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Delaware Lawyers Draft Legislation to Protect Legal Fees

June 11, 2014 | Posted in : Fee Shifting, Legislation / Politics

Days after a Delaware Supreme Court ruling last month that could help businesses, a group of Wilmington corporate lawyers quickly drafted legislation that the Senate could consider to protect shareholders’ rights and the corporate law practice that comes from such litigation.  The unusually swift action to put a bill before the General Assembly follows the Delaware Supreme Court ruling in ATP Tours Inc v. Deutscher Tennis Bund that upheld a company’s bylaw that the losing party in a shareholder suit pay attorney fees and expenses.

The legislation, Senate Bill 236 (pdf), would amend the Delaware General Corporation Law to prohibit publicly held companies from shifting their fees and expenses onto shareholders.  Private companies that don’t issue stock would still be allowed to include such prohibitions in their bylaws.  Without the law, shareholders would be less likely to file suits if they risk being on the hook for millions in corporate legal fees, lawyers say.

The bill is backed by Democratic lawmakers and the state’s governor.  Proponents say it would protect a respected system of court decision-making on corporate matters that is model throughout the country and makes Delaware a top choice when companies decide where to incorporate.  State taxes and fees from Delaware-based corporations amount to $1 billion annually, according to reports.

Stuart Grant, a successful Wilmington lawyer for shareholders, said, if allowed to stand, fee-shifting bylaws could dramatically slow corporate litigation in Delaware and the development of corporate case law that forms the bedrock of Delaware’s corporate franchise.  Corporations choose Delaware as their legal home for access to the state’s nationally-recognized corporate courts and friendly laws here.  “Nobody would bring shareholder litigation anymore, certainly not in Delaware,” if they risk being stuck with a large legal bill, Grant said.

NALFA also reported on this matter in “Delaware High Court Upholds Attorney Fee-Shifting in Corporate Bylaws”