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The Delaware law that prohibits fee-shifting to losing shareholders includes a provision validating that Delaware corporations can adopt bylaws designating the state's courts as the exclusive forum for shareholder litigation.
Experts say this was a counterbalancing measure. It was “trying to draw some sort of balance between the plaintiffs' bar and the defense bar,” said Jonathan E. Richman, a partner with law firm Proskauer Rose L.L.P. in New York.
“The plaintiffs' bar is obviously happy there won't be fee shifting, and the defense bar likes having the exclusive forum bylaws, so each is getting something out of this,” said Mr. Richman.
The hope is the exclusive forum measure will eliminate multijurisdictional litigation, said Kevin LaCroix, executive vice president at RT ProExec, a division of R-T Specialty L.L.C. in Beachwood, Ohio.
Five years ago about a third of merger and acquisition deals attracted lawsuits, while now nearly all such deals do, he said. “Not every M&A transaction is worth a lawsuit,” said Mr. LaCroix.
With enforcement of exclusive forum bylaws, Delaware is beginning to address the issue of excessive M&A litigation, said Aron Izower, a partner with law firm Reed Smith L.L.P. in New York.
“The Delaware judiciary seems to be taking a harder look at these suits and the value that is added by the plaintiff attorneys in relation to the fees charged by such firms,” he said.
Recent Delaware legislation that would prohibit a likely curb to shareholder lawsuits means business' rising litigation costs remain largely unaddressed.