Fee Shifting – Page 2 – Delaware Docket

Seaport Village Ltd. v. Seaport Village Operating Company, LLC, C.A. No. 8841-VCL (Sept. 24, 2014) (Laster, V.C.)

Sep 24 2014

Seaport Village Operating Company, LLC (the “LLC”) sought to recover from Seaport Village Ltd. (“Limited”) attorneys’ fees and expenses that the LLC incurred in two related actions. The limited liability company agreement of the LLC (the “LLC Agreement”) provided that if any action was brought by a party against another party relating to or arising out of the LLC Agreement, the prevailing party shall be entitled to recover from the other party reasonable attorneys’ fees, costs and expenses. Limited’s only defense was that because the LLC did not sign the LLC Agreement, it was not a “party” to the LLC Agreement. The Court of Chancery rejected this argument citing Section 18-101(7) of the Delaware Limited Liability Company Act, which states that “[a] limited liability company is bound by its limited liability company agreement whether or not the limited liability company executes the limited liability company agreement.” The court held that since the LLC was bound to the LLC Agreement and that, as a matter of contract law principles, “only parties to a contract are bound by that contract,” the LLC was a party to the LLC Agreement and could enforce the fee-shifting provision.

SeaportVillageLtdvSeaportVillageOperating

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

May 10 2014

By David Bernstein and Elise Gabriel

In ATP Tour, Inc., the Delaware Supreme Court responded to certified questions from the United States District Court for the District of Delaware regarding the validity of a fee-shifting provision in a Delaware non-stock corporation’s bylaws. The bylaw at issue provides that any member that asserts a claim against the corporation or another member and does not “substantially achieve, in substance and amount, the full remedy sought” will be obligated to reimburse the corporation or the member for all fees, costs and expenses, including reasonable attorneys’ fees and other litigation expenses. The Supreme Court answered, in relevant part, that such a fee-shifting provision is authorized by the Delaware General Corporation Law (“DGCL”), and therefore is facially valid, but whether it would be enforceable depends on the circumstances under which it is adopted and under which it is invoked. The Delaware Supreme Court stated that bylaws that otherwise may be facially valid will not be enforced if adopted or used for an inequitable purpose.

Here, two members of ATP Tour, Inc. (“ATP”), a Delaware membership corporation operating a professional tennis tour, had unsuccessfully sued ATP for breach of fiduciary duty and antitrust violations. ATP then moved to recover its costs and attorneys’ fees pursuant to the bylaw provision described above. The Federal District Court, in which the suit had been brought, found the issue of enforceability of a fee-shifting bylaw to be novel and certified four questions regarding its validity and its enforceability to the Delaware Supreme Court. After stating that the bylaw provision was facially valid, the Delaware Supreme Court found that it could not answer the questions regarding enforceability because they depended on the circumstances under which the bylaw was adopted and was being invoked, which were not before the Supreme Court. The fourth question was whether the bylaw could be enforced against a party that became a member before the bylaw was adopted. The Delaware Supreme Court answered this in the affirmative because the member had agreed to be bound by rules that may be adopted or amended from time to time.

Although ATP was a non-stock membership corporation, the decision was based on provisions of the DGCL that apply to all corporations, and there is no reason to think the decision would have been different if ATP had been a stock corporation.

ATP Tour, Inc. v. Deutscher Tennis Bund

Catagory:Fee Shifting