By: Jonathan Calla
The Council of the Corporation Law Section of the Delaware State Bar Association recently proposed legislative amendments to the Delaware General Corporation Law (DGCL), which would have the effect of invalidating a provision in both the certificate of incorporation and bylaws of a stock corporation, which purports to impose liability upon a stockholder for attorney’s fees or expenses of the corporation in connection with a claim arising under the DGCL, including claims of breach of fiduciary duty by a current or former director or officer or controlling stockholder of the corporation, (an intracorporate claim). The proposed amendments to Sections 102(f) (Certificate of Incorporation) and 109(b) (Bylaws) do not invalidate the decision in ATP Tours, Inc. v. Deutscher Tennis Bund, 91 A. 3d 554 (Del. 2014) which held that a nonstock corporation bylaw is valid which imposes liability for legal fees on certain members who participated in the litigation, and further such proposed amendments do not prevent the application of fee shifting provisions pursuant to a stockholders’ agreement or other agreement signed by the stockholder against whom the fee shifting provision is to be enforced.
A further proposed amendment to Section 115 of the DGCL supports the decision in Boilermakers Local 154 Retirement Fund v. Chevron Corporation, 73 A.2d 934 (Del Ch. 2013), which held that the certificate of incorporation and the bylaws of the corporation may specify that intracorporate claims (as described above) must be brought solely in the courts in the state of Delaware (including federal courts therein). While the above proposed amendment does not preclude the inclusion of a provision in the certificate of incorporation or bylaws that selects a jurisdiction other than Delaware, it would preclude a provision that specifically excludes Delaware courts. As with the proposed amendments in Sections 102(f) and 109(b), Section 115 is not intended to prevent the inclusion of a provision excluding Delaware courts if an agreement related to such subject matter is entered into and such agreement is signed by the stockholder against whom the forum provision is to be enforced. Finally, the proposed Section 115 is not intended to limit or expand the jurisdiction of the Court of Chancery or Superior Court in the State of Delaware.
The above DGCL amendments will be effective on August 1, 2015.
For more information please contact Jonathan M. Calla.