Road Ahead for Fee-Shifting Bylaws Still Unclear

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By Michael Greene

Sept. 23 — The debate over whether companies should adopt fee-shifting bylaw or charter provisions hasn't ended with the enactment by Delaware of amendments restricting their enforcement, an attorney said Sept. 22.

While Delaware's legislative amendments answered some questions, others remain open, said Lindsay B. Schall, an associate based in McGuireWoods LLP's Charlotte, N.C., office. The open questions include:

• whether the amendments permit fee-shifting in matters that don't constitute “intracorporate claims”;

• how other states will proceed; and

• whether the amendments create an opportunity for other states seeking to lure corporate business from Delaware.

 

Meanwhile, companies that are considering adopting fee-shifting provisions should tread carefully, Schall said, speaking at a webinar hosted by her firm.

Following Delaware's Lead?

Last month, Delaware legislation that bars stock companies from adopting loser-pay bylaws became effective. 

How other states will react to these amendments remains to be seen, Schall said. She noted that some states—seeing it as an opportunity to attract business—may take the opposite approach to Delaware. She cited Oklahoma, which last year became the first state to enact legislation mandating that the non-prevailing party in derivative lawsuits bear the winner's litigation expenses.

According to Schall, at least 70 companies—some incorporated outside Delaware—went ahead and adopted fee-shifting bylaws while the Delaware legislation was pending.

As a practical consideration, Schall suggested that corporations seeking to take advantage of more fee-shifting friendly jurisdictions proceed with caution when mulling the adoption of such provisions.

Before acting, they should consult their shareholders, Schall said, adding that both Institutional Shareholder Services Inc. and Glass, Lewis & Co. LLC have taken stances against bylaws that mandate fee-shifting when they are adopted without shareholder approval.

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

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com