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Chancery Declines to Award Fees to Stockholders Who Opposed “Corporate Benefit”

Almond v. Glenhill Advisors LLC, C.A. No. 10477-CB (Del. Ch. Apr. 10, 2019). 

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.