Last year on May 8, 2014, the Delaware Supreme Court in ATP Tour, Inc. v. Deutscher Tennis Bund ruled that a fee-shifting provision in a non-stock corporation’s bylaws were not per se “invalid” and would not necessarily be unenforceable even if they were adopted to deter litigation, particularly by shareholders in derivative suits.
Generally, “fee-shifting” is the ability of a winning party in a lawsuit to transfer its legal fees to the losing party upon case resolution. The Court in ATP held that such fee-shifting provisions in the bylaws of a Delaware corporation are facially valid under Delaware law and enforceable even against parties who joined the corporation before the bylaw was adopted.
Since the ATP case, companies and practitioners alike have discussed the extent to which this opinion applied to traditional stock corporations—many of which are incorporated in Delaware. However, such speculation came to an end last month on June 24, when Delaware Governor Jack Markell signed into law a bill that prohibits public companies from adopting bylaw provision that shifts legal fees to the losing party in shareholder litigation.
While the governor’s office maintains that this ban strikes a balance between shareholder suits and management concerns, critics claim that it encourages increasingly aggressive and litigious investors. Only time will tell how much the bill protects the interests of both parties.
S.P. Slaughter
Follow me on Twitter: @SP_Slaughter
Generally, “fee-shifting” is the ability of a winning party in a lawsuit to transfer its legal fees to the losing party upon case resolution. The Court in ATP held that such fee-shifting provisions in the bylaws of a Delaware corporation are facially valid under Delaware law and enforceable even against parties who joined the corporation before the bylaw was adopted.
Since the ATP case, companies and practitioners alike have discussed the extent to which this opinion applied to traditional stock corporations—many of which are incorporated in Delaware. However, such speculation came to an end last month on June 24, when Delaware Governor Jack Markell signed into law a bill that prohibits public companies from adopting bylaw provision that shifts legal fees to the losing party in shareholder litigation.
While the governor’s office maintains that this ban strikes a balance between shareholder suits and management concerns, critics claim that it encourages increasingly aggressive and litigious investors. Only time will tell how much the bill protects the interests of both parties.
S.P. Slaughter
Follow me on Twitter: @SP_Slaughter
Related Attorneys
Partner
