In Full Value Partners, L.P. v. Swiss Helvetia Fund, Inc., et. al., C.A. No. 2017-0303-AGB (Del. Ch. June 7, 2018), the Delaware Court of Chancery granted the plaintiff stockholder’s motion for an award of attorney’s fees under the corporate benefit doctrine because the plaintiff’s claim in the underlying stockholder litigation was meritorious when filed and produced a benefit to the defendant corporation.

Full Value Partners, L.P. (“Plaintiff”), a stockholder of Swiss Helvetia Fund, Inc. (the “Fund,” and together with other named defendants, the “Defendants”), sought an award of $400,000 in attorney’s fees related to Plaintiff’s underlying litigation. In that underlying action, filed on April 19, 2017, Plaintiff asserted that the Fund’s classified board (the “Board”) had breached their fiduciary duties to the stockholders.  Plaintiff claimed that the Board, comprising three classes of directors serving three-year terms, inequitably applied a bylaw provision against two of Plaintiff’s Board nominees, thereby precluding the Plaintiff’s favored nominees from seeking election at the Fund’s next annual stockholders meeting.  At that time, the Fund had a bylaw that required Board nominees to have certain relevant experience and country knowledge (the “Qualification Bylaw”).  After the litigation commenced, the Fund announced that it would count all the votes for Plaintiff’s nominees.  The Fund eventually seated one of them, Mr. Andrew Dakos (“Dakos”), notwithstanding the Board’s belief that Dakos did not satisfy the Qualification Bylaw.  On September 15, 2017, Plaintiff filed an unopposed motion to dismiss the underlying action as moot.  On November 1, 2017, Plaintiff requested that the Chancery Court consider its fee application.  The Fund subsequently amended its Bylaws to eliminate the Qualification Bylaw.

Plaintiff alleged two benefits in support of its claim for a fee award under the corporate benefit doctrine. First, Plaintiff claimed that the litigation vindicated the franchise rights of the Fund’s stockholders because the suit facilitated the election and seating of a director—Dakos—whom the Fund had opposed for failing to satisfy the Qualification Bylaw. Second, Plaintiff claimed that the suit prevented the Board from using the Qualification Bylaw to preclude future stockholder nominees.

The Defendants argued in response that Plaintiff’s action was not meritorious when filed and did not produce a corporate benefit. The Defendants contended that Plaintiff failed to demonstrate knowledge of provable facts concerning the contested Board nominees.  In particular, the Defendant’s challenged Plaintiff’s allegation that the Fund’s own Board nominees did not appear to satisfy the Qualification Bylaw’s experience and country knowledge requirements.  The Defendants further argued that Plaintiff was principally motivated to gain control of the Board—a benefit to Plaintiff, and not the corporation—and therefore Plaintiff was not entitled to a fee award.

The Chancery Court held that Plaintiff’s action was meritorious when filed and conferred a corporate benefit. On the merits of the action, the Chancery Court rejected the Defendants’ position.  The Chancery Court ruled that Plaintiff pled sufficient provable facts at the time the complaint was filed to establish a reasonable chance of succeeding on the relevant claim.  The Chancery Court pointed out that the Defendants relied on affidavits produced after the complaint was filed. In addition, given the lack of objective clarity in key terms of the Qualification Bylaw, the Chancery Court ruled that Plaintiff alleged facts sufficient to indicate that the Fund had not applied the Qualification Bylaw uniformly and was attempting to frustrate Plaintiff’s proxy contest inequitably.

In addition, the Chancery Court ruled that Plaintiff was entitled to a fee award because Plaintiff filed suit to protect stockholder voting rights, a fundamental corporate benefit under Delaware Supreme Court precedent. The Chancery Court held that Plaintiff conferred a corporate benefit by vindicating the stockholders’ franchise rights because Plaintiff filed suit to enable the Fund’s stockholders to elect Dakos to the Board.  In light of these holdings, the Chancery Court awarded Plaintiff $300,000 in attorneys’ fees and expenses based on the multi-factor test established in Sugarland Indus., Inc. v. Thomas, 420 A.2d 142 (Del. 1980).

Full Value Partners L.P. v. Swiss Helvetia Fund Inc. et al. letter opinion 180607