More Opposition Expressed Toward Delaware Fee-Shifting

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By Michael Greene

Dec. 5 — The National Conference of Public Employees Retirement Systems (NCPERS) and eight labor unions have become the latest to express concerns about a Delaware Supreme Court decision that allows non-stock corporations to unilaterally adopt fee-shifting bylaws.

In a Dec. 3 letter to Delaware Gov. Jack Markell (D), NCPERS and its labor coalition partners asked “that swift action be taken to restore confidence in Delaware’s corporate law, preserve investors’ rights to enforce the nation’s securities laws, and make clear that corporations and their directors and officers cannot immunize themselves from accountability.”

This request comes just a week after the Council of Institutional Investors sent a letter asking the Delaware State Bar to formulate and recommend a proposal to the Delaware General Assembly that would either overturn or narrow the ATP Tour Inc. v. Deutscher Tennis Bund decision. 

Investors' Rights & Critiques

Responding to a certified question in May in ATP Tour, the Delaware Supreme Court found that fee-shifting provisions in the bylaws of a Delaware non-stock corporation can be enforceable.

According to the NCPERS letter, the sweeping implications of the decision “eviscerates investors' rights and threatens the security of US capital markets,” claiming that interpretations of these bylaws as “contracts” between shareholders and companies effectively eliminates private enforcement of corporate governance and securities laws.

Agreeing with a common criticism, the groups noted that many require investors to be entirely successful on almost every claim to avoid personal liability for litigation expenses. They said that at least 34 corporations have adopted similar bylaws or even more extreme versions than those endorsed by the Delaware Supreme Court.

NCPERS is the largest trade association for public sector pension funds throughout the U.S. and Canada. The eight unions represent more than 16 million public and private sector workers.

Fee-shifting bylaws have been a hot topic since the ATP Tour decision. Both plaintiffs' firms and academics have raised concerns regarding their impact.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com