Mootness attorney fee awards are an established fixture of Delaware’s fee-shifting rules available to plaintiffs in corporate governance litigation. That is not true of New York law, but the legal landscape may change. Over the past few years, there has been a marked trend of corporate governance litigation involving Delaware corporations being filed outside of Delaware’s Court of Chancery. New York is seeing its share of that exodus. Whether that share expands may depend, at least partly, on whether New York law on the award of mootness fees evolves to be more or less favorable than Delaware law. Moreover, it is New York law that matters because in corporate governance litigation, even though claims of director misconduct are determined by the law of a company’s state of incorporation, New York law governs the award to plaintiffs of their legal fees. Central Laborers’ Pension Fund v. Blankfein, 111 A.D.3d 40, 45 n.8, (1st Dep’t 2013).
Delaware, like New York, follows the “American Rule,” under which each party bears its own legal fees and expenses, subject to certain exceptions. One such exception Delaware recognizes under its Court of Chancery’s broad equity jurisdiction is in corporate governance actions, when a plaintiff’s efforts have yielded a “corporate benefit.” Tandycrafts v. Initio Partners, 562 A.2d 1162, 1164-65 (Del. 1989). Mootness fees, which are within the scope of that exception along with attorney fee awards arising from settlements and judgments, are triggered by a defendant acting to “moot” a plaintiff’s claim. Such fee awards can arise in various settings, such as a class action challenging the adequacy of merger disclosures when the target voluntarily amends its proxy to include new disclosures or a derivative action contesting supposedly excessive executive compensation that the company later reduces.
