Limiting Litigation Through Corporate Governance Documents

Research Handbook on Representative Stockholder Litigation (Sean Griffith, et al., eds. 2017), Forthcoming

22 Pages Posted: 22 Nov 2016 Last revised: 26 Nov 2016

Ann M Lipton

Tulane Law School

Date Written: November 18, 2016

Abstract

There has recently been a surge of interest in “privately ordered” solutions to the problem of frivolous stockholder litigation, in the form of corporate bylaw and charter provisions that place new limitations on plaintiffs’ ability to bring claims. The most popular type of provision has been the forum selection clause; other provisions that have been imposed include arbitration requirements, fee-shifting to require that losing plaintiffs pay defendants’ attorneys’ fees, and minimum stake requirements. Proponents argue that these provisions favor shareholders by sparing the corporation the expense of defending against meritless litigation. Drawing on the metaphor of corporation as contract, they argue that litigation limits are often enforced in ordinary commercial contracts, and that bylaws and charter provisions should be interpreted similarly.

In this chapter, I recount the history of these provisions and the state of the law regarding their enforceability. I then discuss some of the doctrinal and policy questions that have been raised regarding different types of litigation limits, and the propriety of private ordering in this context. In particular, I explore how corporate managers’ structural and informational advantages may make litigation limits easy to abuse; moreover, litigation itself serves public purposes that may be more appropriately subject to public control.

Keywords: Delaware, corporations, corporate governance, securities, litigation, dispute resolution

Suggested Citation

Lipton, Ann M, Limiting Litigation Through Corporate Governance Documents (November 18, 2016). Research Handbook on Representative Stockholder Litigation (Sean Griffith, et al., eds. 2017), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2872425

Ann Meredith Lipton (Contact Author)

Tulane Law School ( email )

6329 Freret Street
New Orleans, LA 70118
United States

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