## Facts

- Initio Partners, a limited partnership, was the largest independent shareholder of Tandycrafts, Inc., holding about 9.9% of its common stock.
- After management rebuffed Initio’s interest in acquiring a larger stake, Tandycrafts proposed charter amendments intended to deter takeovers, including an 80% supermajority voting requirement for certain non-board-approved transactions.
- Initio alleged the company’s proxy materials were materially misleading because they did not disclose that an employee benefit plan held about 10.9% of the stock and management/directors held about 7.5%, making it practically impossible to achieve 80% approval without management support.
- Initio sued in the Delaware Court of Chancery in its individual capacity seeking to enjoin the annual meeting vote based on alleged disclosure violations.
- After the lawsuit was filed, Tandycrafts issued supplemental proxy disclosures addressing the complained-of omissions.
- Initio voluntarily dismissed the action as moot and sought attorneys’ fees and expenses under the substantial benefit doctrine.
- Tandycrafts opposed fees, arguing the suit conferred no benefit and, in any event, fees were unavailable because Initio did not sue derivatively or as a class representative.

## Issues

1. Whether attorneys’ fees may be awarded under the substantial benefit doctrine to a shareholder who sued only in an individual capacity, where the litigation produced a benefit shared by all shareholders.
2. Whether the lawsuit conferred a significant, causally related benefit sufficient to support a fee award when the corporation claimed it would have made the disclosures anyway.

## Decision

- The Delaware Supreme Court affirmed the Court of Chancery’s award of $180,000 in attorneys’ fees and expenses.
- The court held that, under certain circumstances, an individual shareholder may recover fees when the litigation confers a benefit on the corporation or its shareholders, even without a class or derivative component.
- The court upheld the finding that the litigation caused corrective disclosures that significantly benefited all shareholders.
- The court found no abuse of discretion in the amount of the award.

## Legal Principles

- Under Delaware’s substantial benefit doctrine, equity may shift attorneys’ fees when litigation produces a substantial benefit for the corporation or shareholders, including non-monetary benefits such as materially improved proxy disclosures.
- Eligibility for a substantial-benefit fee award does not depend solely on whether the plaintiff filed a class or derivative action; the focus is on whether the litigation was a causal factor in producing a shared benefit and avoiding unjust enrichment of other shareholders.
- A case becoming moot after the corporation takes corrective action does not bar a fee award if the litigation materially contributed to the corrective action.
- Fee awards in this setting are reviewed for abuse of discretion, with deference to the Court of Chancery’s assessment of benefit, causation, and reasonableness of the amount.

## Conclusion

The court upheld a fee award where an individual shareholder’s disclosure-based suit prompted supplemental proxy disclosures that materially informed the shareholder vote, holding that substantial-benefit fee shifting can apply without class or derivative pleadings when the litigation causes a significant benefit shared by all shareholders.


Tandycrafts, Inc. v. Initio Partners, 562 A.2d 1162 (Del. 1989)