United States: Proposed Legislation Would Prohibit Fee-Shifting Bylaws For Delaware Stock Corporations

Within weeks of the Delaware Supreme Court's ATP Tour, Inc. v. Deutscher Tennis Bund decision1 upholding the facial validity of a bylaw provision adopted by a non-stock corporation shifting attorneys' fees and expenses to unsuccessful plaintiffs in intra-corporate litigation, the Corporation Law Section of the Delaware State Bar Association has approved proposed amendments to the Delaware General Corporation Law (DGCL) that would prohibit the adoption of such a fee-shifting provision by Delaware stock corporations in their charters or bylaws. The proposed amendments will now be sent to the Delaware General Assembly for consideration. If approved before the end of the Delaware General Assembly's current session, the amendments would become effective on August 1, 2014.

To avoid adopting a provision that could subsequently be rendered invalid, Delaware stock corporations considering whether to adopt a fee-shifting bylaw should wait to see whether the proposed amendments are enacted into law. Even if the amendments are not ultimately enacted into law, Delaware stock corporations should carefully consider whether a fee-shifting bylaw is in the corporation's best interest and how and when to best adopt such a bylaw.

Proposed DGCL Amendments

New DGCL Section 331 would codify the limited liability nature of corporations by stating that a corporation's charter and bylaws may not impose monetary liability, or responsibility for any of a corporation's debts, on stockholders, except as expressly permitted by DGCL Sections 102(b)(6) (discussed below) and 202 (permitting stock transfer restrictions). A corresponding amendment to Section 114(b)(2) would make clear that the prohibition in Section 331 would not apply to non-stock corporations. As noted in the proposed amendments' synopsis, these amendments are "intended to limit applicability of [the Court's ATP Tour decision] to non-stock corporations, and to make clear that such liability may not be imposed on holders of stock in stock corporations." Since Section 331 is broadly worded, it prohibits not only fee-shifting provisions in charters and bylaws, but practically all charter and bylaw provisions that would impose liability on stockholders.

The proposed amendments would also amend DGCL Section 102(b)(6), which permits a charter provision imposing personal liability for the corporation's debts on its stockholders to a specified extent and upon specified conditions. Section 102(b)(6) would be amended to clarify that any such charter provision must impose liability "based solely on [a stockholder's] stock ownership," and not on any other status or action of the stockholder. As noted in the synopsis, stockholders would remain subject to possible liability arising not from a charter or bylaw provision, but rather on a stockholder's specific act or omission, such as guaranteeing the corporation's debt or tortious conduct.

The synopsis further notes that the amendments are not intended to limit a court's power to impose sanctions under applicable law or the enforceability of any charter or bylaw provision that binds any person pursuant to any separate contract.

Missed Opportunity?

The Court's ATP Tour decision created concern in some quarters that if the holding applied equally to Delaware stock corporations, it would deter potentially meritorious stockholder claims and also erode Delaware's role as the leading arbiter of corporate jurisprudence in the United States. However, in the rush to address the concerns of the Delaware bar, it appears that the proposed legislative fix failed to even consider situations where fee-shifting provisions may be appropriate. Instead of invalidating all fee-shifting provisions included in stock corporations' charters and bylaws, there might have been an attempt to evaluate the potential merit of a limited response to the ATP Tour decision, such as tailoring the amendments to include situations where, upon a balancing of the interests involved, fee-shifting provisions should be permitted. For example, should all intra-corporate suits be treated similarly (for example, claims involving a merger or acquisition compared to claims involving a private company internal conflict)?

Ultimately, it appears that an opportunity was lost to craft a solution to a well-established issue, the growing tide of intra-corporate stockholder litigation, that adequately balances the interests among:

  • the corporations and the insurers that bear the cost of litigation and settlements for the suits settled on a "disclosure only" basis that result in little or no benefit to the stockholders whose interests are ostensibly being championed;
  • the stockholders who truly have a legitimate grievance that would be effectively precluded from access to redress if fee-shifting bylaw and charter provisions were permitted;
  • the State of Delaware to preserve its position as the dominant arbiter of corporate disputes; and
  • other stakeholders, including the lawyers that derive their living from stockholder suits.


1 No. 534, 2013, 2014 WL 1847446 (Del. May 8, 2014), available at http://courts.delaware.gov/opinions/download.aspx?ID=205490. For a discussion of the Court's decision, please see our client alert dated May 15, 2014, Delaware Supreme Court Finds Fee-Shifting Bylaw Permissible.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions