Delaware Court of Chancery Denies Attorneys’ Fees to Plaintiffs Who Identified Defective Corporate Acts, but Fought Corporation’s Effort to Correct Them

Law360 and The New York Law Journal reported on an April 10, 2019 ruling by the Delaware Court of Chancery denying two investors’ claim that $1.5 million in attorneys’ fees should be paid back to them for identifying defective corporate acts.

On August 20, 2018, Olshan client Glenhill Capital Management (Glenhill) prevailed after trial on claims that it had unfairly diluted minority stockholders of Design Within Reach, Inc. (DWR) prior to its acquisition by Herman Miller, Inc. Plaintiffs had claimed that certain interim financings were not entirely fair and that because certain defective corporate acts, Glenhill had effectively forfeited the bulk of its preferred stock, dramatically increasing plaintiffs’ pro rata share of merger consideration.

Post-trial, Olshan, representing Glenhill prevailed again where the Court denied an application by plaintiffs for $1.5 mm in attorney’s fees under the corporate benefit doctrine. The Court ruled that equity required denial of fees. Herman Miller and DWR had promptly sought, after plaintiffs had identified the errors, to address those issues through ratification under 8 Del. C. § 204 and validation under 8 Del. C. § 205. Plaintiffs had opposed the corrective effort, requiring a trial on the merits, which plaintiffs lost.  Even at argument they continued to oppose the validation, indicating they may appeal. The Court wrote that it declined to exercise its equitable discretion to award fees to plaintiffs that eschewed the path of “work[ing] cooperatively to correct technical defects in a prompt and efficient manner” and showed a“steadfast opposition to curing all Defective Acts in order to pursue an inequitable windfall.” 

Olshan Litigation partners Adrienne Ward and Brian Katz represented Glenhill in this matter.