Corporate Governance

Shearman & Sterling LLP 42 | Federal Forum-Selection Provisions in the Wake of Cyan and Salzberg Federal Forum-Selection Provisions in the Wake of Cyan and Salzberg Richard B. Alsop, Jeff Hoschander, Clare O'Brien and Kristina L. Trauger Insights CYAN AND SALZBERG Subject to various limitations and defenses, the Securities Act of 1933 ("Securities Act") provides a private right of action to purchasers of securities in connection with an offering for material misrepresentations by the issuer. In order to address "perceived abuses of the class-action vehicle in litigation involving nationally traded securities," Congress enacted the Private Securities Litigation Reform Act of 1995 (PSLRA) and subsequently the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which implemented certain protections for defendants in connection with such litigation. 1 However, in an adaptive effort to evade some of the hurdles presented in federal courts, certain plaintiffs attempted to file cases asserting Securities Act claims in state courts. In Cyan Inc. v. Beaver County Employees Retirement Fund, the U.S. Supreme Court held that SLUSA did not strip state courts of jurisdiction to adjudicate 1 Cyan Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061, 1066-67 (2018). See also Conf. Rpt. 104-369, H.R. 1058, 33 (November 28, 1995). 2 138 S. Ct. at 1066. 3 Cornerstone Research: Securities Class Action Filings 2019 Year in Review, available at https://www.cornerstone.com/Publications/Reports/ Securities-Class-Action-Filings-2019-Year-in-Review. 4 227 A.3d 102 (Del. 2020). class actions brought exclusively under the Securities Act and did not empower defendants to remove such actions from state to federal court. 2 Notably, however, the applicability of certain protections under the PSLRA was not before or addressed by the Court in Cyan. Following the March 2018 decision in Cyan, there has been a proliferation of case filings asserting putative class action claims under the Securities Act in state courts throughout the United States. For example, one report identified more than 80 Securities Act cases filed in state courts since early 2018 (when Cyan was decided) through the end of 2019 (while fewer than 20 such cases were filed in total during the five-year period between 2010–2014). 3 Frequently, actions alleging the same claims of misrepresentations in connection with the same securities offering on behalf of the same putative class of plaintiffs are filed in federal courts as well. Thus, defendants often must defend against parallel lawsuits in federal court and state court (and sometimes courts in multiple states). In order to avoid the inefficiencies of such state court filings, several corporations added a federal forum- selection provision (or FFP) to their respective certificates of incorporation, requiring claims under the Securities Act to be filed exclusively in federal court. Two days shy of the two-year anniversary of the U.S. Supreme Court's decision in Cyan, on March 18, 2020, the Supreme Court of Delaware — in Salzberg v. Sciabacucchi 4 — reversed a lower court decision and held that Delaware corporations can implement FFPs for Securities Act claims in their certificates of incorporation.

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