ATP Tour, Inc. v. Deutscher Tennis Bund

91 A.3d 554, 2014 WL 1847446, 2014 Del. LEXIS 209
CourtSupreme Court of Delaware
DecidedMay 8, 2014
DocketNo. 534, 2013
StatusPublished
Cited by42 cases

This text of 91 A.3d 554 (ATP Tour, Inc. v. Deutscher Tennis Bund) is published on Counsel Stack Legal Research, covering Supreme Court of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
ATP Tour, Inc. v. Deutscher Tennis Bund, 91 A.3d 554, 2014 WL 1847446, 2014 Del. LEXIS 209 (Del. 2014).

Opinion

BERGER, Justice:

This Opinion constitutes the Court’s response to four certified questions of law concerning the validity of a fee-shifting provision in a Delaware non-stock corporation’s bylaws. The provision, which the directors adopted pursuant to their charter-delegated power to unilaterally amend the bylaws, shifts attorneys’ fees and costs to unsuccessful plaintiffs in intra-corporate litigation. The United States District Court for the District of Delaware found that the bylaw provision’s validity was an open question' under Delaware law and certified four questions to this Court, asking it to decide whether, and under what circumstances, such a provision is valid and enforceable. Although we cannot directly address the bylaw at issue, we hold that fee-shifting provisions in a non-stock corporation’s bylaws can be valid and enforceable under Delaware law. In addition, bylaws normally apply to all members of a non-stock corporation regardless of whether the bylaw was adopted before or after the member in question became a member.

FACTUAL AND PROCEDURAL BACKGROUND

The following undisputed facts are drawn from the District Court’s Certification of Questions of Law.1 ATP Tour, Inc. (ATP) is a Delaware membership corporation that operates a global professional men’s tennis tour (the Tour). Its members include professional men’s tennis players and entities that own and operate professional men’s tennis tournaments. Two of those entities are Deutscher Tennis Bund (DTB) and Qatar Tennis Federation (QTF, and collectively, the Federations). ATP is governed by a seven-member board of directors, of which three are elected by the tournament owners, three are elected by the player members, and [556]*556the seventh directorship is held by ATP’s chairman and president.

Upon joining ATP in the early 1990s, the Federations “agreed to be bound by ATP’s Bylaws, as amended from time to time.”2 In 2006, the board amended ATP’s bylaws to add an Article 23, which provides, in relevant part:

(a) In the event that (i) any [current or prior member or Owner or anyone on their behalf (“Claiming Party”)] initiates or asserts any [claim or counterclaim (“Claim”) ] or joins, offers substantial assistance to or has a direct financial interest in any Claim against the League or any member or Owner (including any Claim purportedly filed on behalf of the League or any member), and (ii) the Claiming Party (or the third party that received substantial assistance from the Claiming Party or in whose Claim the Claiming Party had a direct financial interest) does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then each Claiming Party shall be obligated jointly and severally to reimburse the League and any such member or Owners for all fees, costs and expenses of every kind and description (including, but not limited to, all reasonable attorneys’ fees and other litigation expenses) (collectively, “Litigation Costs”) that the parties may incur in connection with such Claim.3

In 2007, ATP’s board voted to change the Tour schedule and format. Under the board’s “Brave New World” plan, the Hamburg tournament, which the Federations own and operate, was downgraded from the highest tier of tournaments to the second highest tier, and was moved from the spring season to the summer season. Displeased by these changes, the Federations sued ATP and six of its board members in the United States District Court for the District of Delaware, alleging both federal antitrust claims and Delaware fiduciary duty claims.

After a ten-day jury trial, the District Court granted ATP’s and the director defendants’ motion for judgment as a matter of law on all of the fiduciary duty claims, and also on the antitrust claims brought against the director defendants. The jury then found in favor of ATP on the remaining antitrust claims. Thus, the Federations did not prevail on any claim. ATP then moved to recover its legal fees, costs, and expenses under Rule 54 of the Federal Rules of Civil Procedure. ATP grounded its motion on Article 23.3(a) of ATP’s bylaws. The District Court denied ATP’s Rule 54 motion because it found Article 23.3(a) to be contrary to the policy underlying the federal antitrust laws.4 The District Court effectively ruled that “federal law preempts the enforcement of fee-shifting agreements when antitrust claims are involved.”5

ATP appealed, and the United States Court of Appeals for the Third Circuit vacated the District Court’s order. The Third Circuit found that the District Court should have decided whether Article 23.3(a) was enforceable as a matter of Delaware law before reaching the federal [557]*557preemption question.6 On remand, the District Court reasoned that the question of Article 23.3(a)’s enforceability was a novel question of Delaware law that should be addressed in the first instance by this Court.7 The District Court certified the following four questions of law:

1. May the Board of a Delaware non-stock corporation lawfully adopt a bylaw (i) that applies in the event that a member brings a claim against another member, a member sues the corporation, or the corporation sues a member (ii) pursuant to which the claimant is obligated to pay for “all fees, costs, and expenses of every kind and description (including, but not limited to, all reasonable attorneys’ fees and other litigation expenses)” of the party against which the claim is made in the event that the claimant “does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought”?
2. May such a bylaw be lawfully enforced against a member that obtains no relief at all on its claims against the corporation, even if the bylaw might be unenforceable in a different situation where the member obtains some relief?
3. Is such a bylaw rendered unenforceable as a matter of law if one or more Board members subjectively intended the adoption of the bylaw to deter legal challenges by members to other potential corporate action then under consideration?
4.Is such a bylaw enforceable against a member if it was adopted after the member had joined the corporation, but where the member had agreed to be bound by the corporation’s rules “that may be adopted and/or amended from time to time” by the corporation’s Board, and where the member was a member at the time that it commenced the lawsuit against the corporation?8

We accepted the certified questions based on principles of comity,9 and will address each question in turn.

DISCUSSION

1. Fee-shifting bylaws are permissible under Delaware Law.

The first certified question asks whether the board of a Delaware non-stock corporation10 may lawfully adopt a bylaw that shifts all litigation expenses to a plaintiff in intra-corporate litigation who “does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought.”11

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Cite This Page — Counsel Stack

Bluebook (online)
91 A.3d 554, 2014 WL 1847446, 2014 Del. LEXIS 209, Counsel Stack Legal Research, https://law.counselstack.com/opinion/atp-tour-inc-v-deutscher-tennis-bund-del-2014.