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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 24 posts in Attorneys' Fees/Costs/Interest.
This decision explains the process and proof required to establish the amount of a fees award.
This decision explains how to obtain a release of advancement rights from a seller in an agreement to purchase his company. Here that effort failed. However, buyers will continue to not want to have to advance the sellers’ fees if there is a later dispute between them over the transaction. That can happen when the seller is a corporate officer or director and the acquired company’s bylaws confer a broad right to advancement for them. Apart from the obvious point that better drafting helps, the key is to be sure to directly address any rights in the acquired company’s bylaws or employment agreements to be sure those rights are waived. While the noted Cochran case limits advancement rights when the seller has not acted in his capacity as an officer or director, it is hard to fit within that decision’s holding given how much it has been limited over time. This decision explains those limits very well.
Once the right to have fees advanced has been determined, the tricky issue is how to decide if the actual fees requested fall within the scope of the advancement rights. The Court of Chancery has adopted what is known as the Fitracks procedure, where the bills are subject to a meet and confer process with a set of rules to guide the outcome. This decision provides what may well be the definitive explanation of how that process is supposed to work, including how to resolve disputes at the advancement stage and what objections actually can be made to payment.
This decision addresses a fee-shifting provision in certain notes that would be triggered if any indebtedness evidenced by the notes was collected by legal action. In exchange for modifying the notes, the noteholders had negotiated for certain warrants. But the company failed to grant those warrants until it was forced to through a lawsuit. The warrants in effect created a debt under the notes, which the noteholders collected through a court proceeding. Thus, the fee-shifting provision was triggered.
The Supreme Court affirmed perhaps the largest award of attorney fees as a sanction for bad conduct in Delaware’s history in this very unusual decision. It is a good summary of when a Court may depart from the “American Rule.”
What will the Court of Chancery do when a Petitioner's attorney alters his records to increase the fees sought in an advancement or indemnification case? Here at least the Court disallows the altered fees, rather than barring the entire request.
This decision explains the extent of an attorney fee lien in Delaware. The lien extends to the entire fee when the fee is based on hourly rates, regardless of whether all the time spent was necessary for the recovery. In other words, the lien is for unsuccessful efforts as well as those that resulted in the actual recovery.
After the enactment of Section 109(b) of the Delaware General Corporation Law, one would have thought that fee-shifting bylaws were invalid. However, this decision deals with another attempt to shift fees, this time when a stockholder violates the company’s exclusive forum bylaw. Nice try, but the Court holds the bylaw is invalid.
This decision holds that a general obligation to indemnify another party to a contract applies only to claims filed by a third party and not to claims between the parties to the contract itself. Hence, if you want to cover inter-party claims, you need to say so explicitly.
Delaware strongly protects a party’s right to advancement of attorney’s fees. This decision holds that a claim of fraudulent inducement cannot be asserted as a defense in a contractual advancement case even when the fraud is alleged to have induced the advancing party into signing the contract. Rather than use the alleged fraud as a defense to providing advancement, the advancing party must satisfy its advancement obligations and then assert its plenary claim for fraud in a separate proceeding where it can recoup the allegedly wrongfully advanced funds.
Now that disclosure-only settlements seem almost a thing of the past, so-called “mootness” fee awards or settlements may become more common. These occur when the corporation moots the claim by doing what the plaintiff says should be done, such as removing an invalid bylaw that tries to shift attorney fees. However, attorney fees for such cases may not be as large as some might expect. This decision shows how the fee applications will be considered, with particular stress on the benefit resulting from the litigation.
This is a decision worth reading because it so well tells an interesting story. But its legal significance may well be that it holds a litigation funding firm is not entitled to an attorney fee award at least when it does not have a written agreement with a plaintiff entitling it to fees. Hence, if you are going to fund litigation, get the deal in writing. Of course, the decision has other important holdings, all set out in a good review of existing law on when fees may be awarded absent a contract.
When a derivative suit is settled in connection with a merger that cashed out minority stockholders, it makes sense to have the settlement proceeds go to those stockholders in proportion to their ownership. Thus, if they owed 10% of the stock and the majority owner is the party funding a settlement, the former stockholders get 10% of a settlement. How then is the attorney fee award for creating that benefit to be calculated? This decision holds that the fee should be based on just the amount of the actual benefit received by the former stockholders.
Harrison v. Quivus System LLC, C.A. 12084-VCMR (August 5, 2016) (transcript )
This decision provides an excellent review of when the right to advancement under an LLC agreement vests so as to not be lost by the later discharge of the officer involved. Basically, when advancement is provided for upon becoming a covered person, the later discharge and suit against that person does not cause her to lose the right to have her fees advanced. Importantly, in the LLC context – where the LLC Act defers to the parties’ choices in contracting – ultimately, the contractual language will control in any given case.
This detailed decision explains how to interpret multiple sources, such as bylaws and contracts, to determine any conditions to the right to have attorney fees advanced. Absent some provision that ties each source together, each acts as an independent right to advancement. Thus, a condition imposed by one source is not a condition to advancement under an independent source of that right.