RE CANTOR FITZGERALD, L.P. v. CANTOR, 16297-NC (Del.Ch. 6-21-2002)

C.A. No. 16297-NCCourt of Chancery of DelawareSubmitted: June 17, 2002
Decided: June 21, 2002 Amended: July 8, 2002

Stephen E. Jenkins, Ashby Geddes, P.O. Box 1150, Wilmington, DE 19899.

Karen Valihura, Skadden, Arps, Slate, Meagher Flom, P.O. Box 636, Wilmington, DE 19899-0636.

MYRON T. STEELE, Justice (by designation).

Counsel:

On June 14, 2002, defendants in this action wrote Vice Chancellor Noble on the assumption that he would be addressing the outstanding issue of defendants’ Reargument of the damage award I made in this case. As the Vice Chancellor has stated since, he has been assigned to this case for all matters excluding the final resolution of defendants’ recurring rearguments over the award of damages in the amount of fees and expenses made in my earlier Orders of March 13, 2000 and May 11, 2001.

In this letter opinion, I intend to address those outstanding arguments as I am now, lamentably, reconciled (after a longstanding optimistic view that the parties would, as they have suggested repeatedly, enter into global mediation of all their outstanding disputes) to the view that I must bring this case to a close.

I eschew the opportunity to rehash the factual background that resulted in dozens of opinions and the final Orders of March 13, 2000 and May 11, 2001. Suffice it to say, the post-trial Opinion of March 13, 2000 and the May 11, 2001 Opinion explaining the resolution of the challenge to that Opinion’s award of damages can be fairly summarized as equity attempting in a fair, reasonable and adequate way to right the wrong done to CFLP and its partners by the limited partner defendants and their business allies. I deemed the costs of CFLP’s efforts to staunch the flow of damages resulting from an egregious breach of the limited partner defendants’ duty of loyalty to be compensable by readily measurable costs and expenses. Given the nature of the relief sought, the necessary tactical legal moves required to right the wrong done and the need to respond to counter measures asserted by the defendants, it seemed to me then and now that focusing on legal expenses and the costs of litigation was the only fairly determinable and adequately measurable basis for relief.

It is now argued yet again that my approach is not supported by cases that address traditional views of attorney fee shifting., I continue to reject that superficial and shallow analytical approach. That all too narrow focus fails to appreciate the unique nature of the business that was CFLP at the time this dispute arose and the importance of the relationship among limited partners to the success in capitalizing, operating and growing the business. That said, in the hope that the reader will review the earlier Opinions, I turn to the specifics of defendants’ oft stated objections.

The CFLP “application for fees and expenses” is not limited to claims onwhich it prevailed.

First, there can be no credible argument that CFLP’s listed fees and expenses are unreasonable given the intensity, length, complexity and novelty of the factual and legal disputes between the parties.

Second, it is further clear, as defendants detail, that CFLP did not prevail on every claim, motion or argument asserted or opposed by it. In a traditional approach to fee shifting per se, the Court of Chancery has exercised its discretion to deny any fees outright where a party only partially prevailed[1] or to shift only where a party has substantially prevailed.[2]

While defendants correctly state the law as it applies to fee shifting in the traditional sense, they nonetheless continue to ignore the fact that my earlier opinions base the award on an exercise of equitable discretion to create a measurable, quantifiable fund to repay CFLP and its partners for the damage to its resources caused by the need to meet immediately, effectively and forcefully the threat posed to its core business, if not its existence, by its own limited partners’ self-serving, intentional, and egregious breach of loyalty to CFLP and their fellow limited partners.

I referred in the March 2000 Opinion to the fees and costs as a measure of damages that was fairly and clearly documented but would not, even when paid, fully address the record of harm exposed at trial to CFLP. Nevertheless, the award made, as such, was fair, reasonable and appropriate.

CFLP has produced adequate documentation of the fees and expensesincurred in righting the wrong done to it by defendants.

Defendants, do not assert that CFLP has not spent what it says it has spent nor do they challenge the reasonableness of those expenses. Nevertheless, defendants seek further discovery and documentation to parse and explore the propriety of each expenditure. Defendants cit Arbitrium Handels AG v. Johnson[3] for the proposition that there, as alleged here, the direct casual connection between the finding that a fee is warranted and the fee incurred must be established. Again, since this award is based upon a determination of the measure of damages reasonably related to the threat imposed by the harm caused by the breach of the duty of loyalty and not simply upon fees incurred to meet a legal challenge, traditional fee shifting concepts do not apply. These fees and expenses that I construed to be and continue to maintain are actual damages, were incurred directly as a result of the need to stymie, thwart or crush a fundamental and decisive threat to the very existence of CFLP. Further documentation related to distinguishing costs allocable to losing versus winning arguments in the litigation would be unhelpful since it would have been impossible for any party to ignore the other’s asserted claims or defense nor to fail to raise a viable claim or issue. Accomplished and aggressive litigators have been engaged from the first filing in an exhausting, hotly contested dispute. No quarter has ever been asked or given by either side.

The Partnership Agreement Bars Fee Shifting.

The parties did not initially raise and therefore I did not initially address any claim that Section 20.01 of the Partnership Agreement barred parties from seeking “counsel and other out-of-pocket costs” in connection with any judicial resolution of a dispute, difference or controversy.[4]

My May 11, 2001 Opinion did address this issue and is now the law of the case.

Again, the award of damages in this case addressed the most readily indentifiable, quantifiable, fair and reasonable basis to craft a remedy in equity for a wronged and directly harmed plaintiff. It cannot be fairly or persuasively argued, in my view, that an award of damages quantifiable by looking to actual expenses undertaken to mitigate, thwart or remedy a pending, continuing harm can be frustrated because the form of expense included calculable legal expenses. I do not consider Section 20.01 language to bar damages to a party wronged by a breach of the Partnership Agreement.

Defendants’ Motion for Reargument, Amendment to or Alteration of Judgment and/or Clarification of Judgment under Rule 59 is DENIED.

This case is now ripe for appeal. Any further Order that the parties may deem necessary for the purpose of making this a final order should be submitted as soon as possible. I will sign it forthwith.

IT IS SO ORDERED.