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Court of Chancery Awards Plaintiffs Attorneys’ Fees and Costs in Section 225 Action for Obtaining a Substantial Benefit for the Corporation and its Stockholders

Totta v. CCSB, LLC, C.A. No. 2021-0173-KSJM (Del. Ch. Nov. 3, 2022)
Delaware follows the “American Rule”: each party bears its own legal fees and expenses. However, there are certain exceptions. This includes the “corporate benefit exception,” where a party has obtained a substantial benefit for the corporation or its stockholders through prosecuting the lawsuit. In this recent decision from the Court of Chancery, the Court awarded attorneys’ fees and expenses to a plaintiff in a Section 225 action under the corporate benefit exception.

Following a trial on the merits, the Court of Chancery found for the plaintiff and invalidated the election of an incumbent Board. In the context of a proxy contest, the Court held that the incumbent board’s reelection was based on a misinterpretation of a charter provision purportedly preventing stockholders who together owned 10% or more of the company’s voting power from acting in concert. Upon the plaintiffs’ post-trial motion, the Court found that the plaintiff was entitled to her attorneys’ fees and costs because the action’s final disposition resulted in substantial benefits to the company and its stockholders. The Court’s decision retroactively corrected an erroneous interpretation of the corporation’s charter and helped ensure it would be interpreted properly in future elections. While the result also benefited the plaintiffs, the Court found, on balance, that the benefit was significant for the corporation and its other stockholders. Accordingly, the Court awarded plaintiffs attorneys’ fees and expenses pursuant to the corporate benefit exception.

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