(Adds governor saying he supports the bill, paragraph nine)
By Tom Hals
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 say
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 block "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
"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 Delaware bar
association, which represents attorneys. The state's courts
handle the bulk of the class actions that have riled businesses.
Bryan Townsend, a Democratic state senator who sponsored the
bill, told Reuters it had been pulled from Tuesday's Senate
agenda to consider comment from businesses.
Most legislation backed by the bar is adopted and Townsend
said he expected his bill would become law.
A spokeswoman for Governor Jack Markell said he supported
The state has to weigh the interests of shareholders and its
legal industry with a business-friendly reputation. Most U.S.
companies with publicly traded stock are chartered in Delaware,
and the related revenue accounts for up to 40 percent of its
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, out-of-state law firms have been firing off client
memos to build 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.
Business groups welcomed the ATP ruling as a way to rein in
investor class action lawsuits in state courts.
Virtually every merger deal is challenged with a lawsuit
accusing directors of agreeing to sell their company too
cheaply. Nearly all of them settle for nothing but added
information on the deal, and fees for plaintiffs' attorneys.
The Institute for Legal Reform has called the lawsuits
"extortion through litigation."
(Reporting by Tom Hals in Wilmington, Delaware; Editing by Tom
Brown and Dan Grebler)