Author: Priya Cherian Huskins
More good news on the Section 11 front for new public companies: Some California-based public companies that have adopted federal choice of forum provisions are winning their motions to dismiss in state court. Now, a state court in Utah has also granted a motion to dismiss a Section 11 suit due to federal forum provisions.
Federal choice of forum provisions in a company's charter documents (sometimes call the "Grundfest Clause," named for Stanford Professor Joe Grundfest, who originally highlighted the solution) purport to make federal court the exclusive forum for all Section 11 cases.
As a reminder, Section 11 cases involve allegations of material misstatements or omissions in a company's S-1 and other registration statements and can currently be brought in federal or state court; sometimes they're brought in both over the same set of facts.
The insertion of federal forum provisions in a company's charter documents still allows shareholders to bring Section 11 suits in federal courts, while at the same time eliminating state courts as an additional, duplicative venue for this type of litigation.
In April 2021, in Volonte v. Domo, Inc., a Utah state court found that federal forum provisions are generally valid and enforceable, and that it was appropriate to enforce them in the case at hand.
After a lengthy analysis that looked at both the validity of Domo's bylaws and the plaintiff's arguments, the court found that "case law makes it clear that Domo's bylaws are binding between Domo and its shareholders." Despite the plaintiff's best efforts to argue otherwise, Domo defendants won their motion to dismiss.
This is particularly good news given the sheer volume of companies that are going public, be it through a traditional IPO, a direct listing or de-SPAC transaction. All of these transactions involve registration statements, which makes these new public companies particularly vulnerable to securities litigation.
Domo now joins a growing list of companies that have eliminated duplicative and thus frivolous Section 11 litigation with federal choice of forum provisions.
Status of Current Federal Forum Provisions State Court Litigation as of May 18, 2021
| Case name and location | Motion to Dismiss status |
| Wong v. Restoration Robotics, Inc. San Mateo County, California |
Granted On appeal |
| In re Uber Technologies, Inc. Securities Litigation San Francisco County, California |
Granted Notice of appeal filed |
| In re Dropbox, Inc. Securities Litigation San Mateo County, California |
Granted Notice of appeal filed |
| In re Sonim Technologies, Inc. Securities Litigation San Mateo County, California |
Granted |
| In re Tintri, Inc. Securities Litigation San Mateo County, California |
Denied on procedural grounds: Motion to Dismiss filed too late |
| Panther Partners v. Jerry Guo (Casa Systems) New York County, New York |
Granted (Dismissal unrelated to federal forum provisions) |
| Volonte v. Domo, Inc. Utah County, Utah |
Granted Reconsideration request filed |
While shareholders still have a forum to pursue meritorious claims in federal court, the Domo decision — along with others like it — helps cement the path that a company can take to avoid duplicative, frivolous litigation in multiple courts.
Published May 2021
