The Delaware Legislature and Fee Shifting Bylaws

The Delaware legislature has taken steps towards the adoption of amendments to the Delaware General Corporation Law (DGCL) that would prohibit fee shifting provisions in the articles and bylaws. The language in the legislative proposal, however, addresses fee shifting provisions only in the context of "internal corporate claims." Some have raised concerns that this language would allow for fee shifting provisions that applied to other types of actions, including at least some cases brought under the securities laws.

In fact, the Delaware General Corporation Law already appears to prohibit the adoption of bylaws and certificate provisions that apply to causes of action unrelated to internal corporate claims. As a result, there was no reason for the Delaware legislature to expressly bar fee shifting provisions in these types of actions. See Staying in the Delaware Corporate Governance Lane: Fee Shifting Bylaws and a Legislative Reaffirmation of the Rules of the Road

J Robert Brown Jr.