Delaware state courts have been increasingly skeptical of shareholder litigation designed to achieve quick settlements in which the shareholder class receives enhanced disclosure (which is often little more than cosmetic), defendants receive a release (usually from claims that had little or no chance of success), and plaintiffs’ attorneys receive an agreed-to fee award. In May, the Delaware Supreme Court gave Delaware corporations another arrow in their quiver for fighting shareholder litigation. In ATP Tour v. Deutscher Tennis Bund (German Tennis Federation), 91 A.3d 554 (Del. 2014) (en banc), the court upheld a non-stock corporation’s bylaw requiring unsuccessful plaintiffs to pay the defendant’s attorneys’ fees in intra-corporate litigation. Such a fee-shifting provision could deter many shareholder suits—especially suits that are brought without regard to the likelihood of ultimate success on the merits and solely with an eye toward extracting a settlement.
Because this decision fundamentally alters the playing field for Delaware shareholder litigation, the Delaware General Assembly is considering an amendment to the Delaware General Corporation Law (DGCL) that would limit ATP Tour‘s applicability to non-stock corporations only. That proposed amendment has itself proven controversial; the vote has already been postponed on multiple occasions and has now been delayed until early next year.1 Absent passage of that bill, stock corporations should be free to enact fee-shifting bylaws. But how corporations go about it could be critical to withstanding scrutiny in subsequent shareholder litigation.
