June 15, 2015

Delaware House Approves Curb on Fee-Shifting Bylaws

Here’s news from the Delaware Law Weekly (also see this memo):

The state House of Representatives on Thursday unanimously approved SB 75, the annual package of amendments to the Delaware General Corporation Law, which included a measure that would prevent stock corporations from enacting bylaws that impose attorney fees and costs on plaintiffs who lose after filing lawsuits alleging corporate waste or wrongdoing. The measure now goes to the desk of Gov. Jack Markell, who is expected to sign it into law.

“SB 75 helps preserve the balance between shareholders and management and ensures that shareholders in Delaware corporations have access to the Court of Chancery,” said Kelly Bachman, Markell’s press secretary. “The governor would like to thank the Corporation Law Council for its continued efforts to improve Delaware law and preserve Delaware’s place as the leading state of incorporation.”

Approval—which required a two-thirds vote—came on a 40-0 vote with one state representative absent.

Chief Deputy Secretary of State Richard J. Geisenberger came to the chamber before the vote to answer lawmakers’ questions and said its drafters were confident that the bill would maintain the delicate balance of Delaware’s franchise in corporate regulation, which he said is worth $1.1 billion annually to the First State. The state should aim, Geisenberger said, “to strike a balance between the attractiveness of our corporate statute to managers and [the needs of] raising capital from shareholders.”

He added that he did not think banning stock corporations from adopting fee-shifting bylaws posed a risk to Delaware’s attractiveness as a state of choice for incorporation. He stressed that another key provision of the act allows corporations to state in their bylaws that claims under the DGCL be brought only in the courts of Delaware.