Litigation

"Fees on Fees" Limited By Proportionality in Advancement Matter

By Francis G. X. Pileggi, Esq.

In Schoon v. Troy Corp., (Del. Ch., March 28, 2008), read opinion here, the Delaware Chancery Court granted advancement rights to one of the plaintiffs, but denied it to the other, based primarily on the wording of the relevant bylaws as construed through the applicable statute and case law. Moreover, although "fees on fees" are allowable to reimburse the party who sought advancement for the fees incurred to obtain that relief, in this case only one of the parties seeking advancement was awarded it, so the court discounted the fees granted to that effect.

Some or all of the parties in this case have been the subject of a least four (4)  prior written decisions by either the Delaware Supreme Court or the Delaware Chancery Court and the blog summaries for those cases are available at  this link.

The money quote from the instant case follows:

Troy argues that under Fasciana v. Electronic Data
Systems FN87, indemnification in the circumstance must
be proportionate to the plaintiffs' success,
notwithstanding the terms in the bylaws. According
to the plaintiffs, the language in the bylaws providing
for indemnification “if successful in whole or in part”
distinguishes Fasciana and requires full
indemnification regardless of their success.

FN87. 829 A.2d 178.

In Fasciana, the controlling provision generally
established indemnification “to the fullest extent,
permitted by Section 145 of the [Delaware General
Corporation Law]....”FN88   Significantly, based on this
language the plaintiff in Fasciana made a
substantially similar argument as Schoon and Bohnen
do here, that they are entitled to all fees incurred in
enforcing the advancement provision, regardless of
success. The Fasciana court responded:
FN88.  Id. at 182.

Fasciana's rule would encourage attorneys for
parties seeking advancement to raise any
conceivable argument that can pass Rule 11 muster
knowing that any level of ultimate success would
warrant a full fees on fees award. Limiting fees on
fees awards by imposing a proportionality
requirement encourages parties seeking
advancement or indemnification to raise only
substantial claims and encourages corporations to
compromise worthy claims ... and resist less
meritorious claims....FN89
FN89. Id. at 184.

This makes clear that the plaintiffs here are restricted
to an award that is proportionate to their success in
this action.
This award must adhere to the recognized principle in
Fasciana, that courts “should only award that amount
of fees that is reasonable in relation to the results
obtained.”FN90  Therefore, this court will discount the
plaintiffs' costs in prosecuting this action by half to
account for the result concerning Bohnen.

Full post as published by Delaware Corporate and Commercial Litigation Blog on April 02, 2008 (boomark / email).