Shareholder Primacy Mandatory Arbitration
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Oct 1, 2025 Ann and Mike dive into the SEC's new stance on mandatory arbitration for federal securities claims. They explore how corporate charters can impose arbitration on shareholders and discuss Delaware's role in forum selection for disputes. The duo analyzes the implications of SEC changes on IPOs and the unique relevance of Section 11 claims. Key debates include whether companies will adopt mandatory arbitration and the potential backfire effects. They highlight the consequences for shareholder enforcement and legal precedents, emphasizing the importance of litigation visibility.
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How Mandatory Arbitration Works
- Mandatory arbitration is a private, streamlined tribunal alternative to court trials for disputes.
- Companies often use it to force individualized claims and effectively block class actions.
Delaware Opened The Door
- Delaware allowed forum-selection clauses in charters and bylaws, initially for state fiduciary claims.
- Courts later read that to permit routing federal securities claims into specific forums as well.
SEC's Historical Gatekeeping At IPO
- The SEC historically refused to accelerate IPO registration statements that included mandatory arbitration in charters/bylaws.
- That refusal kept companies from using arbitration at IPO despite state-law developments.