Parties Dispute Whether Unique Bylaw Suit is Ripe

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By Michael Greene

Aug. 11 — A lawsuit challenging the validity of Imperial Holdings Inc.'s consent-to-sue bylaw could be decided on whether the plaintiff's claims are ripe for court review.

In an Aug. 10 filing, the defendants argued, among other assertions, that investor Harry Rothenberg hadn't asserted a cognizable injury and that his “dislike of the hypothetical deterrent effect of the Bylaw” doesn't provide standing.

The disputed bylaw, which appears to be unique to companies controlled by Imperial chairman Phillip Goldstein and GWG 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 bylaw currently is being challenged in the U.S. District Court for the Southern District of Florida.

Advisory Opinion?

“None of Plaintiff’s claims seek redress for an actual ripe injury in fact. Rather, Plaintiff seeks an advisory opinion on the enforceability of the Bylaw—an opinion this Court has no authority to issue,” the defendants' reply in support of their motion to dismiss stated.

Conversely, Rothenberg, in a July 16 opposition to the defendants' motion to dismiss, claimed that his lawsuit is ripe for adjudication because Florida statutory authority expressly allows shareholders to challenge a corporation's power to act.

He further asserted in the July filing that courts have “repeatedly found such challenges to corporate bylaw provisions to be ripe for review upon enactment of the provision,” citing the Delaware Chancery Court's landmark ruling in Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A. 3d 934 (2013), as an example.

Unique Bylaw Challenged

Litigation over the disputed bylaw began in January, when Rothenberg filed a complaint in Florida state court arguing that the bylaw was adopted to insulate Imperial's directors from “shareholder redress.” The plaintiff 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 federal court. In addition to challenging the bylaw, the federal class action complaint added allegations that directors violated Securities and Exchange Commission rules by including false and misleading information in the company's April 8 proxy statement.

The defendants June 29 filed a motion to dismiss the case, asking the federal court to throw out the plaintiff's claims on several grounds. In response, the plaintiff filed his July opposition to the motion asserting, among other arguments, that his claims are ripe for review and that he adequately pleaded demand futility.

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

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

The defendants' reply is available at http://www.bloomberglaw.com/public/document/Rothenberg_v_Goldstein_et_al_Docket_No_915cv80505_SD_Fla_Apr_20_2

The plaintiff's opposition to 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