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Delaware Bar Reacts to Recent Decision on Fee Shifting Bylaws

Corporate and Securities Alert | May 27, 2014
By: Marc Casarino and Lori Smith

The Delaware Supreme Court’s May 8, 2014 opinion in ATP Tour, Inc. v. Deutscher Tennis Bund held that a fee-shifting bylaw of a Delaware non-stock corporation is not facially invalid. The ATP case has caused a stir in the business and legal communities because the logic of its ruling arguably extends to stock corporations, and potentially paves a course for corporations, to enact a variety of bylaws tending to chill intracorporate litigation.  For a more detailed analysis of the ruling and its implications, see New Strategy for Deterring Intracorporate Litigation?: Delaware Supreme Court Supports Fee-Shifting Bylaws.

The stir over the ATP ruling has prompted the Corporate Law Section of the Delaware State Bar Association to circulate proposed amendments to the Delaware General Corporation Law designed to limit applicability of fee-shifting bylaws to only non-stock corporations.  The proposed amendments would modify section 102(b)(6) and add new section 331 to the DGCL.  If passed into law, the changes to the DGCL would make facially invalid any provision in a certificate of incorporation or bylaw that imposes monetary liability or responsibility for any debts of the corporation on a stockholder, except as otherwise permitted by the DGCL.  For example, the amendments, as currently proposed, would not affect a stockholder’s liability not arising from a charter or bylaw provision, such as guaranteeing the debt of the corporation or engaging in tortious conduct affecting a third person.

White and Williams will continue to monitor and report upon the implications of the ATP holding, and legislative effort to limit its applicability.  In the meantime, for additional information on these matters, please contact Marc Casarino (casarinom@whiteandwilliams.com | 302.467.4520) or Lori Smith (smithl@whiteandwilliams.com | 212.714.3075).

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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