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Chancery Court Awards all Fees Requested as Reasonable based on Terms of an Agreement but Rules that "Expenses" are not covered by "Costs" Term in Agreement

By Francis G. X. Pileggi, Esq.

 Ivize of Milwaukee v. Compex Litigation Support, No. 3158-VCL (June 24, 2009),  read letter decision here.  The recent prior decision of the Chancery Court in this case was summarized here.

 In its prior opinion, the court determined that the Asset Purchase Agreement involved in this case had been breached, and as provided in the agreement, the court awarded the full amount of reasonable attorneys' fees requested, as entitled to the prevailing party, even though the court rejected the damages theory of the prevailing party. The court reasoned that the expert fees were also to be covered even though the legal argument on which the expert's report was based was rejected by the court. (See footnote 8 for supporting caselaw). Where as here, there is a fee shifting provision in an agreement entitling the prevailing party to attorneys' fees, the court still analyzes the reasonableness of fees based on Rule 1.5(a) of the Delaware Lawyers' Rules of Professional Responsibility, as well as the following factors:

'The time and labor required, the novelty and difficulty of the questions involved, the skill requisite to perform the legal services properly, the fee customarily charged in the locality for similar legal services, the nature and length of the professional relationship with the client, and the experience, the reputation, and ability of the lawyer or lawyers performing the services.' (citing Tafeen v. Homestore, Inc., 2005 WL 789065, at * (Del. Ch. Mar. 29, 2005)).

Importantly, however, the court did not agree that all of the 'expenses' were covered because the agreement that entitled the prevailing party to attorneys' fees only specified that 'costs' associated with the litigation would be covered. The problem with that language in the agreement is that the terms 'costs' and 'expenses' have distinct meanings under Delaware law. The definition of 'costs' under Court of Chancery Rule 54 and under Delaware caselaw interpreting agreements between parties has been held to exclude items such as 'photocopying, transcripts, travel expense and computer research.' (citing Comrie v. Enterasys Networks, Inc. 2004 WL 936505, at * 4 (Del. Ch. Apr. 27, 2004)).

On the other hand 'expenses' has a definition that is recognized in Delaware to be much broader. One lesson that can be learned from this case is that when drafting agreements that are intended to 'shift fees and expenses,' if the prevailing party hopes to be covered for costs and expenses if she prevails, then the agreement should not be limited to reimbursement of merely "fees and costs" alone, but rather the term "expenses" should be used as well as a more inclusive description.

 

Full post as published by Delaware Corporate and Commercial Litigation Blog on June 24, 2009 (boomark / email).