In 2015, Section 115 was added to the Delaware General Corporation Law, or DGCL providing that Delaware corporations may adopt bylaws requiring that internal corporate claims be filed exclusively in Delaware. Section 109(b) of the DGCL was amended simultaneously to provide that the bylaws of Delaware corporations “may not contain any provision that would impose liability on a stockholder for the attorneys’ fees or expenses of the corporation or any other party in connection with an internal corporate claim.”
About six months later, the board of Paylocity Holding Corporation adopted two new bylaws. The first was an exclusive forum bylaw that, absent the company’s consent, requires internal corporate claims to be filed in a state or federal court located in Delaware. The second bylaw purported to shift to a stockholder who files an internal corporate claim outside of Delaware without the company’s consent the attorneys’ fees and other expenses that the company incurs in connection with such a claim if the stockholder does not obtain a judgment on the merits that substantially achieves the full remedy sought (the “Fee-Shifting Bylaw”). In other words, to trigger the Fee-Shifting Bylaw, a stockholder must first violate the company’s exclusive forum bylaw.
Ruling on a motion to dismiss, the Delaware Court of Chancery agreed with the plaintiff that the plain text of the Fee-Shifting Bylaw violates Section 109(b) because the statute unambiguously prohibits the inclusion of “any provision” in a corporation’s bylaws that would shift to a stockholder the attorneys’ fees or expenses incurred by the corporation “in connection with an internal corporate claim,” irrespective of where such a claim is filed. Thus, even though the Fee-Shifting Bylaw is triggered only when an internal corporate claim has been filed outside of Delaware, it is invalid under the blanket prohibition on such bylaws contained in Section 109(b).