Delaware Business Litigation Report

Court of Chancery Signals Concern Over Fees to be Paid by the Benefited Company

Gatz v. Ponsoldt, C.A. 174-CC (June 12, 2009)

This decision raises an interesting question over whether attorneys fees should be paid when the fees in a way that does not benefit the company for whom the suit was filed. Briefly, the facts were that the defendant directors were found to be entitled to have the settlement of the claims against them paid by their company under their rights to be indemnified. The settlement balance was to go to the stockholder class. The Court's concern was that this meant the company's stockholders were not really benefiting if they, in effect, were funding the settlement by their company.

This issue was resolved when it turned out that under the odd circumstances of this case that the stockholders who were receiving the benefit of the settlement were largely different from those who now owned the company. Had that not been the case, however, the result may not have been the same. This means that there is a potential issue when defendant directors are indemnified for the damages. Whether the amount of fees will be affected in those circumstances remains to be seen.

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