Imperial Asks Court to Dismiss Suit Against Unique Consent-to-Sue Bylaw

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By Michael Greene

June 30 — A speciality financing company is asking a Florida federal court to throw out a lawsuit challenging its consent-to-sue bylaw.

In a June 29 motion to dismiss, Imperial Holdings Inc. argues, among things, that investor Harry Rothenberg has failed to establish that he has been injured by the company's unique bylaw, which 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.

More specifically, the company argues that the bylaw is not blocking the plaintiff from bringing a substantive claim.

“Plaintiff Harry Rothenberg does not like the Bylaw and voted against it. But not liking a Bylaw does not give him standing to sue, as he has no ripe claim that the Bylaw prevents him from pursuing,” the motion states.

The defendant also argues that the plaintiff must try and fail to get at least 3 percent support before he can show that he has been injured by the bylaw.

‘Draconian Bylaw'

Litigation over the disputed bylaw began back in January, when Rothenberg filed a complaint in Florida state court arguing that the “draconian bylaw” was adopted to insulate Imperial's directors from “shareholder redress”. 

The complaint alleged that Imperial directors unilaterally adopted the bylaw against a backdrop of ongoing government investigations and recent settlements, and sought a declaration pronouncing the bylaw invalid, as well as injunctive relief barring its enforcement.

In April, however, Rothenberg voluntarily dismissed his state court lawsuit, opting to pursue his claims in the U.S. District Court for the Southern District of Florida. 

In addition to challenging the bylaw, the federal class action complaint added allegations that directors violated SEC rules §14a-9 and §20(a) by including false and misleading information in the company's April 8 proxy statement.

Restricting Stockholders Litigation Rights?

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.

Other types of litigation reform bylaws include those that mandate fee-shifting, designate an exclusive forum and provide for mandatory arbitration. Earlier this month, Delaware adopted legislation that invalidates fee-shifting provisions in stock corporations and endorses Delaware exclusive forum selection clauses.

The Imperial bylaw, however, appears to be unique to companies controlled by Imperial chairman Phillip Goldstein and GWG Holdings Inc. 

In April, Goldstein told Bloomberg BNA that he didn't believe Imperial's bylaw will receive the same type of pushback that other ligation reform bylaws have provoked.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The motion to dismiss is available at http://www.bloomberglaw.com/public/document/ROTHENBERG_v_GOLDSTEIN_et_al_Docket_No_915cv80505_SD_Fla_Apr_20_2/1.