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ATP Tour, Inc. v. Deutscher Tennis Bund

Supreme Court of Delaware
2014 Del. LEXIS 209, 91 A.3d 554, 2014 WL 1847446 (2014)
ELI5:

Sections

Rule of Law:

Fee-shifting provisions in a non-stock corporation's bylaws are facially valid under Delaware law and may be enforced against members who joined prior to the bylaw's enactment, provided the bylaw was not adopted or used for an inequitable purpose.


Facts:

  • ATP Tour, Inc. (ATP) is a Delaware non-stock corporation that operates a global professional men's tennis tour.
  • Deutscher Tennis Bund (DTB) and Qatar Tennis Federation (QTF) are tournament owners and members of ATP.
  • Upon joining ATP in the 1990s, the Federations agreed to be bound by ATP's bylaws, including any future amendments made by the board.
  • In 2006, the ATP board amended the bylaws to add Article 23, a fee-shifting provision requiring any member who sues the corporation to pay all litigation costs if they do not substantially achieve the full remedy sought.
  • In 2007, the ATP board implemented a 'Brave New World' plan that restructured the tour schedule and downgraded the status of a tournament owned by the Federations.
  • The Federations, displeased with the downgrade and rescheduling of their tournament, filed suit against ATP and its directors alleging antitrust violations and breaches of fiduciary duty.

Procedural Posture:

  • The Federations sued ATP and its directors in the United States District Court for the District of Delaware alleging antitrust and fiduciary duty claims.
  • Following a jury trial, the District Court entered judgment in favor of ATP on all claims.
  • ATP moved to recover legal fees under Federal Rule of Civil Procedure 54 based on the bylaw provision.
  • The District Court denied the motion, ruling that federal antitrust policy preempted the fee-shifting bylaw.
  • ATP appealed to the United States Court of Appeals for the Third Circuit.
  • The Third Circuit vacated the District Court's order and remanded the case to determine if the bylaw was enforceable under Delaware state law first.
  • The District Court certified four questions of law regarding the bylaw's validity to the Delaware Supreme Court.

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Issue:

Does Delaware law permit the board of a non-stock corporation to unilaterally adopt a bylaw that requires a plaintiff-member to pay the corporation's litigation costs if the member does not obtain a substantially successful judgment, even if the bylaw was adopted after the member joined?


Opinions:

Majority - Berger

Yes, fee-shifting bylaws are facially valid and enforceable under Delaware law, subject to equitable review of the board's purpose. The Court reasoned that corporate bylaws constitute valid contracts among the corporation's members. While Delaware generally follows the American Rule (each side pays their own fees), contracting parties—including corporations and their members—are free to modify this rule by agreement. The Delaware General Corporation Law (DGCL) does not forbid fee-shifting bylaws, and they satisfy the statutory requirement of relating to the business of the corporation. Furthermore, because the members agreed to be bound by bylaws 'as amended from time to time,' the board had the statutory authority to unilaterally enact this provision against existing members. While a board cannot enact a bylaw for an inequitable purpose (such as entrenchment), the mere intent to deter litigation is not inherently inequitable, as fee-shifting provisions naturally have a deterrent effect.



Analysis:

This decision is significant because it confirmed that corporate bylaws are treated strictly as contracts under Delaware law, allowing corporations to alter the default American Rule regarding attorney's fees. By validating fee-shifting bylaws in the non-stock context, the Court signaled a high degree of deference to private ordering within corporate governance. The ruling emphasizes that while such bylaws are facially valid, they remain subject to an equitable safety valve: they cannot be used for improper purposes, such as entrenching directors. This case creates a pathway for corporations to discourage intra-corporate litigation, though the legislature subsequently amended the DGCL to prohibit such bylaws for stock corporations, limiting this holding primarily to non-stock entities.

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