Delaware Court of Chancery Says It’s Game Over on Massive Fees for “Miniscule” Work
Last month, in an oral ruling likely to bring great joy to the Delaware defense bar, Vice Chancellor Zurn issued an atypical “Statement of the Court” in Garfield v. Getaround that swiftly rejected an $850,000 fee request in a derivative action. Plaintiff sought the fee for its efforts in prompting Defendant Getaround Inc. to make changes to its voting structure. Calling attention to the slew of similar actions by stockholders following Garfield v. Boxed, Vice Chancellor Zurn said the “game is over” for attorneys’ “making a literal fortune off of a minuscule number of hours of work.”
The action arose following a May 2022 merger agreement between a special purpose acquisition company (SPAC) and Getaround. In connection with the merger, the SPAC’s board adopted proposed charter amendments. Plaintiff, a Getaround stockholder, challenged the structure of stockholder votes on proposed amendments, arguing in a demand letter that certain proposals violated Delaware law because they were scheduled to be voted on together by Class A and B stockholders. The SPAC revised its voting structure, and the charter amendments and merger were approved by stockholders in December 2022.
Plaintiff then brought this action for attorneys’ fees related to the benefits derived from his letter and moved for summary judgment. Specifically, Plaintiff cited to the Sugarland factors, arguing that the benefits conferred on Getaround and its stockholders mirrored those provided in Boxed (where an $850,000 fee was awarded, notably to the same law firms). Getaround opposed the motion, arguing that Plaintiff’s letter did not alter the outcome of the stockholder vote. “The Class A stockholders, in a class vote, approved the charter amendment with 89% approval (as compared to the 92% approval of all stockholders).” Getaround also noted that the $850,000 fee for 23.75 hours of work, which Plaintiff did not describe in detail, “equat[ed] to $35,789.47 per hour for repurposing and sending a form letter.” In addition, Getaround represented that paying the fee would lead to insolvency.
In its six-minute ruling, the Court did not analyze precedent cited by Plaintiff or Defendant. Instead, it focused on the role of plaintiffs’ counsel in “obtaining value for stockholders” as part of “the machinery of improving corporate hygiene.” The Court reasoned that “seeking a fee that a company CFO has affirmed in a sworn affidavit would render the company insolvent appears to be a betrayal of the stockholders [whom counsel] purport[s] to represent and a betrayal of the functions that plaintiffs [sic] counsel plays in the broader ecosystem.” In short, the Court found that the fee request was “not equitable,” “not flattering to [] personal reputations,” and is “not to be rewarded.” The Court concluded by directing the parties to confer to determine a more reasonable amount, noting that if the matter were left to the Court “one or both” of the parties “will be unhappy. ” We have an educated guess as to which one.
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