Limiting Frivolous Shareholder Lawsuits Via Fee-Shifting Bylaws: A Call for Delaware to Overturn and Revise Its Fee-Shifting Bylaw Statute

Abstract

Shareholder lawsuits have become an epidemic, with lawsuits being filed after almost every merger or acquisition, costing corporations and shareholders billions of dollars. With little substantive and successful reform measures at the federal and state level, corporations have begun to take matters into their own hands, including adopting corporate bylaws to deter these lawsuits. This Note examines the Delaware Supreme Court’s controversial decision in 2014, ATP Tour, Inc. v. Deutscher Tennis Bund, in which the court approved the adoption of fee-shifting bylaws by corporations. It further examines the Delaware State Legislature’s subsequent prohibition of fee-shifting provisions and explores the possibility that ambiguity in the legislation may allow fee-shifting bylaws in securities class action lawsuits. This Note argues that corporations should be statutorily allowed to adopt fee-shifting bylaws subject to shareholder approval and a maximum relief standard. With minimal chance that the Delaware legislature will immediately overturn its legislation, it argues alternatively that the Delaware courts should narrowly interpret the current statute so as not to not apply to securities class action lawsuits.