Loser-Pays Corporate Bylaws Draw Challenge Over Chilling Effect

Marine Products Corp. and RPC Inc., sister companies run by the same corporate boards, adopted illegal bylaws aimed at chilling litigation by forcing unsuccessful shareholders to pay the company’s legal costs, according to a lawsuit.

Investors sued the two businesses and their directors Tuesday, saying they enacted the bylaws with full knowledge they’re unlawful. When the shareholders sent formal demands putting the companies “on notice of a clear violation of Delaware law,” the board members sent a joint response refusing to hand over any documents and all but daring them to sue, according to the court complaint.

“The fee-shifting ...