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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Showing 2 posts in Corporate Benefit Doctrine.
Chancery Awards $3 Million in Attorneys’ Fees Following Invalidation of Charters’ Forum-Selection Provisions for Securities Act Claims
In December 2018, the Court of Chancery held that forum-selection provisions in three corporate charters were ineffective. The provisions had required any claim under the Securities Act of 1933 to be filed in federal court (“Federal Forum Provisions”). The Court held them to be invalid, because federal securities claims were not “internal affairs” claims for which a Delaware corporation’s charter may choose a forum. Seven months later, the Court granted an application for an all-in award of attorneys’ fees and expenses in the amount of $3 million under the corporate benefit doctrine. Defendants had argued that the award should not exceed $364,723 plus expenses. Reasoning that “the plaintiff achieved a significant and substantive result by successfully invalidating the Federal Forum Provisions,” the Court turned to Delaware precedent to determine an appropriate fee for this kind of non-monetary relief. More ›
Under the “corporate benefit doctrine,” litigants whose efforts result in a substantial benefit to a Delaware corporation or its stockholders generally are entitled to an award of their attorneys’ fees and expenses. This opinion emphasizes that the doctrine is a flexible one based on the Court of Chancery’s prerogative to do equity in each case.
Here, the Court considers and denies a fee application by stockholder-plaintiffs who challenged a defective short-form merger. The basis for the plaintiffs’ claims included technical errors in the language of certain corporate instruments that resulted in a reverse stock split with a ratio much larger than intended (2,500 to 1, rather than 50 to 1). That, in turn, resulted in the merger receiving less than the required stockholder approval. When the corporation attempted to ratify the defective corporate acts under Section 204 of the DGCL and sought judicial validation under Section 205, the plaintiffs opposed it. Plaintiffs ultimately lost on the issue at trial. Although the end-result—removing a cloud over the merger’s validity—could be considered a “benefit” resulting from the plaintiffs’ litigation efforts, the Court denied their subsequent fee application. According to the Court, in particular, it would be inequitable to reward plaintiffs for conferring a benefit they opposed.