The validity of corporate bylaws providing for fee-shifting in lawsuits brought by shareholders has become a hot topic in the shareholder litigation landscape. In the wake of the Delaware Supreme Court’s 2014 decision in ATP Tour, Inc. v. Deutscher Tennis Bund, upholding a fee-shifting bylaw adopted by a non-stock corporation, boards of Delaware stock companies have adopted similar bylaws. The Delaware legislature is presently evaluating legislation addressing fee-shifting bylaws. Earlier this month, the Council of the Corporation Law Section of the Delaware State Bar Association proposed amendments to the Delaware General Corporation Law (“DGCL”) that would prohibit the inclusion of fee-shifting provisions in stock corporations’ bylaws and certificates of incorporation. The proposed amendments would also add provisions confirming that Delaware companies may include in their certificates of incorporation and bylaws provisions specifying that “intracorporate claims” must be brought only in Delaware.

In a decision of first impression issued this week, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dealt a partial setback to the advance of fee-shifting bylaws, holding that a bylaw adopted after the completion of a company’s 10,000-to-1 reverse stock split will not be applied in a lawsuit brought by a former shareholder who was cashed out in the reverse split prior to the bylaw’s adoption.