| March 23
March 23 Navistar International Corp has
become the latest company to abandon plans to require its
shareholders to bring any legal action against it exclusively in
Delaware, after legal challenges and opposition from investor
At least four other companies also have deleted similar
requirements from their corporate bylaws since they were among
the dozen companies sued over the provision in February.
The bylaw change had called for Delaware's Chancery Court,
one of the country's top venues for corporate disputes, to be
the exclusive forum for most shareholder lawsuits the companies
Companies have written so-called "forum selection" clauses
into their bylaws as a way to try to curb costly and
time-consuming shareholder litigation from spilling into
multiple courts simultaneously around the country.
But shareholders at a dozen companies have challenged the
provisions, arguing that the rules allow companies to choose
where to sue while denying that right to investors. The
shareholders also argue forum selection clauses must be put to a
Some investors may also want an alternative to suing in
Delaware. Critics have also accused the Chancery Court of being
too protective of corporate directors at the expense of
Navistar corporate secretary Curt Kramer said on Friday that
the truck and engine maker's board of directors deleted the
bylaw on Thursday after discussions with institutional investors
and proxy advisers such as Institutional Shareholders Services.
Kramer said Navistar had not ruled out putting the provision
to a shareholder vote, which another proxy adviser, Glass Lewis
& Co, has said is the preferred way to adopt such clauses.
Of the dozen companies that have been sued, five have since
dropped the bylaw. In addition to Navistar, they are Air
Products and Chemicals Inc, Franklin Resources Inc
, Superior Energy Services Inc and Danaher Corp
Investor lawsuits, such as legal challenges to mergers, are
increasingly filed in two or more courts simultaneously, usually
Delaware's Chancery Court and in the state where the company has
Companies complain the parallel lawsuits drive up legal
costs. Stanford Law School professor Joseph Grundfest, a
prominent specialist in securities litigation, has argued the
duplicate lawsuits also dilute plaintiffs leverage, hurting
The dozen lawsuits challenging the bylaws were filed last
month in the Chancery Court by both individual and institutional
The clauses were given credence by Chancery judge Travis
Laster in a 2010 court opinion. Since then, the number of
companies adopting the bylaw has risen from a handful to 195 by
the end of 2011, according to a study by Claudia Allen, an
attorney with of Neal, Gerber & Eisenberg LLP in Chicago.
Allen's study shows that the vast majority of companies
adopting such provisions have done so in connection with initial
This approach allows companies including Facebook Inc
and Yelp Inc to argue they have shareholder consent for
the forum selection clause because it was disclosed before
investors bought the stock.
Brent Siler, a securities lawyer with Cooley LLP, said the
trend is toward forum selection clauses becoming standard with
But there has been pushback even when adopted prior to IPOs.
Proxy advisor Glass Lewis has said it will recommend
shareholders vote against a company's board chairman or chairman
of the governance committee if they served when the bylaw was
Attorneys for the plaintiffs suing over the bylaws as well
as Air Products, Danaher, Franklin Resources and Superior Energy
Services did not immediately return calls for comment.