchange Act of 1934, Delaware General Corporation Law, and public policy.
This deduction came about because the clause necessitated that all derivative actions must find themselves brought within the Delaware Court of Chancery. Lee claimed the embedded clause was in contradiction of various statutory and public interest stipulations.
However, the Ninth Circuit leaned otherwise. The broad panel, in reaffirming the lower court’s ruling, reinforced the notion that forum selection clauses – such as the one detailed in The Gap’s bylaws – can be enforced and are in compliance with legislative regulations.
In the legal terrain, this reaffirms the central role a forum selection clause can play, a key consideration for legal professionals working on corporate bylaws or shareholder agreements. Being mindful of the jurisdiction stipulated in such clauses can help avoid hefty legal battles down the line or, as in this instance, when a derivative action is at stake.