Lawsuits Over Delaware Only Rules
As a georgia business lawyer, several recent lawsuits by shareholders against fortune 500 companies over the practice of the boards to include in the corporations by-laws rules that limit lawsuits by shareholders only to the State of Delaware peeked my interest. The center of the plaintiffs’ claims is that such a limitation in corporate by-laws violates shareholders’ rights given the fact that in Delware courts, these matters would be heard by a judge not a jury. Furthermore, punitive damages are banned in Delaware courts. Having been Alpharetta attorneys for many years, we have often advised corporate clients to incorporate in Delaware instead of Georgia to take advantage of some of these rules.
What makes this even more interesting is the fact that the very by-laws that are being sued over by shareholders cannot be adopted by the Board without shareholder approval. Thus, whether these lawsuits will survive very long in court is certainly in question at this point. Moreover, these exclusive forum selection clauses are not new in the law. Such provisions are very common place in contracts between parties and have been upheld time and time again by courts across the country.
It certainly will be interesting to see where these lawsuits go and whether additonal shareholder activists decide to file similar suits against other companies that have passed exclusive forum selection provisions in their by-laws. As atlanta business litigation lawyers, I can tell you once the flood gates are opened, many more lawsuits are bound to be filed.
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