Aveta Inc. v. Bengoa, C.A. No. 3598-VCL (Del. Ch. August 13, 2010), read opinion here. Prior Chancery decisions in this matter were summarized on this blog here.
This opinion of the Court of Chancery addresses the reasonableness of fees that were previously awarded for contempt of court and in connection with a motion to enforce a prior order of the court.
The amount of fees sought in connection with that award was over $700,000. Bengoa refused to pay that amount. Aveta moved to enforce the award. The Court largely rejected the objections and awarded the lion’s share of the fees of slightly more than $700,000 except for a few items that the Court sought clarification on.
[As an aside, I have observed the "common denominator" of $700,000 as the amount of fees awarded as a penalty by the Court of Chancery in three relatively recent cases, for either bad faith litigation tactics or failure to follow a court order (this case); or failure to fulfill discovery obligations. See, e.g., TR Investors, LLC, et al. v. Genger, C.A. No. 3994-VCS, 2009 WL 4696062 (Del. Ch., Dec. 9, 2009)(Penalty of $750,000 in fees imposed for discovery violations. Opinion summarized here); and Minna v. Energy Coal, S.p.A., et al., No. 267, 2009, (Del. Supr., Nov. 16, 2009)(Supreme Court upheld Chancery’s imposition of $700,000 in fees as a penalty for discovery violations. See here for summary on this blog and link to actual opinion.)
In this case, Chancery rejected for all practical purposes each of the substantive and procedural objections to the request of over $700,000 in fees. For example, the Court rejected any arguments based on Court of Chancery Rule 88 regarding the “tempest over the title” given to the motion to enforce the fee award. In addition, the Court rejected the argument that the payment obligation was not triggered until there was a final adjudication of a specific amount. To support this position the Court cited to Kurz v. Holbrook, 2010 WL 3028003 (Del. Ch. July 29, 2010). See blog summary of the Kurz decision here. Namely, when the Court awards fees in this context, the duty to pay is triggered upon the order being issued, even if the specific amount of fees has not yet been quantified. Put another way, it is no defense to payment that the Court has not yet passed on the specific amount of fees (in the event that the amount is contested.) Regarding the amount of fees requested, the Court in this matter regarded them as reasonable in connection with the litigation involved except for a few minor entries for which the Court sought clarification.
Notably, the Court made a distinction between fees awarded as a penalty, and fees that are based on a contractual fee-shifting provision between the parties. See, e.g., Mahani v. EDIX Media Group, Inc., 935 A.2d 242, 245 (Del. 2007) (Delaware Supreme Court assessed the reasonableness of fees based on a contractual fee-shifting provision in light of the Delaware Lawyers’ Rule of Professional Conduct 1.5. See highlights of Mahani decision on this blog here.)
This latest opinion in Aveta, Inc. v. Bengoa compared the factors in Rule 1.5 with the more frequently used Sugarland factors most often used in connection with a common fund or corporate benefit created in corporate litigation, as “virtually identical”. See Sugarland Industries Inc. v. Thomas, 420 A.2d 140 (Del. 1980). Although the court noted the “powerful family resemblance” between the two lists of factors, the court did not find a hereditary link.
Fees Awarded by Court v. Fees Based on Contract Provision
After discussing the different historical underpinning of the Sugarland factors and Rule 1.5(a) factors, the Court was not able to discern any reason to distinguish materially between them. Rather, the Court focused on the Sugarland factors as emphasizing the results obtained when a plaintiff seeks a fee for conferring a corporate benefit or creating a common fund. See Sugarland, 420 A.2d at 149.
By contrast, the Court reasoned that when a party seeks to recover under a contractual fee-shifting provision, the results are secondary. See Mahani, 935 A.2d at 248. Absent any qualifying language that fees are to be awarded claim-by-claim or on some other partial basis, contractual provisions entitling the prevailing party to fees will usually be applied in an all-or-nothing manner. See West Willow-Bay Court, LLC v. Robino-Bay Court Plaza LLC, 2009 WL 458779 at *8 (Del. Ch. Feb. 23, 2009).
However, when–as in this latest Aveta opinion, the Court awards fees and expenses as a penalty for contempt or bad faith litigation tactics, the Court of Chancery takes into account the remedial nature of the award and focuses on the goal to make whole the party who was injured by (what the Court describes as) the “contumely”. The remedial nature of the award puts primary emphasis on reimbursing the injured party, with results achieved being of a secondary importance.
Moreover, determining reasonableness does not require a reviewing court to examine individually each time entry and disbursement. See cases cited at footnote 1.
The Court concluded that “aggregate fees of approximately $700,000 are within the range of what a party reasonably could incur over the course of ten months pursuing an adversary engaged in a mix of open defiance, evasion and obstruction”. See Aveta Inc. v. Bengoa, 986 A.2d at 1178.
Further indication of the reasonableness is the reality that when Aveta filed its motion to enforce and paid the expenses it now seeks to recover, it did not know that it would be able to shift those expenses to Bengoa. The Court also rejected objections regarding the number of lawyers and the fees incurred by multiple lawyers, which the Court itemized in the following reasoning:
1. The hourly rates charged by attorneys [in this case] are consistent with market rates for attorneys at "reputable and sophisticated firms." (Some of those hourly rates charged were as high as $885 per hour.)
2. The Court emphasized its disagreement with the argument that it was inefficient to use Delaware lawyers in addition to the forwarding firms even when they appeared to be performing the same work. The Court emphasized that it is necessary and often more efficient for Delaware lawyers to be intimately involved in all aspects of a case–which also is a fulfillment of their obligations to the Court. (citing State Line Ventures LLC v. RBS Citizens, N.A., 2009 WL 4723372 (Del. Ch. Dec. 2, 2009)).
3. The Court also rejected the objection that it was excessive for six attorneys to bill over $67,000 to prepare a motion for temporary restraining order, nor did the Court find excessive a bill for over $76,000 for eight attorneys briefing the Order to Show Cause.
4. The Court also found reasonable the fees incurred to create litigation budgets.
Apart from the few minor items for which the Court sought clarification from the parties, one possible lesson from this opinion is that when contesting the reasonableness of fees that are awarded as a penalty imposed by the Court for what the Court views as some infraction by a party committed in the course of the litigation, it will be a difficult task to convince the Court that the amount sought is excessive.