Mohsen Manesh, the Mr. & Mrs. L.L. Stewart Professor of Business Law at the University of Oregon School of Law, has issued a critical rebuttal to a recent assertion that Delaware law permits public companies to mandate arbitration for federal securities claims within their corporate charters and bylaws. The original argument, put forth by Freshfields lawyers Doru Gavril and Mia Tsui in a Harvard Forum on Corporate Governance post, suggested that a hyper-textual reading of Delaware General Corporation Law (DGCL) Section 115(c) allowed for such clauses, contrary to prevailing understanding. However, Professor Manesh contends that this interpretation is fundamentally flawed, conflicting with the statute’s legislative intent, its structural parallels with other sections, and the long-held consensus among the corporate legal community.
Manesh’s analysis delves into the legislative history and statutory language, asserting that the interpretation presented by Gavril and Tsui misrepresents the clear intent of Delaware lawmakers regarding forum selection for securities litigation. The debate centers on whether amendments to Section 115, particularly subsection (c), inadvertently or intentionally opened a door for mandatory arbitration clauses in corporate governing documents for federal securities claims, or if the law continues to uphold the availability of state courts for such disputes.
Legislative Intent and Statutory Interpretation
At the heart of the dispute is the interpretation of DGCL Section 115(c), which addresses forum selection for claims other than internal corporate matters. Gavril and Tsui’s argument hinges significantly on the absence of the word "arbitration" within the text of Section 115(c) itself. However, Professor Manesh points to the accompanying legislative synopsis for the August 2025 amendment as dispositive evidence of legislative intent. This synopsis explicitly states that Section 115 "permits the designation of any judicial or arbitral forum so long as the designation does not prevent a stockholder from bringing claims in a court with jurisdiction in this State." (Emphasis added). Manesh argues that an exclusive arbitration provision inherently prevents such access, thereby contravening this mandate.
Further supporting his position, Manesh draws attention to the legislative synopsis for the original Section 115, now recodified as Section 115(a). This earlier synopsis, dating back to 2015, was even more direct, stating that the statute "invalidates such a provision selecting the courts in a different State, or an arbitral forum, if it would preclude litigating such claims in the Delaware courts." The use of the term "arbitral forum" in 2015, Manesh contends, clearly indicates that the statute was designed to preclude exclusive arbitration for claims that could otherwise be brought in Delaware courts.
Parallel Architecture and Judicial Precedent
Manesh emphasizes the parallel structure between DGCL Section 115(a) and Section 115(c). Section 115(a) prohibits charter or bylaw provisions that would preclude the bringing of internal corporate claims in Delaware courts. Section 115(c), in turn, requires that any forum-selection provision for non-internal claims must allow stockholders to bring those claims in at least one Delaware court with jurisdiction. While one subsection employs a negative prohibition and the other an affirmative requirement, Manesh argues that their ultimate effect is the same: ensuring that a Delaware court remains a viable option for stockholders.
This interpretation aligns with the Delaware Supreme Court’s ruling in Salzberg v. Sciabacucchi. In that decision, the court, while addressing federal-forum provisions, noted in dicta that mandatory arbitration clauses for internal corporate claims would violate Section 115. The 2025 synopsis for Section 115(c) explicitly ties the interpretation of the amended subsection back to the Salzberg decision, instructing courts to interpret it in the same manner that the Delaware Supreme Court interpreted Section 102(b)(1) and Section 115 in Salzberg. This linkage reinforces the idea that the legislative intent was to maintain access to Delaware courts.
Furthermore, Manesh refutes the interpretation that the phrase "in their capacity as stockholders" in Section 115(c) would limit its protection only to current stockholders at the moment of filing a lawsuit. Such a reading, he argues, would create an "absurd" distinction where a defrauded stockholder who later sells their shares would lose their recourse, even if the claim and injury remain unchanged. He asserts that the clause is intended to encompass both direct and derivative stockholder claims, aligning with the statutory purpose of protecting stockholders’ access to justice. The argument that federal securities claims can be brought by holders of notes or options who never became stockholders is also addressed; Manesh clarifies that Delaware corporate law’s purview is primarily stockholders, and Section 115(c)’s focus on stock-based federal securities claims is precisely what the statute was designed to regulate.
Section 122(18) and the Corporate Bar’s Consensus
Gavril and Tsui also invoked DGCL Section 122(18) as a potential avenue for companies to circumvent the limitations imposed by Section 115(c). Section 122(18), enacted in 2024, grants corporations broader authority to enter into private contracts with stockholders. However, Manesh explains that this provision was a legislative response to the Chancery Court’s decision in West Palm Beach Firefighters’ Pension Fund v. Moelis & Co., which had limited the scope of private governance agreements. The fix was intended to authorize private contracts with identified stockholders, not to permit generic charter or bylaw provisions binding the entire stockholder body.
The carve-out for Section 115 within Section 122(18) was specifically drafted to enable contracts under Section 122(18). The legislative synopsis for Section 122(18) explicitly states that the proviso excludes Section 115 so that corporations may enter into contracts with exclusive forum and arbitration provisions that do not select Delaware courts for claims under those contracts. Manesh underscores that this carve-out applies to Section 122(18) contracts, not to charter or bylaw provisions, which remain governed by Section 115. These are distinct legal instruments serving different purposes.
Crucially, Manesh highlights the near-unanimous consensus within the Delaware corporate bar following the enactment of Section 115(c). Major law firms and commentators widely interpreted the provision as barring mandatory arbitration of federal securities claims in charters and bylaws. Morris Nichols, in an August 2025 explainer, described Section 115(c) as requiring Delaware-court access for non-internal claims. Following the SEC’s policy reversal in September 2025, several firms identified Section 115(c) as a continuing Delaware law obstacle to mandatory arbitration. Even SEC Chairman Paul Atkins, in a widely reported October 2025 keynote address, referred to Section 115(c) as "a giant step backward," urging Delaware to amend it. This, Manesh argues, was a complaint about a barrier, not a misreading of one. The Freshfields post, appearing nine months after the enactment of Section 115(c), is presented as the first practitioner publication to argue the contrary, making the contemporaneous understanding of the statute particularly significant.
The Federal Arbitration Act (FAA) Preemption Argument
While Manesh firmly believes Delaware law prohibits mandatory arbitration of federal securities claims in charters and bylaws, he acknowledges the FAA preemption argument as a more complex issue, though still not the "slam dunk" that Gavril and Tsui suggest. Manesh, in his coauthored work, posits that the FAA does not preempt Section 115 because the FAA presupposes consent. Supreme Court precedents like Concepcion, cited by Gavril and Tsui, struck down state laws that limited the freedom to contract for arbitration in ordinary private commercial agreements.
However, Manesh argues that a corporate charter is not an ordinary private commercial contract. It is the foundational document of a state-created entity whose existence is contingent on the assent of its chartering state. Delaware, as the chartering state, possesses the authority through its laws to define the permissible terms of this corporate contract. To interpret the FAA as preempting DGCL Section 115 would, in Manesh’s view, contradict the fundamental principle that "arbitration is a matter of consent, not coercion." Such preemption would coerce Delaware into permitting shareholder arbitration, despite its legislative objection.
He further contends that Concepcion and similar cases presuppose an underlying agreement to arbitrate. If the chartering state withholds its assent to arbitration, then an agreement to arbitrate, from a state law perspective, never truly exists. This interpretation, Manesh asserts, is consistent with both the Supreme Court’s arbitration precedents and its long-standing deference to state law in the regulation of internal corporate affairs.
Market Skepticism and the "Can versus Should" Dichotomy
The market’s reaction to the possibility of mandatory shareholder arbitration provides further empirical support for Manesh’s position. Despite the SEC clearing the path for such provisions in September 2025, only one publicly traded company, Zion Oil & Gas (a Texas corporation), has adopted such a clause. SpaceX, also incorporated in Texas, is reportedly planning to follow suit. Significantly, both companies reincorporated or were incorporated in Texas, suggesting that Delaware’s legal framework remains a deterrent. This lack of adoption in Delaware contrasts sharply with the period before Section 115, when no clear legal barrier existed, yet no public company deemed it sufficiently worthwhile to implement shareholder arbitration.
Historical data reveals decades of overwhelming opposition to shareholder proposals mandating arbitration. Shareholder votes on arbitration have consistently failed by large margins, including at prominent companies like Google, Frontier Communications, and Intuit. Major institutional investors, such as CalPERS and the Council of Institutional Investors, categorically oppose mandatory shareholder arbitration, and proxy advisory firms like Glass Lewis have signaled their intent to recommend against directors who adopt such provisions.
Manesh attributes this widespread skepticism to the inherent nature of arbitration. He argues in a forthcoming article that arbitration is "essentially lawless," removing the procedural safeguards of the Private Securities Litigation Reform Act, eliminating class-wide finality, exposing companies to mass arbitration, and substituting opaque arbitral discretion for a developed body of judicial precedent. The purported benefits of arbitration for corporate defendants, he suggests, are often outweighed by these significant drawbacks.
The SpaceX IPO Exception and Broader Implications
The case of SpaceX is presented as an outlier, not a test of Delaware law. SpaceX’s decision to reincorporate in Texas in 2024, prior to the enactment of Section 115(c), means its planned arbitration provision is a Texas-law product. The potential adoption of arbitration by SpaceX and similar high-profile, pre-IPO companies like OpenAI and Anthropic is framed as a market test, particularly concerning the influence of institutional investors. If passive funds are compelled to invest in these companies due to their inclusion in major indices, and active managers feel pressured to match benchmark returns, some institutional investors may concede on governance concerns for these specific high-demand IPOs.
However, Manesh emphasizes that SpaceX is sui generis. Its unique scale and Elon Musk’s celebrity do not translate to ordinary issuers, and the precedent value of any institutional concession in this context is uncertain. Outside the IPO arena, institutional opposition to mandatory arbitration has remained remarkably consistent.
In conclusion, Professor Manesh asserts that while the question of whether companies can adopt mandatory shareholder arbitration of federal securities claims in their charters and bylaws is legally contested, the contest is more confined than suggested by the Freshfields analysis. He reiterates that the Delaware statute, its legislative history, the Delaware Supreme Court, the corporate bar, and the SEC Chairman all interpret Delaware law as barring such provisions. While the FAA preemption argument presents a risk, Manesh maintains that Delaware has a strong legal basis and compelling reasons to defend Section 115.
Ultimately, the question of whether companies should adopt mandatory arbitration is distinct, and the market’s response has been overwhelmingly negative. Successive failed shareholder votes, a lack of Delaware adopters in the eight months since regulatory space was cleared, and the considered judgment of nearly every public-company board that has rejected the option all point to a strong consensus against mandatory shareholder arbitration.
