After plaintiffs prevailed in litigation arising from drafting errors, they sought to have attorneys’ fees shifted. The errors involved incentive clauses in joint venture agreements known as “promotes.” An associate at DLA Piper, representing ASB, placed a tier of promote in the wrong place in the agreement, which “altered the business terms of the joint venture because Scion would begin to earn its promote immediately after the project satisfied its first preferred return amount but before the parties recovered their initial capital investment,” said the opinion, written by Vice Chancellor J. Travis Laster. Scion’s principal noticed the mistake but said nothing, neither the law firm nor ASB caught the error, and the mistake was repeated in other agreements. This resulted in a 282 percent gain for Scion on a deal where ASB lost 30 percent. Without the drafting error, the parties would have shared the loss proportionately. Not surprisingly, ASB reexamined the agreements and sought reformation. Scion preemptively sued in three different jurisdictions connected to different deals – despite being aware of the unilateral mistake. ASB sued in Delaware, won reformation, and sought fee shifting.
The Chancery Court initially awarded fees to ASB but the Delaware Supreme Court reversed, holding that there was no basis for contractual fee-shifting because DLA Piper handled the case at no cost to ASB. The case was remanded for consideration of whether an equitable basis existed for fee shifting. While the Chancery Court did not aware any fees for pre-litigation conduct – stating that such an award would reward DLA Piper for its mistake – the Court did find bad faith in Scion’s litigation strategy, described as designed to ”drive up litigation costs and extract a favorable settlement disproportionate to the merits.” The Court found this award equitable because it “does not risk compensating DLA Piper for its own mistakes in preparing the Disputed Agreements. It rather compensates DLA Piper for the additional, incremental cost of confronting bad faith tactics that the firm should not have to absorb.”
