Court Opinion

ID: 4349616
Source: CourtListenerOpinion
Date Created: 2018-12-12 16:07:06.761108+00
Date Added: 2024-06-11T13:30:28.868552
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

 BRACE INDUS. CONTRACTING,                     )
 INC. and PETERSON INDUS.                      )
 SCAFFOLDING, INC.,                            )
                                               )
                       Plaintiffs,             )
                                               )
        v.                                     ) C.A. No. 11189-VCG
                                               )
 PETERSON ENTERS., INC., RONALD                )
 A. PETERSON, ERIC PETERSON,                   )
 KIRK PETERSON, RONALD A.                      )
 PETERSON REVOCABLE TRUST,                     )
 RONALD A. PETERSON 2010                       )
 IRREVOCABLE TRUST, and                        )
 VERNON L. GOEDECKE COMPANY,                   )
 INC.,                                         )
                                               )
                       Defendants.             )

                                        ORDER

        WHEREAS, the Plaintiffs and the Defendants having moved for attorney’s

fees,

        AND NOW, this 12th day of December, 2018:

        1) This litigation involved the sale of a business unit from one scaffolding

             company, Peterson Enterprises, to another, Brace Industries;

        2) That sale was pursuant to a Sales Purchase Agreement (SPA);

        3) The litigation came before this Court on the Plaintiffs’ request for a

             preliminary injunction to enforce a restrictive covenant.      I entered a

             preliminary injunction on behalf of the Plaintiffs, improvidently.
          Eventually, the Defendants were entitled to a recovery from the injunction

          bond;

      4) The litigation ultimately proceeded to trial, on what the Plaintiff

          characterizes as three categories of claims: claims for missing inventory

          under the SPA, claims involving the restrictive covenant, and claims for

          customer payments made to the Defendants to which the Plaintiffs were

          entitled. The Defendants were successful in defending the restrictive

          covenant claims, and for certain offsets raised as affirmative defenses. The

          Plaintiffs generally prevailed in the litigation.1       This litigation was

          vigorously contested, factually dense, and prolonged.            It generated

          substantial costs, including expert witness expenses, as well as large legal

          fees;

      5) The Plaintiffs are entitled to their costs, in the amount of $440,149, under

          the Court of Chancery Rule 54(d);

      6) Both sides seek to shift fees under the bad-faith exception to the American

          Rule on attorney’s fees.      I have carefully considered the arguments

          submitted. It is true that the litigation tactics on both sides were zealous

          and, perhaps, ultimately disproportionate to the amounts at issue; however,

1
 See my October 31, 2016 Memorandum Opinion and my June 19, 2017 and July 10, 2018 Letter
Opinions.
                                           2
              I find shifting fees inequitable and unwarranted in favor of any party

              because I find no bad faith. In particular, I reject the Plaintiffs’ argument

              that the Defendants’ withholding of contractual payments, in the

              circumstances here, was improper self-help justifying fee shifting, as well

              as the Defendants’ argument that the Plaintiffs’ restrictive covenant claims

              were meritless;

          7) The Defendants seek to shift fees incurred in achieving set-offs from the

              Plaintiffs’ claims.      They point out that SPA Section 6.3 provides the

              Defendants with indemnification for any losses incurred for breaches of

              covenants under the SPA, including reasonable attorney’s fees, and that

              the cost of proving entitlements to the set-offs was a loss involving breach

              of covenant, triggering the right to fees. Specifically, the Defendants

              contend that the “Plaintiffs refused to honor their obligations to Defendants

              under the ‘Further Assurances’ provision of the SPA § 5.7 and under the

              TSA . . . Plaintiffs thereby ‘breached’ an ‘agreement’ or ‘obligation to be

              performed by Buyer pursuant to this Agreement’ per SPA § 6.3(c).”2

              Nevertheless, the Defendants fail to demonstrate breach of any of those

              provisions. The Plaintiffs’ good faith inventory claims, many of which

              they prevailed on, do not amount to a breach of covenant for which the

2
    Defs.’ Reply in Support of their Pet’n for Attorney’s Fees, at 2.
                                                   3
             parties to the SPA agreed to provide indemnification, and defense of those

             claims does not entitle the Defendants to fee shifting;

         8) The Plaintiffs also seek to shift fees contractually. They point to Section

             6.2 of the SPA, which provides for indemnification for losses, including

             reasonable attorney’s fees, for breaches of the SPA. The cost of successful

             litigation concerning failure to deliver inventory under the SPA is covered

             by the indemnification provisions of Section 6.2.          Accordingly, the

             Plaintiffs are entitled to their reasonable legal fees incurred in prosecuting

             the inventory claim. The Plaintiffs seek fees of $1.3 million for this claim.

             That, I note, is their entire legal expenditure in this litigation, including

             claims not indemnified as well as claims they lost. The Plaintiffs make no

             attempt to provide a break-out of fees for the inventory claims, stating (in

             response to the Defendants’ opposition on this ground) that they have no

             responsibility to do so.

         9) The right to fees on the inventory claim, as indemnification under Section

             6.2, is limited to a reasonable fee. Our case law provides that in exercising

             my discretion to set a legal fee due contractually,3 I must consider the

             factors set out at Rule 1.5(a) of the Rules of Professional Conduct:

3
    See Mahani v. Edix Media Grp., Inc., 935 A.2d 242 (Del. 2007).
                                                4
                     (1) the time and labor required, the novelty and difficulty
                     of the questions involved, and the skill requisite to
                     perform the legal service properly;
                     (2) the likelihood, if apparent to the client, that the
                     acceptance of the particular employment will preclude
                     other employment by the lawyer;
                     (3) the fee customarily charged in the locality for similar
                     legal services;
                     (4) the amount involved and the results obtained;
                     (5) the time limitations imposed by the client or by the
                     circumstances;
                     (6) the nature and length of the professional relationship
                     with the client;
                     (7) the experience, reputation, and ability of the lawyer
                     or lawyers performing the services; and
                     (8) whether the fee is fixed or contingent.4

         10) Examining these factors, I note that this was a contract case of no novelty;

              that the litigation certainly prevented the attorneys from spending time on

              other remunerative work, a factor mitigated by the fact that the fee was

              not contingent; that the hourly fee was reasonable but that I am unable to

              assess the time spent on compensable matters due to the Plaintiffs’ failure

              to segregate non-compensable hours; that this matter has been unduly

              protracted due to vigorous litigation on both sides; and that Plaintiffs have

              indicated that this is their first engagement of this counsel;

         11) The remaining Rule 1.5 factor is the amount involved and the results

              obtained. For purpose of fee shifting, the result obtained is a necessary

4
    Del. Lawyers’ Rules of Prof. Conduct 1.5(a).
                                                   5
   reference for setting a reasonable fee. The amount of inventory for which

   the Plaintiffs were entitled to compensation had a value of $725,059.

   Even under a contingency fee of one-third of any recovery, that implies a

   fee of $241,686. I find that to be the upper limit of a reasonable fee for

   the inventory claims, which, again, were not contingent on recovery.

   Awarding the Plaintiffs the amount they seek in fees, nearly $1.3 Million,

   would be unjustified in light of the amount recovered (as the Plaintiffs

   themselves point out in their opposition to the Defendants’ similarly-

   disproportionate fee claims).       In light of the fees expended by the

   Plaintiffs, the amount recovered, and the other Rule 1.5 factors, I awarded

   $241,686 as the contractually-reasonable fee.

12) The Plaintiffs are entitled to fees and costs in the amount of $681,835.

   The Defendants are not entitled to fees.

                                        IT IS SO ORDERED.

                                        /s/ Sam Glasscock III

                                        Vice Chancellor

                                   6