In a significant decision, the California Supreme Court has upheld a corporation’s forum selection clause requiring stockholder lawsuits to be tried in Delaware Chancery Court despite the unavailability of jury trials in that court, unanimously reversing the decisions of lower courts invalidating such clauses on the grounds that they violated California’s public policy favoring jury trials. The Court, however, held open the possibility that a forum selection clause may still be challenged based on its manner of adoption.
In EpicentRX, Inc. v. Superior Court, 18 Cal. 5th 58 (July 21, 2025), the plaintiff invested $5 million in EpicentRX, and later filed an action against the corporation, its controlling stockholder and certain individuals for fraudulent concealment, breach of fiduciary duty, breach of contract and other claims. Defendants moved to dismiss on the grounds that the corporation’s certificate and bylaws required stockholder actions to be brought in Delaware Chancery Court. The trial court denied the motion and the Court of Appeal affirmed, holding that California’s public policy guaranteeing the right to a jury trial would be violated by moving the action to Chancery Court, which sits as a court in equity without juries. The Court of Appeal relied on Handoush v. Lease Finance Group, LLC, 41 Cal.App. 5th 729 (2019), which invalidated a forum selection clause because it impaired the right to a jury trial.
The Supreme Court reversed. The Court explained that forum selection clauses generally are enforceable, and that while courts may refuse to enforce them on public policy grounds, those policy grounds generally are expressly set forth in statutes, such as prohibitions of forum selection clauses in franchise agreements; consumer personal property lease agreements; or where an employee residing and working in California is required to adjudicate a claim outside the State.
According to the EpicentRX court, “California’s strong public policy protects the jury trial right in California Courts, not elsewhere. It does not speak to the availability of the jury trial right in other forums.” Id. at 67. The Court thus declined to analogize the forum selection clause at issue to a predispute jury trial waiver, which is unenforceable. “The former reflects where a dispute will be litigated, while the latter reflects how it will be litigated.” Id. at 79 (emphasis in original). The Court also effectively overruled Handoush, stating that its reasoning was “unpersuasive.” While California has a strong public policy favoring a right to a jury trial, California does not have a strong public policy against forum selection clauses requiring litigation in a jurisdiction that lacks the same right. The Court also recognized that a contrary ruling could have a chilling effect on interstate commerce: “under the framework adopted by the courts below, any forum selection clause designating the foreign forum would essentially be unenforceable” and “[a] foreign business may be reluctant to enter into a transaction with a California business without an enforceable forum selection clause, and the California business would be deprived of the benefit of the transaction[.]” Id. at 67.
That said, the Court noted that the plaintiff had also challenged enforcement of the forum selection clause based on its manner of adoption as part of the Certificate of Incorporation and bylaws because it was not freely and voluntarily negotiated at arms-length. Because the lower courts did not consider this issue, the Supreme Court remanded the matter for further proceedings.
For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, Joshua Korr, or Kevin O’Brien.
****
Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.
The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.
Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.