Choice Of Law: Plaintiffs Not Entitled To Attorney’s Fees Under Delaware Corporate Benefit Doctrine Where Causal Link Between Plaintiffs’ Activities And Corporate Benefit Was Rebutted And Shown To Be Nonexistent

 

Causal Link Was Missing Based On The Record.

     Plaintiffs in a putative class action involving the proposed mergers between two advertising billboard companies, Outdoor and InterMedia, moved to recover attorney’s fees when another company (KSE) bought Outdoor for an enhanced purchase price, claiming to have benefitted Outdoor shareholders by an additional $57 million on the beneficial side of the equation. Plaintiffs’ counsel then moved to recoup attorney’s fees (the request was not mentioned), with the tentative in their favor on the entitlement side. However, a later assigned judge denied the fee request in entirety.

     This prompted an appeal by plaintiffs in Crocket v. Outdoor Channel Holdings, Inc., Case No. G050906 (4^th Dist., Div. 3 Sept. 7, 2016) (unpublished). The fee denial was affirmed, in a 3-0 panel decision by Justice Thompson.

     Although there was a big kerfuffle over whether Delaware or California law applied on fee entitlement, the reviewing court decided to apply Delaware law which was more liberal in plaintiffs’ favor. Didn’t help. The Delaware fee entitlement doctrine was known as the corporate benefit doctrine, which is an exception to the American Rule allowing for recovery by a litigant competently demonstrating a true corporate benefit under a three-part test. The third element is the need to show that the plaintiff’s activities and the corporate benefit were causally related, although there is a rebuttable presumption this is so when the other two elements were met as they were here (i.e., suit was meritorious when filed and defendants took actions that produced a corporate benefit before plaintiffs obtained a judicial resolution). The problem was that the evidence of record rebutted the existence of a causal link, especially proof that (1) one of the attorneys in the various deals said additional disclosures had nothing to do with plaintiffs’ demands (but where inspired by SEC requests for information), and (2) KSE owner testified that KSE’s increased price proposal had nothing to do with plaintiffs’ actions.