Banning Shareholder Suits: Corporate Charter Arbitration Clauses
Suppose a corporate board proposes, and shareholders approve by majority vote, a charter amendment providing that all intra-corporate disputes, such as shareholder securities fraud or fiduciary duty suits, be submitted exclusively to binding arbitration. Would that be valid under state corporation law? Would federal arbitration law require that it be validated, without regard to whether it would be invalid under state corporation law?
As I write in an op-ed for the Baltimore Sun today, a dispute over this question is likely to occur in the near future. My prediction is that the Supreme Court can be expected to combine two fictions to mandate that states validate these: that corporate charters really are contracts and that its arbitration jurisprudence is all about enforcing contracts.
The Baltimore Sun entitled the piece “So much for your day in court,” with the tag-line: “Most people are completely unaware that arbitration is taking the place of trials in civil matters across the country.” I have a more substantial law review article, in Law & Contemporary Problems, discussing the broader point about the Supreme Court’s use of contract rhetoric in its arbitration opinions. It was based in turn on several posts on this blog, including those of April 2011 and Nov. 2010.