On December 31, 2020, Vice Chancellor Glasscock issued an opinion regarding what he called a “novel issue” arising from cross motions for fees. The motions were supported by a contractual prevailing party fee provision which also provided for an equitable award where a party prevailed in part and lost in part. The case, Great Hill Equity Partners IV v. SIG Growth Equity Fund I, LLLP, CA No. 7906-VCG (Del. Ch. 2020) was hard fought, lengthy, costly, and yielded very little for the parties. Vice Chancellor Glasscock likened the litigation and its negligible results to the 1917 World War I battle of Passchendaele Ridge. There, Allied Forces led by Great Britain and Canada advanced their line by five miles at a cost of 275,000 lives over four months of fighting. The Imperial German Army’s creditable defense cost 220,000 lives. Yet, with nearly 500,000 lives sacrificed, the Allied objective of breaking through to the Belgian coast was not achieved.

Filed in September of 2012, the Great Hill dispute involved the acquisition of a business by a private equity firm. After written discovery, considerable motion practice that included five motions for summary judgment, ten days of trial with more than a dozen witnesses, sixty deposition transcripts lodged with the court, post-trial briefing on damages, and $56.8 million in combined attorneys’ fees and costs, the court made a finding of fraud against one defendant, but found that the related damages were largely unproven. The court also found breaches of warranty, yet awarded contractual damages far less than those sought. The remaining claims that survived summary judgment were unproven at trial. Plaintiffs sought damages of $122,026,076.00. They recovered $212,255.74.

The parties agreed that the contractual provision for an equitable award of fees in the event that no party prevailed was applicable to the cross motions. Plaintiffs also argued that the merger agreement’s indemnification clause served as a basis to shift fees in their favor. In dismissing the argument, the Vice Chancellor noted that there was little Delaware case law on the application of broad indemnification provisions in support of fee shifting, but that the weight of case law in other jurisdictions as well as at least one Chancery opinion issued by former Chancellor Strine, found that “a party seeking indemnification for first-party claims must be able to point to specific language that is applicable to such claims.” Senior Hous. Capital, LLC v. SHP Senior Hous. Fund, LLC, CA No. 4586-CS (Del. Ch. May 13, 2013). The Vice Chancellor also distinguished the Great Hill case from the fairly recent Chancery opinion in Int’l Rail Partners LLC v. Am. Rail Partners, LLC, CA No. 2020-0177-PAF (Del. Ch. Nov. 24, 2020), where an indemnification provision contained in a corporate instrument was held to support fee shifting, on the basis that broader public policies are served by indemnification provisions in corporate instruments as opposed to purely contractual indemnification provisions. With this reasoning in mind, the Vice Chancellor found that, “purely contractual indemnification provisions only shift first-party claims if the contract explicitly so provides.”

In addressing the equitable award of fees, the Vice Chancellor stressed that the interpretation of the term reasonable legal fees, “must be related to the result achieved in the litigation.” In light of the negligible results achieved by any of the parties (much like the combatants in the battle of Passchendaele Ridge), the Vice Chancellor found that none of the parties had prevailed at trial and that any award of fees related to such thin results would be inequitable. The cross motions were denied.

 A few takeaways . . .

 •         If the parties have a contractual fee shifting provision that provides for an equitable allocation in the event of mixed results in litigation, be prepared for the very real possibility that no fee shifting will occur.

•         In lieu of a no-prevailing-party equitable allocation clause, consider mandatory (“shall”) language in a fee shifting provision making it clear that all parties want the court to designate a prevailing party for the purposes of the fee shifting provision.

•         If an agreement has an indemnification provision and the parties want the benefit of that provision to support fee shifting in litigation, consider explicitly stating that intention in the provision and making it consistent with any stand-alone fee shifting provision in the agreement.