“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]

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