Last month, the Delaware Supreme Court ruled that a board-approved provision in a non-stock corporation’s bylaws shifting legal expenses in intra-corporate litigation to unsuccessful claimants can be valid in Delaware. Although ATP Tour v. Deutscher Tennis Bund1 pertained to a non-stock corporation, the decision has provoked an outpouring of debate because its reasoning applies equally to stock corporations. Some have warned that widespread adoption by Delaware corporations of fee-shifting bylaws could upend intra-corporate litigation by deterring even meritorious stockholder claims. At the same time, advisers to Delaware stock and non-stock corporations have paused to analyze ATP Tour and evaluate whether it is in the best interest of corporations and their stockholders to adopt fee-shifting bylaws.
Delaware legislation has already been proposed that would limit the applicability of ATP Tour to non-stock corporations and mandate that no charter or bylaw provision may impose monetary liability on stockholders of Delaware stock corporations except under traditionally limited circumstances. If the Delaware General Assembly approves the legislation before the end of the current session (June 30), these amendments would become effective on Aug. 1, 2014. This column examines this fluid situation and offers practical guidance to boards and their advisers.
