Stay current on changes and developments in corporate law with a wide variety of resources and tools.
Oct. 8 — During an Oct. 7 teleconference, Chancellor Andre G. Bouchard agreed to determine issues regarding the applicability of a fee-shifting bylaw before any other matters in a class action lawsuit pending before the Delaware Chancery Court, according to attorneys for both parties.
The plaintiff's challenge to First Aviation Services, Inc's bylaw could be the first test of the Delaware Supreme Court's ATP Tour decision endorsing the conceptual validity of “loser-pays” bylaws.
The plaintiff is challenging both the applicability of the bylaw, as well as its scope. The court also authorized the parties to conduct discovery to support briefing on the matter.
According to Sidney Liebesman, Montgomery McCracken Walker & Rhoads LLP, who is representing the plaintiff, all briefing on the bylaw challenge should be completed by January; the plaintiff expects to submit his initial brief in early December.
In Strougo v. Hollander, the plaintiff filed an Sept. 24 amended class action complaint, which included a challenge to First Aviation's bylaw that would allow the company to recoup litigation expenses from the plaintiff if he is unsuccessful in his lawsuit.
According to the complaint, “the Bylaw imposes an obligation on Plaintiff to pay ‘for all fees, costs, and expenses of every kind and description' incurred by defendants if Plaintiff fails to ‘obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought.'”
This challenge came just more than a week after another company, faced with a lawsuit in the Delaware Chancery Court, elected not to pursue a fee-shifting bylaw it had enacted in the wake of ATP Tour.
According to the amended complaint in Strougo, First Aviation adopted a fee-shifting provision in its bylaws “mere weeks” after it publicly announced a reverse share split in the company's common stock, which underlies the class action, and the bylaw was not voted on by the stockholders. Additionally, the plaintiff asserted that he only learned of the bylaw after he filed the class action complaint.
The plaintiff alleges that the provision “was adopted with the goal of stifling litigation arising out of the Transaction” and “imposes an impossibly high standard of success.” The amended complaint further states that “it is a flagrant violation of Delaware public policy to adopt a fee-shifting provision on the heels of a major corporate change.”
Gustavo F. Bruckner, Pomerantz LLP, who also is representing the plaintiff, told Bloomberg BNA that “while our client believes this action is meritorious we cannot ignore the tremendous financial liability that is potentially faced here even if we succeed on most but not all of his claims.”
Responding to a certified question in May in ATP Tour Inc. v. Deutscher Tennis Bund, the Delaware Supreme Court found that fee-shifting provisions in the bylaws of a Delaware non-stock corporation, which would allow the company to recoup litigation expense from unsuccessful plaintiffs, can be enforceable.
The decision set off a flurry of legislative activity and reactions among the corporate community; recent estimates have the number of companies who have adopted such provisions since ATP Tour at 18.
Delaware State Sen. Bryan Townsend (D-Newark) sponsored a bill that would prohibit Delaware companies from adopting “loser pays” bylaws. However, Townsend in June tabled debate on the matter to hear from business interests. Accordingly, the Delaware General Assembly will not decide until 2015 whether to amend the state's General Corporation Law to restrict these bylaws..
On Oct. 9, the Securities and Exchange Commission's Investor Advisory Committee (IAC) planned to discuss companies' adoption of fee-shifting bylaws relating to intra-company litigation.
To contact the reporter on this story: Michael Greene in Washington at email@example.com
To contact the editor responsible for this story: Ryan Tuck at firstname.lastname@example.org
A link to the amended complaint in Strougo is available at http://www.bloomberglaw.com/public/document/CONF_ORD_ON_DISC_Strougo_Robert_vs_Aaron_P_Hollander_Docket_No_97.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)