ATP Tour, Inc. v. Deutscher Tennis Bund

Supreme Court of Delaware · 2014 · Corporations

91 A.3d 554 (2014)

Updated August 1, 2026

Corporationsfee-shifting bylawsDelaware non-stock corporationbylawsfee shiftingAmerican Rulecontractual exceptionfacial validity

Facts

ATP Tour, Inc. is a Delaware non-stock membership corporation whose members included Deutscher Tennis Bund and Qatar Tennis Federation. When they joined ATP, the Federations agreed to be bound by ATP's bylaws as amended from time to time. In 2006, ATP's board, acting under charter-delegated power to amend the bylaws, adopted Article 23.3(a), which required a claimant in certain intra-corporate litigation to reimburse ATP and others for litigation costs if the claimant did not obtain a judgment on the merits that substantially achieved the full remedy sought. After the Federations sued ATP and certain directors and lost on all claims, ATP sought fees under the bylaw, and the ensuing dispute led to the certified questions about the bylaw's validity and enforceability under Delaware law.

Issue

May the board of a Delaware non-stock corporation lawfully adopt and enforce a bylaw that shifts litigation fees and costs to an unsuccessful claimant in intra-corporate litigation? If so, does the answer change when the plaintiff obtains no relief, when the bylaw was allegedly adopted to deter litigation, or when the bylaw was adopted after the member joined the corporation but the member had agreed to be bound by future bylaw amendments?

Rule

Under Delaware law, a corporation's bylaws are presumed valid. To be facially valid, a bylaw must be authorized by the DGCL, consistent with the certificate of incorporation, and not otherwise prohibited; a fee-shifting bylaw in a non-stock corporation meets that standard and falls within the contractual exception to the American Rule because bylaws are contracts among a corporation's constituents. However, a facially valid bylaw will not be enforced if it was adopted or used for an inequitable or improper purpose. Generally, where the certificate authorizes directors to amend bylaws, members are bound by board-adopted bylaw amendments even if adopted after they became members.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Harbor Arts League is a Delaware non-stock membership corporation based in Philadelphia. Its charter authorizes the board to amend the bylaws, and the board adopts a bylaw requiring any member who brings intra-corporate claims and fails to obtain a merits judgment substantially achieving the full remedy sought to reimburse the league's litigation costs.

A member argues the bylaw is facially invalid because Delaware follows the American Rule and bylaws cannot alter it. How should a Delaware court rule?

Explanation. Under the majority opinion, fee-shifting bylaws in Delaware non-stock corporations are not invalid per se. Delaware permits contracting parties to modify the American Rule, and bylaws operate as contracts among corporate constituents. A bylaw is facially valid if authorized by the DGCL, consistent with the certificate, and not otherwise prohibited; fee shifting need not appear in the charter.