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Date: 12-26-2018

Case Style: Dean Drulias v. 1st Century Bancshares, Inc.

Case Number: H045049

Judge: Elia, Acting P.J.

Court: California Court of Appeals Second Appellate District, Division Four on appeal from the Superior Court, County of Los Angeles

Plaintiff's Attorney: Kirk Bartlett Hulett and John F. Keating, Jr.

Defendant's Attorney: Adam Seth Paris and Laura Kabler Oswell

Description: 1st Century Bancshares, Inc. (1st Century) was a Delaware corporation
headquartered in Los Angeles, California, whose shares were publicly traded on
the NASDAQ. On March 10, 2016, 1st Century and Midland Financial Co. (Midland)
announced plans to merge. The merger agreement called for Midland to acquire 1st
Century for $11.22 in cash per share, a 36.3 percent premium over 1st Century’s closing
share price on March 10, 2016. The merger was subject to approval by the holders of a
majority of 1st Century’s outstanding shares. A shareholder vote on the proposed merger
agreement was scheduled for June 20, 2016.
1st Century’s certificate of incorporation authorized its board of directors
“to adopt, alter, amend or repeal” the company’s bylaws, “subject to the power of the
stockholders of the Corporation to alter or repeal any Bylaws whether adopted by them or
otherwise.” 1st Century’s board of directors exercised its power to amend the bylaws at
the time it approved the merger agreement. The board added a forum selection bylaw
providing that, absent the corporation’s written consent, Delaware is “the sole and
exclusive forum for” intra-corporate disputes, including any action asserting a breach of
fiduciary duty claim.
2
2 The forum selection bylaw provides, in full: “Unless the Corporation consents in
writing to the selection of an alternative forum, the Court of Chancery of the State of
Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district
court for the District of Delaware) shall be the sole and exclusive forum for (i) any
derivative action or proceeding brought on behalf of the Corporation, (ii) any action
asserting a claim of breach of a fiduciary duty owed by any director, officer, other
employee or stockholder of the Corporation to the Corporation or the Corporation’s
stockholders, (iii) any action asserting a claim arising pursuant to any provision of the
DGCL or the Certificate of Incorporation or these Bylaws or as to which the DGCL
confers jurisdiction on the Court of Chancery of the State of Delaware, (iv) any action to
interpret, apply, enforce or determine the validity of the Certificate of Incorporation or
these Bylaws or (v) any action asserting a claim governed by the internal affairs doctrine.
Any person 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 the
provisions of this Section 5 of this Article VII of these Bylaws. [¶] If any provision or
provisions of this Section 5 of this Article VII of these Bylaws shall be held to be invalid,
illegal or unenforceable as applied to any person or circumstance for any reason
whatsoever, then, to the fullest extent permitted by law, the validity, legality and
enforceability of such provision(s) in any other circumstance and of the remaining
provisions of this Section 5 of this Article VII of these Bylaws (including, without
limitation, each portion of any sentence of this Section 5 of this Article VII of these
2

Drulias is a California resident and a 1st Century shareholder. On May 3, 2016, he
filed a putative class action on behalf of all holders of 1st Century’s common stock
against 1st Century and its directors (the director defendants). The complaint alleged that
1st Century and the director defendants (collectively, the 1st Century defendants)
breached their fiduciary duties in connection with their approval of the merger
agreement. Pursuant to a stipulation between the parties, the court, on May 24, 2016,
ordered the 1st Century defendants to respond to the complaint on or before July 1, 2016.
On May 25, 2016, Drulias filed an application for a preliminary injunction
enjoining the closing of the shareholder vote on the merger until curative disclosures
were made to shareholders. The 1st Century defendants opposed that application on June
6, 2016. They argued that the forum selection bylaw required Drulias’s claims to be
litigated in Delaware and that Drulias’s claims lacked merit.
On June 9, 2016, the court entered an order deeming the case complex and staying
discovery. That order set a Case Management Conference for September 2, 2016 and
ordered that parties not to “file or serve responsive pleadings, including . . . motions for
change of venue . . . until a date is set at the First Case Management Conference for such
filings and hearings.”
Drulias and the 1st Century defendants reached a proposed settlement, which they
memorialized in a stipulation of settlement dated June 10, 2016. Under the terms of the
proposed settlement agreement, 1st Century agreed to make supplemental disclosures to
the SEC and its shareholders in connection with the merger agreement and to pay
Drulias’s counsel $400,000 in exchange for the settlement and release of the putative
class’s merger-related claims.
Bylaws containing any such provision held to be invalid, illegal or unenforceable that is
not itself held to be invalid, illegal or unenforceable) and the application of such
provision to other persons and circumstances shall not in any way be affected or impaired
thereby.”
3

Shareholders approved the merger on June 20, 2016.
The trial court declined to approve the stipulation of settlement on November 21,
2016. The court reasoned that the settlement was not fair and reasonable to the putative
class because the supplemental disclosures were not plainly material, such that they were
of minimal value to the class and did not justify the release of all claims associated with
the merger.
The parties submitted a joint Case Management Conference statement on
December 22, 2016. In it, they indicated that Drulias intended to file a first amended
complaint and proposed a January 13, 2017 deadline for that filing. The parties also
informed the court that the 1st Century defendants might “file a motion to stay or dismiss
for forum non conveniens” and proposed a February 10, 2017 deadline for such a motion.
The court adopted the parties’ proposed briefing schedule at a January 6, 2017 hearing.
Drulias’s first amended complaint, filed on January 13, 2017, added Sandler
O’Neill & Partners, L.P. (Sandler), the investment bank that advised 1st Century in
connection with the merger, as a defendant. Like the original complaint, the first
amended complaint asserted breach of fiduciary duty claims against the 1st Century
defendants; it also included an aiding and abetting the breach of fiduciary duties claim
against Sandler.
On February 10, 2017, the 1st Century defendants filed a motion to dismiss
pursuant to sections 410.30 and 418.10, arguing that the forum selection bylaw requires
Drulias’s claims be litigated in Delaware. Following briefing and a hearing, the trial
court declined to dismiss the action but stayed it under section 410.30. Drulias timely
appealed from that order.
II. DISCUSSION
A. Background and Governing Law
Unilaterally adopted forum selection bylaws have become increasingly popular in
recent years. (Boilermakers Local 154 Retirement Fund v. Chevron Corp. (Del.
4
Ch. 2013) 73 A.3d 934, 944, fn. omitted (Boilermakers) [“in the last three years, over 250
publicly traded corporations have adopted such provisions”].) In Boilermakers, the
Delaware Court of Chancery ruled that such bylaws are facially valid under Delaware
law. Their enforceability has been litigated across the country,3 but California state
courts have yet to consider the issue.
The parties agree that Delaware law governs Drulias’s breach of fiduciary duty
claims under the internal affairs doctrine, which “generally requires application of the
law of the state of incorporation to any dispute regarding relations between the
corporation and its shareholders or officers and directors.” (The Police Retirement
System of St. Louis v. Page (2018) 22 Cal.App.5th 336, 340.) They also agree that the
issue of the forum selection bylaw’s validity is governed by Delaware law.
(Boilermakers, supra, 73 A.3d at p. 938 [“a foreign court that respects the internal affairs
doctrine, as it must, when faced with a motion to enforce the bylaws will consider, as a
first order issue, whether the bylaws are valid under the ‘chartering jurisdiction’s
domestic law,’ ” fns. omitted].) And Drulias does not contest the bylaw’s validity under
Delaware law. At issue is whether California law renders the otherwise valid bylaw
unenforceable in this state.
B. Legal Principles
The proper procedure for enforcing a contractual forum selection clause in
California is a motion pursuant to section 410.30.4
(Berg v. MTC Electronics
3 See Roberts v. TriQuint Semiconductor, Inc. (2015) 358 Or. 413 (Roberts)
[holding forum selection bylaw enforceable under Oregon law]; North v.
McNamara (S.D. Ohio 2014) 47 F.Supp.3d 635 (North) [holding forum selection bylaw
enforceable under federal law]; Butorin on behalf of KBR Inc. v. Blount (S.D. Tex. 2015)
106 F.Supp.3d 833 [same]. 4 Section 410.30, subdivision (a), provides: “When a court upon motion of a party
or its own motion finds that in the interest of substantial justice an action should be heard
in a forum outside this state, the court shall stay or dismiss the action in whole or in part
on any conditions that may be just.”
5

Technologies (1998) 61 Cal.App.4th 349, 358 (Berg).) That provision codifies the forum
non conveniens doctrine, under which a trial court has discretion to decline to exercise its
jurisdiction over a cause of action that it believes may be more appropriately and justly
tried elsewhere. (Bushansky v. Soon-Shiong (2018) 23 Cal.App.5th 1000, 1005, fn. 2;
see Stangvik v. Shiley Inc. (1991) 54 Cal.3d 744, 751.) Where a section 410.30 motion is
“based on a forum selection clause[,] . . . factors that apply generally to a forum non
conveniens motion do not control . . . .” (Berg, supra, at p. 358.) Instead, “the test is
simply whether application of the clause is unfair or unreasonable[; if not,] the clause is
usually given effect. Claims that the previously chosen forum is unfair or inconvenient
are generally rejected.” (Ibid.)
Ordinarily, the party seeking to avoid enforcement of a forum selection clause
bears the “burden of establishing that [its] enforcement . . . would be unreasonable.”
(Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 496 (Smith,
Valentino); Global Packaging, Inc. v. Superior Court (2011) 196 Cal.App.4th 1623, 1633
[“the party opposing its enforcement bears the ‘substantial’ burden of proving why it
should not be enforced”].) “That burden, however, is reversed when the claims at issue
are based on unwaivable rights created by California statutes. In that situation, the party
seeking to enforce the forum selection clause bears the burden to show litigating the
claims in the contractually-designated forum ‘will not diminish in any way the
substantive rights afforded . . . under California law.’ ” (Verdugo v. Alliantgroup, L.P.
(2015) 237 Cal.App.4th 141, 147 (Verdugo).) Drulias’s breach of fiduciary duty claims
are not based on unwaivable rights created by California statutes. Accordingly, the
burden is his.
C. Standards of Review
This appeal requires us to resolve the parties’ conflicting constructions
of Corporations Code section 2116. We review questions of statutory interpretation de
6
novo. (California Building Industry Assn. v. State Water Resources Control Bd. (2018) 4
Cal.5th 1032, 1041.)
This appeal also requires us to review the trial court’s decision to enforce the
forum selection bylaw and stay the action under section 410.30. In Lifeco Services Corp.
v. Superior Court (1990) 222 Cal.App.3d 331, 334 (Lifeco), this court applied the
substantial evidence standard of review to the trial court’s finding that enforcement of a
forum selection clause would be unreasonable. Lifeco selected the substantial evidence
standard without explanation or citation to legal authority. The Third Appellate District
agreed with that standard of review in Cal-State Business Products & Services, Inc. v.
Ricoh (1993) 12 Cal.App.4th 1666, 1680-1681 (Cal-State), reasoning that courts lack
discretion to enforce a forum selection clause where the requirements for invalidating a
binding contract are present. By contrast, our colleagues in the First, Second, and Fourth
Appellate Districts review a trial court’s decision to enforce or not enforce a forum
selection clause for abuse of discretion. (America Online, Inc. v. Superior Court (2001)
90 Cal. App. 4th 1, 7-9 (America Online); Schlessinger v. Holland America (2004) 120
Cal.App.4th 552, 557; Verdugo, supra, 237 Cal. App. 4th at p. 148.) Notably, in Smith,
Valentino, our Supreme Court concluded “that the trial court acted within its discretion”
when it stayed the proceeding based on a contractual forum selection clause, suggesting
that the proper standard of review is abuse of discretion and casting doubt on this court’s
selection of the substantial evidence standard in Lifeco. (Smith, Valentino, supra, 17
Cal.3d at p. 493.)
At least one court reviewing a decision under section 410.30 combined the
standards, reviewing the trial court’s order for abuse of judicial discretion, which it
defined as an order unsupported by substantial evidence (Bechtel Corp. v. Industrial
Indem. Co. (1978) 86 Cal.App.3d 45, 47-48 (Bechtel).) Bechtel is not alone in
recognizing that the “two standards bear a reciprocal relationship” in some cases.
(Department of Parks & Recreation v. State Personnel Bd. (1991) 233 Cal.App.3d 813,
7
831 (Department of Parks & Recreation); In re Robert L. (1993) 21 Cal.App.4th 1057,
1065-1066 [noting that “it is difficult to distinguish between application of the
sufficiency of the evidence standard and the abuse of discretion standard” and that “in
some cases the courts have applied both standards”].)
“The practical differences between the [substantial evidence and abuse of
discretion] standards of review are not significant. ‘[E]valuating the factual basis for an
exercise of discretion is similar to analyzing the sufficiency of the evidence for the
ruling.’ ” (In re Jasmine D. (2000) 78 Cal.App.4th 1339, 1351.) And “[b]oth of these
standards of review entail considerable deference to the fact-finding tribunal.”
(Department of Parks & Recreation, supra, 233 Cal.App.3d at p. 831.) We need not
resolve which standard of review applies because the trial court’s order must be sustained
under either.
D. The Forum Selection Bylaw Does Not Conflict With California Law or
Public Policy
Drulias argues the forum selection bylaw is not enforceable under California law
because it conflicts with section 2116 of the Corporations Code. That provision states:
“The directors of a foreign corporation transacting intrastate business are liable to the
corporation, its shareholders, creditors, receiver, liquidator or trustee in bankruptcy for
the making of unauthorized dividends, purchase of shares or distribution of assets or false
certificates, reports or public notices or other violation of official duty according to any
applicable laws of the state or place of incorporation or organization, whether committed
or done in this state or elsewhere. Such liability may be enforced in the courts of this
state.” Drulias construes the second sentence of Corporations Code section 2116—“Such
liability may be enforced in the courts of this state”—as conferring on California
shareholders a right to sue the directors of a foreign corporation in California. Drulias
argues the director-adopted forum selection bylaw should be held unenforceable because
its enforcement would deprive him of his statutory “right” to a California forum. For that
8
argument, he relies on the rule that “a forum selection clause will not be enforced if to do
so would bring about a result contrary to the public policy of this state.” (Intershop
Communications AG v. Superior Court (2002) 104 Cal.App.4th 191, 200; see (America
Online, supra, 90 Cal.App.4th at p. 15 [refusing to enforce forum selection and related
choice of law provisions where their enforcement “would necessitate a waiver of the
statutory remedies of the CLRA, in violation of that law’s antiwaiver provision (Civ.
Code, § 1751) and California public policy”]; (Verdugo, supra, 237 Cal.App.4th at p. 157
[refusing to enforce forum selection and choice of law clause where party seeking
enforcement failed to show that enforcement would not diminish plaintiff’s unwaivable
statutory rights under the Labor Code]). For the following reasons, Drulias’s
construction of Corporations Code section 2116 is unpersuasive.
Corporations Code section 2116 codifies the internal affairs doctrine, which we
discussed briefly above. (Vaughn v. LJ Internat., Inc. (2009) 174 Cal.App.4th 213, 222
(Vaughn).) That doctrine “ ‘is a conflict of laws principle which recognizes that only one
State should have the authority to regulate a corporation’s internal affairs—matters
peculiar to the relationships among or between the corporation and its current officers,
directors, and shareholders—because otherwise a corporation could be faced with
conflicting demands.’ [Citations.] ‘States normally look to the State of a business’
incorporation for the law that provides the relevant corporate governance general
standard of care.’ [Citation.]” (State Farm Mutual Automobile Ins. Co. v. Superior
Court (2003) 114 Cal.App.4th 434, 442.) “Earlier cases took the strict view that a court
would not entertain an action involving the internal affairs of a foreign corporation.”
(9 Witkin, Summary of Cal. Law (11th ed. 2018) Corporations, § 252, p. 1041.) One
such case is Southern Sierras Power Co. v. Railroad Com. (1928) 205 Cal. 479, 483, in
which our Supreme Court explained that “courts will refuse to exercise visitatorial
powers over foreign corporations, or interfere with the management of their strictly
internal affairs. [Citations.] Such matters must be settled by the courts of the state
9
creating the corporation.” However, under the modern version of the internal affairs
doctrine, “a court will exercise jurisdiction [over an action involving the internal affairs
of a foreign corporation] unless it is an inappropriate or inconvenient forum for the trial
of the action.” (9 Witkin, Summary of Cal. Law, supra, Corporations, § 252, p. 1041;
see 2 Witkin, Cal. Proc. (5th ed. 2008) Jurisdiction § 388, pp. 1031-1032 [“The modern
view . . . appears to be that the subject matter (internal affairs) is not in itself a sufficient
reason for refusing jurisdiction”].)
As the parties acknowledge, the first sentence of Corporations Code section 2116
codifies the internal affairs doctrine by requiring the application of the law of the state of
incorporation in certain actions against directors of a foreign corporation involving the
corporation’s internal affairs. (As noted, the parties agree that portion of the provision
requires the application of Delaware law to Drulias’s claims, wherever they are
adjudicated.) But the provision’s second sentence also codifies an aspect of the internal
affairs doctrine—namely, the modern version “of the common law doctrine, whereby a
court will entertain an action involving the internal affairs of a foreign corporation.”
(Vaughn, supra, 174 Cal.App.4th at p. 223 [“section 2116 codifies the modern view of
the common law doctrine . . .”].) That is, the portion of Corporations Code section 2116
on which Drulias relies merely codifies the modern view of the internal affairs doctrine
under which courts will not decline to exercise jurisdiction over cases merely because
they involve the internal affairs of a foreign corporation. However, nothing in the
provision requires a California court to exercise jurisdiction over such a case where it
finds “that in the interest of substantial justice [the] action should be heard in” another
forum. (§ 410.30, subd. (a).) Put differently, Corporations Code section 2116 does not
deprive a court of the discretion to decline to exercise its jurisdiction over an action
involving the internal affairs of a foreign corporation where that action would be more
appropriately and justly tried elsewhere. (Rest.2d Conf. of Laws § 313 [under the
internal affairs doctrine, “[a] court will exercise jurisdiction over an action involving the
10
internal affairs of a foreign corporation unless it is an inappropriate or an inconvenient
forum for the trial of the action,” italics added].)
Drulias’s contrary view that Corporations Code section 2116 “was enacted to
protect California shareholders from misconduct by directors of foreign corporations . . .
by giving them the right to sue such directors in California” finds no support in case law
or other binding authority. In short, there is no basis for concluding that Corporations
Code section 2116 creates substantive rights. Accordingly, Drulias has not shown that
enforcement of the forum selection bylaw will impair his statutory rights or otherwise
violate California public policy.
E. The Trial Court Did Not Err in Concluding That Enforcement of the
Forum Selection Bylaw is Reasonable in This Case
Drulias contends the trial court erred in concluding that enforcement of the forum
selection bylaw is fair and reasonable in the context of this case for three reasons: (1) the
manner in which the bylaw was adopted—unilaterally by the board without notice to
shareholders—renders its enforcement unreasonable; (2) the timing of the adoption of the
forum selection bylaw—simultaneous with the adoption of the merger agreement—
makes its application to his complaint unreasonable; and (3) the 1st Century defendants’
decision to seek entry of a final judgment in California makes their later decision to
enforce the forum selection bylaw unreasonable. For the reasons below, the trial court
did not err in concluding that Drulias failed to carry his burden of establishing that
enforcement of the forum selection bylaw is unreasonable.
First, Drulias maintains forum selection clauses are enforceable in California only
where they are “freely and voluntarily” negotiated or, at the very least, the plaintiff had
the opportunity to walk away from negotiations rather than agree to the provision. He
says that, accordingly, we should decline to enforce the forum selection bylaw, given the
board adopted it without shareholder approval. In the context of forum selection clauses,
enforcement is considered unreasonable where “the forum selected would be unavailable
11
or unable to accomplish substantial justice” or there is no “rational basis” for the selected
forum. (CQL Original Products, Inc. v. National Hockey League Players’ Assn. (1995)
39 Cal.App.4th 1347, 1354 (CQL).) Drulias does not assert any of those conventional
grounds for denying enforcement. Indeed, when Drulias’s “reasonableness”
characterization is stripped away, his first argument is simply that the bylaw is invalid
under California law. But, of course, the validity inquiry is governed by Delaware law.
In any event, Drulias’s argument fails, as neither California nor Delaware law requires
forum selection clauses be freely negotiated to be enforceable.
A forum selection clause need not be subject to negotiation to be enforceable.
(Net2Phone, Inc. v. Superior Court (2003) 109 Cal.App.4th 583, 588-589 [applying
California law]; Hornberger Mgmnt. Co. v. Haws & Tingle General Contractors,
Inc. (Del. Super. Ct. 2000) 768 A.2d 983, 987, fn. omitted [applying Delaware law and
holding that “ ‘[t]he mere absence of negotiation over a forum selection clause does not
make the forum selection clause unenforceable.’ ”]; Carnival Cruise Lines, Inc. v.
Shute (1991) 499 U.S. 585, 593 (Carnival Cruise) superseded by statute on other grounds
by 46 U.S.C. § 30509 [applying federal law and rejecting lower court’s conclusion “that a
nonnegotiated forum-selection clause in a form ticket contract is never enforceable
simply because it is not the subject of bargaining”].) Rather, a forum selection clause
contained in a contract of adhesion, and thus not the subject of bargaining, is
“enforceable absent a showing that it was outside the reasonable expectations of the
weaker or adhering party or that enforcement would be unduly oppressive or
unconscionable.” (Furda v. Superior Court (1984) 161 Cal.App.3d 418, 426; Carnival
Cruise, supra, at p. 595 [“forum-selection clauses contained in form passage contracts are
subject to judicial scrutiny for fundamental fairness”].)
The forum selection bylaw is entirely consistent with Drulias’s reasonable
expectations at the time he chose to purchase stock in 1st Century. At that time, Drulias
knew or should have known that 1st Century was a Delaware corporation and that,
12
consistent with Delaware law5
, its certificate of incorporation empowered its directors to
amend the corporate bylaws unilaterally, subject to subsequent shareholder repeal.
(See Roberts, supra, 358 Or. at p. 428 [“When purchasing stock in a Delaware
corporation, shareholders buy into a legal framework that allows corporate directors to
unilaterally amend the corporation’s bylaws and gives the shareholders the right to repeal
those bylaws.”]; North, supra, 47 F.Supp.3d at pp. 642, fn. omitted [“shareholders . . .
consented to the Delaware corporate framework by buying shares in a Delaware
corporation and agreeing to the certificate of incorporation that allowed the board to
unilaterally adopt bylaws”].) Given that knowledge, Drulias consented to the board’s
unilateral adoption of corporate bylaws by purchasing stock. (Boilermakers, supra, 73
A.3d at p. 956 [“stockholders have assented to a contractual framework established by
[Delaware law] and the certificates of incorporation that explicitly recognizes that
stockholders will be bound by bylaws adopted unilaterally by their boards. Under that
clear contractual framework, the stockholders assent to not having to assent to boardadopted
bylaws”], fns. omitted.) And Drulias reasonably should have expected that 1st
Century would prefer to litigate in Delaware. (See Cal-State, supra, 12 Cal.App.4th at
p. 1681-1682 [forum selection clause requiring litigation in New York was within
plaintiff’s reasonable expectations where defendant was domiciled in New Jersey]; CQL,
supra, 39 Cal.App.4th at p. 1355 [forum selection clause requiring litigation in Ontario,
Canada held to be “completely consistent with the reasonable expectations of [plaintiff]
given that [defendant] is an Ontario, Canada domiciliary . . .”].) Thus, the reasonable
expectation a stockholder like Drulias should have is that 1st Century’s board may adopt
a forum selection bylaw designating Delaware as the exclusive forum for intra-corporate
disputes. Drulias does not show that enforcement of the bylaw would be unduly
5 Delaware law “allows the corporation, through the certificate of incorporation, to
grant the directors the power to adopt and amend the bylaws unilaterally.”
(Boilermakers, supra, 73 A.3d at p. 939, fn. omitted.)
13

oppressive or unconscionable. To the contrary, we agree with the trial court’s assessment
that there is “no unfairness in a requirement that claims against a Delaware corporation
under Delaware law be brought in a Delaware court.” Accordingly, the trial court did not
err in concluding that enforcement of the forum selection bylaw was reasonable despite
its unilateral adoption by the director defendants.6
Second, Drulias contends that a unilaterally adopted forum selection bylaw cannot
reasonably be applied “retroactively to litigation arising out of conduct that occurred
before shareholders had notice of the bylaw and an opportunity to walk away.” His
opening brief offers no legal support for that position beyond his argument that assent to
a forum selection provision is required. Other courts have concluded that there is nothing
inherently unreasonable about enforcing a forum selection bylaw adopted after the
alleged wrongdoing. (North, supra, 47 F.Supp.3d at p. 644 [“forum-selection bylaw does
not become unenforceable simply because it was adopted after the purported
wrongdoing.”]; City of Providence v. First Citizens BancShares Inc. (Del. Ch. 2014) 99
A.3d 229, 241 (City of Providence) [rejecting argument that forum selection bylaw could
not be applied to claims that arose before it was adopted]; In re: CytRx Corp. Stockholder
Derivative Litigation (C.D. Cal. 2015) 2015 U.S. Dist. LEXIS 176966 at *16 (In re:
CytRx Corp.) [“the timing of a forum-selection clause’s adoption does not dictate the
clause’s validity”].) We agree. Valid reasons exist for a corporate board to adopt a
forum selection bylaw in conjunction with approving a merger agreement, as occurred
here. “Today, the public announcement of virtually every transaction involving the
acquisition of a public corporation provokes a flurry of class action lawsuits alleging that
6 In Galaviz v. Berg (N.D. Cal. 2011) 763 F. Supp. 2d 1170, a federal district court
held a unilaterally adopted forum section bylaw to be unenforceable under federal
common law. That case—decided, as it was, before Boilermakers and without reference
to “the contractual framework established by [Delaware law] for Delaware corporations
and their stockholders”—is unpersuasive. (Boilermakers, supra, 73 A.3d at p. 956,
fn. omitted.)
14

the target’s directors breached their fiduciary duties by agreeing to sell the corporation
for an unfair price.” (In re Trulia, Inc. Stockholder Litigation (Del. Ch. 2016) 129 A.3d
884, 891.) Forum selection bylaws have the effect of consolidating such litigation into a
single forum, thereby reducing litigation expenses and avoiding duplication of effort (not
to mention promoting efficient use of judicial resources), which is beneficial to
corporations and their shareholders alike. (In re: CytRx Corp., supra, 2015 U.S. Dist.
LEXIS 176966 at *16; North, supra, 47 F.Supp.3d at p. 644; Boilermakers, supra, 73
A.3d at p. 952 [“the forum selection bylaws are designed to bring order to what the
boards . . . say they perceive to be a chaotic filing of duplicative and inefficient derivative
and corporate suits against the directors and the corporations”].) Drulias does not argue,
let alone demonstrate, that the bylaw at issue was adopted for any reason other than to
consolidate merger-related litigation into a single forum, where it could be resolved
efficiently and cost-effectively.
For the first time on reply, Drulias analogizes to California cases involving
unilaterally adopted arbitration clauses to argue that unilaterally adopted forum selection
bylaws should not be applied retroactively to accrued or known claims. “Points raised in
the reply brief for the first time will not be considered, unless good reason is shown for
failure to present them before.” (Campos v. Anderson (1997) 57 Cal.App.4th 784, 794,
fn. 3.) Because Drulias has not shown good cause for raising this argument belatedly, we
will not consider it.7
7 Even if we were to consider the new argument, we would reject it. The line of
cases on which Drulias relies holds that while “[a]n arbitration agreement between an
employer and an employee may reserve to the employer the unilateral right to modify the
agreement,” the covenant of good faith and fair dealing implied in every contract bars “an
employer [from making] unilateral changes to an arbitration agreement that apply
retroactively to ‘accrued or known’ claims because doing so would unreasonably
interfere with the employee’s expectations regarding how the agreement applied to those
claims.” (Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 61.)
Drulias effectively asks us to decline to enforce the bylaw because it would, he says, be
invalid under California contract law. But Delaware law governs the validity of the
15

Finally, Drulias argues it would be unreasonable to enforce the forum selection
provision because the 1st Century defendants “chose to invoke the benefits and
protections of California law and a California court by seeking the entry of a final
judgment” here. For that contention, he relies on Trident Labs, Inc. v. Merrill Lynch
Commercial Finance Corp. (2011) 200 Cal.App.4th 147, 157 (Trident Labs), which held
that the defendant’s extensive litigation in California made enforcement of the forum
selection clause, calling for litigation in Illinois, unreasonable as a matter of law.
In Trident Labs, the plaintiff filed suit in California on October 31, 2008. (Trident
Labs, supra, 200 Cal.App.4th at p. 151.) The defendant moved to dismiss based on the
forum selection clause in June 2010. (Id. at p. 152.) In the intervening 19 months, the
defendant had removed the case to federal court; after it was remanded, filed an answer
and a counterclaim; engaged in “substantial discovery,” including filing a motion to
compel the plaintiff to produce additional documents and for an award of sanctions
against the plaintiff; moved for judgment on the pleadings; and demurred to the
plaintiff’s first amended complaint. (Id. at p. 152.) The court of appeal held “that when a
party, under the terms of a forum selection clause, has the option to litigate in more than
one forum, that party cannot choose to extensively litigate in the original forum by filing
a cross-complaint, conducting substantial discovery, and filing motions seeking relief
from the forum court, and then decide to enforce the right it otherwise would have had to
compel the other party to litigate in a different forum. Such circumstances make
enforcement of the forum selection clause unreasonable as a matter of law.” (Id. at
p. 157.)
Here, nine months passed between the filing of the complaint and the
section 410.30 motion. That delay was attributable, not to the 1st Century defendants,
but to the parties’ attempt to settle, the court’s scheduling orders, and Drulias’s decision
bylaw. And in City of Providence a Delaware court rejected the very retroactivity
argument Drulias now asserts.
16

to file an amended complaint. Unlike the defendant in Trident Labs, the 1st Century
defendants did not file a cross-complaint or seek discovery from plaintiff.
8 Nor did they
file multiple motions seeking relief from the court; aside from their motion to dismiss,
they filed a single motion seeking relief—namely, approval of the settlement agreement.
Given this state’s strong public policy in favor of pretrial settlements (Fisher v. Superior
Court (1980) 103 Cal.App.3d 434, 440), the trial court did not err in concluding that
defendants’ settlement efforts did not render enforcement of the forum selection bylaw
unreasonable.

Outcome: The order staying the action is affirmed. Respondents shall recover their costs on
appeal.

Plaintiff's Experts:

Defendant's Experts:

Comments:



 
 
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