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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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This is an interesting decision for the way it treats a fee request in connection with the settlement of Delaware litigation. More ›
In what the Court itself characterized as an unusual case, the Supreme Court denied a fee to the lawyers for a plaintiff who won a small victory for their plaintiff stockholder. Unfortunately for the lawyers, their client sold his holdings and thereby lost any standing to pursue the case, making it moot. The Court held that when it is the plaintiff who moots his own case, the lawyers do not get a fee even for success. Of course, the facts are truly odd in that the plaintiff victory was indeed very small and he lost most of the rest of his claims as well. But the point remains that if your client bails out on you, the fee you want may not be what you get.
Often corporate bylaws or charters provide for advancement of attorney fees to directors and officers for acts taken in connection with "their duties to the company or by reason of their service as an officer or director." Then when it comes time to pay up to former officials, the company tries to avoid its obligation by arguing the underlying litigation involved an employment contract and is not "in connection with" or by reason of performing their official duties. This decision by a Master in Chancery reviews the case law and explains why that defense usually does not work.
This decision explains two aspects of advancement law that may be troubling to some. First, it explains when fees may be recovered for asserting a counterclaim. In general, the rule is that fees may be won for a compulsory counterclaim that may also diminish the recovery of the original plaintiff. Second, the opinion explains again how to treat the difficulty in assessing how much may be recovered in an advancement suit when the underlying litigation is on-going, including the fees-for-fees and interest issues.
This decision upholds a bylaw that requires the payment of attorneys' fees by a plaintiff stockholder or member in a non-stock corporation who sues a corporation or its directors and loses. The decision is limited to just the bare legal question presented and is careful to note that a bylaw adopted for an inequitable purpose may still be declared invalid. Nonetheless, it is not hard to predict that a host of similar bylaws will now be adopted by Delaware corporations. This decision is another in the line of decisions upholding bylaws that affect litigation, such as the forum selection bylaw also just upheld. How far this will go remains to be seen.
This is another case where a company tries to avoid its advancement obligation by arguing that the conduct in question did not arise out of the former officer's official duties, but instead arose under an employment or similar contract. That distinction just does not work and it did not work here. The decision is also interesting because it points out that advancement rights in an LLC are not limited by the statutory language of Section 145 of the DGCL dealing with actions in "defense."
This decision explains how to calculate an attorney fee when there are 2 potential causes for a favorable settlement of a class action. The fee is divided based on the Court's views as to what is fair. A class member who hires its own attorney who is a cause of much of the recovery is not for that reason alone able to avoid a fee award to class counsel.
Too often corporate documents refer to "indemnification" when they really mean "advancement." Here the Court was required to interpret an agreement that really called for advancing attorney fees but did not use the word "advancement." Hence, even if the right terminology is not used it still may be possible to win advancement.
This ruling illustrates an often overlooked point that the decision to advance attorneys' fees may constitute a self-dealing transaction when the party getting advancement is the party voting to do so. Hence, absent a proper basis, advancement is improper under those circumstances. Of course, when advancement is required by the bylaws, then it is required and acceptable even if the decision is made by the same parties whose fees are to be paid.
This is an interesting decision because it awards fees for some complicated non-monetary benefits the plaintiffs' counsel claimed to have achieved. How the Court analyzed the benefits is a guide to how it will do so in the future when the benefits go beyond mere additional disclosures.