Posts tagged Attorney Fees

Court of Chancey Holds Only Compulsory Counterclaims Warrant Advancement

Reinhard  & Kreinberg v. The Dow Chemical Co., C.A. 3003-CC (Del. Ch. March 28, 2008)

Corporate bylaws sometimes provide advancement rights in litigation filed by a director, but that is rare. However, when a director is sued, the question remains if he has advancement rights in that circumstance, and whether he may get those rights to cover a counterclaim in the absence of a bylaw right to do so when bringing litigation. This decision holds that if the counterclaim is compulsory under the rules of procedure, advancement is possible.

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Court of Chancery Grants Advancement to an Employee

Sassano v. CIBC World Markets Corp., C.A. No. 3066-VCL ( January 17, 2008).

It is not widely recognized that Delaware law permits a corporation to grant advancement of attorney fees to employees who are not directors and may even be fairly minor employees. Here, the bylaws provided advancement of fees for an officer with "management supervisory functions". The court carefully went over whether the plaintiff had those duties and found that he did and thus, should be advanced his fees for the defense of an SEC investigation.

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Court of Chancery Sets Fees for Supplemental Proxy Materials

In re James River Group Inc. Shareholders Litigation, C.A. No. 3173-VCL ( January 8, 2008).

Here, the court awarded $400,000 in fees in connection with the settlement of a class action when the relief obtained was a supplement to the proxy statement.

While the company claimed it was always going to send the supplemental materials, the court noted that was contrary to the recital in the settlement agreement. Seems like it is not good to go back on your word in Chancery Court.

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Court of Chancery Holds Advancement Lost Despite Conversion

Bernstein v. Tractmanager Inc., C.A. No. 7263-VCL (November 20, 2007).

This decision illustrates the perils in converting from an LLC to a corporate form without considering the consequences. Here, the LLC involved did not provide for mandatory advancement rights. The LLC was then converted into a Delaware corporation whose bylaws did provide for advancement as a matter of right. Quite possibly this was thought to be a good idea as the attorney who did the conversion was about to be sued by the entity and was a director who now thought he was covered. Unfortunately, the LLC did not provide for advancement and the Court of Chancery held that it was the LLC's operating agreement that controlled the right to advancement. Thus, advancement was denied.

The lesson here is that in converting from one form of entity to another do not assume that the new entity is obligated to fulfill all the obligations that might have been the responsibility of its predecessor. That was the losing party's argument. The problem was that the LLC was not obligated to him and thus, there was no liability to follow upon conversion. If you want the new entity to be liable then say so.

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Supreme Court Upholds Contract Based Fee Award

Mahani v. EDIX Media Group, Inc., Del. Sup. C.A. No. 91, 2007 (September 4, 2007).

In this decision upholding a fee award by the Court of Chancery, the Delaware Supreme Court held that a fee based on a contract right to recover fees is not limited by the results in the case. That limitation, the Court held, is more appropriate in fee shifting pursuant to a statute. Instead, the fees awarded under a contract should take into account the 8 factors set out in Rule of Professional Conduct 1.5(a)(1). The results obtained are among those factors but not the driving force to a decision.

This case had an odd set of facts involving a misbehaving litigant - never a good idea in a Delaware court. Hence, the fee award of a multiple of the actual recovery is not often to be repeated.

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Court of Chancery Permits Security For Advancement

Thompson v. The Williams Companies, Inc., C.A. No. 2716-VCS (July 31, 2007).

Companies often find that they are required to provide advancement of attorney fees to former directors or others when the company really does not want to do so because of the conduct involved. Here, in a case involving an employee with an advancement  right, the Court held that requiring security for the amounts advanced is appropriate to insure repayment.

Note, however, that this discretion to require security was based on the terms of the provisions providing for advancement. Without that language in a mandatory advancement provision, it is doubtful that a company might require more than the usual and customary undertaking to repay.

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Court of Chancery Limits Indemnification For Fees

Levy v. HLI Operating Company, Inc., C.A. No. 1395-VCL (May 16, 2007).

It is widely thought that fee provisions in indemnification agreements are always enforceable. Think again. This decision held void a provision in an indemnification agreement that would have provided for payment of attorney fees even when the plaintiff lost his right to indemnification.  Hence, agreements to pay attorneys fees to directors will need to be redrafted to make sure that an employment benefit is not dependent on the right to indemnification itself.

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Court of Chancery Denies Fee Request

Dittrick v. Chalfant, C.A. No. 2156-S (Del. Ch. May 8, 2007).

Provisions for payment of the attorney's fees of the winning party are not uncommon in contracts. What is "winning" is not always clear, however. This decision holds that when the contract says you must win to collect, then you must win it all to invoke the contract or at least the contract at issue in this case. In other words, you do not get paid for winning half the loaf. More ›

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District Court Rejects Defenses to Breach of Contract, Awards Attorneys' Fees

Chase Manhattan Bank v. Iridium Africa Corp., 2007 WL 518440 (D.Del. Feb. 16, 2007)

In this breach of contract case, the defendant members of a bankrupt LLC asserted various defenses to their alleged contractual obligation to make capital contributions after the bankruptcy. The plaintiff lender had made an $800 million dollar loan to the LLC, and asserted that the members were contractually obligated to continue capital contributions despite the bankruptcy. The District Court entered summary judgment for the plaintiff on its breach of contract claim, but delayed entering final judgment until the parties could brief remaining “open issues”. The defendants argued that the plaintiff’s alternate theory of recovery should be dismissed as moot prior to a final entry of summary judgment for the plaintiff, that the plaintiff was not entitled to attorneys’ fees, and that the Court’s grant of summary judgment had left unresolved various defenses asserted by the defendants. The Court concluded that the entry of summary judgment was appropriate without addressing the plaintiffs’ alternate theories of recovery and did not leave any defenses unresolved, and that the plaintiff was contractually entitled to attorneys’ fees. The Court therefore found that the entry of final judgment for the plaintiff was appropriate. More ›

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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. More ›

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Court of Chancery Denies Fee Split Request

In Re William Lyon Homes Shareholders Litigation, C.A. No. 2015-N (Del. Ch. December 21, 2006).

When there are two competing class or derivative actions, there may arise a conflict between them. This is particularly so when one is settled and the settlement will affect the right to proceed in the other litigation. That conflict may generate a fight among plaintiff's counsel over the fees to be awarded by the Court in the settlement. That is what occurred here.

Such fee split cases are governed by the rules set out in In re Infinity Broad. Corp. Shareholders Litigation, 802 A2d 285 (Del. 2002). In effect, this requires the Court to allocate the fees among the claimants based on the Court's views of their respective contributions to the settlement.

The plaintiff in a related California case that sought some of the fees to be awarded ended up with nothing for failure to justify their claim.

On December 21, 2007, the Delaware Supreme Court reversed, in part, the Court of Chancery decision. The Supreme Court held that there was enough in the record to support a presumption that the plainitff in the California case had contributed to a price rise that benefited the class and remanded for further proceedings .

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Court of Chancery Finds Limit On Advancement Rights

Majkowski v. American Imaging Management Services LLC, C.A. No. 1797-N (Del. Ch. December 6, 2006).

The right to have attorneys fees paid in advance of the final result in litigation is illustrated by this recent decision. The Court held that an agreement to "hold harmless" does not give the right to advancement of legal fees. Instead, "hold harmless" language only confers the right to be indemnified at the end of the litigation. More ›

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Superior Court Declines to Perform Post-Settlement Allocation of Class Claims and Holds Insurer Responsible for Negotiated Settlement and for Insured's Attorneys' Fees

Premier Parks, Inc. v. TIG Insurance Co., C.A. No. 02C-04-126-PLA, 2006 WL 2709235 (Del. Super. Ct. Sept. 21, 2006). The parties filed cross-motions for summary judgment on counterclaims in an ongoing declaratory judgment action. The plaintiff, TIG Insurance Company ("TIG"), sought a declaration that it was only liable to pay an allocated share of a global settlement that its insured, Six Flags, Inc. ("Six Flags") negotiated in a class action civil rights lawsuit that alleged that Six Flags had engaged in discriminatory practices at one of its amusement parks. TIG also sought a declaration that it was not responsible for covering the attorneys' fees that Six Flags incurred in defending the class action and negotiating the settlement. More › Share

Court of Chancery Awards Interest On Advancement

Citrin v. International Airport Centers LLC, C.A. No. 2005-N (Del. Ch. September 7, 2006). This decision awards interest on the fees due to a corporate officer who was wrongly denied advancement of those fees. While this award of interest is the normal rule, the decision is interesting because it dealt with an instance where the corporate defendant had discouraged the plaintiff from even submitting the fees in dispute and then argued that failure to submit a bill precluded interest when the plaintiff prevailed. Not surprising, this effort to avoid interest failed for want of any equity. Share

Court of Chancery Awards Fees For Bad Faith

In re Grupo Dos Chiles LLC, C.A. No. 1447-N (Del. Ch. August 17, 2006). In a rare case awarding fees for bad faith litigation, the Court stressed that litigants who change their sworn testimony to gain an advantage face a fee award if the Court is convinced they lied. The Court will look to the surrounding circumstances to assess if a lie has occurred. Share