July 07, 2015 Practice Points

Legislative Prohibition on Fee-Shifting Signed into Law by Delaware Governor

The law prohibits Delaware companies from passing liability for attorney fees and expenses of the corporation to shareholders seeking to bring an internal corporate claim.

By George Aguilar and Michael Nicoud

The recent edition of the Securities Litigation Journal, Spring 2015, Vol. 25 No. 3, focused on the much-discussed adoption of fee-shifting provisions in the bylaws of Delaware companies and the issues it presents. Included in the issue was our article, Fee-Shifting After ATP Tour (log-in required)In a recent development regarding the legislative response in Delaware discussed in the article, a legislative prohibition on fee-shifting was signed into law by Delaware Governor Jack Markell on June 24, 2015. The law prohibits Delaware companies from passing liability for attorney fees and expenses of the corporation to shareholders seeking to bring an internal corporate claim. It also confirms the ability of Delaware companies to require that such claims be brought in the Delaware courts.

The law was initially drafted by the Corporation Law Council, a committee of the Delaware State Bar Association, in response to the Delaware Supreme Court's decision in ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014). In ATP, the court opined that fee-shifting bylaws are permissible under Delaware law but that their enforcement is subject to equitable review. Shortly after the decision, companies—at last count more than 70—began to add such provisions to their bylaws. The law was proposed by its drafters and sponsor, Delaware State Senator Bryan Townsend, as a balanced approach to concerns expressed at both ends of the spectrum by shareholder advocacy groups and the U.S. Chamber of Commerce as it also specifically endorses Delaware bylaw forum selection clauses, another issue that has provoked substantial debate.

George Aguilar and Michael Nicoud, Robbins Arroyo LLP, San Diego, CA


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George Aguilar and Michael Nicoud – July 7, 2015