Delaware Legislature Won't Vote on Ban On Fee-Shifting Bylaws Before January

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June 25 — The Delaware State Senate will not vote on a bill that would prohibit Delaware companies from making shareholders pay all fees if they file a lawsuit against a company until at least January 2015, after its sponsor delayed debate to hear from business interests.  

Delaware state Sen. Bryan Townsend (D-Newark) said he intends to table the legislation for a few days so that lawmakers can hear concerns of the U.S. Chamber of Commerce and other companies that oppose the measure.

“Delaware truly respects the views of the business community,” Townsend said June 24 from the senate floor. “I'm happy to encourage discussions about ways we can limit frivolous litigation. But the proposed legislation is much more about fundamental principles of Delaware law.”

The corporate law section of the Delaware State Bar Association drafted the bill as a response to a May 8 Delaware State Supreme Court ruling that upheld the conceptual validity of a bylaw that shifted legal bills onto the loser in shareholder litigation (ATP Tour Inc. v. Deutscher Tennis Bund, 2014 BL 129345, Del., No. 534, 2013, 5/8/14). The bylaw was adopted by a private nonstock corporation, ATP Tour Inc.

Some attorneys have expressed concern that public companies could adopt similar measures and stifle shareholder claims.

Resolution Approved

The ATP-style bylaw is a “fundamental limitation on stockholder rights and the ability of stockholders to discourage bad behavior by officers and directors,” Townsend said.

Townsend sponsored a resolution June 25 calling on the state bar association to continue examining possible solutions to the fee-shifting issue. From the Senate floor, Townsend said he wants “legislation that would appropriately address the issue in coming months.”

The Senate unanimously approved the resolution.

The U.S. Chamber's Institute for Legal Reform opposed the legislation and requested that lawmakers delay voting on it. The bill would protect frivolous lawsuits intended to “line the pockets of the plaintiffs' trial bar at the expense of national and Delaware companies and their shareholders,” according to a Chamber letter shared with Bloomberg BNA June 25.