Posts tagged Attorney Fees

Court of Chancery Approves Option Back Dating Case Settlement

Ryan v. Gifford, C.A. 2213-CC (Del. Ch. Jan. 2, 2009)

 

In this decision the Court approves the settlement of a stock option back dating case. The opinion carefully goes through all the analysis of when to approve a settlement, particularly when the recovery is adequate under the circumstances.

 

The attorney fee award of $9,000,000 or about $1,100 per hour shows that contrary to some beliefs, the Court is prepared to award significant fees for hard, excellent work that achieves a good result.

 

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District Court Awards Punitive Damages Based in Part on Discovery Abuse, Denies Attorneys' Fees for Inadequate Proof

Christ v. Cormick, 2008 WL 4889127 (D. Del. Nov. 10, 2008)

In this opinion the Court sanctioned the defendant’s conduct, including discovery abuse, by awarding punitive damages. The Court first entered default judgment against the defendant after his “repeated dilatory discovery conduct and his refusal to appear for deposition.” The plaintiff sought punitive damages in addition to compensatory damages, and the Court found that the entry of default did not preclude awarding punitive damages. The failure to appear for deposition was “but one example of the kind of willful conduct that requires an award of punitive damages.” The plaintiff also sought attorneys’ fees and expenses both for the Delaware action and proceedings in South Africa. The Court, however, denied this claim, finding that an award for fees in the South African litigation was unsupported by law, and the summary information submitted for fees for the Delaware proceeding was inadequate as a matter of law because it did not allow the Court to make a thorough analysis of the time records. 

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Court of Chancery Establishes Procedures for Contested Advancement Claims

Duthie v. CorSolutions Medical, Inc., C.A. 3048-VCN (Del. Ch. Sept. 10, 2008)

When advancement is sought, the amounts are often objected to as too large. While the Court of Chancery in the past has not wanted to monitor fees in such cases (leaving the amounts to be finally determined at the indemnification stage), here the Court agreed to appoint a special master to review the advancement requests. It remains to be seen whether the Court will regret this step because the Delaware Supreme Court requires a master's decision to be reviewed de novo by the Court of Chancery.
 

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Superior Court Bars Indemnification Claim Brought By Successful Chancery Plaintiffs

LaPoint v. Amerisourcebergen Corp., 2008 WL 2955511 (Del. Super. Ct. July 25, 2008).

This decision will counsel plaintiffs to seek indemnification under a contract during the underlying action for breach of that contract, and not to initiate a subsequent, separate action. 

 

The plaintiff shareholders of a subsidiary brought an action against the parent company for breach of the merger agreement between the two companies. The plaintiffs prevailed in that action and were awarded damages. They sought attorneys’ fees and costs, but the Court of Chancery’s final order did not address that issue.

 

After the final order and judgment was entered, the plaintiffs requested reimbursement for their attorneys’ fees, pursuant to the indemnification provision in the merger agreement. When the defendant refused, the plaintiffs filed this action in Superior Court.  More ›

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Court of Chancery Holds Final Means Final

Sun-Times Media Group, Inc.v. Black, C.A. 3518-VCS (Del. Ch. July 30, 2008)

In the latest decision in the long running saga of Conrad Black, the Court of Chancery has decided that he is entitled to advancement of his legal fees until his appeals from his criminal conviction are concluded. The holding turns on the phase that required advancement until there was a "final disposition" of Black's case. The Court held that included all appeals. The conclusion seems almost unavoidable for all the persuasive reasons given by the Court.

This case involved many millions of dollars in fees and illustrates that  such "blank check" advancement provisions can be very expensive indeed.

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Court of Chancery Clarifies When Indemnification Right Includes Advancement

Sodano v. American Stock Exchange LLC, C.A. 3418-VCS (Del. Ch. July 15, 2008)

It is widely assumed that the right to be indemnified does not include the right to have attorneys’ fees advanced as the litigation proceeds. Actually, as this decision notes, lawyers deal in this area who do not even know the difference between indemnification and advancement. That is not entirely accurate as this decision holds it is all a matter of contract. When the contract or bylaw defines indemnification in such a way as to include advancement rights, then that is the deal and advancement is required.

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Court of Chancery Divides Settlement Among Shareholders In Class Action Suit

The plan of allocation approved in Ginsburg v. Philadelphia Stock Exchange et. al., C.A. No. 2202-CC is a landmark decision for those in the business of litigation arbitrage, buying shares of a company that is involved in a class action that may lead to substantial settlement proceeds. More ›

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Court of Chancery Upholds Advancement for Attorney

Jackson Walker LLP v. Spira Footwear Inc., C.A. 3150-VCP (Del Ch. June 23, 2008)

Recently, whether outside counsel is entitled to advancement under a corporate bylaw that provides for payment of the fees incurred by “agents” has become a hot issue. When the attorney is acting as an “agent” depends on whether he is acting on behalf of the company in its relationship with a third party. Thus, an attorney who files litigation meets the test, but one who advises the company on a legal issue does not for lack of acting with a third party.

This somewhat odd distinction reflects a policy of restricting advancement of fees to attorneys who are expected to have the possible cost of litigation built into their fees and malpractice coverage.

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Court of Chancery Upholds Right To Refuse To Settle

Barrett v. American Country Holdings Inc., C.A. 3071-VCS (Del. Ch. June 20, 2008)

There is a continuing tension between D&O insurers and the companies whose directors they insure to use the D&O coverage to pay for corporate transactions or, as in this case, for a settlement that no one but the company wants.  In this decision the Court of Chancery has strongly upheld the right of former directors to refuse a settlement of litigation against both them and their company when they do not want to settle.

This decision arose out of the company's wish to have its former directors agree to liability in litigation that would then permit the company to sue the D&O carrier for the remaining insurance coverage and so-called bad faith failure to settle damages, all under a side deal that the company would not actually ask the directors to pay anything themselves. The former directors did not want to settle, however, particularly when the insurer also did not want to settle and was defending them under a reservations of rights letter that may have permitted the insurer to go after the directors for the fees advanced.

The Court determined the directors were entitled to the continued advancement of their attorney fees and fees for fees in this case as well.

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Court of Chancery Denies Advancement for Litigation Instituted by a Director

Donohue v. Conning, C.A. 3733-VCS (Del. Ch. June 20,2008)

The Delaware Supreme Court has upheld a claim for fee advancement in litigation instituted by a former director, even though advancement has usually been thought of as a right to defense fees. This decision shows how limited that right may be when the advancement provision relied upon does not clearly provide for fees when the director starts the fight. For in such a case, the court held that there is no right to have fees advanced.

The decision has some unusual facts and may not cover another case were the director is clearly threatened with ligitaion and wins the race to the couthouse.

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Court of Chancery Criticizes Form Bylaws

Gary v. Beazer Homes USA, Inc., C.A. 3537-VCS (Del. Ch. June 11, 2008)

Form bylaws taken from treatises or filings with the SEC are often copied without much thought. In this decision, the Court of Chancery warns that a very common set of those bylaws does not properly set out advancement rights for attorney fees. Hence, using that form without modification is now a sure way to lose those rights.  Check out the form involved in this case and be sure to change it to more accurately reflect what is intended as to advancement.

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Court of Chancery Upholds Advancement Bylaw

Underbrink v. Warrior Energy Services Corporation, C.A. 2982-VCP (Del. Ch. May 30, 2008)

When a board is about to be sued, it is a good idea to review the bylaws to see if they provide the right to have your attorney fees advanced by the corporation. Here the claim was that the board's decision to amend the bylaws to cover advancement rights was an interested transaction that was subject to the intrinsic fairness rule. Prior case law had applied that rule when the litigation was actually pending and a board acted to confer advancement rights as a result. The Court ruled that the decision to confer advancement rights for any future litigation was protected by the business judgment rule. Hence, the fact that the litigation had not yet been brought was important.

It is possible to overstate the holding of this case as it involved an odd set of facts. If the filing of suit against the directors was virtually assured, the decision might have been different. Some caution is required before deciding that the rule of this case applies to all pre-litigation decisions on advancement.

 

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Court of Chancery Determines Complex Indemnification Claim

Zaman v. Amedeo Holdings Inc., C.A. 3115-VCS (Del. Ch. May 23, 2008)

Determining when indemnification rights apply is sometimes tough to do. The claims for which indemnification are sought are often drafted so as to avoid alleging that the defendant is being sued for something he did as an officer or director, but instead allege that he acted in a personal or agency relationship such as a lawyer. In this case, the Court of Chancery offers an insight into how that Court will parse through this problem. Put simply (and perhaps too simply), if there is a doubt as to the basis for the claim, the person seeking indemnification will prevail. This is as it should be given the importance of preserving the right of indemnification.

This opinion also has some interesting insights into how to apply the Roven analysis that permits a defendant to counterclaim and still obtain indemnification for the fees incurred for acting offensively.

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Court of Chancery Explains Causation Rules for Attorney Fee Award

Helaba Invest Kapitalanlagegesellschaft v. Fialkow, C.A. No. 2683-VCL (Del. Ch. April 11, 2008)

Attorneys who cause a benefit for stockholders are entitled to be awarded. However, the benefit must be caused by the litigation they filed and not just happen to follow the institution of litigation. This gets tricky to determine sometimes as the plaintiff's attorneys insert themselves into the process of negotiating a higher merger price and then claim credit for it. Who gets that credit is the question.

That issue will be decided based on a record that includes the views of the participants in the merger discussions. Hence, that needs to be kept in mind and the record made at the time the events occur. 

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Court of Chancery Limits Advancement Rights Upon Bylaw Amendment

Schoon v. Troy, C.A. 2362-VCL (Del. Ch. March 28, 2008)

Directors who rely on advancement rights under a corporate bylaw need to be aware that those rights may be lost if the bylaw is amended. Delaware law, as this decision notes, permits elimination of advancement rights in a bylaw at least up to the moment those rights "vest" by the filling of a suit that entitled the director to advancement.

This decision is also interesting for its discussion of the Levy case that held when a director has his fees paid for by a third party, he may lose his right to seek advancement from the corporation. This decision limits Levy to cases where the third party is obligated to pay the fees.

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