Delaware’s Ban on Fee-Shifting: A Failed Attempt to Protect Shareholders at the Expense of Officers and Directors of Public Corporations

In 2014, the Delaware Supreme Court issued its opinion in ATP Tour, Inc. v. Deutscher Tennis Bund, which held that non-stock Delaware corporations may validly enact fee-shifting provisions in their bylaws and certificate of incorporation. Subsequently, the Delaware Legislature, fearing that the ATP Tour decision would extend to stock corporations, amended Title 8 of the Delaware Code (DGCL) Sections 102(f) and 109(b). These amendments provide for a blanket prohibition of fee-shifting provisions in a Delaware corporation’s certificate of incorporation or bylaws, respectively, in regard to “internal corporate claims.” Such a prohibition eliminates the possibility for a Delaware corporation to enact a fee-shifting provision in its bylaws or certificate of incorporation to combat the excessive levels of shareholder derivative suits. This note analyzes the new amendments to the DGCL and argues that they are problematic for several reasons, one of which is that the new amendments incentivize frivolous shareholder litigation. Furthermore, this note predicts that the new amendments will lead to an increase in shareholder derivative suits, especially with respect to mergers and acquisitions litigation. Ultimately, the Delaware Legislature should give autonomy back to Delaware corporations and re-amend the DGCL to allow corporations to enact fee-shifting provisions, provided that such provisions (1) require two-way fee-shifting, and (2) place a cap on the amount of attorneys’ fees, costs, and expenses that may be shifted