Court Awards Fees Based on Corporate Benefit Doctrine

Sutherland v. Sutherland, C.A. No. 2399 -VCN (Del Ch. July 31, 2014).

This Delaware Court of Chancery decision involving a long-running internecine legal battle among family members who own and manage related corporations, is noteworthy because it applies the corporate benefit doctrine to a series of lawsuits among the same parties over eight years. The corporate benefit doctrine allows for the award of fees to a successful stockholder who successfully litigates against a corporation in a manner that creates a benefit for the corporation but does not create a common fund or a quantifiable sum that is attributable to the litigation.

One notable aspect of this decision is that it finds that the litigation resulted in some benefit even though not quantifiable. For example, it limited certain perquisites enjoyed by directors that were paid for by the corporation, though the savings were not readily measurable.

Also worthy of note is that a portion of the fees that were awarded, as part of the unallocated total applicable to the multiple suits filed over many years, was attributable to successfully pursuing an action under DGCL Section 220. Two observations in this regard: (i) fees are rarely awarded separately for successful Section 220 actions. This is true especially in this case where there was a prior determination that the corporation did not defend the 220 case in bad faith; and (ii) the court described the fees incurred in the Section 220 case alone as about $750,000 by the company, and over $500,000 incurred by the plaintiff. Yet another example of how expensive Section 220 cases can be.

The total fee request was $1.4 million. The court awarded $275,000. (It appears that the $1.4 million requested is not nearly the total of fees incurred by the plaintiff for all the litigation during the 9 or 10 years of multiple suits fiercely fought.)

Many of the prior Delaware decisions in the multiple suits between these parties over the last 9 or 10 years have been highlighted on these pages.