Blue Apron, Roku, and Stitch Fix can’t use policies put in place before their IPOs to force all securities complaints against them into federal court, a Delaware judge said Dec. 19.
Several companies pursuing initial public offerings
Blue Apron Holdings Inc., Stitch Fix Inc., and Roku Inc.'s pre-IPO certificates of incorporation, all filed in Delaware, required investors to bring all claims under the Securities Act of 1933 in federal court, Vice Chancellor J. Travis Laster said in the written opinion. But the law gave state and federal courts concurrent jurisdiction.
Multiple big-name technology companies such as Snap Inc. and file-sharing service Dropbox Inc. put these federal forum provisions in place prior to their IPOs. But with Laster’s Dec. 19 ruling, it’s possible that fewer companies pursuing an IPO will feel the need to adopt these provisions.
For years, corporations have tried to avoid fighting identical lawsuits in multiple states by using provisions in their organizational documents that name one state court as an exclusive forum for corporate claims.
The crux of this strategy is increasingly being adopted by companies gearing up for an IPO as they seek to push any post-offering securities lawsuits into a federal forum. Corporations have found this to be an appealing method for reducing litigation costs.
Delaware corporate law can regulate a corporation’s internal affairs because the state created the corporation, Laster said. “But Delaware’s authority as the creator of the corporation does not extend to its creation’s external relationships, particularly when the laws of other sovereigns govern those relationships,” Laster wrote.
Under Delaware law, corporations are free to include forum selection provisions for internal claims, but not external ones, according to the opinion. The Securities Act claims are external because federal law creates the claims, defines the claims’ elements, and specifies who can sue or be sued under the law, the opinion said.
Wilmer Cutler Pickering Hale and Dorr LLP, and Richards, Layton & Finger PA represented Blue Apron. Wilson Sonsini Goodrich & Rosati PC represented Stitch Fix and Roku. Block & Leviton LLP and Heyman Enerio Gattuso & Hirzel LLP represented the investors.
The case is Sciabacucchi v. Salzberg, Del. Ch., No. 2017-0931, 12/19/18.
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(Updated with additional reporting throughout)