Tuesday, March 10, 2015
The Delaware General Assembly is considering its annual amendments to the corporate law. This time, the proposed amendments (2015 Amendment text here) are doing more than just some ministerial changes/fixes to the text. The amendments purport to deal with two big issues. First, the amendments add a new section 115 that would explicitly permit corporations to include forum selection provisions in their certificates of incorporation or bylaws. I proposed as much in a 2011 article, so it's nice to see that take shape. By including forum selection provisions as a permissible menu option, the legislature is clearing the deck and making it much more likely that Delaware firms will opt in going forward. It's not a total solution to the problem of transaction related litigation, but it does help reduce the volume of litigation that must be managed. By the way, 94.9% of all deals were accompanied by litigation last year. This is a problem that's not going away on its own.
The other proposed amendment is much more controversial. The new sections 102(f) and 109(b) reverse the Delaware Supreme Court's decision in ATP Tour, Inc. In ATP, the court upheld a fee shifting bylaw that, if widely adopted, would likely have shut down most, if not all, shareholder litigation, good and bad. ATP would be like using a sledgehammer to hang paintings in your house. These new sections make such provisions illegal. You'll remember that last year the legislature tried to move an ATP amendment through in the aftermath of the decision. While corporate law amendments are usually a fairly boring affair, that one drew the attention of the US Chamber of Commerce. This time, the US Chamber is back, arguing that the adoption the anti-fee shifting provision "could threaten Delaware's billion dollar incorporation franchise." That seems like a bit of excessive rhetoric.
Stay tuned. I suspect this year will be anything but a quiet ride through the amendment process.