About This Blog
Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Subscribe to Blog
JDSupra RSS
Join us on LinkedIn
Follow us on TwitterTopics
Top Posts
Top News
- February 19, 2021
- October 30, 2020
- April 1, 2024
Archives
Morris James Blogs
Showing 121 posts in Attorney Fees.
Supreme Court Confirms Fee Award Principles
EMAK Worldwide Inc. v. Kurz, No. 512, 2011 (April 17, 2012)
The Delaware Supreme Court has once again confirmed that substantial attorney fee awards may be appropriate even when the plaintiff has not won a large monetary recovery. That is particularly so when the plaintiff has protected stockholder voting rights, as in this litigation.
ShareCourt Of Chancery Adopts New Fee Setting Procedures
Danenberg v. Fitracks, Inc., C.A. 6454-VCL ( March 5, 20120)
Among the more vexing tasks of a Court is setting the fees to be awarded in an advancement case. If left to itself, this can become a monthly job as the parties endlessly quarrel over how much is to be paid. The Court of Chancery has tried several approaches to avoid getting stuck in this endless quagmire. Here is a new one. The Court is charging the senior Delaware lawyers for each party with the duty to resolve any difference through a detailed process including monthly meet and confer sessions. That may be enough to interject some sanity into these disputes.
ShareCourt Of Chancery Explains How To Establish "Good Faith" In Indemnification Case
Marc S. Hermelin v. K-V Pharmaceutical Company, C.A. 6936-VCG (February 7, 2012)
This is the leading decision on how to establish the "good faith" requirement for permissive indemnification after the indemnitee has lost his case. As the opinion notes, that may require a mini-trial when the good faith of the indemnitee has not been settled in the underlying action.
The opinion is also helpful in setting out what constitutes and how to prove "successful on the merits or otherwise," the usual test both under the statute and most bylaws for mandatory indemnification.
ShareCourt Of Chancery Explains Right To Advancement For Pre-Merger Conduct
Danenberg v. Fitracks Inc., C.A. 6454-VCL (January 3, 2012)
Delaware officers and directors are usually entitled to have their litigation expenses advanced when they are sued for their conduct in those corporate capacities. Exactly what conduct is alleged to be wrongful is key to determining if that right to advancement applies. For example, if after a merger a director ceases to be a director, then he is not entitled to advancement for litigation over that conduct. This decision illustrates how the Court will decide what conduct is involved in the underlying litigation so as to decide if advancement is required.
ShareCourt Of Chancery Provides More Guidance On Fee Awards
In re Compellent Technologies Inc. Shareholder Litigation, C.A. 6084-VCL (December 9, 2011)
How do you set the fee to be awarded when there is no monetary recovery in a representative action? For example, if the litigation creates a benefit to shareholders by reducing deal protection measures to permit a possible topping merger bid, but no topping bid appears, what should be the fee? Using studies that attempt to calculate the benefits of such litigation, this decision sets out a methodology to guide applicants.
ShareSuperior Court Explains How To Calculate Fee Award
Relax Limited v. ANIP Acquisition Company, C.A. 10C-06-032 JRS CCLD (October 17, 2011)
A frequent issue is how to calculate a fee award when the prevailing party has only been partially successful. This decision turns on the unique provisions of English law, but is still an interesting exercise in awarding some but not all the fees to a party who only partially prevailed.
ShareCourt Of Chancery Denies Interim Fee Application
In re Novell Inc. Shareholder Litigation, C.A. 6032-VCN (August 30, 2011)
Once again, the Court of Chancery has denied an application for interim fees in a shareholder litigation. The application was based on so-called curative disclosures made as a result of the plantiff's efforts. While such applications are certainly disfavored as premature, that is perhaps all the more so when they are based on just additional disclosures. Several other recent decisions have reached the same conclusion.
ShareCourt Of Chancery Upholds Attorney Lien
Judy v. Preferred Communications Systems, Inc., C.A. 4662-VCL (August 19, 2011)
This is the first decision in Delaware to uphold an attorney's lien for unpaid legal fees. Hence it is welcome news to us all. The Court conditioned the release of the documents subject to the lien on the client posting security to cover the disputed fees pending an arbitration.
The opinion is particularly noteworthy for its exhaustive scholarship and its modification of the old rule that such a lien might only be justified to prevent a client fraud.
SharePaying for Your Opponent's Lawyer: A Common Dilemma
This article originally appeared in the Delaware Business Court Insider | August 03, 2011
How would you like to advance your opponent's legal fees as you fight out your dispute in court? That is bad enough when you are the plaintiff. It is even worse when you have been sued and you find your company paying the plaintiff's attorney fees and expenses to prosecute his or her claims against you. Yet all that can and does happen in suits involving directors and officers in litigation with their former company. How can this happen?
First, some background helps. The American "rule" is that litigants pay their own legal fees, even if they win the case. "Loser pays" is rarely true in the United States in business litigation. Because of that rule, companies have sought to attract good directors and high-level employees by providing them with the employment benefit of indemnification against litigation costs at the end of a trial and advancement of their costs throughout the trial. Indeed, in Delaware and most states, directors have a statutory right to be indemnified in most business litigation. That seems reasonable enough, in the abstract.
But consider what happens when a dispute arises between the company and a former director or officer. Frequently, those former company officials have been given contracts that require they be indemnified against loss in any litigation they win and have their litigation expenses advanced to them throughout the litigation. In those circumstances, the courts have repeatedly upheld the right to have expenses advanced, subject to the company's right to recover those advances later if it wins the litigation. Still, that does not seem so bad. It is just another cost of doing business.
However, the reality may be far more onerous. When the company is paying the lawyer bills without any right to pick the lawyer or even to review his or her statements, there is little restraint on fees. Millions of dollars then are spent, cases settled just to stop the cash drain and rarely is there ever a recovery of expenses advanced to the former official, who is then cash poor. Perhaps even more surprising, there is little the courts can do to control this result.
Companies do object to paying what they see as unreasonable legal expenses. But when their former officials sue to compel payment of those fees, the courts are not able to effectively determine the reasonableness of any bills. After all, it is an abuse of the courts' resources to expect a judge to sit down each month to review a party's legal bills, which often are dozens of pages of minute detail. Solving this problem has proved elusive.
Various remedies have been tried. Courts have appointed special masters to review the legal bills, with the parties sharing the master's fees for his or her services. Under the so-called "Duthie" rules used in the Delaware Court of Chancery, uncontested fees are to be promptly paid, counsel are required to certify their good faith in any dispute, and guidelines are provided as to what may be disputed.
Even those limited remedies to prevent abuses have been undermined, often by the very contracts the company agreed to without much thought. For example, in a decision just last month, the Court of Chancery held that the company must pay all of the fees of the special master because it had promised its former official to advance all of her "expenses" in litigation. Considering that the legal fees in dispute exceeded $5.5 million, paying the special master's fees as well must have felt like the last straw.
What then can be done about this problem? To begin with, companies must recognize that the problem arises out of the indemnification and advancement contracts they sign. No one is forcing them to give overly generous benefits, and no one should expect the courts to change their contracts just because they have become burdensome. Proper contract drafting helps here.
Several examples come to mind and should be acceptable even to the potential new officials the company seeks to retain. These include: limitations on advancement rights when the official is acting as a plaintiff; approval rights on the counsel to be selected; forum choices for any disputes; and fee caps on advancements. Until some of these or more creative terms are used, the problem will remain.
The real problem is not indemnification, but advancement. Delaware law limits the right to be indemnified, even by contract. It is against Delaware law to indemnify a director for wrongful acts, and a contract that attempts to do so is not enforceable. Advancement, on the other hand, is virtually unlimited if the contract is drafted that way. Yet, there is no reason why companies should have to agree to pay unlimited sums to attract talent. To do so is to let some lawyer charge without any restraint. Future articles will show how to avoid that problem.
Court Of Chancery Limits Interim Fee Applications
Frank v. Elgamol, C.A. 6120-VCN (July 28, 2011)
Recently, the Court of Chancery has permitted fee applications before a case is finally decided. This decision notes that practice should and will be limited to unusual situations. That cuts off that trend before it goes too far.
ShareCourt Of Chancery Modifies the Duthie Procedures
Fuhlendorf v. Isilon Systems Inc., C.A. 5772-VCN (July 22, 2011)
When a director is sued, he often is entitled to have his attorney fees advanced by his company, even when it is his former company. A fight over the fees sometimes results, however, when the fees are high and the relationship with the director is not the best. The Court of Chancery, after having to referee several of these fee fights, adopted what are known as the Duthie procedures where a percentage of the fees are paid and any disputed fees are sent to a special master to determine reasonableness. The parties then split the fees of the master. This decision modifies the Duthie procedures by having the fees of the special master paid by the company and not split with the director when his advancement agreement calls for payment not just of his fees but of any "expenses."
ShareCourt Of Chancery Explains Attorney Fee Awards
In re Del Monte Foods Company Shareholders Litigation, C.A. 6027-VCL (June 27, 2011)
This is another in a series of detailed explanations of how attorney fees are to be calculated in representative litigation in Delaware. First, the Court explained when an interim application may be considered, noting that it may be preferable to do so when the matter is still fresh. That is particularly so when any appellate review is not likely to change the benefit conferred by the litigation.
Next, the Court explained that uncovering facts not known before the litigation began is particularly important and deserving of a fee award at the higher end.
Finally, the Court set out examples of prior fee awards and explained how those informed its decision in this case.
ShareCourt Of Chancery Sets Fee Guidelines
This will probably be the definitive decision on how to set the attorneys' fees in representative litigation where the benefit to the company and its stockholders is additional disclosures. Not only does the decision explain how the Court will approach that issue, but it also contains a detailed table of fee awards in prior cases to serve as a guideline.
ShareCourt Of Chancery Explains How To Divide Fees
In Re Allion Heathcare Inc. Shareholders Litigation, C.A. 5022-CC (March 29, 2011)
How to divide the fees awarded in a multi-jurisdiction case is a recurring problem. As the Chancellor explains in this opinion, it is preferable if the various courts are notified of a settlement and asked to decide which court should resolve any problems. That has worked well.
However, when the lawyers are too stubborn to do so, then the Court will apply the principle established long ago in the fabled story, The Little Red Hen. She who bakes the bread is she who eats the bread.
ShareCourt Of Chancery Summarizes Past Fee Awards
In Re Emerson Radio Shareholder Derivative Litigation, C.A. 3392-VCL (March 28, 2011)
Delaware lawyers are often asked to estimate what the Court of Chancery will award in fees following settlement or trial of a derivative action. Well this decision summarizes those fee awards:
10 - 15% for a fast settlement
15 - 25% for contesting motions and other pretrial work that leads to a settlement
25 - 33% for winning after trial
All these percentages apply to monetary settlements, but the Court also explains how to determine fees in cases invovling non-monetary settlements.
Share
