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.
The Court found a strong analogy in Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013), which involved a challenge to forum-selection provisions in corporate bylaws, which the thirteen defendant-corporations chose to remove voluntarily rather than defend. There, then-Chancellor Strine urged the parties to reach a settlement as to attorneys’ fees, reasoning that the plaintiffs’ request of $5.8 million was reasonable. The final fee settlement appears to involve in excess of $4.3 million, or $333,333 per company.
Here, the Court reasoned that a higher per-company equivalent was warranted, given that plaintiff had litigated and been granted summary judgment. The Court was not tied to a per-company fee structure, and instead focused on the aggregate benefit achieved. The Court noted that Delaware courts have granted substantial awards for precedent-setting cases, then materially lesser fees for follow-on cases, and then substantial awards again if a suit against a subsequent issuer itself involved a significant factual permutation or an additional dimension to the legal issue. This aggregate approach indicated that what matters was the legal issue that had been addressed, not the number of companies involved. This in turn helpfully did not create an incentive for plaintiffs’ counsel simply to sue as many companies as possible, but rather created a form of insurance whereby, practically speaking, corporations may occasionally be sued and pay fee awards, but that over time the suits indirectly benefit many non-sued corporations without any incremental cost on them. The Court concluded with a review of Delaware cases involving non-quantifiable relief wherein awards supported $3 million here, as well as a back-end check of the remaining fee-award factors from the Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980) and Americas Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012).Share