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 cneff@foxrothschild.com.