Peter Ladig reports:
Chancellor Bouchard who issued his opinion in Strougo v. Hollander, C.A. No. 9770-CB (Del. Ch.) on March 16, 2015 ... addressed plaintiff’s motion for partial judgment on the pleadings that a fee-shifting bylaw adopted after the challenged transaction did not apply to him. The Court found that the fee-shifting bylaw did not apply to the plaintiff in this case, and in reaching this conclusion, made some interesting comments that will undoubtedly further the debate over the proposed legislation to eliminate fee-shifting bylaws and regulate forum selection bylaws. ...
The Court then stated:
As a practical matter, therefore, applying the Bylaw in this case would have the effect of immunizing the Reverse Stock Split from judicial review because, in my view, no rational stockholder – and no rational plaintiff’s lawyer – would risk having to pay the Defendants’ uncapped attorneys’ fees to vindicate the rights of the Company’s minority stockholders, even though the Reverse Stock Split appears to be precisely the type of transaction that should be subject to Delaware’s most exacting standard of review to protect against fiduciary misconduct. This reality demonstrates the serious policy questions implicated by fee-shifting bylaws in general, including whether it would be statutorily permissible and/or equitable to adopt bylaws that functionally deprive stockholders of an important right: the right to sue to vindicate their interests as stockholders.
Notwithstanding this stinging language, the Court found that it did not need to reach those issues, because the motion before it focused solely on the timing of the adoption of the bylaw.
With a proposal to ban fee shifting bylaws pending before the Delaware legislature, it is hard to see this unnecessary dicta as anything but a judicial intervention in the political process designed to give ammunition to the opponents of fee shifting provisions. Of course, it's not terribly surprising that a trial judge would intervene in a debate that could effect Delaware lawyer incomes and do so in a way that helps protect those incomes, but it's still disturbing.
For my argument that banning fee shifting bylaws is classic interest group legislation intended to protect the incomes of lawyers rather than to benefit society, see:
Nov 18, 2014 ... (2) What's in the best interest of the key interest group that would be affected by fee shifting bylaws? As we'll see, I think those questions have ...
For my argument that allowing fee shifting bylaws is the correct public policy outcome, see:
Nov 17, 2014 ... I had been planning on writing a law review article on fee shifting bylaws, but I suspect that events will overtake the inevitably lengthy ...