Cost Recovery in US Shareholder Activism (2015–2025)
As a supplement to my 'True Price of Shareholder Activism' video analysing the cost of the Saba vs UK investment trusts 'saga' I offer this report of US cost recovery cases.
Overview
In the past decade, attempts by US-listed companies to recoup costs from activist shareholders have been rare. Legal frameworks generally discourage shifting a company’s proxy fight or litigation expenses onto shareholders, except in extraordinary circumstances (e.g. contractual fee-shifting or court sanctions for bad faith). Below we detail notable cases where companies sought or achieved cost recovery from activists, either via explicit bylaw/charter provisions or as a result of activist misconduct or bad faith. A comparative summary table follows the case discussions.
Case 1: Allergan vs. Pershing Square & Valeant (2014–2017) – Insider Trading Allegations
Company: Allergan, Inc. (NYSE: AGN)
Activist: Pershing Square (William Ackman) in alliance with Valeant Pharmaceuticals
Year: 2014 events; settled 2017 (within the timeframe due to settlement)
Summary: In 2014, Valeant (a strategic acquirer) teamed up with activist hedge fund Pershing Square to secretly amass a 9.7% stake in Allergan before launching a takeover bid (Pershing Square, Valeant arrive at settlement split for Allergan lawsuit | Reuters). Pershing Square bought shares on inside knowledge of Valeant’s forthcoming bid, driving up Allergan’s stock price once the bid went public. Allergan sued Pershing and Valeant for violating insider trading laws (Rule 14e-3 of the Exchange Act). A class of Allergan shareholders who sold stock before the bid also filed suit.
Legal Basis: Alleged improper conduct – insider trading and breach of federal tender offer rules. Allergan claimed the activist’s conduct was in bad faith and illegal, seeking damages (including covering legal costs and disgorging illicit profits).
Outcome: Facing a strong case, Pershing and Valeant settled in 2017 by paying $290 million. Pershing Square bore ~$193.75 million (two-thirds) and Valeant ~$96.25 million. This payment compensated shareholders who sold stock (effectively recouping losses caused by the activists’ improper tactics). While the settlement was not paid to Allergan (Allergan had since been acquired by Actavis), it stands as a high-profile example of activists footing the bill for misconduct. Ackman publicly stated he settled to avoid “continuing to spend substantial time and resources” on a case he still argued had no merit (Pershing Square, Valeant arrive at settlement split for Allergan lawsuit | Reuters).
Precedent/Implications: This case signaled that aggressive activist tactics can backfire – innovative schemes to gain an edge (like teaming with a bidder to secretly buy stock) may violate securities laws. Activist investors can be forced to pay huge sums if found in violation of law or acting in bad faith. It reinforced the risk that legal violations by activists may lead to cost recovery (or damages) benefiting the company or its shareholders. Future activists became more cautious about information leaks and rule compliance when plotting campaigns, knowing courts can shift costs or impose liability for improper conduct.
Case 2: Nevada Corporate Charter Provisions (2018–2019) – Alternative Jurisdiction Allowing Cost Recovery
Company: (No specific company; Nevada incorporation trend)
Activist: (Applies generally to shareholder-plaintiffs/activists in Nevada corporations)
Year: 2018–2019 legislative developments
Summary: In the wake of Delaware’s ban on fee-shifting bylaws, Nevada sought to position itself as a more management-friendly jurisdiction. In 2019, Nevada lawmakers considered a bill to explicitly allow companies to force shareholders to bear defense costs if a shareholder lawsuit over an M&A deal fails, provided the transaction was approved by a majority of shareholders. The proposal aimed to attract companies to incorporate in Nevada by permitting what Delaware forbids. It was essentially a statutory endorsement of fee-shifting provisions for stock corporations. Governance experts noted this as a direct response to Delaware’s 2015 ban (Nevada lawmakers to consider fee shifting in shareholder litigation | Reuters).
Legal Basis: State law explicitly permitting fee-shifting in corporate charters for certain cases. Nevada’s draft bill would have given companies a charter tool to recoup litigation expenses from shareholder activists who unsuccessfully challenge deals (Nevada lawmakers to consider fee shifting in shareholder litigation | Reuters). (Not strictly proxy fights, but relevant to activists who often litigate M&A or governance issues.)
Outcome: The bill’s fate is illustrative. There was considerable debate about whether such fee-shifting would harm shareholders’ rights. (Activists and proxy advisors strongly oppose these provisions as chilling legitimate oversight (Delaware Bars Fee-Shifting Bylaws Provisions but Allows Delaware ...). The initial proposal in Nevada in 2019 signaled interest in cost recovery mechanisms, but it’s unclear if it passed in full. As of 2025, Nevada has not become a major hub for fee-shifting charters – most U.S. companies remain in Delaware or states without activist cost-shifting. No high-profile case of a Nevada corporation enforcing a fee-shifting provision against an activist has been reported in this period, suggesting the concept remains largely theoretical in practice.
Precedent/Implications: This development showed that outside Delaware, some jurisdictions toyed with allowing cost recovery bylaws/charters. Had it been widely adopted, activists would risk personal financial liability for failed campaigns at Nevada companies. In practice, however, few companies (if any) have tested this. The investor community’s negative view of fee-shifting provisions likely discouraged widespread use – a company that adopted them might suffer reputational and stock price damage (Nevada lawmakers to consider fee shifting in shareholder litigation | Reuters). Thus, while Nevada opened the door a crack, the precedent reinforces that cost recovery via charter is still exceptional and controversial in the U.S.
Case 3: Texas Pacific Land Corp. vs. Horizon Kinetics (2023) – Enforcing Settlement Agreement & Voting Commitments
Company: Texas Pacific Land Corporation (NYSE: TPL)
Activist(s): Horizon Kinetics and co-investors (an activist investor group holding ~22% of TPL)
Year: 2022–2024 (court decision in Dec 2023, affirmed Feb 2024)
Summary: This case arose from a proxy contest settlement agreement. TPL had a long-running dispute with a group of activists during its conversion from a trust to a corporation. In 2020, they settled: activists got board seats in exchange for a standstill and voting agreement committing them to vote with the board’s recommendations on most matters (Voting Commitments Matter and Will Be Enforced: Delaware Supreme Court Affirms Chancery Decision Holding Activist Stockholders to Their Bargain | Enhanced Scrutiny). Fast forward to 2022 – TPL’s board proposed an increase in authorised shares (to enable a stock split). The activist group opposed it, despite the agreement. They voted their 22% stake against management’s proposal, violating the voting commitment. TPL sued in Delaware Chancery to enforce the agreement.
Legal Basis: Contractual cost-shifting or voting provisions. The stockholder agreement likely included provisions for legal remedies (possibly fee-shifting) if breached. More directly, TPL sought specific performance: to have the activists’ shares voted as if in favor, per the contract. Delaware law upholds such private agreements with activists, and courts will enforce them rather strictly (Voting Commitments Matter and Will Be Enforced: Delaware Supreme Court Affirms Chancery Decision Holding Activist Stockholders to Their Bargain | Enhanced Scrutiny).
Outcome: In December 2023, Vice Chancellor Laster ruled decisively for TPL, deeming that under the 2020 agreement the activists should have voted with the board on the share increase (Delaware Court of Chancery Rules in Favor of Texas Pacific Land Corporation on Litigation Related to Stockholders’ Agreement). He ordered that the activists’ shares be counted in favor of the proposal, swinging the result to an approval. The Delaware Supreme Court affirmed this in Feb 2024. As a result, TPL achieved the substantive outcome (its charter was amended and a stock split executed) and demonstrated that activists will be held to their bargains. While the published decisions don’t cite a dollar figure, TPL as the prevailing party can likely recover court costs or attorneys’ fees if the contract contained a “prevailing party” clause. (At minimum, TPL avoided having to incur further proxy contest expenses or lose the vote.) The press release noted the court’s ruling in favor of TPL but did not detail cost recoupment. Even if no explicit fee award occurred, the activists’ breach put them at risk of monetary damages and they undoubtedly bore their own substantial legal expenses.
Precedent/Implications: This case set a powerful precedent that settlement agreements with activists are enforceable – activists who break vote or standstill commitments may not only lose in court but potentially pay the company’s legal costs. It underscored that activists acting in bad faith or reneging on deals can be stripped of their gains (in this case, losing the ability to swing a vote). For future activism, it means boards can negotiate robust agreements (including fee-shifting and voting clauses) to protect against an activist’s backtracking (Voting Commitments Matter and Will Be Enforced: Delaware Supreme Court Affirms Chancery Decision Holding Activist Stockholders to Their Bargain | Enhanced Scrutiny). Should an activist defy such terms, courts will likely side with the company. This gives companies a level of cost protection: rather than another protracted (and expensive) proxy fight, TPL quickly enforced rights in court. Activist investors, especially those entering cooperation agreements, are now on notice that breaching explicit commitments can lead not only to legal defeat but potentially having to foot the bill for the fight.
Case 4: Saba Capital vs. BlackRock Closed-End Funds (2021) – Improper Nomination Conduct
Company: BlackRock Closed-End Funds (e.g. BlackRock Credit Allocation Income Trust and others – Delaware statutory trusts)
Activist: Saba Capital Management (Boaz Weinstein)
Year: 2019–2021 (litigation in 2020, Delaware Supreme Court decision 2021)
Summary: Saba, a hedge fund known for closed-end fund activism, launched proxy contests to elect its nominees to several BlackRock-managed funds. The funds’ bylaws (and nominee questionnaires) had strict advance disclosure requirements. Saba missed a key deadline by only a few minutes in one case, and provided what the fund boards deemed incomplete answers in others ([PDF] in the court of chancery of the state of delaware). The funds’ trustees seized on these technicalities to disqualify Saba’s nominees and refused to count shareholder votes for them. Saba sued, claiming the boards were using “weaponized” bylaw demands to entrench themselves. In one instance, the Chancery Court (Vice Chancellor McCormick) initially sided with Saba, calling some questionnaire items unreasonable and ordering the fund to count the votes (BlackRock Credit Allocation Income Trust, et al. v. Saba Capital ...) (Activist Investors Confront 'Weaponized' Board Nomination Bylaws). The funds appealed.
Legal Basis: Bylaw enforcement (advance notice requirements). The funds argued that Saba’s failure to perfectly comply with bylaw procedures justified excluding its nominees. They effectively treated Saba’s incomplete compliance as improper conduct – not fraud, but a violation of the rules warranting nullifying Saba’s campaign (and saving the funds the cost of a fight). While not a direct cost-recoup clause, the bylaws here protected the company by shifting the consequences of non-compliance onto the activist (who spent money on a proxy fight only to have its effort invalidated).
Outcome: The Delaware Supreme Court in 2021 reversed the Chancery Court and upheld the funds’ strict enforcement of the bylaws. Saba’s nominees were ultimately excluded, meaning the activist lost the proxy contests by default. As a result, the BlackRock funds did not have to incur further costs of a contested election or reimburse any solicitation expenses – a financial win for the funds and a loss for Saba. Although the court’s decision didn’t make Saba pay the company’s legal fees (there was no finding of bad faith by Saba, just failure to meet technical requirements), it denied Saba any reimbursement of its own proxy expenses and cemented the validity of the funds’ defensive bylaws. Saba not only wasted its campaign expenses, but may also have had to pay the funds’ court costs, at least to the extent court rules allow recovery from the losing party (Delaware courts typically make each side pay its own litigation costs absent bad faith, so likely each paid their own).
Precedent/Implications: This case illustrates a softer form of cost recoupment: by enforcing advance notice bylaws to the letter, companies can avoid the costs of battling activists by preemptively disqualifying them. The precedent from the Delaware Supreme Court—emphasizing that even arguably trivial shortcomings can justify excluding an activist slate ([PDF] in the supreme court of the state of delaware)—emboldens boards to adopt and enforce detailed nomination requirements. For activists, it’s a warning: procedural missteps can nullify their campaigns, effectively shifting costs onto them (since the company won’t even go through a vote). While not an example of the activist cutting the company a check, the outcome saved the company significant money and left the activist bearing all expenses for naught. It set an important implication: activists must scrupulously follow bylaw procedures or risk losing by technical knockout, with no recourse to recover their costs and potentially facing an unreceptive court if they claim foul.
Case 5: Other Notable Instances and Context
In addition to the above, a few other instances highlight how cost recovery works in practice:
SEC/DOJ Enforcement Fines: Activist shareholders who violate regulations have faced government penalties. For example, ValueAct Capital took stakes in two merging companies in 2016 and did not properly notify under antitrust rules, claiming to be a passive investor. The DOJ disagreed, deeming them activists in disguise, and ValueAct paid a $11 million fine (How activist hedge fund Politan won $18 million in legal fees ...). While this money went to the government, not the company, it reinforces that rule-bending by activists can be costly. Such enforcement indirectly protects companies by deterring activists from covert tactics that could harm shareholders.
Activist Directors Breaching Duties: When activists gain board seats, they assume fiduciary duties. If they act in bad faith or self-interest, they can be sued and made to compensate the company. A current example is a case against Alex Denner (Sarissa Capital) for his role on the board of The Medicines Company during its sale (Denner was an activist director). Plaintiffs allege he acted in bad faith, concealing information to push a quick sale ([PDF] in the court of chancery of the state of delaware). Should the court find improper conduct, Denner (and Sarissa) could be liable for damages or the company’s legal fees. This would effectively recoup costs from an activist-insider for breaches of duty. (The case is ongoing, but it highlights the potential for cost recovery if activists-turned-directors misbehave.)
Reverse Fee-Shifting (Activists vs Companies): It’s worth noting the flip side: activists sometimes recover expenses from companies. Many proxy contest settlements include the company reimbursing the activist’s costs (essentially the opposite of our focus). For instance, when an activist’s campaign leads to beneficial changes, courts have occasionally awarded fees to the activist under the “corporate benefit” doctrine. A recent example: activist fund Politan Capital won $18 million in fees from Masimo Corp after suing to stop entrenchment maneuvers – Vice Chancellor Cook found Politan’s action conferred a benefit to shareholders by enabling a fair vote (How activist hedge fund Politan won $18 million in legal fees against Masimo | Reuters). While not a case of a company recouping costs, it underscores that courts will shift fees to the wrongdoer (in Politan’s case, the company was the wrongdoer). Thus, fee-shifting can cut both ways: if a company acts in bad faith against an activist, the company might end up paying. This dynamic likely advises caution on both sides: courts use fee awards to penalise bad faith, whether by management or activists.
Conclusion
Overall, true cost recovery by companies from activists has been limited to scenarios involving clear wrongdoing or contractual breaches. Explicit bylaw provisions enabling cost-shifting have not taken root (Delaware outlawed them, and no major test case elsewhere has succeeded). Instead, the legal system’s standard tools – sanctions for bad faith, breach of contract remedies, and violation of securities laws – have been the main avenues for companies to claw back expenses from activists:
When activists cross legal lines (insider trading, disclosure violations, etc.), they risk hefty settlements or judgments that effectively repay the company or its investors for costs/damages caused. The Allergan/Pershing case is the clearest example of this (Pershing Square, Valeant arrive at settlement split for Allergan lawsuit | Reuters).
When activists agree to restrictions (via standstills or voting agreements) and then violate them, courts will enforce those agreements strictly, sometimes effectively nullifying the activists’ efforts and leaving them bearing all costs (Delaware Court of Chancery Rules in Favor of Texas Pacific Land Corporation on Litigation Related to Stockholders’ Agreement :: Texas Pacific Land Corporation (TPL)).
When companies employ procedural defenses like advance notice bylaws, an activist’s non-compliance can justify excluding their proposals – sparing the company a fight and any reimbursement, while the activist’s expenditures go unrecovered (Blackrock Credit Allocation Income Trust v. Saba Capital Master ...).
Conversely, if a company acts in bad faith against an activist, courts can shift costs to the company, as seen in the Politan/Masimo situation (How activist hedge fund Politan won $18 million in legal fees against Masimo | Reuters). This symmetry encourages both sides to act within legal bounds.
Implications for future shareholder activism: Activists must be mindful of bylaws and agreements – technical slip-ups or broken promises can be costly. They must also avoid any appearance of impropriety (insider info misuse, secret group formations, etc.), since those can not only derail their campaign but also result in personal financial liability. For companies, these cases provide a playbook to deter abusive activist behavior: maintain robust bylaws, insist on cooperation agreements when settling, and be willing to litigate if activists step outside the rules. While outright “fee-shifting” provisions are mostly off-limits, companies have managed to recoup costs in roundabout ways by leveraging findings of bad faith or legal violations by activists to either invalidate the activist action or obtain monetary relief. This evolving landscape continues to balance encouraging legitimate activism (which benefits all shareholders) with curbing activist excesses by making the culpable party pay the price – literally, in terms of legal and contest expenses.
Sources: Official court rulings and statutes (Delaware General Corporation Law), SEC filings, and reports from reputable financial and legal news outlets were referenced in compiling these cases. Key references include Reuters and Bloomberg news articles on each incident, Delaware court opinions (Chancery Court Invalidates Bylaw Purporting to Shift Litigation Expenses onto Stockholders Who Violate a Valid Forum-Selection Bylaw | Cleary M&A and Corporate Governance Watch), and Harvard Law School governance forum posts analyzing the legal outcomes. Each case above cites specific sources for verification of facts and outcomes.
Disclaimer: This report is for informational purposes only and does not constitute financial, legal, or investment advice. The views expressed are those of the author, based on online research and available data. Readers should not rely on this content as a substitute for professional advice. We make no representations regarding the accuracy or completeness of the information. Independent legal or financial advice should be sought before acting on any of the report's content.