Delaware Business Litigation Report

Chancery Discusses Standards for Reasonable Fees in Making Fee Award for “Bad Faith” Litigation

Carlos Eduardo Lorefice Lynch v. R. Angel Gonzalez Gonzalez, C.A. No. 2019-0356-MTZ (Del. Ch. Sep. 18, 2020)

Under the American Rule, parties to lawsuits in Delaware generally are responsible for paying their own attorneys’ fees and costs incurred in the litigation. Parties can petition Delaware courts, however, to shift the fees when such a party can prove that its opponent pursued its claims in “bad faith.” 

In an earlier decision, the Court of Chancery determined that one plaintiff in the action (“Lynch”) initiated plaintiffs’ claims in a bad faith attempt to “complete his grab” at seizing control of a Delaware corporation at issue in the dispute. After the Court determined that defendants in the action (“Defendants”) were consequently entitled to their attorneys’ fees, Defendants submitted their “Motion for Costs in Accordance with Court of Chancery Rule 54(d)” (the “Motion for Costs”), as well as a “Memorandum Detailing Defendants’ Attorneys’ Fees and Expenses” (the “Application for Fees”). Defendants sought more than $2.3 million in attorneys’ fees and approximately $16,500 in costs. Following Defendants’ submission of the Motion for Costs and the Application for Fees, Lynch challenged only $173,000 of the requested fees and costs as “unreasonable.” The Court issued this letter opinion to resolve the disputed amount, granting the Motion for Costs entirely and granting the Application for Fees “with certain exceptions.” The Court’s analysis provides a useful framework for practitioners in fee shifting cases.

In fee shifting cases, Delaware judges must determine whether the fees requested are reasonable, and Delaware courts have broad discretion in determining the amount of fees and expenses to award. Delaware Courts begin by reviewing fee applications pursuant to the enumerated factors set forth in Rule 1.5(a) of the Delaware Lawyers’ Rules of Professional Conduct (“DLPRC”). Generally, however, a party’s expenses are reasonable if they were actually paid or incurred, were thought prudent and appropriate in the good faith professional judgment of competent counsel, and were charged at rates, or on a basis, charged to others for the same or comparable services under comparable circumstances. A Delaware Court is reluctant to “second-guess, on a hindsight basis, an attorney’s judgment as to whether work was necessary or appropriate” and will avoid such second-guessing “whenever possible.”

Applying this analysis, the Court began by rejecting Lynch’s assertion that the Defendants’ fee application was improperly “vague.” According to the Court, “Defendants’ Affidavit and accompanying exhibits sufficiently apprise[d] the Court of the fees and expenses Defendants incurred in th[e] litigation and the underlying reasons for those amounts.” The Court emphasized the apparent reasonableness of the staffing and rates charged by the Defendants’ law firms because they were “charged on par with or below similarly situated firms; [the firms] discounted 20% of their fees charged; and [because the firms] enjoy[ed] excellent reputations and prudently staffed the matter with experienced attorneys.” The Court further noted that “Defendants have paid all the fees they ask to be shifted. They did so when they “did not know that it would be able to shift those expenses to [Lynch],” concluding that this was strong evidence of the fees’ reasonableness. Likewise, the Court concluded that the Defendants were also entitled to the fees incurred as a result of “motion practice,” which Lynch challenged as “wasteful.” The Court rejected Lynch’s argument challenging the merits of the motions by stating that the “Court does not relitigate motions in hindsight, or place substantial weight on motion-by-motion outcomes…”

The Court did, however, agree with Lynch that certain “unsupported” costs, which appeared in a spreadsheet and which totaled less than $8,000, did not appear to be “reasonable on their face” because many of the expenses could not be tied directly to events pertaining to the litigation. Specifically, the Court noted that some travel expenses purportedly related to a deposition were incurred at times “distant in time or location” from the actual deposition itself. Accordingly, the Court entered an order substantially granting the fees and costs applications, with minor exceptions.

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