Unmeritorious shareholder litigation is a persistent problem for U.S.-listed public companies. Delaware, where so many public companies are incorporated, has taken this issue seriously. A recent Delaware Supreme Court ruling provides a potential new option for corporations (and their directors and officers) to avoid frivolous litigation. The new protection involves corporations adopting the English Rule when it comes to attorneys’ fees.
In the United States, we normally follow the “American Rule” when it comes to the cost of litigation: absent extraordinary circumstances, the winners and the losers in any adjudicated matter each pay their own legal bills, regardless of the litigation’s outcome. Even if a defendant wins a total victory in court, the defendant will still bear the cost of paying his or her lawyers. The public policy purpose of the American Rule is to enhance plaintiff access to the court system.
