ATP Tour, Inc. v. Deutscher Tennis Bund, Del. Supr., No. 534, 2013 (May 8, 2014)

In this case, the Delaware Supreme Court provided answers to four certified questions of law from the U.S. District Court for the District of Delaware regarding the validity of an intra-corporate fee-shifting provision in the bylaws of a Delaware non-stock corporation, ATP Tour Inc. (“ATP”).  The fee-shifting provision at issue was adopted in the discretion of the Board and required any ATP member who unsuccessfully brought an action against ATP or any ATP member to pay for the prevailing party’s legal costs and fees.  The provision generally provided:

In the event any . . . member or Owner or anyone on their behalf . . . asserts any claim or counterclaim . . .or joins, offers substantial assistance to or has a direct financial interest in any Claim against the League or any member or Owner (including any Claim purportedly filed on behalf of the League or any member), and the Claiming Party . . . does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then they shall be obligated jointly and severally to reimburse the League and any such member or Owners for all fees, costs and expenses of every kind and description (including, but not limited to, all reasonable attorneys’ fees and other litigation expenses) . . . that the parties may incur.

Thereafter, ATP members brought suit against ATP and six of its Board members in District Court and lost on the merits of their claims.  When ATP moved to recover its legal fees and costs under the company’s fee-shifting bylaw, the District Court certified questions regarding the validity of such a bylaw to the Delaware Supreme Court.  In addressing the questions, the Court held that a bylaw provision providing for fee shifting in intra-corporate disputes is facially permissible as it is consistent with the Delaware General Corporate Law.  The Court cautioned, however, that whether the specific ATP bylaw would be enforceable depended on whether it was adopted for a proper purpose, and that the intent to deter litigation may qualify as such a purpose.