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Dismissal of Bylaw Challenge for Emergent Capital, Inc.

A cross-disciplinary team of Foley lawyers secured a dismissal with prejudice in Florida federal court for Emergent Capital Inc., in a case that could pave the way for companies seeking to minimize meritless shareholder actions. This suit was believed to be the first nationwide to challenge a corporate bylaw requiring minimum-support-to-sue, by which shareholders must have written consent from holders of at least three percent of the company’s shares before suing the company or its directors or officers on behalf of other shareholders in a class action or a derivative action.

In addition to dismissing the complaint with prejudice, the plaintiff issued a statement acknowledging that the board acted in good faith and did not engage in any improper behavior in adopting the bylaw or otherwise. Over 90% of mergers and acquisitions of public companies lead to shareholder lawsuits, most of which are resolved without any monetary benefit to shareholders, while imposing substantial costs. Directors of public companies are closely following activity related to the minimum-support-to-sue bylaw and other bylaws seeking to manage shareholder litigation before it is filed. This resolution leaves the door open for other companies to follow Emergent’s lead and adopt similar bylaws to rein in meritless shareholder lawsuits.