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Abstract

Fee-shifting provisions are controversial because they shift the costs of litigation to a non-prevailing party, contrary to the widely accepted American Rule of litigation in which parties generally pay their own attorney’s fees and costs. In a case of first impression, the Delaware Supreme Court had to determine whether a fee-shifting provision within a non-stock corporation’s bylaws, also known as a fee-shifting bylaw, was valid and enforceable. In ATP Tour v. Deutscher Tennis Bund, the Delaware Supreme Court held that fee-shifting bylaws are permissible under Delaware law because a corporation’s bylaws are presumed to be valid. This Note argues that the Delaware Supreme Court’s holding in ATP Tour was correct, in part because there was no adverse binding or persuasive authority opposing a corporation from adopting a fee-shifting provision within its corporate bylaws at the time of the court’s holding, and in part because fee-shifting bylaws in the state of Delaware do not fall within the American Rule of litigation, as corporate bylaws in Delaware are contractual in nature. The Note argues the Delaware Supreme Court provided a clear standard for the adoption of facially valid bylaws under proper and equitable purposes, and argues the opinion should have included dictum specifying whether the holding applies to publicly held corporations. The Note analyzes ATP Tour in three parts, discussing the lack of authority suggesting fee-shifting bylaws are invalid and enforceable, the equitable purpose standard established by the Delaware Supreme Court in ATP Tour, and the controversy caused by the Delaware Supreme Court’s decision not to specify whether the holding of ATP Tour applies to publicly held corporations. The note concludes with the author’s closing thoughts and recommendations on ATP Tour, and looks at the future of derivative shareholder actions in the state of Delaware.

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