Chancery Grants Partial Fee-Shifting for Duty Breach, Spoliation

Delaware’s Court of Chancery does a lot of thingslike explaining corporate law with the calm confidence of someone
who alphabetizes their spice rack. What it doesn’t do is hand out attorney-fee awards like they’re mints at the
host stand. Delaware follows the American Rule, which is a polite way of saying: “You pay your lawyers; I pay mine;
everyone cries equally.”

But when a fiduciary breaks faith (think duty of loyalty) and the litigation gets uglier because someone
“misplaces” evidence (think spoliation), Chancery has toolssharp ones. A recent decision provides a clean example:
the court granted partial fee-shifting as part of the damages remedy after finding a disloyal fiduciary’s
misconduct and spoliation made the case harder and more expensive than it needed to be.

What “fee-shifting” means in Delaware Chancery (and why it’s not automatic)

“Fee-shifting” is exactly what it sounds like: moving some or all attorney’s fees from one side of a dispute to the
other. Delaware courts can do that in a few common ways:

• Contractual fee-shifting: if the contract says the loser pays, the court will usually enforce it (within reason).
• Statutory fee-shifting: some statutes allow a prevailing party to recover fees under defined standards.
• Equitable exceptions: most notably, the bad-faith exception and related doctrines designed to protect the integrity of the process.

The important part: winning a case is not the same as winning fees. Delaware courts regularly remind litigants
that a finding of wrongdoingby itselfdoesn’t automatically justify fee-shifting. The court typically looks for something
extra: egregious conduct, litigation abuse, intentional deception, or actions that force the other side to spend money
it never should have had to spend.

Spoliation 101: why deleted evidence can get expensive fast

“Spoliation” is the destruction, alteration, or loss of evidence that should have been preserved for litigation. In modern cases,
it often shows up as deleted emails, wiped laptops, “lost” phones, vanishing text messages, and the classic:
“My toddler did it.” (Courts have heard it. Courts have not been impressed.)

When spoliation is proven, the court can respond in a range of ways, depending on culpability (accidental vs. reckless vs. intentional),
the importance of the missing evidence, and prejudice to the opposing party. Potential remedies can include:

• Remedial measures (like extra discovery or ordering restoration efforts)
• Cost-shifting (making the spoliating party pay for forensics or motion practice)
• Adverse inferences (allowing the court/jury to infer the missing evidence was unfavorable)
• Evidence or claim sanctions (limiting defenses, striking claims, orin extreme casesdefault judgment)

Delaware Chancery’s approach to spoliation is especially practical: the point is to cure prejudice and protect the integrity of the process.
If one side’s misconduct forces the other side to hire forensics experts, chase down backups, and brief sanctions motions, the court can
treat those costs as part of making the injured party whole.

Case spotlight: the “disloyal fiduciary + deleted evidence” combo platter

In Sorrento Therapeutics, Inc. & Scilex Pharmaceuticals Inc. v. Mack (Del. Ch., C.A. No. 2021-0210-PAF),
the Court of Chancery confronted a fact pattern that reads like a corporate thrillerminus the car chases, plus USB drives.
The court found that an executive engaged in intentional misconduct in violation of the duty of loyalty,
including usurping corporate opportunities and misusing confidential information.

What the court found (in plain English)

The court concluded that the fiduciary covertly diverted and developed a competitive product and repeatedly acted to conceal the venture.
After litigation commenced, the court found he deleted hundreds of relevant documents, denied doing it, and even suggested his
children might be responsible. The court also noted the deletions occurred in a concentrated burstmultiple actions over a short span
and rejected the “who, me?” narrative as not credible.

That matters because spoliation isn’t just about missing data; it’s about added cost and lost truth. When evidence disappears,
the opposing party often has to spend real money trying to reconstruct what happened: forensic imaging, expert testimony, vendor collections,
motion practice, and the slow, painful process of proving a negative (“Yes, your honor, it existed, and no, we can’t get it back because someone
hit ‘delete’ like it was a reflex.”).

Remedies: damages, offsets, injunctions, and then the fee-shifting hammer

The remedies decision is where the fee-shifting story really comes alive. The court addressed multiple remedial theories and ultimately
determined monetary damages for the duty of loyalty breach (a specific dollar amount) but also recognized a key reality: due to a settlement
credit under Delaware’s contribution statute framework, the defendant’s out-of-pocket damages liability could effectively be reduced.
Meanwhile, the plaintiffs still incurred the very real expense of litigating against misconduct and spoliation.

Enter: partial fee-shifting.

The court held that partial fee-shifting was appropriate as a component of the damages remedy necessary to make the plaintiffs whole.
Importantly, the court also recognized two competing truths that show up in many complex cases:

1. The plaintiffs were only partially successful across all theories pursuedso a 100% fee award would overshoot.
2. The defendant’s litigation misconduct (including spoliation) increased the cost of the caseso a 0% fee award would undershoot.

Balancing those realities, the court awarded one-third of the plaintiffs’ reasonable attorneys’ fees and expenses. That is the essence of
“partial fee-shifting”: not a blank check, not a slap on the wristan apportionment designed to reflect both the plaintiffs’ mixed success
and the defendant’s role in making litigation more expensive than it should have been.

Why one-third? The logic behind “partial” awards

Courts rarely choose a fraction because it looks pretty on a chalkboard. They choose it because it matches the record.
Here’s what tends to drive a partial award in Chancery:

• Overlap of claims: when claims share a common factual predicate, separating fees by claim can be unrealistic.
• Degree of success: partial wins can justify partial fees, especially if some theories fell away or were not proven.
• Litigation conduct: spoliation and credibility issues can justify shifting the costs tied to uncovering the truth.
• Equitable fit: the court uses discretion to reach a result that feels like “make-whole,” not “windfall.”

In other words, partial fee-shifting can be the court’s way of saying:
“You don’t get reimbursed for every hour you spent chasing every theory,
but you also shouldn’t have to eat the bill for digging through the rubble someone else created.”

How Delaware treats attorney’s fees as part of “damages” in fiduciary duty cases

One subtle (and powerful) concept in Delaware equity is that attorney’s fees can sometimes be awarded not merely as “fees,” but as part of
a damages remedyespecially where a fiduciary’s faithless conduct or litigation misconduct forces the plaintiff to incur expenses that are
fairly attributable to the wrongdoing.

That doesn’t erase the American Rule; it works around it in limited, fact-driven ways. Delaware courts have long recognized that equity can award
fees where necessary to prevent injusticeparticularly when dealing with disloyal fiduciaries or bad-faith litigation tactics. The key is tying the fees
to the misconduct in a way that makes the award remedial, not punitive.

The spoliation-to-fee-shifting pipeline: how it happens in practice

In real disputes, the path from “we suspect deletion” to “the court awarded fees” tends to look like this:

1. Trigger event: litigation is reasonably anticipated; the duty to preserve attaches; legal holds should be issued.
2. Preservation failure: data is deleted, devices replaced, texts vanish, or systems auto-delete without appropriate suspension.
3. Discovery friction: the requesting party notices gaps, metadata oddities, or inconsistent productions.
4. Forensics & motion practice: experts get involved; parties brief whether the failure was negligent, reckless, or intentional.
5. Prejudice analysis: the court evaluates how the loss affects the ability to prove claims or defenses.
6. Remedy selection: the court chooses measures to cure prejudice and deter misconductoften including cost-shifting.

Notice what’s missing from that list: magic. Courts generally want the moving party to show (a) a duty to preserve, (b) a failure, (c) a culpable
mental state (depending on the sanction requested), and (d) prejudice. The more intentional the conduct and the more central the evidence,
the more severe the remedy can become.

Practical takeaways for companies, executives, and litigators

1) Treat preservation like a business process, not a vibes-based suggestion

Preservation is operational. It requires ownership, documented steps, and follow-throughespecially for texts and collaboration platforms that
default to auto-delete. Courts have signaled repeatedly that “we sent a hold email once” is not the same as “we took reasonable preservation efforts.”

2) If you use ephemeral messaging, expect a preservation fight

Texts and chat apps are now standard evidence in fiduciary duty disputes. If a key actor’s messages disappear, the court will ask hard questions:
What was the retention policy? When did you suspend auto-delete? Who verified compliance? Can you restore backups? If the answers are vague,
sanctions and cost-shifting become more likely.

3) Fee-shifting arguments live or die on specificity

When a court orders a fee award, it still has to decide what amount is reasonable. That’s why Delaware practice often requires a detailed affidavit
process for fees and expenses. To win a meaningful award, a party needs time entries that (a) are contemporaneous, (b) describe work clearly,
and (c) connect the work to the misconduct (forensics, sanctions motions, spoliation-related discovery, etc.). Vague block-billing is the enemy of persuasion.

4) Don’t overreachpartial success can mean partial recovery

One reason courts like “partial fee-shifting” is that it calibrates the result. If a plaintiff pursued multiple theories and only proved some,
the court can still address litigation misconduct without awarding 100% of fees. In other words, a fee award can be both a remedy and a reality check.

5) Credibility is currency, and spoliation is inflation

Courts care about credibility because credibility saves time. If the court believes a witness, it can resolve disputes. If the court doesn’t, everything
gets slower and more expensive. Spoliation isn’t just a technical violationit’s a credibility bomb. Once it detonates, fee-shifting becomes a much more
plausible outcome.

Conclusion: why this decision matters beyond one messy set of facts

The big lesson from Chancery’s partial fee-shifting for duty of loyalty breach and spoliation is simple:
Delaware will not let litigation misconduct become a discount code.
If a disloyal fiduciary (1) breaches duties, (2) forces litigation, and then (3) deletes evidence or otherwise undermines the process,
the court can use partial fee-shifting to restore balanceespecially where damages are hard to quantify or later reduced by offsets.

For plaintiffs, the decision is a reminder to build a record that ties fees to misconduct and to seek relief that matches the equities.
For defendants, it’s a warning that preservation failures can morph from “IT issue” to “court-ordered check-writing,” fast.
And for everyone else, it’s a Delaware-style public service announcement:
don’t delete things once you’re in a lawsuitunless you also enjoy funding the other side’s legal budget.

500-Word Field Notes: What These Fee-Shifting and Spoliation Fights Feel Like

If you’ve never lived through a spoliation dispute, here’s the vibe: it starts as a small mystery and ends as a full-time job.
One side says, “We’re missing key communications.” The other side says, “What communications?” Then a forensic expert enters the chat
(sometimes literally), and suddenly everyone is discussing metadata timestamps with the intensity of sports fans arguing over replay footage.

A common pattern is that the “spoliation problem” isn’t one single deletionit’s a chain reaction. Someone upgrades a phone. A laptop gets “wiped”
before it’s returned. Auto-delete settings were never suspended. A chat platform was configured to purge messages every 30 days. Each step may have an
innocent explanation on its own, but when combined, it can create the exact picture courts worry about: a party that didn’t take preservation seriously
when it mattered most.

The experience for the requesting party often feels like paying a second set of lawyersexcept they’re called “vendors,” “forensic consultants,” and
“e-discovery specialists,” and their invoices arrive with the cheerful regularity of a subscription you forgot you signed up for. You may need imaging of
devices, targeted searches, restoration attempts, and depositions that are less “tell me what happened” and more “explain why your iPhone is a blank slate.”
Meanwhile, deadlines don’t pause, and the underlying merits still have to be proven.

On the responding side, the practical experience can be equally brutalespecially when preservation was handled casually. Even when there’s no intent to
hide anything, weak process looks bad on paper. Courts don’t love “we think we did the hold, but no one tracked compliance.” They really don’t love
“we issued the hold, but the key actor kept deleting texts.” In many real disputes, the turning point is not a dramatic confessionit’s a slow realization
that the story doesn’t match the digital footprint, and the court’s patience is finite.

That’s where partial fee-shifting becomes a very practical remedy. It’s not just punishment; it’s a way to allocate the cost of the mess to the party who
made it. When the record shows that misconduct (or reckless preservation failure) forced additional discovery, motion practice, and expert work, a court can
use fee-shifting to prevent the injured party from effectively subsidizing the misconduct. And because complex cases often involve mixed success on claims,
“partial” fee awards can feel like the court’s version of a calibrated receipt: you don’t get everything, but you also don’t get stuck paying for someone
else’s sabotage (or “oops”).

The most useful real-world lesson is also the least glamorous: build preservation into your culture early. Make legal holds trackable. Preserve texts
when litigation is reasonably anticipated. Document the process. And if something goes wrong, be transparent and remediate quickly. In Chancery, credibility
and competence are closely relatedand both are cheaper than sanctions.