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California Court Rules Federal Forum Provision To Be "Procedurally unconscionable. Indeed, glaringly so."

In the wake of the U.S. Supreme Court's decision in Cyan Inc. v. Beaver Co. Employees Retirement Fund, 138 S. Ct. 1061 (2018) and the Delaware Supreme Court's subsequent holding Salzberg v. Sciabacucchi, 227 A.3d 102 (2020), many Delaware corporations have adopted charter provisions that require stockholders to bring actions under the Securities Act of 1933 in the federal, rather than state, courts.  See The Case Whose Name The Delaware Supreme Court Dare Not Speak.

Last week, California Superior Court Judge Marie S. Weiner addressed the validity of a federal forum provision adopted by a Delaware corporation with its principal place of business.  Wong v. Restoration Robotics, Inc., Cal. Super. Ct. Case No. 18CIV02609 (Sept. 1, 2020).  In a lengthy ruling, Judge Weiner criticized the Delaware Supreme Court's analysis in Salzberg, finding that the Supreme Court's analysis of "jumbles together different cases on different topics, subject to different tests".  She also found that the corporation's charter provision was "procedurally unconscionable.  Indeed, glaringly so." 

Nonetheless, Judge Weiner ruled that the federal forum provision:

  • Is not illegal under California law; and
  • Does not violate any California statute or public policy.

She also ruled that the federal forum provision is:

  • Procedurally unconscionable; and
  • Not substantively unconscionable.

In each case, Judge Weiner added the proviso "unless shown to be unconstitutional or illegal under federal law".  In this regard, she found that the plaintiffs had no federal law actually holding that federal forum provisions are either.  

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