Corporate Governance » Delaware Decision Said To Be A Blow To Shareholder Lawsuits

Delaware Decision Said To Be A Blow To Shareholder Lawsuits

GAVEL STRIKE 420

October 28, 2014

Earlier this year the Delaware Supreme Court ruled that a company could write bylaws that would require shareholder plaintiffs to pay the company’s legal costs if they do not prevail. Since the decision was handed down in May, more than two dozen companies have written fee-shifting provisions into their bylaws or IPO statements. New York Times business writer Gretchen Morgenson, while acknowledging such bylaws will reduce the number of frivolous lawsuits, maintains they also will chill lawsuits that have merit and get company executives and directors who breach their fiduciary duty off the hook. These provisions are “a nuclear weapon against shareholders,” says one law professor. The question now is: Are there counter-moves the SEC could make in response to this decision, and if so will it make them?

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