Reed Smith Client Alerts

In Lynch v. Gonzalez, 2020 WL 5587716 (Del. Ch. Sept. 18, 2020), the Delaware Court of Chancery recently discussed a party’s ability to seek costs and fees for “bad faith” litigation. Typically, Delaware courts follow the American Rule, which dictates that parties to lawsuits are responsible for paying their own attorneys’ fees and costs incurred in the litigation. However, parties are permitted to seek an order from Delaware courts shifting the fees when such a party can prove that its opponent pursued its claims in “bad faith.” This opinion provides a succinct explanation of when such a shift is appropriate.

Authors: Brian M. Rostocki Justin M. Forcier

Background

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.