ATP Tour, Inc. v. Deutscher Tennis Bund, Del. Supr., No. 534, 2013 (May 8, 2014) [an enhanced version of this opinion is available to lexis.com subscribers].
Momentous Issue Addressed: The Delaware Supreme Court decided certified questions of law for the District of Delaware regarding whether it was consistent with Delaware law for a bylaw provision to provide for shifting attorneys’ fees to an unsuccessful plaintiff pursuing intra-corporate litigation. Short Answer: Such a bylaw provision is generally enforceable.
Potential Widespread Impact: This opinion may embolden directors to make this fee-shifting provision a common feature of corporate bylaws of Delaware companies. It may also be the “magic bullet” that addresses the scourge of shareholder litigation (as seen from the directors’ viewpoint), to the extent it may discourage “less meritorious” intra-corporate litigation. Conceptually, this opinion should be compared to the Chancery decision on forum-selection bylaw provisions, which the Supreme Court never reviewed because the appeal was voluntarily withdrawn.
Brief Overview: The plaintiff in this case is a Delaware non-stock membership corporation that operates a global professional men’s tennis tour. Its members include professional tennis players and entities that operate professional tennis tournaments.
The bylaws, to which members agreed to be bound, were allowed to be amended from time to time and include a provision that requires members who unsuccessfully sue the corporation to pay reasonable attorneys’ fees incurred in that litigation. Several of the members sued the corporation and its board in the United States District Court for the District of Delaware alleging both federal antitrust claims and Delaware fiduciary duty claims. Upon remand from the United States Court of Appeals for the Third Circuit, the District Court was instructed to address the Delaware state law issues regarding the enforceability of the bylaw provision of the non-stock corporation. The District Court certified those questions to the Delaware Supreme Court.
The Delaware Supreme Court observed that DGCL Sections 114 and 109(b) provide that the provisions of the DGCL apply to non-stock corporations and all references to the stockholders of a corporation are deemed to apply to members of a non-stock corporation.
Other general principles that have broad application and should be of interest to most corporate and commercial litigators include the following:
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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