Delaware Supreme Court Approves Fee-Shifting Bylaw for Non-Stock Corporations

In its May 8, 2014 decision in ATP Tour, Inc. v. Deutscher Tennis Bund, No. 534, 2013, --- A.3d ----, 2014 WL 1847446 (Del. May 8, 2014), the Delaware Supreme Court may have opened the door to the adoption by Delaware corporations of a bylaw provision that shifts litigation expenses to shareholders when they bring, and lose, intra-corporate litigation claims against the corporation and its directors and officers.

The adoption of such a bylaw provision should now be carefully considered by the Boards of Directors of Delaware corporations as a way to manage litigation risks.

What Does A Fee-Shifting Bylaw Provide?

In 2006, the Board of ATP Tour, Inc. ("ATP"), a Delaware non-stock membership corporation that operates a global professional men's tennis tour ("the Tour"), adopted the fee-shifting bylaw provision. ATP's Bylaw Article 23.3(a) provides, in relevant part as follows:

In the event that (i) any [current or prior member or Owner or anyone on their behalf ("Claiming Party")] initiates or asserts any [claim or counterclaim ("Claim")] or joins, offers substantial assistance to or has a direct financial interest in any Claim against the League or any member or Owner (including any Claim purportedly filed on behalf of the League or any member), and (ii) the Claiming Party (or the third party that received substantial assistance from the Claiming Party or in whose Claim the Claiming Party had a direct financial interest) does not...