A Most Adequate Response to Excessive Shareholder Litigation

37 Pages Posted: 29 Feb 2016 Last revised: 20 Jan 2017

Date Written: February 29, 2016


Although Delaware statutes as recently amended prohibit charter and bylaw provisions that would shift fees to stockholders in litigation involving the corporation’s internal affairs, those statutes leave open the possibility that charter and bylaw provisions may regulate other aspects of such stockholder litigation, in addition to choice of forum. This article suggests that the enforceability of such provisions should depend on their tendency to deter or eliminate meritless litigation while not unduly deterring meritorious litigation. The article examines a bylaw under which a stockholder claim would be dismissed if a committee chosen by the largest stockholders affirmatively supported such dismissal. The article evaluates this proposal against the backdrop of previous attempts to limit stockholder litigation, namely security for expenses statutes, special litigation committees in derivative suits, the “most adequate plaintiff” provision of the Private Securities Litigation Reform Act of 1995, and a recently adopted bylaw requiring consent of 3% of the stockholders in order to initiate a stockholder class or derivative action.

Keywords: shareholder litigation, bylaws, derivative suits, special litigation committees

JEL Classification: K22

Suggested Citation

Hamermesh, Lawrence A., A Most Adequate Response to Excessive Shareholder Litigation (February 29, 2016). Hofstra Law Review, Vol. 45, 2016; Widener University Delaware Law School Legal Studies Research Paper Series No. 16-01. Available at SSRN: https://ssrn.com/abstract=2739750 or http://dx.doi.org/10.2139/ssrn.2739750

Lawrence A. Hamermesh (Contact Author)

Widener University Delaware Law School ( email )

4601 Concord Pike
Wilmington, DE 19803-0406
United States
302-477-2132 (Phone)
302-477-2257 (Fax)

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