FEE SHIFTING UPDATE: OKLAHOMA COMPELS FEE SHIFTING IN ALL DERIVATIVE LAWSUITS

As reported on earlier this year, the Delaware Supreme Court recently held that “fee-shifting provisions in a non-stock corporation’s bylaws can be valid and enforceable under Delaware law.” ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554, 555 (Del. 2014). Although the court’s analysis seemed equally applicable to traditional stock corporations, there are ongoing efforts within Delaware to amend the Delaware General Corporation Law to limit the holding in ATP Tour, Inc. to only non-stock corporations.

Delaware, however, is now not the only state to consider the fee shifting issue. The Oklahoma legislature recently jumped into the debate by enacting a provision in the Oklahoma General Corporation Act that mandates fee shifting for both plaintiffs and defendants in all derivative lawsuits filed in Oklahoma involving both Oklahoma and foreign corporations. The provision applies only to derivative actions, but requires that upon a final judgment the nonprevailing party is required to pay the prevailing party any reasonable expenses, including attorney’s fees, that were incurred as a result of the derivative action. A copy of the provision can be found here.

The Oklahoma statute differs from the bylaws considered by the Delaware Supreme Court in ATP Tour, Inc. in the sense that fee shifting is now mandatory for any derivative action in Oklahoma and applies to both plaintiffs and defendants, whereas the Delaware bylaws could be enacted by Delaware entities on an entity by entity basis and would apply only against nonprevailing plaintiffs in intra-corporate disputes. The Oklahoma legislation goes into effect on November 1, 2014.