The Delaware Supreme Court’s May 8, 2014 Opinion in ATP Tour, Inc. v. Deutscher Tennis Bund (“ATP”) marked a sudden and potentially transformative moment in the relationship among corporate boards, their stockholders, and the Delaware legal system. The article, Deterring Frivolous Stockholder Suits Without Closing Doors to Legitimate Claims, asserts that the “nuclear option” of allowing boards of public companies to employ fee-shifting bylaws against stockholders whose interests they are supposed to represent is poor policy and departs from well-established legal principles. Accordingly, the authors support the March 6, 2015 proposal from the Delaware Corporation Law Council to legislatively prohibit the use of fee-shifting provisions in the public company context. Rather than simply criticize ATP and support the legislative proposal, we propose a carefully tailored answer to frivolous litigation, which mitigates abuses, conforms to longstanding legal principles, and preserves the benefits of board accountability and meritorious stockholder litigation.

First, the article argues that directors must not be permitted to use their corporate and fiduciary powers as a weapon to avoid accountability to the stockholders whose assets they manage. The authors detail the policy and legal problems with the concept of allowing directors to impose fee shifting bylaws, putting in question the relationship between stockholders and boards that forms the foundation of the modern public corporation. If ATP applies to public corporations, the Delaware Supreme Court, sub silentio, reversed several bedrock principles of Delaware corporate law and upset the balance of powers between stockholders and boards that has been in existence for decades.

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