In an earlier decision, the court determined that one of the plaintiffs (Lynch) initiated claims in a bad faith attempt to “complete his grab” at seizing control of a Delaware corporation. Following the court’s determination that the defendants in the action (Defendants) were entitled to their attorneys’ fees for defending against the bad faith litigation, Defendants submitted a motion for costs under Court of Chancery Rule 54(d), as well as a memorandum explaining Defendants’ attorneys’ fees and expenses (the Application for Fees).
In total, Defendants sought more than $2.3 million in attorneys’ fees and approximately $16,500 in costs. Lynch only objected to $173,000 of the requested fees and costs as “unreasonable.” Lynch made three arguments for why he should not be ordered to pay the disputed amount. First, Lynch contended that the Application for Fees was vague and did not provide the necessary information for him to assess those fees. Second, Lynch claimed he should not be ordered to pay fees for motion practice, because the motions (which were mostly in the discovery context) were “wasteful” and Lynch prevailed on some, but not all, of those motions. Third, Lynch objected to certain “unsupported costs,” because they could not be tied directly to the litigation.
When a party seeks to shift fees, Delaware courts must determine whether the fees requested are reasonable, and Delaware courts have broad discretion in determining the amount of fees and expenses to award. This determination begins by the court reviewing fee applications pursuant to the enumerated factors set forth in Rule 1.5(a) of the Delaware Lawyers’ Rules of Professional Conduct (DLPRC). However, in this case, the court observed, a party’s expenses will generally be deemed reasonable if they were actually paid or incurred, were thought prudent and appropriate in professional judgment of competent counsel, and were charged at rates, or on a basis, charged for comparable services under comparable circumstances. The court also stated that it is reluctant to “second-guess, on a hindsight basis, an attorney’s judgment as to whether work was necessary or appropriate” and will avoid such second-guessing “whenever possible.”
Applying this analysis, the court began by rejecting Lynch’s assertion that Defendants’ Application for Fees was unreasonably vague. Instead, the court found that “Defendants’ Affidavit and accompanying exhibits sufficiently apprise[d] the [c]ourt of the fees and expenses Defendants incurred in th[e] litigation and the underlying reasons for those amounts.”
In rejecting Lynch’s arguments, the court observed the apparent reasonableness of how Defendants’ law firms staffed this case and the rates it charged for services. Specifically, the court stated that Defendants were “charged on par with or below similarly situated firms; [the firms] discounted 20% of their fees charged; and [because the firms] enjoy[ed] excellent reputations and prudently staffed the matter with experienced attorneys.” The court further noted that “Defendants have paid all the fees they ask to be shifted. They did so when they ‘did not know that it would be able to shift those expenses to [Lynch],’” concluding that this was strong evidence of the fees’ reasonableness.
Likewise, the court ordered that Defendants were also entitled to the fees incurred as a result of motion practice. The court rejected Lynch’s argument that attempted to challenge the merits of those motions by stating that the court “does not relitigate motions in hindsight, or place substantial weight on motion-by-motion outcomes.”
Finally, the court did agree with Lynch that certain “unsupported” costs – which totaled less than $8,000 – did not appear to be “reasonable on their face” because those expenses could not be tied directly to events pertaining to the litigation. Specifically, the court noted that travel expenses purportedly related to a deposition were incurred “distant in time or location” from the actual deposition itself.
Delaware courts typically follow the American Rule, which requires parties to pay their own litigations costs and fees. However, in certain circumstances, including when a court has determined that claims were brought in bad faith, Delaware courts have the authority to shift those fees to the offending party. Costs and fees will generally be deemed reasonable if they were actually paid or incurred, were thought prudent and appropriate in professional judgment of competent counsel, and were charged at rates, or on a basis, charged for comparable services under comparable circumstances, because Delaware courts are reluctant to “second-guess” an attorney’s judgment and strategy. However, when those fees or costs do not appear to be directly related to the underlying litigation, Delaware courts are likely to scrutinize those fees or costs more carefully.
Client Alert 2020-584