Delaware Court of Chancery Awards Attorneys’ Fees of $660,000

Auriga Capital Corp. v. Gatz Properties, LLC, is an iconic opinion from the Delaware Court of Chancery that was issued on Jan. 27, 2012 and highlighted on these pages here.  This decision is momentous because it explains why fiduciary duties will apply by default to managers and controlling members of LLCs unless those duties are expressly waived in the LLC’s operating agreement.

On Feb. 23, 2012, the Court issued a post-trial Order granting attorneys’ fees to the prevailing Plaintiffs in the amount of over $660,000. As explained in the Court’s opinion, the award was due, in part, to errant litigation tactics. The Court, in its opinion last month, awarded Plaintiffs “one-half” of their reasonable attorneys’ fees. The post-trial, procedurally indecorous manner in which the exact amount of fees was determined might serve as a cautionary tale, or a “teaching moment” for those who seek to object to the amount of fees awarded pursuant to the decision of the Court of Chancery to award “reasonable” fees in an amount to be determined. See, e.g., the last post-trial letter to the Court from Plaintiffs’ counsel, just prior to the Court’s ruling on fees.

(The Court’s opinion from last month must be noteworthy, if only because former Chancellor William Chandler, now with the Wilson Sonsini firm, also made time along with his new colleague Ryan McLeod, to summarize the case in a post available here.) The author of the Auriga opinion recently succeeded Chancellor Chandler as the current Chancellor for the Court of Chancery.

Counsel for Plaintiffs’ first post-trial letter to the Court regarding the issue of fees awarded, explained why there was a procedural imbroglio about how the fees awarded by the Court should be determined. The post-trial reply letter to the Court from counsel for Defendants had a different view of footnote 184 of the Court’s opinion (quoted in full below), which referred to the “pizza principle axiom” that it takes more time to clean up a pizza thrown against the wall than it does to throw the pizza. (Hence, the graphics below of a pizza, as well as a “pizza man” and a pizza being twirled.) 

The Court’s post-trial transcript ruling on fees explains why one of the parties might have benefitted from giving more thought before “throwing a pizza” as that phrase was used in footnote 184 of the Court’s opinion regarding the award of attorneys’ fees in this case. The Court’s ultimate fee award proves the point. Kudos to John Reed, victorious counsel for Plaintiffs, who hails from DLA Piper’s Wilmington, Delaware, office.

The famous footnote 184 from the opinion in this case provides as follows:   “The Minority Members’ counsel shall submit an affidavit setting forth this amount [of fees awarded] to Gatz within five days of this decision. Unless Gatz’s counsel fully produces their own billing records in full in support of an argument that the Minority Members’ bills are too high, I shall consider the Minority Members’ amount sought to be reasonable. In objecting to the amount of the fee, Gatz and his counsel should remember that it is more time-consuming to clean up the pizza thrown at a wall than it is to throw it.”

Supplement: Kevin Brady discusses this case in a LexisNexis videocast available here.