Is Delaware High Court Ruling an Ace for Merging Companies?

Because they can threaten the closing of a transaction, shareholder lawsuits challenging corporate mergers are usually resolved with a quick “disclosures only” settlement, which includes the payment of the plaintiff class’s attorneys’ fees. As companies look for ways to avoid this extortion by litigation, Delaware’s highest court may have devised a potential solution. In ATP Tour, Inc. v. Deutscher Tennis Bund, et al. (“ATP Tour”) the Delaware Supreme court decided that Delaware corporate law did not prevent a corporate board from inserting into its bylaws a fee-shifting provision that requires the losing party in private company intra-corporate lawsuit to pay the attorneys’ fees incurred by the prevailing party. It is feasible that the same reasoning could apply to publicly-traded companies – the relationship between corporation and stockholder is grounded in contract principles, and stockholders are presumed to be aware of and are bound by the terms of their contract.

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