Delaware Senate approves fee-shifting curbs

The Delaware Senate on Tuesday approved legislation that limits adoption of fee-shifting bylaws to privately held corporations only.

The legislation follows a May 2014 Delaware Supreme Court ruling allowing companies to adopt such bylaws. While the decision in ATP Tour Inc. et al. vs. Deutscher Tennis Bund allowed a private corporation to amend its bylaws to make litigants personally liable for legal expenses, dozens of public companies unilaterally adopted similar or even more restrictive fee-shifting provisions following the ruling.

Groups like the Council of Institutional Investors support the legislation limiting such provisions, arguing that it strengthens shareholder accountability of Delaware companies.

Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform, said the legislation “threatens Delaware’s billion-dollar incorporation franchise” because it fails to expand judicial authority to combat “meritless and abusive lawsuits.”

The Delaware House has yet to take up the legislation.