As we have previously discussed, there has been a growing trend of corporations’ adopting various types of bylaws to define the bounds of shareholder litigation. These include forum-selection bylaws (see here) and fee-shifting bylaws (now prohibited in Delaware for stock corporations as discussed here). A novel approach, utilized by at least three Florida corporations, is a minimum-stake-to-sue bylaw that requires shareholders to hold a certain minimum percentage of a company’s outstanding shares to bring a class action or derivative suit.
Last month, the Southern District of Florida dismissed a lawsuit against one of those three corporations (Imperial Holdings, Inc.) seeking a declaration that the minimum-stake-to-sue bylaw was illegal under Florida law. The plaintiff had claimed that Imperial’s directors’ sole intent in adopting the bylaw was to reduce their own risk of liability, which allegedly was a violation of their duty of loyalty to Imperial and its shareholders. The company’s motion to dismiss argued that the bylaw had not harmed the plaintiff and that all shareholders had been fully informed of the bylaw. The plaintiff filed a notice of voluntary dismissal on the same date.
The court’s summary September 9, 2015 decision (available here) granted the plaintiff’s voluntary dismissal, declared that Imperial’s motion to dismiss was moot, and allowed other shareholders to move to intervene within 30 days. No other shareholder moved to intervene. The ruling thus leaves Imperial’s bylaw in force while also serving as a signal to other corporations considering enacting their own minimum-stake-to-sue bylaws. If other such companies follow Imperial’s lead, future litigation against these types of bylaws could ensue.
We will keep you apprised of further developments concerning the use of bylaws to reform intra-corporate litigation.