Corporate

Update on Fee-Shifting Bylaw Issue in Pending Delaware Court of Chancery Case

 Recent activity in the Delaware Court of Chancery has followed the Delaware Supreme Court’s May 2014 decision in ATP Tour, Inc v. Deutscher Tennis Bund, 91 A.3d 554 (Del. 2014), highlighted on these pages,which upheld a fee-shifting bylaw, at least in principle [an enhanced version of this opinion is available to lexis.com subscribers]. The plaintiff in the pending Delaware Court of Chancery case in Kastis v. Carter, C.A. No. 8657-CB, recently moved to challenge the validity of a bylaw adopted expressly by the defendant corporation to invoke the fee-shifting provided for in ATP. This is a cutting-edge issue in Delaware corporate litigation.  

The defendant corporation, Hemispherx, adopted the fee-shifting bylaw on July 3, 2014, after it became clear that the Delaware General Assembly was not going to act to disallow such provisions in response to the Court’s decision in ATP. On July 18, 2014, Hemispherx notified the plaintiff in Kastis that it had adopted the bylaw and intended to apply it retroactively, invoking it in the pending Chancery case. Kastis quickly filed a motion to invalidate the bylaw.[1]  Both parties briefed the issue.[2]  After an August 12 teleconference with the Court, in which the Court indicated that the plaintiff needed to amend its complaint to challenge the validity of the bylaw, Plaintiff moved, on August 22, for leave to amend its complaint.[3]  Again, both parties submitted briefing.[4]

Surprisingly, after briefing, the parties agreed just this week not to apply the fee-shifting bylaw to any aspect of the litigation. They informed the Court that they had agreed “that the bylaw will have no application to this litigation, and [Hemispherx] will not assert the bylaw as a basis for fee-shifting in this case.”[5]  Accordingly, since the fee-shifting bylaw was no longer at issue, plaintiffs’ Motion for Leave to Amend its complaint was denied.[6]  Although the case will continue its progress in the Court of Chancery on other issues, the issue of whether Hemispherx’s bylaw is valid or enforceable will no longer be addressed.

Aimee Czachorowski, an associate in our Wilmington office, contributed to this post.

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The following referenced court filings in the Kastis case are hyperlinked together as one pdf.

[1] July 21, 2004 Motion to Invalidate Retroactive Fee-Shifting and Surety Bylaw or, in the Alternative, to Dismiss and Withdraw Counsel.

[2] Hemispherix Response and Plaintiffs’ Reply Brief.

[3] Plaintiffs’ Motion for Leave to File an Amended Complaint.

[4] Defendants’ Response to Plaintiffs’ Motion For Leave to File an Amended Complaint and Motion for Partial Stay.

[5] September 16, 2014 letter to Chancellor Bouchard.

[6] September 16, 2014 Order.

 Read more Delaware business litigation case summaries and commentary on Delaware Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X. Pileggi, of Eckert Seamans.

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