On June 18, 2014, the Delaware State Senate and House of Representatives passed, with the approval of the Governor, Senate Joint Resolution No. 12, which directs the Delaware State Bar Association, its Corporate Law Section and the Council of that section to continue examining the proposed amendments to the Delaware General Corporation Law regarding fee-shifting by-laws and other aspects of corporate litigation. The resolution follows the recent proposal approved by the Delaware State Bar Association, and now in the Senate, to amend the DGCL to limit to non-stock corporations the Delaware Supreme Court's holding in ATP Tours, Inc., et al. v. Deutsch Tennis Bund, et al., No. 534, 2013, (Del. May 8, 2014) that fee-shifting by-laws are facially valid. (For more on the holding and proposed legislation, see Legal Updates, ATP Tour: Delaware Supreme Court Upholds Fee-shifting By-laws if Adopted for Proper Purpose and Proposal to Limit "ATP Tour" Decision on Fee-shifting By-laws.)

The joint resolution implies that the Governor and the Delaware General Assembly support the proposed legislation in order to preserve the balance between the interests of directors, officers and controlling stockholders, on the one hand, and the interests of other stockholders on the other, and avoid a chilling effect on meritorious litigation that broad fee-shifting by-laws could create. However, the resolution also recognizes the proliferation of "meritless and duplicative litigation," particularly within the context of public M&A transactions, and the costs borne by the corporations' stockholders as a result. Therefore, the General Assembly and the Governor seek further examination into possible provisions of the certificate of incorporation, by-laws and similar entity documents that affect:

These issues have all been the subject of recent writing by Practical Law's Corporate team. For more background information, see:

The resolution also specifically directs that the examination consider the appropriateness of any further amendments or modifications to the proposed fee-shifting by-laws legislation, which should be presented to the next session of the General Assembly for consideration. While the resolution does not offer specific suggestions for these modifications, some ideas could include allowing corporations to:

The resolution emphasizes the "balanced and flexible" nature of Delaware corporate law and Delaware's status as the domicile most favored by investors in, and managers of, publicly traded companies. The state's legislative and judicial branches have an interest in protecting that franchise. This requires particular care at the point where issues of access to justice intersect with the contracts theory of by-laws. As confirmed in the Delaware Supreme Court's decision in Airgas and cited in ATP Tour, the court's view of by-laws is that they are contracts among a corporation's stockholders (Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182, 1188 (Del. 2010)). However, under this theory, many provisions for passing along costs to stockholders, previously unheard of, can conceivably be contracted for. The legislative branch will have to weigh the logical conclusions of the contracts theory against a public policy that favors access to courts for meritorious litigation.