California Appellate Tracker

Drulias v. 1st Century Bancshares, Inc.

February 18, 2019

Delaware law permitting choice-of-forum bylaws is enforceable in California even if no shareholder consent is obtained for the bylaw and even though the bylaw is adopted after the allegedly wrongful conduct has occurred.

Under Delaware law, a Delaware corporation may adopt a bylaw requiring any shareholder suits to be brought in a chosen forum—usually, Delaware. This decision holds that such a bylaw is enforceable in California state court even though no shareholder consent is obtained for the bylaw and even though the bylaw is adopted after the allegedly wrongful conduct has occurred. Such a bylaw is not inconsistent with Corp. Code 2116, which merely codifies the modern view of the corporate internal affairs doctrine and does not guarantee a California shareholder the right to sue in this state. Nor is such a bylaw or its enforcement contrary to California public policy. Since the internal affairs doctrine requires an application of Delaware law to determine the validity of the bylaw, and since it is valid under Delaware law, it is enforceable in California.

California Court of Appeal, Sixth District (Elia, Acting P.J.); December 21, 2018; 30 Cal. App. 5th 696

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Drulias v. 1st Century Bancshares, Inc.

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