Fee-Shifting Prohibition Clears a Hurdle

May 20, 2015

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Last week, the Delaware Senate, in response to a prior Delaware Supreme Court ruling that was previously discussed here, voted to approve legislation that would prohibit corporations from adopting charter or bylaw provisions that shift a corporation’s legal costs to stockholders who are unsuccessful in litigation with respect to an “internal corporate claim” (defined in the legislation as “claims, including claims in the right of the corporation, (i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity, or (ii) as to which this title confers jurisdiction upon the Court of Chancery”). 

Also worthy of note, the legislation provides that “the certificate of incorporation or the bylaws may require, consistent with applicable jurisdictional requirements, that any or all internal corporate claims shall be brought solely and exclusively in any or all of the courts in this State, and no provision of the certificate of incorporation or the bylaws may prohibit bringing such claims in the courts of this State.”  The legislation, which, as previously discussed here, has been controversial, is now headed to the Delaware House of Representatives where it will, no doubt, be the subject of much discussion and debate.

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