Corporate Law

Plaintiffs lawyers fight 'loser-pays' bylaw adopted in middle of shareholder suit

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A shareholder suit over $2.5 million in bonuses paid to executives of a pharmaceutical company is the latest battleground in an ongoing fight over a new corporate “loser-pays” bylaw that may have gotten a green light from the Delaware Supreme Court earlier this year.

The bylaw at issue in the Hemispherx BioPharma Inc. case not only holds plaintiffs in shareholder derivative litigation responsible for the company’s attorney fees and costs if the company successfully defends, but it applies retroactively to all pending litigation and requires shareholders to post a bond, the Wall Street Journal Law Blog (sub. req.) reports.

Now the lawyers representing the plaintiffs are crying foul, calling the new bylaw “invalid, unenforceable and against public policy” in a motion that asks a Delaware Chancery Court judge to invalidate the fee-shifting provision. If the motion doesn’t succeed, they want to withdraw from the case.

Attorney Michael Kelly represents Hemispherx. “Whatever one’s view of whether a corporate fee-shifting right should exist in Delaware law, it is clear the right presently exists,” he tells the newspaper. “As long as it does, we can expect corporations to use it as a sword against cases that corporations themselves deem to be empty and frivolous.”

Related coverage: “New bill could nix top Delaware court’s OK of loser-pays rule for attorney fees in corporate cases”

Bloomberg BNA: “Delaware Courts Leave Attorneys Tweaking Bylaws, Pondering What Is a Fair Price and Attorneys’ Fee Award”

Wall Street Journal Law Blog: “Two Companies Say Yes to New ‘Loser Pays’ Option”

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