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Court of Chancery Limits Fee Request In Section 225 Case

FGC Holdings Limited v. Teltronics, C.A. No. 883-N (Del. Ch. Jan. 22, 2007).

In this precedent setting decision, the Court of Chancery held that a party prevailing in a Section 225 proceeding to compel his recognition as a director was not entitled to his attorney fees as a matter of right. The Court noted that no prior decision had dealt with the circumstance where the plaintiff seeking fees in a Section 225 case was not already a director at the time the suit was filed. In that situation, the Court held that Section 145 indemnification of fees did not apply because Section 145  requires the party seeking indemnification to be or have been a "director". That the plaintiff won recognition of his right to be a director did not make him a director automatically for purposes of indemnification under Section 145.

This case involves some odd facts that may distinguish it from other Section 225 litigation. Here, the corporation was limited to five directors by its charter and had five sitting directors when the plaintiff was elected by the preferred stockholder. Perhaps for that reason the Court concluded that his election alone was not enough to make him a director.

It is also noteworthy that the Court did award 50% of the fees sought under the exception to the American rule for vexatious litigation conduct. Share


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