Drulias v. 1ST Century Bancshares, Inc.

241 Cal. Rptr. 3d 843, 30 Cal. App. 5th 696
CourtCalifornia Court of Appeal, 5th District
DecidedDecember 21, 2018
DocketH045049
StatusPublished
Cited by17 cases

This text of 241 Cal. Rptr. 3d 843 (Drulias v. 1ST Century Bancshares, Inc.) is published on Counsel Stack Legal Research, covering California Court of Appeal, 5th District primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Drulias v. 1ST Century Bancshares, Inc., 241 Cal. Rptr. 3d 843, 30 Cal. App. 5th 696 (Cal. Ct. App. 2018).

Opinion

ELIA, ACTING P. J.

*699This appeal raises the issue of whether a forum selection bylaw adopted by a Delaware corporation without stockholder consent is enforceable in California. The trial court concluded the bylaw was enforceable and, accordingly, stayed this putative shareholder class action under Code of Civil Procedure section 410.30.1 On appeal, plaintiff and appellant Dean Drulias contends the trial court erred in enforcing the forum selection bylaw, which designates Delaware as the exclusive litigation forum for intra-corporate disputes. He maintains the bylaw conflicts with California law and, alternatively, that its enforcement is unreasonable given the manner and timing of its adoption and defendants' litigation conduct below. Finding those contentions unpersuasive, we affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

1st Century Bancshares, Inc. (1st Century) was a Delaware corporation headquartered in Los Angeles, California, whose shares were publicly traded *700on the NASDAQ. On March 10, 2016, 1st Century and Midland Financial Co. (Midland) announced plans to merge. The merger agreement called for Midland to acquire 1st Century for $11.22 in cash per share, a 36.3 percent premium over 1st Century's closing share price on March 10, 2016. The merger was subject to approval by the holders of a majority of 1st Century's outstanding shares. A shareholder vote on the proposed merger agreement was scheduled for June 20, 2016.

1st Century's certificate of incorporation authorized its board of directors "to adopt, alter, amend or repeal" the company's bylaws, "subject to the power of the stockholders of the Corporation to alter or repeal any Bylaws whether adopted by them or otherwise." 1st Century's board of directors exercised its power to amend the bylaws at the time it approved the merger agreement. The board added a forum selection *847bylaw providing that, absent the corporation's written consent, Delaware is "the sole and exclusive forum for" intra-corporate disputes, including any action asserting a breach of fiduciary duty claim.2

Drulias is a California resident and a 1st Century shareholder. On May 3, 2016, he filed a putative class action on behalf of all holders of 1st Century's common stock against 1st Century and its directors (the director defendants). The complaint alleged that 1st Century and the director defendants (collectively, the 1st Century defendants) breached their fiduciary duties in connection with their approval of the merger agreement. Pursuant to a stipulation *701between the parties, the court, on May 24, 2016, ordered the 1st Century defendants to respond to the complaint on or before July 1, 2016.

On May 25, 2016, Drulias filed an application for a preliminary injunction enjoining the closing of the shareholder vote on the merger until curative disclosures were made to shareholders. The 1st Century defendants opposed that application on June 6, 2016. They argued that the forum selection bylaw required Drulias's claims to be litigated in Delaware and that Drulias's claims lacked merit.

On June 9, 2016, the court entered an order deeming the case complex and staying discovery. That order set a Case Management Conference for September 2, 2016 and ordered that parties not to "file or serve responsive pleadings, including ... motions for change of venue ... until a date is set at the First Case Management Conference for such filings and hearings."

Drulias and the 1st Century defendants reached a proposed settlement, which they memorialized in a stipulation of settlement dated June 10, 2016. Under the terms of the proposed settlement agreement, 1st Century agreed to make supplemental disclosures to the SEC and its shareholders in connection with the merger agreement and to pay Drulias's counsel $400,000 in exchange for the settlement and release of the putative class's merger-related claims.

Shareholders approved the merger on June 20, 2016.

*848The trial court declined to approve the stipulation of settlement on November 21, 2016. The court reasoned that the settlement was not fair and reasonable to the putative class because the supplemental disclosures were not plainly material, such that they were of minimal value to the class and did not justify the release of all claims associated with the merger.

The parties submitted a joint Case Management Conference statement on December 22, 2016. In it, they indicated that Drulias intended to file a first amended complaint and proposed a January 13, 2017 deadline for that filing. The parties also informed the court that the 1st Century defendants might "file a motion to stay or dismiss for forum non conveniens" and proposed a February 10, 2017 deadline for such a motion. The court adopted the parties' proposed briefing schedule at a January 6, 2017 hearing.

Drulias's first amended complaint, filed on January 13, 2017, added Sandler O'Neill & Partners, L.P. (Sandler), the investment bank that advised 1st Century in connection with the merger, as a defendant. Like the original complaint, the first amended complaint asserted breach of fiduciary duty *702claims against the 1st Century defendants; it also included an aiding and abetting the breach of fiduciary duties claim against Sandler.

On February 10, 2017, the 1st Century defendants filed a motion to dismiss pursuant to sections 410.30 and 418.10, arguing that the forum selection bylaw requires Drulias's claims be litigated in Delaware. Following briefing and a hearing, the trial court declined to dismiss the action but stayed it under section 410.30. Drulias timely appealed from that order.

II. DISCUSSION

A. Background and Governing Law

Unilaterally adopted forum selection bylaws have become increasingly popular in recent years. ( Boilermakers Local 154 Retirement Fund v. Chevron Corp . (Del. Ch. 2013) 73 A.3d 934, 944, fn. omitted ( Boilermakers ) ["in the last three years, over 250 publicly traded corporations have adopted such provisions"].) In Boilermakers , the Delaware Court of Chancery ruled that such bylaws are facially valid under Delaware law. Their enforceability has been litigated across the country,3 but California state courts have yet to consider the issue.

The parties agree that Delaware law governs Drulias's breach of fiduciary duty claims under the internal affairs doctrine, which "generally requires application of the law of the state of incorporation to any dispute regarding relations between the corporation and its shareholders or officers and directors." ( The Police Retirement System of St. Louis v. Page (2018) 22 Cal.App.5th 336

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Cite This Page — Counsel Stack

Bluebook (online)
241 Cal. Rptr. 3d 843, 30 Cal. App. 5th 696, Counsel Stack Legal Research, https://law.counselstack.com/opinion/drulias-v-1st-century-bancshares-inc-calctapp5d-2018.