Delaware Decision May Hinder Shareholder Suits

The highest court for the leading state for incorporating a company has made a ruling that could significantly dissuade shareholders from bringing suits against companies.

In ATP Tour Inc. v. Deutscher Tennis Bund¸ the Delaware Supreme Court held that a fee-shifting provision adopted by a corporation is valid under state law. This means that a minority shareholder could be held liable for all of the attorney fees and costs if the suit is unsuccessful. Proponents of fee-shifting bylaws believe that these measures by private companies help thin out weak suits and make plaintiffs and their attorneys think before filing.

See Debra Cassens Weiss, Delaware Decision Could Spur Fee-Shifting Bylaws, Putting a Damper on Shareholder Suits, ABA Journal, May 20, 2014.