Outcry From Pensions Over Delaware Court Ruling On Legal Fees

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A recent ruling by the Delaware Supreme Court lets corporations shift their legal tab to investors.

Now, public pension and trade groups are speaking out against the ruling. Two trade groups representing public pension funds have contacted Delaware lawmakers over the last two weeks to lambast the ruling.

From Pensions & Investments:

A letter sent Wednesday to Delaware Gov. Jack Markell by the National Conference on Public Employee Retirement Systems and eight unions representing public- and private-sector workers warns that the decision “eviscerates investor rights” beyond the state’s borders.

The letter joins an earlier call Nov. 24 by the Council of Institutional Investors for Delaware lawmakers to restore investors’ legal rights that are now threatened by the decision in ATP Tour Inc. et al. vs. Deutscher Tennis Bund. While the court allowed a private corporation to amend its bylaws to make litigants personally liable for legal expenses, public company boards of directors have embraced the May 8 ruling. More than three dozen companies have unilaterally adopted similar or even more restrictive fee-shifting provisions, said CII, whose members represent $2 trillion in assets, including the $187.1 billion California State Teachers’ Retirement System, West Sacramento; New York City Police Pension Fund, New York City Fire Department Pension Fund and other funds in the $160 billion New York City Retirement Systems; and North Carolina Department of State Treasurer’s Office, which oversees the $88.4 billion North Carolina Retirement Systems, Raleigh.

Both groups are calling for the governor to take immediate action, including legislation to restrict or overturn the court’s decision and curb the adoption of fee-shifting bylaws by companies, many of which are incorporated in Delaware. Calls to the governor’s office were not returned by press time.

“Pension plans are among the largest and most active institutional investors. Approximately 70% of the typical public pension plan’s funding comes from investment returns. As shareholders, pension plans must ensure the integrity of their investments. But as fiduciaries, pension plans cannot expose their capital — and their beneficiaries — to unreasonable financial risk,” said the letter from NCPERS, which represents $3 trillion in pension assets. “No reasonable investor … would be willing to risk facing this type of uncontrollable financial exposure.”

More on the case – ATP Tour Inc. et al. vs. Deutscher Tennis Bund – can be read here.

 

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