## Facts

- Sugarland Industries, Inc., a Delaware corporation, owned approximately 7,500 acres of Texas land, including a “South Tract” of about 5,900 acres.
- In 1973, Sugarland’s board favored selling the South Tract to White & Hill for $23.8 million and sought shareholder approval.
- Stockholder-plaintiffs filed a derivative action challenging the sale price as inadequate and sought to block the transaction and require competitive bidding.
- The Court of Chancery enjoined acceptance of the White & Hill proposal and ordered a competitive bidding process.
- Competitive sealed bidding resulted in a sale of the South Tract to Hines for $37.2 million; Hines later also bid about $1.25 million more than the next bidder for another parcel (the “North Tract”).
- After resolution and settlement of related matters, plaintiffs’ counsel sought attorneys’ fees based largely on a percentage of the monetary benefit achieved rather than solely on hourly compensation.
- The Court of Chancery awarded $3.5 million in fees: $3 million for “Phase I” (competitive bidding and increased sale proceeds) and $500,000 for “Phase II” (additional disputes involving damages and reorganization of related family enterprises), and made rulings on interest.
- Sugarland and a trustee intervenor appealed the size and basis of the fee awards and interest; plaintiffs cross-appealed aspects of the interest rulings.

## Issues

1. Whether a derivative plaintiff’s counsel may receive a multi-million-dollar fee based on a percentage of the monetary benefit conferred, rather than being limited to hourly rates.
2. How to measure the “benefit” for fee purposes, including whether counsel may recover a percentage of the entire increase from the initial bid to the final sale price absent proof the full increment was caused by counsel’s efforts.
3. Whether fees were justified for a later litigation phase yielding more indirect or non-monetary benefits to the corporation.
4. Whether the Court of Chancery’s rulings on interest on the fee awards were correct.

## Decision

- The Delaware Supreme Court affirmed in part and reversed in part.
- The court held that plaintiffs’ counsel were entitled to a substantial fee exceeding hourly compensation because the litigation conferred a substantial benefit on Sugarland and its shareholders.
- The court rejected applying the same percentage to the entire price increase where portions of the increase were not fairly attributable to counsel’s work, and required a tighter causal connection between efforts and the quantified benefit.
- The court largely upheld the Phase II fee award as within the Court of Chancery’s equitable discretion given the corporate benefits found, though less directly measurable than Phase I.
- The court modified the overall fee calculation and structure, and addressed the parties’ challenges regarding interest consistent with its partial affirmance and reversal.

## Legal Principles

- In derivative and representative actions, a court of equity may award attorneys’ fees when the litigation creates a common fund or confers a substantial benefit on the corporation or its shareholders.
- A percentage-of-benefit method may be used to set reasonable fees where litigation yields a measurable monetary gain; exclusive reliance on hourly rates may undercompensate counsel in such cases.
- Fee awards must be reasonably related to results achieved and supported by a causal link between counsel’s efforts and the benefit used as the fee base; courts should not award windfalls on gains not attributable to the litigation.
- Courts may award fees for indirect or non-monetary corporate benefits, with the amount committed to the Court of Chancery’s sound discretion.
- Relevant considerations include the size of the benefit, the quality and difficulty of the work, and the contingent risk assumed.

## Conclusion

The Delaware Supreme Court confirmed that benefit-based fee awards are appropriate in derivative litigation but required that the fee be tied to benefits causally attributable to counsel’s work, while allowing fees for both direct monetary gains and certain indirect corporate benefits within equitable discretion.


Sugarland Indus., Inc. v. Thomas, 420 A.2d 142 (Del. 1980)