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By Yin Wilczek
Feb. 17 — Amalgamated Bank has become the latest investor to urge the Delaware Legislature to bar stock corporations from adopting bylaws that shift litigation expenses to the losing party.
In a Feb. 11 letter, the bank told Delaware Gov. Jack Markell (D) and the state's legislative leaders that abrogating the “American rule”—in which each party in a litigation bears its own costs—would be a “serious blow to shareholder rights.”
“We believe that there is an urgent need for legislation to avoid upsetting the delicate balance that exists between the rights of investors and the companies in which they invest their money,” states the letter, signed by Amalgamated Bank President and Chief Executive Officer Keith Mestrich.
In a related release, Mestrich argued that fee-shifting bylaws can deter valid claims from being brought to court because the financial risks of losing are too high.
Fee-shifting bylaws became particularly controversial after ATP Tour Inc. v. Deutscher Tennis Bund, a May 2014 decision in which the Delaware Supreme Court concluded that fee-shifting provisions in the bylaws of Delaware non-stock corporations can be valid and enforceable.
In the wake of ATP, as of January, 39 U.S. companies have adopted fee-shifting bylaws, according to research by Claudia H. Allen, a partner and co-chair of the Corporate Governance practice at Katten Muchin Rosenman LLP.
The Delaware General Assembly is expected to act in May or June to possibly restrict the use of such bylaws, and there is an ongoing case in the Delaware Chancery Court challenging an enacted fee-shifting bylaw.
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