Duthie v. CorSolutions Medical, Inc., C.A. No. 3048-VCN (Del. Ch. Sept. 10, 2008) (Noble, V.C.)

After the Court of Chancery entered an order granting plaintiffs “timely advancement” of certain litigation fees, the Court was called upon to resolve a motion brought by plaintiffs to enforce that order. Among other things, the Court was asked to resolve (1) whether plaintiffs were entitled to advancement of fees incurred in affirmatively asserting defamation claims against the defendants and (2) whether plaintiffs were entitled to advancement of fees for standby counsel in the event a conflict materialized with respect to plaintiffs’ lead counsel.

One of the defendants had brought claims of fraud and breach of contract against plaintiffs, and allegedly repeated those claims publicly with the intent to embarrass and ruin the reputations of plaintiffs. The Court held that plaintiffs were entitled to advancement of fees necessary to defend against those claims, as well as advancement of fees to pay for defamation claims brought by plaintiffs.

The Court noted that defendant CorSolutions’ certificate of incorporation broadly allowed for advancement and could not be read to preclude advancement for affirmative claims. The Court opined that “there are instances in which affirmative claims, asserted as a part of a defensive strategy involving the same dispute, may be funded through advancement.” Additionally, “[b]ecause the alleged defamatory attacks reprise[d] the same charges as advanced in the litigation and because the adverse party has already brought litigation involving the same allegations,” the Court found that the plaintiffs’ “full defense” required the advancement of fees for asserting their defamation claims. The Court considered it to be “neither practicable nor reasonable to attempt to draw some line defining which defensive strategy, even though it may involve an assertion of affirmative claims, is appropriate.”

With respect to plaintiffs’ retention of standby conflicts counsel, the Court cautioned that the decision to incur fees in anticipation of a potential conflict must be made carefully. However, the Court ruled that the professional concerns involved were legitimate and that the fees incurred for that purpose were reasonable.

The Court referred all further disputes over the reasonableness of fees to a Special Master, and awarded plaintiffs the fees that they incurred in pursuing their motion.

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