Following the unexpected May 2014 decision of the Delaware Supreme Court in ATP Tour Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014), upholding the validity of fee-shifting bylaws of a non-stock corporation, the plaintiffs’ and defense bar in Delaware swiftly prepared legislation to ban such provisions in bylaws and charters. Although passage of the bill had widely been expected, following criticism from the US Chamber of Commerce and some public companies, the issue was tabled until the Delaware legislature’s 2015 session.
Continue Reading Delaware Proposal Banning Fee-Shifting and Permitting Exclusive Forum Provisions
Fee-Shifting Bylaw
Delaware Court of Chancery Restricts Board’s Ability to Subject Former Shareholders to New Bylaws
By Zachary Denver on
Posted in Litigation
The Delaware Court of Chancery recently held, in a case of first impression, that a non-reciprocal fee-shifting bylaw cannot be applied to a claim brought by a former shareholder who had been cashed out of the company before the bylaw was adopted.
In May 2014, First Aviation Services, Inc. completed a 10,000 – 1 reverse stock split at the instigation of the CEO and controlling stockholder. As a result of this transaction, Plaintiff Robert Strougo and other shareholders/putative class members were involuntarily cashed out, thereby making First Aviation a privately owned company. Four days later, First Aviation’s Board of Directors adopted a bylaw that applied to current and former shareholders and shifted attorney’s fees and litigation expenses to unsuccessful plaintiff-shareholders, but did not impose a parallel obligation on First Aviation or its officers or directors. Strougo filed suit in June 2014 alleging the reverse stock split was a breach of fiduciary duty and challenging the fee-shifting bylaw.
Continue Reading Delaware Court of Chancery Restricts Board’s Ability to Subject Former Shareholders to New Bylaws