/>iLast month in Bullock v. Rivian Automotive, California’s Fourth District Court of Appeal became the latest to enforce a federal forum provision (FFP) embedded in a Delaware corporation’s charter and affirmed dismissal of a putative class action brought under the Securities Act of 1933 (1933 Act) in California state court. The court’s reasoning tracks closely with an earlier California appellate decision in Wong v. Restoration Robotics [Cal.App.5th 48 (2022)], and together these cases cement that Delaware corporations that adopt well-drafted federal forum provisions can meaningfully reduce the risk and cost of 1933 Act litigation by keeping those claims in federal court.
Plaintiffs are taking notice, too. Even before Bullock, there had been a sharp decline in state court 1933 Act filings. According to Cornerstone Research’s 2024 Securities Class Action Filings Year in Review, the number of state 1933 Act filings dropped to just five in 2024 (three in California, two in New York), which represents a more than 90% falloff from their recent peak in 2019. This stark decline signals that plaintiffs are finding state court a shrinking battlefield for 1933 Act claims, in large part because of FFP enforcement.
This moment offers an opportunity — especially for companies incorporated in Delaware and that have connections to California — to manage litigation risks with regard to future securities offerings. And for companies considering an IPO, merger, or spinoff sometime in the future, there may be no better time to build in protections that help ensure future 1933 Act claims are litigated in federal court.
Background: FFPs and the Dual Forum Problem
The 1933 Act provides a private right of action for investors alleging material misstatements or omissions in a registration statement. Thanks to the 2018 landmark Supreme Court decision in Cyan v. Beaver County Employees Retirement Fund [583 U.S. 416 (2018)], plaintiffs are free to bring these claims in either state or federal court — and defendants cannot remove them to federal court. The result: companies began to regularly find themselves defending the same offering in parallel proceedings — one in federal court, and one or more in state court — involving overlapping class periods and claims. That means litigation costs for 1933 Act claims rose significantly, and so did the proliferation of those types of filings by the plaintiff’s bar. The year after Cyan, 52 1933 Act cases were filed in state court—up from 35 the year prior.
In response to the increased risk brought about by Cyan, many Delaware corporations began adopting FFPs that designate the federal courts as the exclusive forum for 1933 Act claims. This practice was endorsed in Sciabacucchi v. Salzberg [227 A.3d 102 (2020)], when the Delaware Supreme Court held that such provisions are valid under Delaware law when included in a corporation’s certificate of incorporation. But enforceability in other jurisdictions — including plaintiff-friendly California — remained an open question.
Enter Wong and Bullock: California Enforces Delaware FFPs
In Wong v. Restoration Robotics, California’s First District Court of Appeal became the first to enforce a Delaware FFP over constitutional and statutory objections. The plaintiff had filed suit in California state court under the 1933 Act after the company’s IPO. The defendant, a Delaware corporation, successfully moved to dismiss in the trial court based on the FFP in its charter. On appeal, the plaintiff argued that the FFP violated the 1933 Act’s anti-removal and anti-waiver provisions, conflicted with the Commerce and Supremacy Clauses, and was unenforceable under California contract law. The court rejected each of these arguments, holding that FFPs do not waive substantive rights under the 1933 Act but simply designate that those rights must be asserted in a federal court.
Two years later, in Bullock, the Fourth District Court of Appeal reached the same result. The FFP in Rivian’s Delaware charter was substantially similar to the one upheld in Wong, and plaintiffs — represented by the same firm as in Wong — raised many of the same arguments. The court repeatedly cited Wong in its decision and again rejected arguments under the 1933 Act, the Supremacy and Commerce clauses, and contract law.
Together, Wong and Bullock leave little doubt: validly adopted FFPs will be enforced by California courts. That makes California state court a far riskier venue for plaintiffs seeking to assert 1933 Act claims.
Why Forum Matters
Litigating 1933 Act claims in federal court isn’t just a matter of preference — it can meaningfully affect outcomes. Here’s why:
- Stronger procedural protections: The Private Securities Litigation Reform Act (PSLRA) applies in federal court, providing heightened pleading standards, discovery stays, and lead plaintiff procedures. While defendants frequently urge state courts to apply the PSLRA’s protections in 1933 Act cases, courts across the country have issued inconsistent and sometimes conflicting rulings on the issue.
- Consistency and predictability: Federal courts have more experience applying the 1933 Act and tend to produce more uniform rulings, reducing the risk of contradictory decisions.
- Cost: Avoiding parallel litigation in state and federal court reduces defense costs, settlement pressure, and the risk of inconsistent outcomes.
What Companies Should Do Now
Whether your company (or one you are advising) is public or contemplating going public, now is the time to evaluate your exposure and take steps to mitigate it. Here are concrete steps companies should consider:
1. Review your charter and bylaws
If you’re a Delaware corporation and don’t currently have an FFP in your governing documents, you’re potentially leaving yourself exposed to state court litigation risk.
2. Draft provisions that will withstand challenge
An effective FFP should:
- Clearly designate federal district courts as the exclusive forum for 1933 Act claims.
- Define the covered claims precisely (e.g., under the 1933 Act).
- State that shareholders consent by acquiring shares.
The Rivian articles of incorporation at issue in Bullock provide a tested template:
Unless the Corporation consents in writing to the selection of an alternative forum,… the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder….
Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article Tenth
3. Disclose clearly
Proper disclosure in offering materials and SEC filings reduces the risk of procedural challenge and helps ensure the provision is enforceable in litigation.
4. Monitor incorporation law in other jurisdictions
The Bullock decision comes amid a broader trend of companies reassessing their incorporation choices. In recent years, a growing number of businesses have explored reincorporating outside of Delaware — a phenomenon sometimes referred to as “DExit” — with Nevada and Texas emerging as popular alternatives. While Delaware’s legal framework for FFPs is well developed, and California courts have now reinforced their applicability, the law in other states remains comparatively unsettled and is likely to be tested by future plaintiffs. Companies weighing a move should closely track how courts in these states approach FFPs and related litigation risk.
Conclusion
The sharp decline in state 1933 Act filings is a testament to the success of FFPs in steering litigation into federal court — where companies benefit from clearer rules, reduced costs, and lower risk. The Bullock decision confirms that courts in California will enforce these provisions when properly adopted and disclosed.
For any company that may issue a security, especially those contemplating a large public offering, the takeaway is simple: Review your governance documents now, and make sure you’re protected before the next offering — or the next lawsuit.
