Francis Pileggi reports that the Delaware bar has recommended to the Delaware legislature a bill that would, inter alia, "limit the ability of corporations to adopt fee-shifting provisions in their charter and bylaws":
The proposed legislation is available at this link. A memo describing the policy analysis on which the proposal is based has also been provided by a cross section of Delaware lawyers representing the major constituencies involved, such as shareholders, directors and corporations. Also available is a FAQ with answers to the most likely questions about the proposed bill.
The key proposed statutory text follows:
Section 2. Amend § 102, Title 8 of the Delaware Code, by adding a new section, § 102(f), shown by underline as follows:
(f) The certificate of incorporation may not contain any provision that would impose liability on a stockholder for the attorneys' fees or expenses of the corporation or any other party in connection with an intracorporate claim, as defined in § 115 of this title.
Section 3. Amend § 109(b), Title 8 of the Delaware Code, by making insertions as shown by underline as follows:
(b) The bylaws may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees. The bylaws may not contain any provision that would impose liability on a stockholder for the attorneys' fees or expenses of the corporation or any other party in connection with an intracorporate claim, as defined in § 115 of this title.
What justifications does the Delaware bar offer for this remarkably pro-plaintiff bill? The FAQ states:
There is no federal or state regulator that enforces the rights of stockholders: they are enforced almost entirely through the mechanism of stockholder lawsuits. A jurisprudence has developed in Delaware over the last hundred years, which has been very successful in regulating this critical relationship. If the ability of stockholders to bring lawsuits were seriously curtailed by fee-shifting provisions, a regulator is quite likely to fill the void--perhaps the federal government.
Fair enough. Delaware's principal competitor as the leading corporate law jurisdiction is no longer the other 49 states, but the federal government. But this just shows the true motive of the lawyers behind this bill: Both Delaware plaintiff and defense lawyers benefit from a system that keeps litigation--lots of litigation--in Delaware courts.
For more on these bylaws see my posts:
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Nov 18, 2014 ... (2) What's in the best interest of the key interest group that would be affected by fee shifting bylaws? As we'll see, I think those questions have ...
www.professorbainbridge.com/.../delawares-decision-viewing-fee-shifting- bylaws-through-a-public-choice-lens.html
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Nov 17, 2014 ... I had been planning on writing a law review article on fee shifting bylaws, but I suspect that events will overtake the inevitably lengthy ...
www.professorbainbridge.com/.../the-case-for-allowing-fee-shifting-bylaws- as-a-privately-ordered-solution-to-the-shareholder-litigat.html
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Oct 2, 2014 ... But if I were, I'd be jumping up and down to get the Committee to follow Oklahoma (of all places) lead on fee-shifting bylaws. Kevin Lacroix has ...
www.professorbainbridge.com/.../oklahoma-leads-on-fee-shifting-bylaws- will-delaware-and-mbca-follow.html
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