Today the Delaware Court of Chancery issued an opinion in Strougo v. Hollander, C.A. No. 9770-CB (Del. Ch. Mar. 16, 2015), on an issue of first impression.  The Court did not decide the merits of the underlying complaint; the only issue before the Court on the narrow motion for partial judgment on the pleadings was whether a fee-shifting bylaw could apply to the plaintiff stockholder when it was adopted after the challenged reverse stock split that extinguished the stockholder’s interest, but before the stockholder brought suit.

The Court did not discuss the merits of the fee-shifting bylaw, but held that only the bylaws in effect at the time of the transaction extinguishing his interest could be applied the plaintiff based on principles of conventional contract law, and its interpretation of DGCL section 109 as only applying to current stockholders.  The Court did not address equitable considerations.  Although it did not decide the issue of fee-shifting bylaws on the merits, the Court, in dicta, was critical of them in the context of this case.

As discussed previously on these pages, legislation is currently under consideration that would prohibit fee-shifting bylaws in stock corporations.

Supplement: Professor Bainbridge comments on the dicta in this case in connection with the good professor’s opposition to fee-shifting legislation that has been proposed. At least one Delaware lawyer makes the case also in opposition to fee-shifting.