The ban on fee-shifting bylaws is temporarily defeated — four points for public companies

The Delaware state senator responsible for introducing a proposed ban on fee-shifting bylaws has instead sponsored a resolution — unanimously passed in the Delaware state senate — to delay any vote on the proposed ban until 2015.

The delay, introduced on 18 June, came amid intense lobbying against the proposed legislative ban by the US Chamber of Commerce and reportedly at least one large Delaware-headquartered corporation. The proposed ban also enjoyed support from the governor of Delaware and, perhaps not coincidentally, a key Delaware shareholders’ trial lawyer and reported fundraiser for the governor.

What now? A principle reason that companies incorporate in Delaware is the certainty underlying Delaware corporate jurisprudence. While a fight over the ban has been put off for at least six months, public company boards of directors are left with a quandary. The Delaware Supreme Court’s decision in ATP Tours Inc v Deutscher Tennis Bund opened the door for fee-shifting bylaws as being ‘facially valid’, at least for non-stock corporations — and thus presumably regular stock-issuing corporations as well — subject to adoption by a board after due deliberation for a ‘valid corporate purpose’…

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