By: Shelby Bingaman
In December 2021, the Delaware Supreme Court affirmed the 2020 decision of Vice Chancellor Glasscock, denying private equity firm Great Hill’s motion to shift attorneys to a company Bluesnap Inc. The Vice Chancellor’s memorandum opinion out of the Chancery Court of Delaware strongly favored the “American Rule”, whereby litigants are responsible for their own attorney’s fees. This holding will likely impact how litigants in the Court of Chancery and elsewhere choose to pursue their cases and how they will pursue damages from legal conflicts.
Great Hill Equity Partner IV, LP ( “Great Hill”) acquired a California technology company, Plimus Inc. (now “Bluesnap”) in 2012. After allegations of fraud arose, Great Hill sued Bluesnap for damages in excess of $122 million. After several years of litigation, Great Hill had emerged somewhat victorious, recovering $212,255.74, or 0.1739% of the damages they originally requested. After the damages had been awarded to Great Hill, both parties made motions to recover attorney’s fees incurred over the years of litigation. One source indicated that the total amount of attorney’s fees for both parties totaled $58 million, a significant sum in comparison to the damages awarded.
The merger agreement between the parties included several relevant sections, which Vice Chancellor Glasscock dissected the meaning of in relation to the intent of contracting parties. The first provision was Section 10.02, an indemnification clause which the plaintiffs argued should be read to include fee-shifting. Specifically, the provision included the phrase, “whether or not [the Loss] aris[es] out of third party claims”. Vice Chancellor Glasscock quoted then-Chancellor Strine’s opinion in Senior Housing Capital, LLC v. SHP Senior Housing Fund, which explained that the Delaware Court of Chancery has not accepted the application of general indemnification provisions to “inter-party litigation fees”. The second relevant provision was Section 12.10, which clearly articulated that fees “incurred by the prevailing party…” should be shifted to the losing party on “an equitable basis”. When comparing the vague language of Section 10.02 with the more definite stated language in Section 12.10, Vice Chancellor Glasscock noted that the inclusion of specific fee-shifting language in Section 12.10 invalidated the possibility of Section 10.02 being read in a way that would allow for the indemnification clause to be interpreted as including attorney’s fees.
Vice Chancellor Glasscock also acknowledged that if his interpretation of Section 10.02 was incorrect, and that it could be read to include fee-shifting, Section 10.02 only required an award for “reasonable legal fees”. The determination of what was reasonable in this case, which was nearly a decade old and where hundreds of motions had been filed, was difficult to define. Further, because Section 12.10 articulated that fees be shifted on “an equitable basis”, there was no basis for awarding fees to a party given the very marginal victory the plaintiffs had achieved.
Justice Karen L. Valihura of the Delaware Supreme Court affirmed the lower court’s decision “on the basis of and for the reasons assigned by the Court of Chancery”. Justices Gary F. Traynor and James T. Vaughn, Jr. joined in the decision. The three-judge panel asked both parties to explain how fee-shifting would be equitable given that neither side definitively won in the case. Great Hill and Bluesnap presented argument as to why they were the prevailing party, but ultimately these assertions were unconvincing. While Great Hill recovered some fractional damages, Bluesnap was successful in limiting those damages to less than 1% of the requested sum. Ultimately, the Supreme Court of Delaware agreed with Vice Chancellor Glasscock, and that the most equitable result was to allocate attorney’s fees to the responsibility of the incurring parties. This holding embodies the “American Rule” regarding attorney’s fees, whereby each party must pay its own attorney’s fees.
This decision could have major implications for future litigation in the state of Delaware. Because this decision seems to discourage parties from seeking attorney’s fees in prolonged legal battles. Parties may find it prudent to play a more conservative approach in order to avoid being saddled with more attorney’s fees. Most contracts, like the one in the Great Hill Equity IV, LP v. SIG Growth Equity Fund I, LLLP case, only provides indemnification for reasonable expenses, so exorbitant fees will not be considered. Further, perhaps litigants will add language to expand the scope of indemnification provisions like that of Section 10.02 in this case, thereby providing a backup measure to assure attorney’s fees are recovered from the opposing party.
 Leslie Pappas, Del. Justices Uphold Chancery Rejection of Fee-Shifting, Law360 (Dec. 20, 2021, 4:43 PM), https://www.law360.com/articles/1450305/del-justices-uphold-chancery-rejection-of-fee-shifting.
 Great Hill Equity IV, LP v. SIG Growth Equity Fund I, LLLP, C.A. No. 7906-VCG, 2020 Del. Ch. LEXIS 381, at *12. (Del. Ch. Dec. 31, 2020).
 Pappas, supra note 1.
 Rose Krebs, Chancery Rejections $122 M Damages Bid Over Plimus Deal, Law360 (Feb. 27, 2020, 6:21 PM), https://www.law360.com/articles/1248152.
 Jeff Montgomery, Delaware Justices Grill Great Hill, Plimus on Atty Fee Duel, Law360 (Dec. 1, 2021, 2:58 PM) https://www.law360.com/pulse/articles/1444645/delaware-justices-grill-great-hill-plimus-on-atty-fee-duel.
 Id. (“That ruling followed a 2018 dismissal of most claims in a $122 million suit filed by acquirer Great Hill Equity Partners IV LP claiming breaches of contract representations, warranties and fraud, with Great Hill cross-appealing for its own fee recovery”).
 Great Hill Equity IV, 2020 Del. Ch. LEXIS 381, at *12 (Dividing the analysis of the issues at hand into sections for each provision of the Merger Agreement).
 Id. at *15-16.
 Id. at *11, see also, Senior Housing Capital, LLC v. SHP Senior House. Fund, LLC, C.A. No. 4586-CS, 2013 WL 1955012, at *44 (Del. Ch. May 13, 2013).
 Great Hill Equity IV,2020 Del. Ch. LEXIS 381, at *8.
 Id. at *16-17.
 Id. at *15.
 Great Hill Equity IV, LP, 2020 Del. Ch. LEXIS 381 at *18.
 Pappas, supra note 1.
 Pappas, supra note 1, see also Great Hill Equity IV, 2020 Del. Ch. LEXIS 381 at *17.
 See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 245 (1975).