Justin Kelton of Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara, Wolf & Carone

In a recent decision, Chancellor Andre G. Bouchard of the Delaware Court of Chancery addressed the question of whether a plaintiff who obtains a corporate benefit through litigation may target a particular stockholder to pay a common fund fee award when the corporate beneficiary cannot be liable pursuant to a bankruptcy court discharge order in City of Miami General Employees' and Sanitation Employees' Retirement Trust v. C&J Energy Services, No. CV 9980-CB, 2018 WL 508583 (Del. Ch. Jan. 23, 2018).

Case Background and Procedural Posture

In C&J Energy, the plaintiff, a stockholder of C&J Energy Services Inc., sought an award of $5 million in attorney fees for its alleged role in obtaining a $250 million price reduction in the amount of cash that C&J Inc. needed to pay Nabors Industries in connection with a merger transaction.

The plaintiff argued that its litigation strategy resulted in the substantial price reduction, and that the price reduction was akin to a common fund. Thus, the plaintiff argued, under the corporate benefit doctrine, it should be entitled to a reasonable attorney's fee for obtaining the considerable common benefit.

Importantly, however, the plaintiff could not pursue the traditional route of seeking its fee from the corporate beneficiary of the price reduction, because the fee application arose in what the court referred to as “an odd posture”: