A bill that would prohibit publicly traded corporations from adopting bylaws that force shareholders to pay legal fees if they do not win their lawsuits against the corporation has been approved by the Delaware Legislature.
Last week the Delaware House of Representatives unanimously approved S.B. 75, which was approved by the Senate last month, and is now awaiting Gov. Jack Markell’s signature.
Opposed by businesses, the legislation addresses a May 2014 ruling by the Delaware Supreme Court in ATP Tour v. Deutscher Tennis Bund, in which the court upheld a bylaw that requires plaintiff shareholders who lose derivative litigation to pay defense costs.
In a May 5 letter to members of the Delaware Senate, Harold H. Kim, executive vice president of the U.S. Chamber of Commerce’s Institute for Legal Reform in Washington, had urged senators to defeat the measure.
He said that if adopted, the measure “would eliminate an important mechanism that corporations invoke to protect innocent shareholders against the costs of abusive litigation without providing an adequate replacement tool to deter the filing and prosecution of these illegitimate actions.”
The bill would also allow Delaware corporations to designate the state as the exclusive forum for internal corporate claims. More than half of all publicly traded firms are domiciled in Delaware.
A spokesman for the governor’s office could not be reached for comment as to whether he plans to sign the legislation.
Recent litigation is putting directors and officers on the spot for environmental risks allegedly posed by the companies they oversee.