The Court of Chancery recently denied a request for attorneys’ fees that were sought pursuant to the corporate benefit doctrine despite a successful suit under Section 211 of the Delaware General Corporation Law (DGCL) to compel a company to hold an annual meeting. In Martin v. Harbor Diversified, Inc., C.A. No. 2018-0762-SG (Del. Ch. Feb. 5, 2010), the court also rejected the request for fees based on allegedly bad faith litigation tactics. A third basis for requesting fees, that the court also found unpersuasive, was the argument that the plaintiff prevailed in its demand for documents under DGCL Section 220. (As an aside, fee shifting is rarely granted in Section 220 cases, as indicated in the multitude of Section 220 decisions highlighted on these pages over the last 15 years.)
In sum, the court explained that the predominant benefit, and primary motivating factor in this case, was personal to the stockholder pursuing the claims. By comparison, when fees are granted based on the corporate benefit doctrine, which is a sub-species of the common benefit doctrine, which allows (but does not require) a court to grant attorneys’ fees based on various equitable criteria, the theory is designed to avoid the “free rider” inequity when all stockholders–and a corporation generally–benefit from the litigation efforts of one stockholder.
One example of an application of the common benefit doctrine applied to allow a attorneys’ fee request is often seen in derivative litigation when the corporation receives a lump sum payment as a result of the litigation efforts of a derivative plaintiff. By contrast, the corporate benefit doctrine applies when the corporation receives, for example, a therapeutic benefit from the litigation even if no “common fund” is created.