Legal Updates /

Changes to Delaware General Corporation Law to Take Effect on August 1, 2015

On June 24, 2015, Governor Jack Markell signed into law Senate Bill 75 (“SB 75”), which includes various amendments to the Delaware General Corporation Law (“DGCL”).  The proposed changes to the DGCL, described below, will take effect on August 1, 2015.

On May 8, 2014, the Supreme Court of Delaware issued an opinion in ATP Tour, Inc. v. v. Deutscher Tennis Bund (German Tennis Foundation), holding that “fee shifting provisions in a non-stock corporation’s bylaws can be valid and enforceable under Delaware law.” 91 A.3d 554, 555 (Del. 2014).  Fourteen days after the ATP decision, the Delaware Corporate Law Council responded by proposing statutory amendments that prohibited fee-shifting bylaws for stock corporations. Senate Bill 236 of the 147th General Assembly (“SB 236”) would create DGCL Section 331, a new section prohibiting any certificate of incorporation or bylaw provision of Delaware stock corporations from “impos[ing] monetary liability, or responsibility for any debts of the corporation, on any stockholder of the corporation, except to the extent permitted by Sections 102(b)(6) and 202” of the DGCL.

After various parties expressed concern, including the U.S. Chamber Institute for Legal Reform (affiliated with the U.S. Chamber of Commerce), the Delaware Senate withdrew SB 236 and adopted the Senate Joint Resolution No. 12 (the “Joint Resolution”).  The Joint Resolution requested input from several interested parties on the scope of the proposed bill, and delayed a hasty decision by the legislature, pushing any potential changes to this year.

SB 75 was introduced in early 2015, and, among other things, prohibits fee shifting in connection with intracorporate claims.  Namely, 8 Del. C. § 102(f), a new subsection, provides that “t]he certificate of incorporation may not contain any provision that would impose liability on a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with an internal corporate claim, as defined in § 115 of this title.”  Section 102(b) of the DGCL is amended to include a similar prohibition: “The bylaws may not contain any provision that would impose liability on a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with an internal corporate claim, as defined in § 115 of this title.”  The proposed amendments do not disturb ATP in the context of nonstock corporations or a provision in a stockholders’ agreement.

Section 115 is a new addition to the DGCL, and provides that:

[t]he 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.  ‘Internal corporate claims’ means 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.

Thus, under the new Section 115, forum selection clauses are permitted, so long as stockholders are not precluded from litigating internal corporate claims in the Delaware courts.

A copy of SB 75 is available here.

For more information on recent developments relating to forum selection and fee-shifting bylaws, please see the webinar on this issue by members of Bayard’s litigation group.

Scroll to top