In Lawsuit, Shareholders Argue Fee-Shifting Bylaw Inequitably Adopted

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By Yin Wilczek

March 23 — Shareholders have filed a lawsuit in New York state court against Winthrop Realty Trust arguing that a fee-shifting bylaw it enacted is invalid and unenforceable.

According to their complaint, filed March 19 in New York State Supreme Court, Winthrop's board of trustees adopted the bylaw while the parties were in the middle of “good faith negotiations” in connection with a breach of contract lawsuit that the shareholders said they were about to file.

“The timing, together with the wording of the Fee Shifting Provision itself, makes plain that the Fee-Shifting Provision was adopted for the inequitable purpose of attempting to dissuade the Preferred Shareholders from bringing the legitimate breach of contract lawsuit,” their complaint states.

‘Without Merit.'

Michael Ashner, Winthrop's chairman and chief executive officer, March 23 told Bloomberg BNA that the lawsuit is “without merit.”

“The company and its counsel believe that the bylaw was validly authorized and duly enacted,” Ashner said.

According to the complaint, Winthrop's fee-shifting bylaw allows the firm to seek recovery of litigation expenses from those—including “current or prior” shareholders—that file claims against it and “do not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought.”

The plaintiffs—Winthrop preferred shareholders—were in settlement negotiations over a breach of contract issue regarding whether their shares were properly redeemed. They allege that the fee-shifting bylaw was adopted the same day they said they would delay the filing of their action if Winthrop was interested in negotiating a settlement.

The plaintiffs are represented by Andrew Leblanc, Milbank, Tweed, Hadley & McCloy LLP, Washington.


Fee-shifting bylaws were thrust into the spotlight by the Delaware Supreme Court in ATP Tour Inc. v. Deutscher Tennis Bund. In the May 2014 ruling, the state high court found that fee-shifting provisions in the bylaws of a Delaware non-stock corporation can be enforceable.

Since the decision, about 40 companies have enacted fee-shifting bylaws, according to research by Claudia H. Allen, a partner and co-chair of the Corporate Governance practice at Katten Muchin Rosenman LLP.

Earlier this month, in Strougo v. Hollander—Delaware's first potential test case for such provisions—the Delaware Chancery Court sidestepped the general validity issue, but found a fee-shifting bylaw unenforceable based on the timing of its enactment.

Also this month, the Delaware State Bar's Corporation Law Council proposed long-expected legislation to restrict the ability of stock corporations to adopt fee-shifting bylaws.

The Delaware legislative developments may not impact Winthrop given that it is a real estate investment trust organized under Ohio laws.

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Ryan Tuck at

The complaint is available at