PART II – 2013 Law Eliminates Statutory Authority to Recover Attorneys’ Fees in Derivative Litigation

Court Ordered Derivative Expenses Awarded in Shareholder ProceedingPART II – 2013 Changes to the Iowa Business Corporation Act.

This post addresses yet another substantive change to Iowa law – as adopted by the 2013 legislature – and which relates to the ability to recover reasonable attorneys fees in derivative litigation.  The 2013 bill amends existing Iowa law (Iowa Code Section 490.746) by eliminating a court’s statutory authority to award attorneys’ fees incurred in a derivative proceeding.  The amended subsection (below and redlined) removes all prior references to  recovering attorneys fees and simply permits an award of expenses:

On termination of the derivative proceeding, the court may do either any of the following:

1.  Order the corporation to pay the plaintiff’s reasonable reasonable expenses, including attorney fees if it finds that the proceeding has resulted in a substantial benefit to the corporation.

2.  Order the plaintiff to pay any defendant’s reasonable reasonable expenses, including attorney fees incurred in the proceeding, if it finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose.

Iowa Code Section 490.746.  Prior to the new language reproduced above, this Code section provided statutory authority to a court to award expenses and reasonable attorney fees.  As evidenced above, the 2013 changes eliminate all references to attorney fees, and thereby eliminates a court’s statutory authority under this subsection to award attorneys fees.  Despite the change, a court may still order a corporation to pay the plaintiff’s expenses (defined in Iowa Code Section 490.140) if the court determines that the proceeding has resulted in substantial benefit to the corporation and alternatively may order the plaintiff to pay the defendant’s expenses if it finds the proceeding was commenced without reasonable cause or for an improper purpose (Iowa Code Section 490.746).  As a result of this change, shareholder plaintiffs may think twice about asserting a claim on behalf of their entity to correct wrongdoing as they are no longer able to recover attorney fees (under this subsection) personally expend in prosecuting a lawsuit.

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About Matthew McKinney

Attorney focused on civil and commercial litigation.
This entry was posted in Business Owner, Director, Intra-corporate dispute, Litigation, Manager, Member, New Law, Officer, Partners, Partnership, Shareholder and tagged , , , , , , , , , , , , , , . Bookmark the permalink.

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