Delaware governor signs bill eliminating fee-shifting bylaws

Public companies cannot adopt bylaws that shift the cost of legal action onto shareholders under a law passed by the Delaware Legislature and signed by the governor Wednesday.

The measure was prompted by a May 2014 Delaware Supreme Court ruling allowing companies to adopt such bylaws.

The new law allows Delaware corporations to adopt bylaws requiring internal corporate disputes to be handled in Delaware courts, and companies cannot bar those claims.

Groups like the Council of Institutional Investors support the new law, which they said strengthens shareholder accountability of Delaware companies.

Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform, said allowing fee-shifting bylaws would have helped to deter “abusive” merger-and-acquisition lawsuits. Ms. Rickard said in a statement that with so many corporations registered in the state, “Delaware has also effectively authorized consolidation of much of merger-and-acquisition litigation in its own courts and promised the business community that its system will not tolerate lawsuit abuse and will fairly and actively weed out frivolous shareholder cases. The business world will be watching carefully to see if that promise holds true.”