By: Charmi Patel
Generally, Delaware follows the “American Rule”, whereby each party is expected to pay its own attorneys’ fees and expenses, regardless of the outcome. But the Delaware Court of Chancery has recognized equitable exceptions to the American Rule, including when “a stockholder party obtains a ‘corporate benefit.’” The court may award attorney’s fees and expenses if an individual stockholder’s “litigation effort confers a benefit on the corporation, or its shareholders, notwithstanding the absence of a class or derivative component.”
In Hollywood Firefighters’ Pension Fund the court stated that a plaintiff is eligible to recover attorneys’ fees where “(1) the suit was meritorious when filed; (2) the action producing benefit to the corporation was taken by the defendants before a judicial resolution was achieved; and (3) the resulting corporate benefit was causally related to the lawsuit.”
Chancellor McCormick applied the aforementioned factors to determine whether the plaintiffs in Totta were entitled to fee shifting. In that case, the plaintiffs sued to challenge Defendant CCSB Financial Corp’s (“CCSB”) 2021 board election. There was a dispute regarding the incumbent CCSB board’s interpretation of a provision in CCSB’s certificate of incorporation regarding voting limitations in an election. Because of the incumbent board’s erroneous interpretation, the votes were recounted, and the insurgent nominees won the 2021 election. After the Court issued its ruling, in favor of the plaintiffs, the plaintiffs moved for their attorney’s fees and expenses in connection with litigating the case. The plaintiffs argued that the litigation conferred substantial benefits on CCSB’ stockholders because the insurgent candidates won, and now there is a uniform interpretation of the voting provision to prevent future issues. CCSB denies receiving a benefit, countering that the plaintiffs obtained a personal benefit because the recount only rectified the plaintiffs’ voting power.
But, a personal motive to sue does not disqualify the plaintiff from fee shifting under the corporate benefit doctrine. All plaintiffs have “some self-interested motivation; the relevant inquiry is whether the benefit is so purely personal as to render an award of attorney’s fees inequitable.” With that, although the Court’s ruling only affects the plaintiffs’ votes in this situation, the judgment benefits all CCSB’s stockholders. The plaintiffs success in this litigation will prevent future stockholders from being harmed by an erroneous interpretation of the voting provision. Moreover, CCSB gained a substantial benefit by receiving a correct interpretation of the voting provision, which, in effect, sets the interpretation for future elections.
Next, the court will analyze the reasonableness of the proposed award and consider the following factors: 1) “the results achieved; 2) the time and effort of counsel; 3) the relative complexities of the litigation; 4) any contingent factor; 5) the standing and ability of counsel involved.” The first factor is the most important of the five, “the benefit to the corporation achieved by the stockholder action.” As stated above, the Court found that substantial benefits were conferred on CCSB. In considering the other Sugarland factors, the Court found the plaintiff’s requested $385,419.09 in attorney’s fees and expenses was justified. The Court reasoned: “the case involved the interpretation of an unusual voting provision; the litigation required contested motions for expedition and dismissal; and Plaintiff was represented by respected counsel.”
Although the American Rule may be the default method followed by courts, there are exceptions, in equity. Delaware has also held parties may agree or disagree to fee shifting contractually. So parties may want to consider adding indemnification provisions to future agreements.
 See generally Montgomery Cellular Hldg. Co., Inc. v. Dobler, 880 A.2d 206, 227 (Del. 2005).
 Totta v. CCSB Fin. Corp., C.A. No. 2021-0173-KSJM, 2022 WL 16647972, at *1 (Del. Ch. Nov. 3, 2022).
 Id. (quoting Tandycrafts, Inc. v. Initio P’rs, 562 A.2d 1162, 1163 (Del. 1989)).
 Hollywood Firefighters’ Pension Fund v. Malone, C.A. No. 2020-0880-SG, 2021 WL 5179219, at *6 (Del. Ch. Nov. 8, 2021).
 Totta v. CCSB Fin. Corp., C.A. No. 2021-0173-KSJM, 2022 WL 1751741 (Del. Ch. May 31, 2022), cert. denied, C.A. No. 2021-0173-KSJM, 2022 WL 4087800 (Del. Ch. Sept. 7, 2022), and appeal dismissed, 284 A.3d 713 (Del. 2022).
 Totta, 2022 WL 16647972, at *1.
 See Martin v. Harbor Diversified, Inc., C.A. No. 2018-0762-SG, 2020 WL 568971, at *4 (Del. Ch. Feb 5, 2020); see also Totta, 2022 WL 16647972, at *2.
 Totta, 2022 WL 16647972, at *2.
 Id. Cf. Keyser v. Curtis, C.A. No. 7109–VCN, 2012 WL 3115453, at *19 (Del. Ch. July 31, 2012) (holding the substitution of one control group for another does confer a substantial benefit to all stockholders.).
 Totta, 2022 WL 16647972, at *2, see EMAK Worldwide, Inc. v. Kurz, 50 A.3d 429 (Del. 2012) (stating stockholder “voting rights are sacrosanct” and an important part of a corporate governance.).
 Sugarland Indus., Inc. v. Thomas, 420 A.2d 142, 149 (Del. 1980).
 Totta, 2022 WL 16647972, at *3.
 Id., see Full Value Partners, L.P. v. Swiss Helvetia Fund, Inc., Civil Action No. 2017–0303–AGB, 2018 WL 2748261 (Del. Ch. June 7, 2018) (awarding attorney’s fees of $300,000 as the litigation resulted in repealing an offending bylaw and counting the plaintiff’s vote.).
 See generally Paul Elton, LLC v. Rommel Delaware, LLC, C.A. No. 2019-0750-KSJM, 2022 WL 793126, at *1 (Del. Ch. Mar. 16, 2022).