Justice Hold Fee-Shifting Bylaw Not Per Se Invalid

The Delaware Supreme Court has now opened the door for corporations, in the context of intra-corporate disputes, to avoid the so-called "American rule," under which each party bears its own costs regardless of which party prevails. Specifically, the court held that a corporation may adopt a bylaw provision that provides for fee-shifting similar to the so-called "English rule," under which a nonprevailing party must pay the fees and expenses of its adversary. While such bylaws are relatively rare, this recent decision will undoubtedly encourage corporations to adopt them. Time will tell whether the Supreme Court's decision will chill future shareholder litigation.

In ATP Tour v. Deutscher Tennis Bund, No. 534, 2013 (Del. May 8, 2014), the Delaware Supreme Court addressed questions of law certified by the U.S. District Court for the District of Delaware relating to a fee-shifting provision in the bylaws of a Delaware non-stock corporation. The bylaws permitted the