Delaware follows the “American Rule”, which mandates that each party bear their own attorneys’ fees regardless of the outcome of the litigation.  However, as an exception to this rule, the court may order fee shifting if there is sufficient bad faith or litigation misconduct by a party.  The Delaware Supreme Court, in its recent decision of Shawe v. Elting, No. 487, 2016 (Del. Feb. 13, 2017), affirmed the Delaware Court of Chancery’s ruling granting such a fee award in light of the bad faith exception to the American Rule.

After an evidentiary hearing, the Court of Chancery found that plaintiff/appellant Shawe deleted substantial documents from his computer, recklessly failed to safeguard his cell phone, improperly gained access to Elting’s e-mails, and lied multiple times under oath. The court also found that Shawe’s improper conduct impeded the administration of justice, unduly complicated the proceedings, and caused the court to make false factual findings.  The lower court ordered that Shawe pay one-third of defendant/appellee’s Elting’s legal fees to defend the case on the merits, and 100% of Eltings’s fees to prosecute the award of sanctions. To review a blog summary of the Court of Chancery’s decision, click here.  The Court of Chancery’s decision can be found here.

The Delaware Supreme Court found that Shawe’s conduct was “ususually deplorable”, and affirmed the lower court’s findings. The High Court also noted that the Court of Chancery has broad discretion in fixing the amount of attorneys’ fees to be awarded, and absent a clear abuse of discretion, the Supreme Court will not reverse the award.

Key Takeaway: This is a textbook case of what actions a party should avoid during the course of litigation.  If the Court of Chancery finds that a party consistently lies under oath, has deleted evidence under a litigation hold notice, and other egregious misconduct, then such party will be susceptible to fee shifting and sanctions.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at

In the recent post-trial memorandum opinion of Dore v. Sweports, Ltd., C.A. No. 10513-VCL (Del. Ch. Jan. 31, 2017), Vice Chancellor Laster addressed indemnification for fees incurred in pursuing affirmative claims brought by an indemnified individual.  The underlying lawsuits giving rise to this indemnification action were substantially premised on the attempts of a law firm to collect legal fees.  A partner of the firm was also a director of the company, and had to defend himself when the company filed counterclaims against the plaintiffs that were unsuccessful.   This Delaware indemnification action was commenced after the lawyers substantially succeeded in collecting their fees, and in defending counterclaims brought by the company in the underlying litigation.

Of significance, the Delaware Court of Chancery addressed situations in which an affirmative claim is indemnifiable, in comparison to claims for indemnification for fees incurred to defend a claim brought against an individual “by reason of the fact” that they are a director or officer.

Vice Chancellor Laster explained:

[I]t is conceivable that indemnification might be warranted for preemptive litigation involving personal claims that sought to negate a threatened breach of fiduciary duty claim . . . . indemnification might be available if disposition of the personal claims would determine definitively whether the plaintiffs had breached their fiduciary duties.

Here, because the plaintiffs asserted breach of contract claims not related to their conduct as fiduciaries of the company, the Court declined to indemnify such claims.  The Court found that the contract claims were personal to the plaintiffs in their capacity as lenders, creditors and guarantors, claims which did not have a sufficient nexus to plaintiffs’ corporate duties.

However, the Court permitted indemnification of a portion of the fees incurred to defend against counterclaims that were successfully defended.  Finally, because the plaintiffs did not substantially prevail in their claims seeking indemnification, the court granted a small percentage of the “fees for fees” incurred in connection with this indemnification action.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at

In a very recent Delaware Supreme Court decision, Dieckman v. Regency GP LLC, et al., No. 208, 2016 (Del. Jan. 20, 2017), the High Court reversed the Court of Chancery and upheld claims based upon breach of the implied covenant of good faith and fair dealing.  The decision is noteworthy because the limited partnership agreement disclaimed fiduciary duties, and provided for conflict resolution safe harbors which defendants asserted were met.  However, the manner in which such safe harbors were obtained doomed defendants’ reliance upon the same.


The plaintiff is a limited partner/unitholder in the publicly-traded master limited partnership (“MLP”). The general partner proposed that the partnership be acquired through merger with another limited partnership in the MLP family. The seller and buyer were indirectly owned by the same entity, creating a conflict of interest.

The general partner sought refuge in two safe harbor conflict resolution provisions contained in the limited partnership agreement: “Special Approval” of the transaction by an independent Conflicts Committee, and “Unaffiliated Unitholder Approval.” The former requires approval by a special committee independent of the sponsor and its affiliates review and make a recommendation to the board whether to approve the transaction.  The latter requires approval by a majority of unitholder unaffiliated with the general partner and its affiliates.  Under the Limited Partnership Agreement (“LPA”), if either safe harbor is satisfied, then the transaction is not a breach of the agreement.

Plaintiff brought a petition before the Court of Chancery challenging the propriety of the transaction.  Plaintiff alleged that the Conflicts Committee itself was conflicted.  Plaintiff also alleged that the unitholder approval was not satisfied because the general partner made false and misleading statements in a 165 proxy statement to secure such approval.  According to plaintiff, the proxy statement failed to disclose that the Conflicts Committee was not disinterested.

Defendants moved to dismiss the Chancery action, taking the position that the general partner need only satisfy what the partnership agreement expressly required—to obtain the safe harbor approvals and follow the minimal disclosure requirements. Defendants asserted that, whether the information contained in the proxy statement was misleading, or who served on the special conflicts committee, was immaterial based upon the literal reading of the LPA.

The Court of Chancery granted Defendants’ motion to dismiss, which prompted the appeal. Chancellor Bouchard found that fiduciary duties could not be used to impose disclosure obligations on the general partner beyond those in the LPA, because the LPA disclaimed fiduciary duties.  The Court of Chancery also found that the only express requirement contained in the LPA in the event of a merger was that the general partner provide notice of the merger agreement, and there was no requirement to provide notice of a conflict among the Conflicts Committee.


The Supreme Court noted that the partnership agreement does not address how the general partner must conduct itself when seeking safe harbors contained in the partnership agreement. However, the Court found that where the express terms of the partnership agreement naturally imply certain corresponding conditions, unitholders are entitled to have those terms enforced according to the reasonable expectations of the parties to the agreement.

Specifically, the High Court stated:

The implied covenant is well-suited to imply contractual terms that are so obvious—like a requirement that the general partner not engage in misleading or deceptive conduct to obtain safe harbor approvals—that the drafter would not have needed to include the conditions as express terms in the agreement.

In other words, the general partner could not rely upon the safe harbor approvals, when it engaged in misleading or deceptive conduct to obtain such approvals, regardless of whether the LPA disclaimed fiduciary duties.

Key Takeaway

Although alternative entities may choose to waive fiduciary duties, the one duty that parties cannot waive in a Delaware alternative entity agreement is the duty to act consistently with the implied contractual covenant of good faith and fair dealing.  Moreover, once parties go beyond the minimal requirements set forth in safe harbor provisions, their actions and disclosures are likewise bound by the covenant.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at

It goes without saying that a corporation’s bylaws must comply with the applicable provisions of the Delaware General Corporation Law (“DGCL”).  The recent decision rendered by Vice Chancellor Glasscock, Fretchter v. Zier, et al., C.A. No. 12038-VCG (Del. Ch. Jan. 24, 2017) considered whether a corporate bylaw, requiring a two-thirds stockholder vote to remove a director, complied with the DGCL.

Among other things, plaintiff brought a declaratory judgment action that the removal provision of the bylaws violates Section 141(k) of the DGCL, and moved for summary judgment on the count.  Defendants responded with a motion to dismiss the complaint.

The Court granted plaintiff’s motion for summary judgment, finding that the bylaw ran afoul of 8 Del. C. § 141(k), under which directors may be removed by a majority vote of corporate shares.  Notably, the decision explained that the matter solely analyzed the bylaws, with no consideration of the corporation’s certificate of incorporation.

The Court noted that Section 141(k) of the DGCL provides that “[a]ny director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors” subject to two exceptions not pertinent here.  Vice Chancellor Glasscock also rejected defendants’ assertion that Section 216 of the DGCL authorized the bylaw, and disagreed with their assertion that Section 141(k) is permissive.

Accordingly, the Court held that “Section 141(k) unambiguously confers on a majority the power to remove directors, and the contrary provision in the Company bylaws is unlawful.”

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at

The Delaware Supreme Court recently clarified the extent and scope of charging liens that can be asserted by Delaware attorneys against clients who fail to pay their legal bills.  In the decision of Katten Muchin Rosenman LLP v. Sutherland, No. 151, 2015 (Del. Jan. 6, 2017), the High Court overturned the Court of Chancery and held that a charging lien may be asserted against an award, when an attorney bills on an hourly rate, regardless of whether the services rendered were necessary to obtaining such award.  In so doing, the Supreme Court held that the Court of Chancery’s requirement that a charging lien can only be obtained for unpaid services that directly relate to a client‘s recovery was an improper prerequisite to impose on a law firm’s equitable right to a charging lien.  In this case, the amount of unpaid attorneys’ fees exceeded the award, and therefore the plaintiff law firm was entitled to a charging lien on the entirety of the award.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at

As set forth in the Delaware Supreme Court decision of Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304 (Del., 2015), a board’s decision to approve a merger transaction is subject to business judgment rule presumption when the merger was approved by a disinterested majority of the company’s stockholders in a fully-informed and uncoerced vote.

This rationale was applied in the recent decision of In re Solera Holdings, Inc. S’holder Litig., Cons. C.A. No. 11524-CB (Del. Ch. Jan. 5, 2017).  There, a former stockholder of Solera Holdings, Inc. (“Solera” or the “Company”) challenged a private equity firm’s acquisition of the Company for $55.85 per share (a total of approximately $3.7 billion) in a merger that closed in March 2016, at which time Solera merged with an affiliate of Vista Equity Partners (“Vista”) in the transaction that is the subject of this action (the “Merger”)

The complaint alleged a single claim for breach of fiduciary duty against the eight members of Solera’s board who approved the transaction (of which seven were outside directors).  Specifically, the complaint alleged that the defendants improperly favored the interests of Company’s management, failed to establish an effective special committee or to extract the highest price possible for the Company, implemented preclusive deal protection devices, and failed to disclose material information about the value of the Company’s stock.

Plaintiff did not contend that the transaction is subject to entire fairness review, given that the transaction did not involve a controlling stockholder and the disinterestedness of the outside directors was not challenged.  However, plaintiff asserted that the enhanced scrutiny standard under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. Supr., 1985) and its progeny should be applied.

Chancellor Bouchard noted that, as explained Supreme Court explained in Corwin:

Revlon was ‘primarily designed to give stockholders and the Court of Chancery the tool of injunctive relief to address important M&A decisions in real time, before closing,’ and was not a tool ‘designed with post-closing money damages claims in mind.’

In the post-closing context, the Supreme Court held in Corwin that ‘when a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, the business judgment rule applies.’ This rule flows from our ‘long-standing policy . . . to avoid the uncertainties and costs of judicial second-guessing when the disinterested stockholders have had the free and informed chance to decide on the economic merits of a transaction for themselves.’

The Court found there was no question that a majority of Solera’s stockholders approved the transaction in an uncoerced vote after receiving a definitive proxy statement dated Oct. 30, 2015.  Moreover, the complaint did not allege that the act of approving the merger was an act of waste.  Thus, the claim could only survive the motion to dismiss if it was demonstrated that the Solera stockholders who approved the transaction were not fully informed.

The Court further found that the Solera stockholders’ approval of the transaction was fully informed.  In making this analysis, the Court stated as follows:

Under Delaware law, when directors solicit stockholder action, they must “disclose fully and fairly all material information within the board’s control.” The essential inquiry is whether the alleged omission or misrepresentation is material. Delaware has adopted the standard of materiality used under federal securities laws. Under that standard, information is “not material simply because [it] might be helpful.” Rather, it is material only “if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.” In other words, information is material if, from the perspective of a reasonable stockholder, there is a substantial likelihood that it “significantly alter[s] the ‘total mix’ of information made available.”

The Court disagreed with plaintiff’s insinuation that defendants were obligated to disclose “all troubling facts regarding director behavior” irrespective of their materiality.  Rather, the Corwin Court made clear that “troubling facts regarding director behavior . . . that would have been material to a voting stockholder” must be disclosed when seeking stockholder approval of a transaction.

For these reasons, the Court of Chancery granted defendant’s motion to dismiss, and dismissed plaintiff’s complaint with prejudice.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at

In the first Chancery opinion of 2017, Vice Chancellor Montgomery-Reeves granted dismissal of a class action complaint which alleged breach of the duty of disclosure in connection with a short-form merger, in the decision of In re United Capital Corp. S’holders Litig., Cons. Case Nos. 11619-VCMR (Del. Ch. Jan. 4, 2017).

Lead Plaintiff Louis B. Geser (“Plaintiff”) owned shares of common stock in United Capital Corporation (“United Capital”).  Defendant A.F. Petrocelli owned approximately 94% of the outstanding shares of United Capital before the transaction at issue. On September 30, 2015, Petrocelli through his controlled entities merged with United Capital at $32 a share, thus becoming the sole shareholder of United Capital.

Plaintiff’s complaint alleged the notice of merger failed to disclose the following information:

  • The controller’s reasoning behind the merger price,
  • Special committee’s process,
  • Financial projections used to determine the value of the company,
  • Information regarding the working capital and future use of cash of the company,
  • The lack of independence of two members of the special committee, and
  • The identities of two directors and a director’s spouse who participated in a multi-million dollar note with the company.

The Court granted defendants’ motion to dismiss on the grounds that all material information was disclosed in the notice and, in the realm of a short-form merger, any omitted information is not material to the decision of whether the minority stockholders should accept the merger consideration or seek appraisal.

In granting the motion, the Court found that plaintiff did not allege adequately that the omitted information was material to the decision to seek appraisal and the duty of disclosure was not violated.  The Court found that Plaintiff’s sole remedy was one of appraisal.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at

In the recent decision of In re OM Group, Inc. Stockholders Litigation, Cons. C.A. No. 11216-VCS (Del. Ch. Dec. 16, 2016), Vice Chancellor Slights considered a motion for reargument by the Plaintiffs challenging his prior decision dismissing the complaint.  Click here for prior decision by the Court granting motion to dismiss on Oct. 12, 2016.

The Complaint alleged that in the face of a threat of shareholder activism, the OM Board rushed to sell OM on the cheap in order to avoid the embarrassment and aggravation of a prolonged proxy fight and, in doing so, acted in a manner not consistent with maximizing present share value in violation of their fiduciary duties under Revlon.

The Court reiterated the familiar standards that govern a motion for reargument under Rule 59, namely that the Court “will deny a motion for reargument ‘unless the Court has overlooked a decision or principle of law that would have a controlling effect or the Court has misapprehended the law or the facts so that the outcome of the decision would be affected.'”

Plaintiffs asserted that the Court misapprehended a pleaded fact that: “The disclosure issue in question for purposes of this motion concerns ‘the evolution of Deutsche Bank’s engagement.’”  The Complaint had alleged that Deutsche Bank was retained as a second financial advisor to members of the OM Board in connection with the transaction, and raised issues with respect to such retention.

The Court noted that the October 12th opinion acknowledged that Plaintiffs were alleging that the Proxy “omitted information regarding the evolution of Deutsche Bank’s engagement” and that the “Proxy failed to disclose that the OM Board initially contemplated hiring Deutsche Bank on a flat fee basis but then inexplicably converted the engagement to a contingency fee arrangement.”  The Court then rejected Plaintiffs’ assertion that the Court did not fully understand the nuance of its disclosure theory with respect to Deutsche Bank fees because the Complaint did not plead, and the Proxy did not disclose, that the Board actually agreed to the contingency fee arrangement.

The Court rejected Plaintiffs’ reasoning.  The Court found that Plaintiffs’ citations to RBC Capital Markets, LLC v. Jervis, No. 140, 2015 (Del. Supr. Nov. 30, 2015) and In re El Paso Corp. S’holder Litig., 41 A.3d 432 (Del. Ch. 2012) for the proposition that “the retention of second bank on a contingent basis can be conflict-reinforcing, not cleansing” was not helpful.   Neither decision addressed in a disclosure context whether stockholders had been adequately apprised of the circumstances pursuant to which the later-retained bankers were engaged or would be compensated, and neither involved the cleansing effect of a fully-informed stockholder vote under Corwin.

The Court concluded that the Proxy adequately disclosed the circumstances surrounding the engagement of Deutsche Bank and that the omissions identified in the Complaint were not material.  Having found that the majority of disinterested stockholders had approved the merger, the Court found that the business judgment rule applied, which necessitated dismissal of the action.  Accordingly, Plaintiffs’ motion for reargument was denied.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at

In the recent appraisal decision of Merion Capital L.P. v. Lender Processing Services Inc., C.A. No. 9320-VCL (Del. Ch. Dec. 16, 2016), the Delaware Court of Chancery determined the fair value of petitioners’ shares of stock in Lender Processing Services, Inc. (the “Company”). In January 2014, Fidelity National Financial, Inc. completed the merger by which it acquired the Company. The Court found that the fair value of the Company’s common stock at the effective time of the merger is $37.14

Each party’s expert used the discounted cash flow analysis in determine fair value of the shares, but came to different numbers.  Petitioners’ expert determined that shares were worth $50.46/share, whereas the Company’s expert came to a value of $37.14/share.  As cited by Vice Chancellor Laster: “[T]he DCF . . . methodology has featured prominently in this Court because it is the approach that merits the greatest confidence within the financial community.” Owen v. Cannon, 2015 WL 3819204, at *16 (Del. Ch. June 17, 2015) (quotation marks omitted).”

The Court provided a thorough and helpful analysis in terms of determining fair value, including discussions of the risk-free rate, the supply-side equity risk premium, beta, and size premium.  The Court also considered a string of Delaware Chancery decisions which demonstrated how much weight the Court can give to the merger or deal price as evidence of fair value, stating as follows:

In a series of decisions since Golden Telecom II, this court has considered how much weight to give the deal price relative to other indications of fair value. In five decisions since Golden Telecom II, the Court of Chancery has given exclusive weight to the deal price, particularly where other evidence of fair value was unreliable or weak. In five other decisions since Golden Telecom II, the court has declined to give exclusive weight to the deal price in situations where the respondent failed to overcome the petitioner’s attacks on the sale process and thus did not prove that it was a reliable indicator of fair value.

The Court likened the case to AutoInfo and BMC, and gave full weight to the sale price.  Here, Vice Chancellor Laster found that the Company ran a sale process that generated reliable evidence of fair value, and created a reliable set of projections that support a meaningful DCF analysis. Accordingly, the Court agreed with the Company’s expert appraiser and found that the fair value per share was $37.14.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at

In the recent decision of In the Matter of Dissolution of Artic Ease LLCC.A. No. 8932-VCMR (Del. Ch. Dec. 9, 2016), the Court of Chancery analyzed whether an LLC member and certain affiliated entities were subject to the jurisdiction of Delaware under 6 Del. C. § 18-109, and ultimately dismissed third-party claims for lack of personal jurisdiction.

Section 18-109 of the Delaware LLC Act allows Delaware courts to exercise personal jurisdiction over parties who manage Delaware limited liability companies in actions “involving or relating to the business” of the company. Section 18-109(a) describes two types of “manager[s]” for personal jurisdiction purposes: (1) managers as defined in the operative limited liability company agreement and (2) parties who “participate[] materially in the management” of a Delaware limited liability company.

The Court also cited to an opinion of the U.S. District Court for the District of Delaware, which held that alleged managers in charge of financial and commercial functions for a limited liability company who act subject to the board’s authority do not “participate[] materially in the management” absent a “control or decision-making role” in the company. Wakely Ltd. v. Ensotran, LLC, 2014 WL 1116968, at *5 (D. Del. Mar. 18, 2014).

The Court found that the third-party defendants were not managers and thus not subject to the Court’s jurisdiction under Section 18-109.  Specifically, the Court rejected third-party plaintiffs’ argument that third-party defendant William Cohen was a manager of Summetria, LLC under Section 18-109(a)(i) because he was an original member of the Summetria board of directors, and as such, he possessed voting power.  The Court disagreed, finding that Cohen is not a manager of Summetria under Section 18-109(a)(i) because the Summetria LLC Agreement makes clear that another individual, Carol Forden is the sole manager of Summetria.  The Court also found that Cohen did not materially participate in the management of the LLC in that he had no control or decision-making role.

In sum, merely acting as an officer, without more, will not suffice when that person is subject to the control of others.

Carl D. Neff is a partner with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes. You can reach Carl at (302) 622-4272 or at