Uncovering Hidden Conflicts in Stockholder Class Action Litigation

Stockholder representatives in class and derivative actions are supposed to share in any recovery on the same terms as other stockholders.[1]  Absent court approval, class counsel typically cannot share fee awards with their clients.[2]  Indeed, class-action litigator William Lerach famously served time in federal prison after pleading guilty to a conspiracy charge related to the payment of kickbacks to class plaintiffs.[3]

Direct payments between class counsel and their clients are the most obvious means of encouraging plaintiffs to bring cases, but there are others.  For instance, in a recent federal securities class action involving State Street Bank … Read more

“No Pay” Bylaws May Threaten Shareholder Lawsuits

After Delaware prohibited fee-shifting provisions in corporate bylaws,[1] scholars considered alternate means by which corporations might use private ordering to limit the ability of stockholder plaintiffs to bring lawsuits challenging corporate actions.  For instance, Professor Sean Griffith suggested that corporations should adopt “no pay” provisions that, unlike fee-shifting provisions, would prohibit a corporation from paying the legal fees of stockholder plaintiffs.[2]  Griffith’s proposal is similar to one put forward by another Delaware practitioner shortly before the fee-shifting ban.[3]  Other commentators have suggested that such “no pay” bylaws may be the wave of the future.[4]

“No pay” … Read more