Litigation

Court of Chancery Awards Fees in Closely Held Entity Litigation

By Morris James LLP

Julian v. Eastern States Construction Company, C.A. 1892-VCP (Del. Ch. Jan. 14, 2009)

This decision answers the question of whether the normal rules governing attorney fee awards in derivative litigation will be applied in closely held entities. This has been a concern because some have argued that when the entity is closely held, the recovery in the derivative litigation benefits the few owners more directly and immediately than in the case of publicly held companies. For example, in subchapter S companies, the recovery is often distribution to the owners; hence, the argument goes, there is no need to award fees to give an incentive to the plaintiff to bring a derivative suit.

Here the Court rejected that argument and awarded fees.  After all, the amount distributed to the successful owner in such cases may not be enough to pay her attorneys and some additional incentive is appropriate.

The opinion is also interesting in its discussion of how to calculate those fees. Given that the recovery is fairly small, so should the fees and a multiple of hourly rates may not be warranted in such cases.

Full post as published by Delaware Business Litigation Report on January 14, 2009 (boomark / email).