DealLawyers.com Blog

May 8, 2015

Will Delaware’s Fee-Shifting Bylaw Bill Be A Boon To Other States?

Here’s a blog by Allen Matkin’s Keith Bishop: Late last week, Senate Bill 75 was introduced in Delaware. This bill is in part a reaction to the Delaware Supreme Court’s holding in ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014) upholding as facially valid a bylaw imposing liability for certain legal fees of the nonstock corporation on certain members who participated in the litigation. The bill adds a new paragraph (f) to Section 102 of the Delaware General Corporation Law as follows:

The certificate of incorporation may not contain any provision that would impose liability on a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with an internal corporate claim, as defined in § 115 of this title.

SB 75 also amends Section 109(b) to add a similar proscription to the Bylaws. According to the bill’s synopsis, neither provision is intended to preclude a fee shifting agreement in a stockholders agreement or other writing signed by the stockholder against whom the provision is to be enforced. In typical Delaware fashion, however, you can’t find those words in the text of the bill. One can only wonder at the irony of a statute of frauds that itself is not a statute and not in writing.

Assuming SB 75 is enacted, it will be interesting to see whether it will have the effect of driving companies to other states that permit fee-shifting bylaws.