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Delaware Prohibits Stock Corporations From Enacting Fee-Shifting Bylaws for Intra-Corporate Disputes

07.23.15
On June 24, 2015, Delaware enacted legislation that limits the Delaware Supreme Court’s 2014 decision in ATP Tour, Inc. v. Deutscher Tennis Bund, which upheld the facial validity of a non-stock corporation’s bylaw provisions that require litigation costs and fees to be shifted to the losing party.  The bill, which goes into effect on August 1, 2015, will prohibit stock corporations from adopting certificate of incorporation or bylaw provisions that hold shareholders liable for the corporation’s attorneys’ fees and costs in intra-corporate litigation. Delaware’s legislation appears to settle the controversy generated by ATP Tour as to the scope of the ruling’s applicability. Nonetheless, the new statute leaves some practical questions unanswered—in particular, whether the limitation in the statute’s limitation of the ban to intra-corporate disputes would allow stock corporations to adopt fee-shifting bylaws for federal securities cases.