Monday, May 18, 2015

$2 Million in Attorneys' Fees for "No Quantifiable Benefit"

You may recall my blog post this fall about the Delaware Chancery Court opinion in In Re Nine Systems Corporation Shareholders Litigation. That case discusses what happens when a self-dealing transaction results in a fair price, thus causing no damage to the corporation, but the process followed was fair. The court held that the plaintiff could still recover attorneys' fees and costs. I noted that the only people likely to be satisfied with that result were plaintiffs' attorneys. (It makes no difference to the plaintiffs in the case because they had a contingent fee agreement with their attorneys-no recovery, no attorneys' fees to be paid.)

The Chancery Court just entered its order awarding plaintiffs' counsel, Jones Day, $2 million dollars in attorneys' fees and expenses. That's right, the attorneys get $2 million even though, as the Vice Chancellor notes, "the quantifiable benefit obtained in this litigation was $0." Thus, the defendants have to pay $2 million to counsel for helping the court determine that nothing they did harmed the corporation or its shareholders.

It could have been worse; plaintiffs' counsel asked for $11 million.

I'm afraid that this opinion will give plaintiffs' attorneys an incentive to search for problems with the process in conflict-of-interest cases just so they can get in on the Nine-Systems action and collect attorneys' fees. No harm to the corporation? No problem!

Business Associations, C. Steven Bradford, Corporations | Permalink


To be fair, I find it really hard to believe that even before this case, if attorneys saw a self-dealing transaction with an unfair process, they'd forego filing a lawsuit - no matter what the price was.

Posted by: Ann Lipton | May 18, 2015 6:31:47 AM

First of all, I think it is important to note that the statement quoted from the opinion in the post is followed by, “Nonetheless, Plaintiffs were harmed by faithless fiduciaries, and the litigation vindicated certain important rights.” More generally, it is likely difficult to know with absolute certainty whether bringing a claim like this will ultimately result in a benefit to the corporation. (The opinion also states: “it could have been reasonable to anticipate before trial a recovery of $3-4 million.”) Limiting attorney awards only to cases where a benefit is shown would likely eliminate at least some meritorious claims because lawyers won’t risk ending up with no compensation for their efforts. Obviously, reasonable experts can disagree on whether such a cost would be outweighed by the accompanying benefits.

Posted by: Stefan Padfield | May 19, 2015 7:47:47 AM

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