Delaware Supreme Court upholds fee-shifting provision in company bylaw, signifying a future sea change in corporate litigation

By Jay Coogan and John L Reed

The Delaware Supreme Court, sitting en banc, has held that a Delaware corporate bylaw that requires a losing claimant to pay the legal fees and expenses of the defendants is not invalid per se, and if otherwise enforceable can be enforced against losing claimants whether or not they were already stockholders when the relevant bylaw provision was adopted.

The court’s ruling in ATP Tour Inc et al v Deutscher Tennis Bund et al was in response to four certified questions from the US District Court in Delaware, which had been considering whether to enforce the bylaw provisions in question in a dispute between ATP Tour and some of its members.

In 2006, the board of directors of ATP Tour, a Delaware non-stock (also known as a membership) corporation, adopted a bylaw providing that if any member or members brought or supported a claim against the corporation or any other member, the claimant would then be obligated (and if more than one claimant, jointly and severally obligated) to pay the legal fees and expenses of those against whom the claim was brought if the claimant ‘does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought’. Members of ATP Tour filed claims against the corporation and the board as a result of certain changes to the importance and timing of their tournaments, and the district court, having found for the defendants on all counts, certified the question of the fee-shifting provision to the Delaware Supreme Court…

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