In the landmark case Salzberg v. Sciabacucchi, the Delaware Supreme Court upheld the validity of a corporate charter provision restricting the rights of shareholders to bring federal securities law claims. Although rights arising under federal securities law lie beyond the internal affairs doctrine, which has traditionally defined the boundaries of state corporate law, the Salzberg court ruled that such rights may be regulated by the “corporate contract,” created by state corporate law and comprised of a corporation’s charter and bylaws. Embracing contractarian precepts, the Salzberg court rejected the lower Chancery Court’s concession theory of the corporate contract as inextricably bound by the internal affairs doctrine.
Salzberg’s contractarianism has wide-ranging implications for the role of the internal affairs doctrine, the reach of the corporate contract, and the rights of shareholders arising under both state corporate law and federal securities law. For one, Salzberg suggests that the corporate contract may be used to impose all types of restrictions to deter shareholders from bringing federal securities class actions. Most significantly, the decision opens the path to using the corporate contract to compel bilateral arbitration for all shareholder claims. In this respect, Salzberg reflects a growing divergence in corporate law between a judicial rhetoric wedded to contractarianism and a statutory framework that still bears concessionary hallmarks of state power. Whether a mandatory arbitration provision set forth in a corporation’s governing documents is enforceable against shareholders will turn on how the Delaware legislature or the courts ultimately resolve this contract-concession tension.
* Professor, University of Oregon School of Law. The Author is immensely grateful to Vice Chancellor J. Travis Laster, Ann Lipton, Joe Grundfest, and Asaf Raz for their incisive comments to earlier drafts of this Article.