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Chancery Awards $3M in Fees After ‘Significant’ Bylaws Changes

July 24, 2019 | Posted in : Expenses / Costs, Fee Award, Fee Award Factors, Fee Entitlement / Recoverability, Fee Jurisprudence

A recent Law 360 story by Rose  Krebs, “Chancery Awards $3M Fees for ‘Significant’ Bylaws Challenge,” reports that the Delaware Chancery Court on awarded $3 million in fees to an investor who scored a "significant and substantive" win in a case that struck down provisions in three companies' bylaws mandating that federal courts handle securities complaints.

In a 17-page decision, Vice Chancellor J. Travis Laster said he took into account factors such as results achieved, the complexity of the case and the effort made by counsel in awarding the $3 million in fees requested by investor Matthew Sciabacucchi's counsel for his lawsuit that successfully challenged federal forum provisions in the bylaws of Blue Apron Inc., Roku Inc. and Stitch Fix Inc.

"In this case, the plaintiff achieved a significant and substantive result by successfully invalidating the federal forum provisions," the vice chancellor ruled.  "Because the value of the relief is non quantifiable, the plaintiff looked to precedent to determine an appropriate fee."

Given case law regarding another suit over bylaw provisions dealing with forum selection, Vice Chancellor Laster found that the $3 million in fees — $1 million to be provided by each company — was reasonable.  The vice chancellor called the companies' request that only $364,723 plus expenses be awarded "not reasonable" and ruled that amount would "undercompensate plaintiff's counsel for the result they achieved."

In April, Sciabacucchi's counsel argued that the $3 million in fees should be awarded for a win in what they called one of the "hottest" and most closely watched corporate cases.  The case was one involving "cutting-edge legal issues," the counsel asserted.  The companies blasted the bid for attorney fees as being way too high given the hours actually put into the case.

In a Dec. 19 decision, Vice Chancellor Laster struck down as invalid provisions in the three Delaware-chartered companies' bylaws that required that Securities Act of 1933 complaints be handled in federal district court.  In the ruling, the vice chancellor also cautioned other companies that have adopted similar measures or are contemplating them, declaring that Delaware companies can only limit forum options for internal corporate matters.

Sciabacucchi argued that a $3 million award is fair given the significance of the ruling and the benefit that was bestowed on stockholders by having the provisions struck down.  In court filings, Sciabacucchi claimed he scored a permanent victory that "strikes a 'death blow'" to other companies' bylaws that attempt to limit securities cases to being heard in federal court.

In his ruling awarding the fees, Vice Chancellor Laster noted that "corporate lawyers are excellent mimics, and multiple companies often adopt similar corporate governance measures" and that "litigation in one case can establish a precedent that applies to other situations."

Thus, the result achieved by Sciabacucchi was significant and fees should be awarded based on such.  The vice chancellor also ruled that although Sciabacucchi "prevailed at a relatively early stage of the case, and accordingly incurred a relatively small number of hours to date, I do not believe that this factor warrants reducing the precedent-based award."  Vice Chancellor Laster said he was "satisfied that the award checks out."  The $3 million fee amount was also justified because Sciabacucchi "advanced nuanced public policy arguments," the opinion said.