In Re Nine Systems Corporation Shareholders Litigation, Cons. C.A. No. 3940-VCN (Del. Ch. May 7, 2015). This Delaware Court of Chancery decision on the award of attorneys’ fees is blogworthy in that the basis of the award is a post-trial finding that, after application of the entire fairness standard to a recapitalization that resulted in dilution, the price was fair but the process employed was not. Thus, although no common fund was created, the award of attorneys’ fees was considered by the court to be an appropriate remedy for the breach of fiduciary duties in connection with the unfair process that was described in a 146-page post-trial opinion in this matter. See In re Nine Sys. Corp. S’holders Litig., 2014 Del. Ch. LEXIS 171 (Sept. 4, 2014).
Applying equitable principles based on the court’s inherent power to effectuate equity to remedy a breach of fiduciary duties, and “quasi-Sugarland” factors, the court awarded $2 million in fees, although more than $11 million in fees was incurred. The court had to weigh the amount of fees incurred and sought, with the absence of a monetary benefit to the shareholders, within the context of the amount that potentially was at stake for the shareholders.
The Court began the September 2014 opinion with the observation that the issue in this case is a long-standing puzzle of Delaware corporate law: when the entire fairness standard applies to a transaction, “to what else are shareholders entitled beyond a fair price?” Although the shareholders may not receive a part of the fees awarded to their attorneys, the theory is that they benefited generally from the efforts that resulted in the court finding that the fiduciaries breached the duties owed to the shareholders.