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In Fuhlendorf v. Isilon Systems, Inc., C.A. No.
5772-VCN (Del. Ch. July 22, 2011), the Court of Chancery explains in this
letter ruling, available here, the
latest procedure used by the Court for the interim review of fees sought in
connection with the enforcement of a right by officers and directors to have
their fees advanced when they are sued in connection with their corporate
roles. Two prior rulings in this case were highlighted on this blog
here and here.
The advancement of fees is a frequent topic of Chancery decisions, many of
which have been reviewed on these pages. A collection of those reviews is
Specific Issue Addressed: The
specific issue in this long-running advancement case is whether the corporation
should pay all the costs of the special master or if the parties should split
addition to the background available from the prior decisions in this case at
the above two links, the following overview of the prior procedure put in place
in this case for the review of the reasonableness of the fees advanced is
helpful to put this ruling in context.
In a prior opinion in this case, the Court of Chancery
relied on the procedure previously announced in the case of Duthie v.
CorSolutions Medical, Inc., 2008 WL 4173850 (Del. Ch. Sept. 10, 2008). That
case set forth an appropriate procedure to follow when advancement was
established but there was a dispute about the amount of fees to be paid on a
In sum, in a prior ruling in this matter, the Court
described the 5-step process to be employed by the parties (in order to avoid
the unseemly involvement of the Court in reviewing monthly bills), as follows:
(1) Plaintiff's counsel certifies in good faith that the fees and expenses for
which advancement has been sought were incurred reasonably as a matter of sound
professional judgment; (2) The opposing party will identify those fees which it
asserts fall outside the standard of Delaware law for advancement, and its
counsel shall certify their good faith belief that the advancement of such fees
is not appropriate; (3) The fees as to which there is no dispute shall be
promptly paid; (4) The fees as to which any dispute remains shall be submitted
to a Special Master; (5) The costs of the Special Master will be divided
equally between the parties, except that the entire cost of the Special Master
will be borne by the opposing party if it turns out that its objections to
payment of the fees for which advancement has been sought have been made
without good cause.
Bottom line in the current ruling: The
Special Master appointed in this case determined that the parties should share
equally the fees of the Special Master, but Mr. Fuhlendorf filed an exception
under Court of Chancery Rule 144 challenging that recommendation. The Court
agreed with the arguments in the exception and determined, (despite
arguments that the "law of the case doctrine" prevented a reconsideration of
the Court's prior ruling), that based on the contractual provisions of the
agreement between the parties on which the advancement rights were based (in
addition to DGCL Section 145), the fees of the Special Master were "expenses"
which the corporation was obligated to pay in full based on the facts of this
Read more Delaware business
litigation case summaries and commentary on Delaware
Corporate and Commercial Litigation Blog, a blog hosted by Francis G.X.
Pileggi, of Eckert Seamans.
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