Abstract

In response to a perceived increase in the amount of frivolous stockholder litigation, corporations have begun to insert provisions in their corporate governance documents that restrict shareholders’ ability to pursue private litigation. This chapter sheds light on how these limitations, such as forum selection clauses, arbitration clauses, feeshifting agreements, and minimum stake requirements, could be abused. The chapter begins with the historical evolution of these provisions and the shifting legal justifications for them. The chapter then explores some policy concerns regarding these limitations, including the scope of the limitations, the enforceability of such limitations, and, more broadly, the theoretical inquiry as to whether such limitations are appropriate for inclusion in corporate governance documents in the first instance. The author concludes that the answer can shift one way or another depending on whether one views the function of shareholder litigation as providing for compensation or deterrence.