Bylaws’ Power to Derail Investor Suits Endorsed by 9th Cir. (1)

A Gap Inc. corporate bylaw that effectively killed an investor suit by sending it to an impermissible court is valid, a divided Ninth Circuit bench said in a diversity dispute with broad implications for shareholder clout.

The ruling could make it easier for corporations to eliminate certain kinds of lawsuits.

The Gap bylaw specified the Delaware Court of Chancery—a court known for handling corporate disputes—as the venue for derivative suits. So-called forum-selection clauses have become common in corporate bylaws, and many companies are incorporated in Delaware. Others specify different state courts—which also can’t hear certain securities law claims, making it ...