March 20, 2015

More on “Fee-Shifting & Exclusive Venues: Delaware Legislature Proposes Amendments”

I’ve been posting memos about Delaware’s proposed amendments about fee-shifting & exclusive bylaws. Professor John Coffee recently penned this blog – “Delaware Throws a Curveball” – which bears reading. Here is the intro:

Since the Corporation Law Council of the Delaware State Bar Association announced earlier this month that it was recommending statutory amendments to prohibit “loser pays” fee shifting bylaws and charter provisions (and thus overrule the Delaware Supreme Court’s 2014 decision in ATP Tour v. Deutscher Tennis Bund[1]), a predictable reaction has followed. Plaintiff’s attorneys and most academics applauded the decision, fearing that the alternative would be the death knell of private enforcement. In contrast, conservatives have attacked the proposed legislation, seeing it as the end of Delaware’s position as the champion of “enabling” corporate legislation and predicting that Delaware would lose market share to other, more permissive jurisdictions in the market for corporate charters. Although the Corporation Law Council usually dictates corporate law legislation in Delaware, lobbyists are at work on both sides, and the outcome is uncertain.

Yet, even with a battle brewing, no one seems to have read the statute closely. Had these commentators focused on the actual language of the proposed legislation, they would have discovered that the legislation does not quite do what either side in this debate thinks it does. Perhaps it is too late in the day to expect legal academics to actually read legislation before turning to economics or political theory, but this instance is especially symptomatic. Outdated as my “old school” approach may be, I will begin with the proposed statutory language. The Corporation Law Council (a 22 member body) has proposed changes to Sections 102 and 109 of the Delaware General Corporation Law (“DGCL”), which provisions regulate the contents of the certificate of incorporation and the bylaws, respectively. The proposed legislation will provide that neither the certificate of incorporation nor the bylaws may contain a provision that “imposes liability on a stockholder for the attorney’s fees or expenses of the corporation or any other party in connection with an intracorporate claim.”[2] As later stressed, this would represent only a partial repeal of the ATP Tour decision’s broader acceptance of the theory that the bylaws are a contract that can bind shareholders retroactively, and it still leaves open the ability of board-approved bylaws to impose liability on shareholders in other contexts. But, at first glance, the above language may indeed seem to preclude “loser pays” fee-shifting provisions.

Also see this Akin Gump blog