Delaware Bar Association Legal Council Recommends Fee Transfer Limits

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A 2014 Delaware Supreme Court ruling allowing companies to shift legal fees to suing investors could be largely overturned, following recommendations made by experts at the State Bar of Delaware.

State lawmakers have asked the Delaware State Bar Association’s Corporate Law Council to rule on whether companies can pass fee transfer bylaws. Calling them “problematic” for state-owned companies, council members called on March 6 for legislation only allowing private companies. “The transfer of fees effectively eliminates the rights of shareholders, because disputes between shareholders are the only method to enforce them,” say the recommendations.

Board members said their recommendations were necessary “to maintain a balanced status,” but business groups hoping to fight what they see as an epidemic of shareholder litigation – especially involving mergers and acquisitions – have been disappointed. This is “a huge victory for the Delaware lawsuits at the expense of shareholders of Delaware corporations,” said Lisa Rickard, president of the US Chamber Institute for Legal Reform.

The bar council also recommends prohibiting the selection of courts in other states for shareholder disputes against Delaware corporations and eliminating nuisance valuation lawsuits after company mergers.

The proposal benefits investors and the state, said Jeff Mahoney, general counsel for the Council of Institutional Investors. “The exclusion of fee-shifting provisions strengthens the accountability of Delaware corporations to their shareholders. It also ensures Delaware’s preeminence as an arbitrator of commercial disputes in the United States. “

If the executive committee of the bar association approves the recommendations, they will be forwarded to the Legislative Assembly.


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