June 09, 2015 Articles

ATP Tour and Delaware's Proposed Legislation: The Investor's Perspective

Learn about the undesirable effects of and possible remedies to this important case

By Jeff Mahoney and Andrew Droste

Corporate accountability suffered a surprising setback last May when the Delaware Supreme Court issued its decision in ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014), granting corporate boards the ability to effectively eliminate an important safeguard of investors’ rights: the private enforcement of statutory and fiduciary obligations of corporate executives and directors.

In ATP Tour, the court permitted the board of directors of a nonstock corporation to unilaterally adopt and enforce a one-sided “fee-shifting” bylaw.  The bylaw provided that any member who brought a lawsuit against the corporation or its members or directors would be liable to pay “all fees, costs, and expenses of every kind and description” if the member was not fully successful or otherwise failed to “substantially achieve, in substance and amount, the full remedy sought.”  Linking fee-shifting to such a heightened standard of success in litigation has the undesirable effect of insulating corporate officers and boards from accountability to their shareowners.

Premium Content For:
  • Litigation Section
Join - Now