Motion to Drop Unique Bylaw Lawsuit Granted

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By Michael Greene

Sept. 11 — Emergent Capital Inc. Sept. 11 announced that a lawsuit challenging its unique consent-to-sue bylaw has been dismissed.

In an order, Judge Kenneth L. Ryskamp of the U.S. District Court for the Southern District of Florida granted investor Harry Rothenberg's unopposed motion to dismiss derivative and class action claims against the company.

The unique bylaw adopted by Emergent Capital, formerly known as Imperial Holdings Inc., requires shareholders to obtain the written consent of holders of at least 3 percent of the company's stock before bringing a class action or derivative claim.

The plaintiff had sought a declaration that the bylaw was invalid, as well as injunctive relief barring its enforcement.

Unique Bylaw Challenged 

Litigation over the bylaw began in January, when Rothenberg filed a complaint in Florida state court arguing that the provision was adopted to insulate directors of the speciality financing company from “shareholder redress”.

In April, Rothenberg voluntarily dismissed his state court lawsuit, opting to pursue his claims in federal court. In addition to challenging the bylaw, the federal class action complaint added allegations that Imperial Holdings directors violated Securities and Exchange Commission rules.

The parties had exchanged filings disputing, among other things, whether the plaintiff's challenge to the bylaw's validity was ripe for court review.

Lawsuit Dropped

However, Rothenberg last month decided to drop his lawsuit, stating in an Aug. 27 filing that upon “further investigation and Plaintiff’s opportunity to meet with representatives of Imperial Holdings, Inc.'s board of directors, Plaintiff now believes that Defendants acted in good faith and did not engage in any improper behavior, in adopting the bylaw at issue or otherwise”.

Bylaws that restrict the litigation rights of shareholders have been the subject of much debate, with attorneys, academics, institutional investors and business groups weighing in.

Phillip Goldstein, chair of Emergent Capital's board, told Bloomberg BNA Aug. 28 that he believes such bylaws are a “fair and appropriate” way to address frivolous shareholder litigation.

“I think anybody who would say that there is no problem with frivolous lawsuits is not being realistic,” he said at the time. “It’s a drag on the economy” and “this is a way to deal with it.”

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Yin Wilczek at

The order is available at