Teleconference Set to Determine Limits on Discovery in Fee-Shifting Bylaw Challenge

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By Michael Greene

Nov. 19 — Chancellor Andre G. Bouchard sent a letter Nov. 18 confirming a teleconference to decide whether to further limitdiscovery and briefing in on an ongoing Delaware Chancery Court lawsuit challenging the applicability of a fee-shifting bylaw.

Accordingly, a teleconference will be held Nov. 25 to determine whether issues regarding the timing of a fee-shifting provision can be resolved before any other matter in the case.

Bylaw Timing

In the underlying case, plaintiff minority stockholder filed a Sept. 24 amended complaint against First Aviation Services, Inc. and its board of directors alleging a breach of fiduciary duty.

The amended complaint included a challenge to a bylaw that would allow First Aviation to recoup litigation expenses from the plaintiff if he is unsuccessful in his lawsuit.

During an Oct. 7 teleconference, Chancellor Bouchard agreed to determine issues regarding the applicability of a fee-shifting bylaw before any other matters in the case.

Plaintiff has since proposed to even further limit the issues that can be decided first in this case.

In a Nov. 6 letter to the court, plaintiff alleged that timing issues are dispositive in determining the bylaw's applicability. Accordingly, he plans to file a motion for partial summary judgment on this basis.

The plaintiff, however, seeks to retain his right to pursue all other claims if his motion is denied, such as the breadth of the bylaw.

The defendants' attorney responded by sending a Nov. 7 letter opposing plaintiff's proposal. According to the defendants, the proposal is not “an efficient way to proceed” in this case.

‘ATP Tour.'

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 can be enforceable. The decision set off a flurry of legislative activity and reactions among the corporate community; experts have estimated that at least 24 companies have adopted one-way bylaws.

Both plaintiffs' firms and academics have raised concerns regarding the impact of such bylaws. Moreover, in an Oct. 29 letter addressed to SEC Chairman Mary Jo White, Sen. Richard Blumenthal (D-Conn.) criticized ATPTour.

The Delaware General Assembly is scheduled to take up a bill in January that would prohibit all “loser pays” bylaws.

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

To contact the editor responsible for this story: Kristyn Hyland at khyland@bna.com

Plaintiff's letter is available athttp://www.bloomberglaw.com/public/document/CONF_ORD_ON_DISC_Strougo_Robert_vs_Aaron_P_Hollander_Docket_No_97/1.

Defendants' letter is available athttp://www.bloomberglaw.com/public/document/CONF_ORD_ON_DISC_Strougo_Robert_vs_Aaron_P_Hollander_Docket_No_97/