Chancery Court Invalidates Bylaw Purporting to Shift Litigation Expenses onto Stockholders Who Violate a Valid Forum-Selection Bylaw

In 2015, Section 115 of the Delaware General Corporation Law (“DGCL”) was added to clarify that Delaware corporations may adopt bylaws requiring that any litigation regarding internal corporate claims be filed in Delaware (commonly referred to as “forum-selection bylaws”).

At the same time, Section 109(b) of the DGCL was amended to make clear that Delaware corporations (other than non-stock corporations) may not adopt bylaws that would shift litigation expenses onto unsuccessful stockholder-plaintiffs in internal corporate litigation (commonly referred to as “fee-shifting bylaws”).  These simultaneous amendments left open the question of whether a limited fee-shifting bylaw, which would only be triggered if the stockholder filed an internal corporate claim outside of Delaware in violation of the corporation’s forum-selection bylaw, would be valid under Delaware law. Click here, to continue reading on the Cleary M&A and Corporate Governance Watch blog.