April 10, 2015
In an extended Q&A with The D&O Diary, BLB&G partner Mark Lebovitch weighed in on the debate concerning fee-shifting bylaws, one of the more significant recent developments in the area of securities and corporate litigation stemming from the May 2014 decision in ATP Tour, Inc. v. Deutscher Tennis Bund.
Along with fellow BLB&G Partner Jeroen van Kwawegen, Mr. Lebovitch co-authored a March 2015 paper (“Of Babies and Bathwater: Deterring Frivolous Stockholder Suits Without Closing the Courthouse Doors to Legitimate Claims” which was published in the Delaware Journal of Corporate Law) sharing their views on controversy and legal and policy issues and concerns arising from the ATP decision. In the paper, the authors argue that fee-shifting bylaws go against well-established legal principles protecting shareholder rights, and provide legal and policy reasons as to why these bylaws and provisions should not be permitted. They also propose alternate solutions to reduce the number of frivolous cases.
Since the ATP ruling, there has been a marked increase in the unilateral adoption by corporate boards of bylaws, including fee-shifting, that threaten shareholder rights and severely restrict the viability of shareholder litigation. According to Mr. Lebovitch, the core problem with the ATP decision is that it “seemed to ignore the inherent conflict of interest in allowing a board of directors to pass a resolution and, voila, become effectively immune to shareholder enforcement of fiduciary and related duties. That conflict is very real.”
Despite the fact that the Delaware legislature is debating a proposed amendment calling for the ban of fee-shifting bylaws, Mr. Lebovitch argues that, nonetheless, the ruling has empowered corporate boards: “I’m concerned that we’ve opened a Pandora’s box and not fully gone back to the status quo. Overly aggressive directors and corporate advisors are now actively exploring creative ways to use bylaws to impair core stockholder rights.”
Mr. Lebovitch leads BLB&G’s Corporate Governance litigation group and has prosecuted numerous high-profile cases on behalf of institutional investors to preliminary injunctions and to trial, obtaining hundreds of millions of dollars for investors and achieving unprecedented corporate governance improvements. He also prosecutes securities litigations, and in that capacity was the lead litigation attorney in In re Merrill Lynch Bondholders Litigation, which settled for $150 million, and a member of the team that prosecuted In re Bank of America Securities Litigation, which recovered $2.425 billion for investors. Mr. Lebovitch has received multiple national recognitions, including being named one of Lawdragon’s “500 Leading Lawyers in America,” a “Litigation Star” by Benchmark, and a “Rising Star” by Law360. He is also recommended by the Legal 500 US guide for his work in M&A litigation.
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