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California Appellate Court Affirms Dismissal Of Putative Class Action Against Electric Vehicle Company Based On Federal Forum Provision
05/08/2025On April 23, 2025, the Fourth Appellate District Court of Appeal of the State of California affirmed the dismissal of a putative class action asserting claims under the Securities Act of 1933 against an electric vehicle company and the underwriters of its IPO. Bullock v. Rivian Auto., Inc., 2025 WL 1177303 (Cal. App. 4th Dist. Apr. 23, 2025). The trial court dismissed the action based on a federal forum provision (“FFP”) in the issuer’s Delaware articles of incorporation, which required that Securities Act claims be brought in federal court. The Court of Appeal affirmed the dismissal and held that the FFP was enforceable, following the reasoning of a decision from the First Appellate District Court of Appeal, Wong v. Restoration Robotics, Inc., 78 Cal. App. 5th 48 (2022).
Plaintiffs raised three arguments against enforcement of the FFP: (1) that the Securities Act prohibits the removal of state court actions asserting 1933 Act claims to federal court; (2) that the Delaware statute permitting FFPs violates the commerce clause and the supremacy clause of the United States Constitution; and (3) that the FFP was unenforceable under California law. Rivian, 2025 WL 1177303, at *1. The Court explained that these arguments had all been addressed by the Wong court in a well-reasoned opinion—as addressed in our prior post—and the Court was “unpersuaded by [p]laintiffs’ efforts to recast what are essentially the same arguments rejected in Wong.” Id. at *2.
Rejecting plaintiffs’ argument that the FFP is unenforceable because the Securities Act prohibits the removal of state court actions asserting Securities Act claims, the Court explained that the Securities Act does not preclude a company from deciding that such claims should be litigated only in federal court, or from seeking to dismiss claims filed in state court. Id. at *3–4.Similarly, the Court rejected plaintiffs’ related argument based on the anti-waiver provision in the Securities Act, which invalidates any conditions requiring a person acquiring a security to waive compliance with any provision of the Securities Act. The Court observed that this provision is not “properly construed to bar any waiver” of “the right to select the judicial forum and the wider choice of courts.” Id. at *4 (quoting Rodriguez de Quijas v. Shearson/Am. Exp., 490 U.S. 477, 481 (1989)).
Second, the Court explained that the Delaware statutory scheme permitting FFPs does not violate the commerce clause and the supremacy clause of the Constitution. With respect to the supremacy clause, plaintiffs contended that Delaware’s allowance of FFPs improperly discriminates against federal law in favor of state law, because Delaware prohibits corporations from adopting a forum selection provision that eliminates state court jurisdiction for securities claims arising under Delaware law while allowing corporations to adopt one that eliminates state court jurisdiction for comparable claims arising under the Securities Act. Id. at *5. But the Court explained that Delaware is not “refusing to entertain a federal claim” but rather is merely allowing corporations and their shareholders to agree to forum selection provisions. Id. The Court further observed that plaintiffs’ argument relied on a “false premise” that there are Delaware state law claims that are analogous to Securities Act claims, but plaintiffs had not actually identified any such claims under Delaware law. Id.
With respect to the commerce clause, plaintiffs argued that the Delaware statutory scheme permitting FFPs indirectly burdens interstate commerce by permitting corporations to unilaterally condition the interstate sale of securities on the loss of access to state court fora without a clear local Delaware interest in doing so. Id. at *6. The Court concluded, however, that Delaware has an interest in promoting stable relationships among parties involved in the corporations it charters, and that FFPs advance Delaware’s interest by promoting certainty, predictability, uniformity, prompt judicial resolution of corporate disputes, and judicial efficiency, and “[g]iven those benefits,” any burden on interstate commerce was slight. Id.
Third, the Court rejected plaintiffs’ argument that the FFP was invalid and unenforceable under California law. While first observing that the FFP was governed by Delaware law under the internal affairs doctrine, and that the Delaware Supreme Court had permitted FFPs, id. at *7, the Court further held that nothing under California law rendered the FFP unenforceable on the facts of the case. Id. at *8. After broadly noting that California favors enforcement of forum selection clauses, the Court went on to assess plaintiffs’ contentions that (1) the provision was outside the reasonable expectations of the shareholders, and (2) enforcement would be unduly oppressive or unconscionable. Id. As to the first point, the Court observed that the forum provision was disclosed to investors at the time that plaintiffs purchased shares in the company’s IPO. Id. As to the second, the Court concluded that there was nothing substantively unconscionable in the waiver of a waivable procedural right to a state forum. Id. at *9.
Finally, plaintiffs asserted that the underwriters in the company’s IPO lacked standing to enforce the FFP because they were not intended third-party beneficiaries of the FFP. The Court concluded, however, that it “need not address this contention” in light of the lower court’s determination that the allegations against the company and the underwriters were “so intertwined that they cannot be separated”—which plaintiffs “ignored” on appeal. Id. The Court explained that there was sufficient evidence to support the lower court’s determination, as the underwriters were “sufficiently close to the contractual relationships created by the sales of [company] stock to be afforded standing to enforce the FFP,” and that to hold otherwise would permit plaintiffs to sidestep FFPs simply by naming as a defendant a closely related party who did not sign the FFP. Id.
