| WILMINGTON, Del., June 10
WILMINGTON, Del., June 10 Big business is
lobbying Delaware lawmakers for corporate bylaws to shift legal
fees to shareholders who sue and lose, which legal experts said
could curtail a booming type of investor class actions.
An affiliate of the U.S. Chamber of Commerce urged the
Delaware General Assembly on Monday to defeat a bill in the
state's legislature that would bar "loser pays" corporate
The bill was drafted in response to a Delaware Supreme Court
ruling on May 8 in a case involving ATP Tour Inc, which oversees
men's professional tennis. The court ruling held that such
bylaws were valid and could be adopted to discourage litigation.
"The Delaware Supreme Court's ATP decision gives
corporations a way to protect their shareholders against these
costs of abusive litigation," said Lisa Rickard, president of
the Institute for Legal Reform, in a letter to lawmakers. "Why
would the Legislature so quickly deprive shareholders of the
opportunity to obtain that protection?"
In U.S. litigation, both parties usually pay their own legal
The bill was drafted with the backing of the state's bar
association. Bryan Townsend, a Democratic state senator who
sponsored the bill, told Reuters it had been pulled from
Tuesday's Senate agenda to consider input from businesses.
Most legislation backed by the bar is adopted and Townsend
said he expected his bill would become law.
It must be approved by Delaware's House and Senate and be
signed by Governor Jack Markell.
Markell's office did not immediately respond to a request
The majority of U.S. companies with publicly traded stock
are chartered in Delaware, which provides revenue that makes up
as much as 40 percent of the state's general budget.
Delaware corporations have access to the state's courts and
Delaware's corporate law govern relations with shareholders
through a company's corporate bylaws.
Few, if any, companies have adopted loser-pays bylaws.
Townsend said it was inaccurate for the Chamber of Commerce to
call the bill anti-business since it merely reflected current
Still, law firms have been firing off client memos to drum
up awareness of the little-noticed ATP case.
ATP, which incorporated in Delaware, had been trying to
collect $17.7 million in legal fees from members who
unsuccessfully sued its directors over the tour schedule. The
federal judge overseeing the case asked the Delaware Supreme
Court to weigh in on the validity of ATP's fee-shifting bylaw.
While ATP is a non-stock organization, legal experts said
the ruling would likely apply to stock corporations.
The ATP ruling was welcomed by big business groups that have
been pressing for ways to rein in investor class action lawsuits
in state courts.
Merger deals set off hundreds of the lawsuits annually,
often accusing directors of agreeing to sell their company too
cheaply. Nearly all of them settle for nothing but the Institute
for Legal Reform, the Chamber affiliate that wrote to Delaware
lawmakers, has called the lawsuits "extortion through
(Reporting by Tom Hals in Wilmington, Delaware; Editing by Tom