Wilmington, DE— In a recent decision, the Delaware Chancery Court denied a $5 million attorney fees request, known as a "mootness fee," from Oracle Corp.'s shareholders' attorneys following their unsuccessful challenge to Oracle's acquisition of NetSuite Inc.

Despite the shareholders losing the derivative suit in August 2022 after a 10-day trial, they argued for the fees on the basis that Oracle's decision to appoint two new independent board directors after the litigation commenced represented a corporate benefit resulting from the lawsuit.

Chancery Court's Rejection of Mootness Fee

The court disagreed with the shareholders' attorneys, concluding that the appointment of the new directors was a collateral effect of the litigation and did not provide a direct corporate benefit. As such, the Chancery Court denied the fee request, continuing the trend of imposing higher standards on such requests.

Mootness fee requests typically arise when a stockholder claims a company's disclosures or decisions were inadequate or improper, leading to the company issuing supplemental disclosures or performing other actions to moot the stockholder's claim.

Under the corporate benefit doctrine, plaintiffs can be awarded attorney fees when their claims have been mooted under certain conditions, such as if the suit was meritorious when filed, the defendant took an action that produced a corporate benefit, and there is a causal link between the litigation and the corporate benefit.

The Oracle Litigation and Mootness Fee Decline

The case, known as In re: Oracle Corp. Derivative Litigation, stemmed from Oracle's $9.3 billion acquisition of NetSuite in 2016. Shareholders initially alleged Oracle founder Larry Ellison intentionally overpaid for NetSuite and that a special committee overseeing the deal was too closely tied to Ellison to ensure fair decisions.

After Oracle appointed two new independent directors following the filing of the suit, the shareholders' attorneys claimed the company’s action justified a mootness fee. However, the Chancery Court found that the plaintiffs did not seek the appointment of new directors during the litigation and that the appointment was merely a collateral effect.

This ruling aligns with other recent decisions from Delaware and federal courts, demonstrating skepticism towards awarding mootness fees for supplemental disclosures unless they provide material information or significant benefits.

The National Trend Against Mootness Fees

Similar trends can be seen in other court decisions across the U.S. For instance, federal courts in the Ninth, Third, and Second Circuits have rejected several mootness fee requests in recent years.

The Chancery Court’s decision in the Oracle case illustrates a growing reluctance to award mootness fees, which in turn may make it more challenging for plaintiffs' attorneys to seek substantial awards in derivative suits. Companies may thus be able to introduce remedial actions with less fear of facing large mootness fees.

While courts are raising the bar on mootness fee requests, the practice is unlikely to end entirely. Since February, several merger suits requesting mootness fees have been filed in various district courts across the country.

Overall, these recent court decisions signify a continued decline in granting attorney fees in mootness cases, marking a notable shift in the landscape of derivative litigation.