A recent Law 360 story by Rose Krebs, “Attys’ Fee Fight Delays Forum Appeal at Del. High Court,” reports that the Delaware Supreme Court dismissed an appeal of a Chancery Court ruling that struck down three state-chartered companies’ bylaws mandating that federal district court handle Securities Act complaints, because it has yet to be decided if attorneys’ fees will be awarded to the lead plaintiff in the lower court case.  A three-justice panel ruled that since there remains an open issue about attorneys’ fees in the Chancery case decided in December that challenged whether a company could require Securities Act cases to play out in federal court, it was rejecting the appeal because the matter is not yet terminated at the lower court level.  The lead plaintiff is seeking $3 million in attorneys’ fees, according to court filings.

“This court has consistently held that a judgment on the merits is not final and appealable until the trial court has ruled on an outstanding application for attorneys’ fees,” the panel ruled.  In a Dec. 19 decision, Vice Chancellor J. Travis Laster invalidated federal forum requirements adopted by Blue Apron Inc., Roku Inc. and Stitch Fix  Inc., and cautioned other companies that adopted similar measures or are contemplating them.

Behind the decision and bylaw measures is a running battle over forum provisions for corporate litigation, with the U.S. Supreme Court declaring earlier this year in Cyan v. Beaver County Employees Retirement Fund that state and federal courts have concurrent jurisdiction over private securities claims.  Corporations have tended to favor litigation in federal courts rather than dealing with stockholders’ ability to shop around for more plaintiff-friendly states, Vice Chancellor Laster observed. Under the Cyan decision, however, defendants are barred from moving state court cases once they are filed by removing them to federal courts.

Attorneys for lead plaintiff Matthew Sciabacucchi argued that the three companies — in which he holds stocks — failed to identify a clear authority for forum selection rules that extend beyond matters involving the internal affairs of a Delaware company, such as alleged violations of corporate duty by a current or former director, officer or stockholder.  The proposed class sought summary invalidation of the forum selection clauses, while the companies sought an immediate summary judgment ruling in their favor and dismissal of the challenge.

On Jan. 11, Sciabacucchi filed a request for $1 million in attorneys’ fees from each of the companies claiming that the decision “resulted in a benefit for the stockholders” of the companies.  The companies appealed Vice Chancellor Laster’s decision to the Supreme Court on Jan. 17, according to court filings.  In a brief filed with the Supreme Court, the companies contended that Sciabacucchi’s request for fees was not timely since there was no pending application or “any reference” there would be a request for the award of fees when the decision was entered.

They also took issue with the request being made 23 days after the decision in a “one-paragraph motion ... which did not set forth any substantive grounds entitling him to an award of fees.”  In its order, the Supreme Court ruled it had no jurisdiction to hear the appeal since “it was taken from an interlocutory order.”  “This was no surprise," Sciabacucchi’s attorney Kurt M. Heyman of Heyman Enerio Gattuso & Hertzel LLP said in an emailed comment to Law360.  "The Supreme Court followed nearly 30 years of precedent in requiring the appeal to come after the resolution of the fee application."

During arguments in September in the Chancery case, former Delaware Chancellor William B. Chandler III, now of Wilson Sonsini, argued that the federal forum provisions imposed no restrictions on stockholder rights.  Chandler, counsel to Roku and Stitch Fix, said the measures only specify the arena for disputes.  In his opinion, Vice Chancellor Laster said that current Delaware Supreme Court Chief Justice Leo E. Strine held in the 2013 Chancery case of Boilermakers Local 154 Ret. Fund v. Chevron that Delaware companies can adopt forum selection clauses for internal affairs claims, but not for disputes external to the corporation, such as those created by federal law.

Relying on Boilermakers, the vice chancellor found that the Delaware forum selection provisions cannot govern Securities Act claims, "because a 1933 act claim is external to the corporation. Federal law creates the claim, defines the elements of the claim and specifies who can be a plaintiff or a defendant.”

The case on appeal is Salzberg et al. v. Sciabacucchi, case number 25, 2019, in the Supreme Court of the State of Delaware.  The underlying case is Sciabacucchi v. Salzberg et al., case number 2017-0931, in the Court of Chancery for the State of Delaware.