ATP Tour, Inc. v. Deutscher Tennis Bund
91 A.3d 554
| Del. | 2014Background
- ATP Tour, Inc. is a Delaware non-stock membership corporation whose members include players and tournament-owner entities (including Deutscher Tennis Bund and Qatar Tennis Federation).
- Federations joined ATP in the 1990s agreeing to be bound by ATP’s bylaws "as amended from time to time."
- In 2006 ATP’s board unilaterally adopted Article 23.3(a), a bylaw shifting all litigation fees/costs to a member-plaintiff who does not obtain a judgment that “substantially achieves” the full remedy sought.
- After the board changed the Tour schedule in 2007, the Federations sued ATP; they lost on all claims at trial.
- ATP sought fees under Article 23.3(a); the District Court denied recovery on federal preemption/policy grounds, the Third Circuit vacated and directed consideration of Delaware law first, and the District Court certified four questions to the Delaware Supreme Court.
- The Delaware Supreme Court held fee-shifting bylaws in non-stock corporations can be facially valid and generally apply to members who joined before enactment, but enforceability depends on adoption and purpose.
Issues
| Issue | Plaintiff's Argument (Federations) | Defendant's Argument (ATP) | Held |
|---|---|---|---|
| 1. May a board of a Delaware non-stock corporation adopt a bylaw shifting all litigation fees to intra-corporate plaintiffs who fail to "substantially" obtain relief? | Bylaw is invalid as contrary to public policy and federal law (esp. antitrust policy). | Bylaw is permissible under DGCL and as a contractual modification of the American Rule. | Such fee-shifting bylaws are facially permissible under Delaware law; enforceability depends on proper adoption and purpose. |
| 2. Can the bylaw be enforced against a plaintiff who obtains no relief at all? | Bylaw should still be invalid or at least not applied to bar fee recovery for any claim. | If valid, it should apply at least where plaintiff obtains no relief. | Yes — if otherwise valid/enforceable, it may be applied where plaintiff obtained no relief. |
| 3. Is the bylaw unenforceable if board members adopted it intending to deter litigation? | Subjective intent to deter challenges makes the bylaw inequitable and unenforceable. | Motive to deter litigation is not per se improper; boards may adopt rules that have deterrent effects. | Adoption for an improper/inequitable purpose renders a bylaw unenforceable in equity, but deterrence alone is not automatically improper. |
| 4. Is a bylaw adopted after a member joined enforceable against that member who agreed to be bound by future amendments? | Members who agreed to future amendments should not be bound by burdensome fee-shifting adopted later. | Members who agreed to be bound by bylaws as amended are subject to later board-adopted bylaws if directors have authority. | Generally enforceable: members who joined before enactment are bound if the charter authorizes directors to adopt/amend bylaws. |
Key Cases Cited
- Schnell v. Chris‑Craft Indus., 285 A.2d 437 (Del. 1971) (board-adopted bylaw invalidated where adopted for inequitable purpose to entrench management)
- Black v. Hollinger Int’l Inc., 872 A.2d 559 (Del. 2005) (bylaw amendments by controller invalid where adopted and applied for inequitable purposes)
- Frantz Mfg. Co. v. EAC Indus., 501 A.2d 401 (Del. 1985) (upholding restrictive bylaw amendments where enacted for permissible purpose)
- Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182 (Del. 2010) (discussion of bylaws and corporate governance principles)
- Mahani v. Edix Media Grp., Inc., 935 A.2d 242 (Del. 2007) (reciting Delaware’s adherence to the American Rule and contract exception for fee-shifting)
- Sternberg v. Nanticoke Mem'l Hosp., Inc., 62 A.3d 1212 (Del. 2013) (fee‑shifting may be enforced when grounded in contract)