How to stop frivolous plaintiff lawsuits? Since 2010, when Vice Chancellor Laster of the Delaware Court of Chancery noted that “if boards of directors and stockholders believe that a particular forum would prove an efficient and value promoting locus for dispute resolution, then corporations are free to respond with charter provisions selecting an exclusive forum for intra-entity disputes,” many public companies have adopted bylaws provisions restricting frivolous derivative lawsuits. As the ABA notes, these so called “forum selection bylaws” are extensions of the forum selection clauses that have long been upheld in contracts.
As anyone who has ever worked on a public merger well knows, within hours after a merger is announced, several plaintiff firms will announce an “investigation” and then file a derivative lawsuit (presumably based on the findings of their thorough “investigation”). Of course, frivolous lawsuits aren’t limited to M&A transactions, but many of these lawsuits follow the same pattern. As a result, public companies have had continued interest in restricting such lawsuits. Forcing plaintiffs to sue in Delaware with a forum selection bylaw is one way to help restrict lawsuits. But, more recently, some companies have become even more creative. Here is a quick chronological summary of the movement to adopt restrictive bylaws:
- March 2010 – Vice Chancellor Laster of the Delaware Court of Chancery suggests
Continue Reading Pushing the envelope with bylaws restricting derivative suits?