Fee Shifting Bylaws: Strougo v. Hollander (Part 2)

The complaint sets out the text of the bylaw adopted by First Aviation that is being challenged in Strougo v. Hollander. The bylaw provides: 

  • Section VII.8. Expenses for Certain Actions. In the event that (i) any current or prior stockholder or anyone on their behalf (collectively a “Claiming Party”) initiates or asserts and (sic) claim or counterclaim (collectively a “Claim”), or joins, offers substantial assistance to or has a direct financial interest in any Claim against the Corporation or any director, officer, assistant officer or other employee of the Corporation, and (ii) the Claiming Party (or the third party that received substantial assistance from the Claiming Party or in whose Claim the Claiming Party has a direct financial interest) does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then each Claiming Party shall be obligated jointly and severally to reimburse the Corporation and any such director, officer, assistant officer or employee for all fees, costs and expenses of every kind and description (including, but not limited to, all reasonable attorneys’ fees and other litigation expenses) that the parties may incur in connection with such Claim. 

The bylaw is relatively typical. It applies to any current or prior shareholder and anyone acting on their behalf. The bylaw also requires a shifting in any claim or counterclaim and is not limited to derivative actions. Finally, the bylaw provides for a shifting of fees unless the plaintiff obtains a judgment on the merits that "substantially achieves" the full remedy sought (something described by the plaintiffs as an "impossibly high standard of success").    

Primary materials, including the complaint, can be found at the DU Corporate Governance website.

J Robert Brown Jr.