Fee Award Nixed After Client Abandons Case

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In a neat, short opinion, the Delaware Supreme Court dealt with a situation that the chief justice characterized as "Kafkaesque" at oral argument and "unusual" in the written opinion. In Crothall v. Zimmerman, No. 608, 2013 (Del. June 9, 2014), the court reversed a fee award to plaintiffs’ counsel who had personally intervened in the case below solely for the purpose of seeking attorney fees for the work he had performed in the litigation after the plaintiff had abandoned the lawsuit prior to the entry of a final judgment. The court held that the plaintiff's former counsel did not create a corporate benefit and was not entitled to attorney fees because the plaintiff did not obtain an authoritative ruling of the Court of Chancery that could create a corporate benefit.

The plaintiff, Robert Zimmerman, was a common unitholder of Adhezion Biomedical LLC. Zimmerman brought a derivative action against the directors of Adhezion and two Adhezion investors challenging certain financing transactions and the issuance of additional units by Adhezion. Zimmerman alleged that the financing transactions were substantively unfair and thus violated the directors' fiduciary and contractual duties, and that the issuance of the additional units was not made in conformity with Adhezion's operating agreement because it had not been authorized by a separate vote of common unitholders as required by the agreement. After trial, the Court of Chancery rejected Zimmerman's substantive unfairness claims, but upheld Zimmerman's claim that the issuance of the units violated the operating agreement. However, because the breach of the operating agreement caused no damage, the Court of Chancery awarded only nominal damages in Zimmerman v. Crothall, C.A. No. 6001-VCP (Del. Ch. Oct. 14, 2013).

Originally published in the Delaware Business Court Insider on August 13, 2014.

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Topics:  Attorney's Fees, Derivative Suit

Published In: Civil Procedure Updates, Civil Remedies Updates, General Business Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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