Delaware Senate Bill 75 (“SB 75”) was approved by the House of Representatives on June 11, 2015 and signed into law by Delaware Governor Jack Markell on June 25. The new law enacts two very significant changes to the Delaware General Corporation Law, effective August 1, 2015:
- As previously reported, the first change concerns shareholder fee-shifting provisions via amendments to 8 Del. C. §§ 102, 109 and 115. These amendments essentially ban charter or bylaw provisions that would shift responsibility for legal fees or expenses to shareholder plaintiffs who unsuccessfully litigated an “intracorporate claim.” Proponents of the legislation maintained that, in the wake of the widely-publicized holding in ATP Tour Inc. v. Deutscher Tennis Bund, et al., 91 A.3d 554 (Del. 2014) (upholding nonstock membership corporation bylaw provision requiring payment of fees and expenses by members who pursued litigation that did not substantially achieve “the full remedy sought”), this measure is necessary to maintain the balance between the considerable latitude generally given to Delaware corporations to self-govern and, on the other hand, the ability of shareholders to meaningfully enforce the duties and obligations owed to them and the enterprise.
- The second change, also reported previously (see hyperlink above), concerns the use of charter and by-law forum selection provisions via an amendment to 8 Del. C. § 115. This amendment confirms, as held in Boilermakers Local 154 Retirement Fund v. Chevron Corporation, 73 A.2d 934 (Del. Ch. 2013), that the charter or bylaws of a Delaware corporation may specify, consistent with applicable jurisdictional requirements, that claims arising under the DGCL, including claims of breach of fiduciary duty by current or former directors or officers, controlling stockholders or aiders and abettors, must be brought only in the courts (including the federal court) in Delaware. However, the amendment invalidates provisions selecting the courts in a different State, or an arbitral forum, if it would preclude litigating such claims in the Delaware courts. The latter effectively reverses the holding in City of Providence v. First Citizens Bancshares, Inc. et al., CA No. 9795-CB (Ch. Ct. Sept. 8, 2014), in which the Court of Chancery upheld a forum selection provision in the bylaws of a Delaware bank holding company designating a non-Delaware court system as the exclusive venue for litigating intracorporate disputes.
Polsinelli is monitoring developments in Delaware business law and will furnish updates on significant developments in future e-alerts.