A company can’t wield a corporate bylaw to completely abrogate a federal claim, an attorney for a Gap Inc. shareholder told the Ninth Circuit Monday in a plea for the en banc court to reinstate a diversity suit.
An attorney for Gap board members, though, said the case’s dismissal could be affirmed on a few grounds—including that there’s no merit to claims that the retailer’s diversity doesn’t match its public statements.
Just a handful of the 11 judges present for the argument in Pasadena, Calif., asked the bulk of the questions, leaving the outcome in some doubt.
Gap’s bylaws say all shareholder suits brought on its behalf—derivative suits—must be heard in Delaware state court. But some derivative claims, including the false proxy statements claim in this suit, can only be brought in federal court. The directors, pointing to the bylaws, said the investors’ suit is a legal impossibility.
If the US Court of Appeals for the Ninth Circuit says the forum selection clause defeats the claim, it will have “a broad effect on all derivative federal claims,” including fraud claims, attorney Yuri Kolesnikov said for the shareholder, Noelle Lee. “It opens doors for some creative lawyer” and could even imperil direct securities fraud claims, he said. Kolesnikov is with Bottini & Bottini Inc. in La Jolla, Calif.
“The Supreme Court has never enforced a forum selection or arbitration...
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