COURT OF CHANCERY
OF THE
STATE OF DELAWARE
JOHN W. NOBLE 417 SOUTH STATE STREET
VICE CHANCELLOR DOVER, DELAWARE 19901
TELEPHONE: (302) 739-4397
FACSIMILE: (302) 739-6179
February 27, 2015
Melissa N. Donimirski, Esquire David S. Eagle, Esquire
Proctor Heyman LLP Klehr Harrison Harvey Branzburg LLP
300 Delaware Avenue, Suite 200 919 North Market Street, Suite 1000
Wilmington, DE 19801 Wilmington, DE 19801
Re: Sutherland v. Sutherland
C.A. No. 2399-VCN
Date Submitted: November 13, 2014
Dear Counsel:
Katten Muchin Rosenman LLP (“Katten”) asks to intervene in the long legal
battle between Plaintiff Martha S. Sutherland (as trustee of the Martha S.
Sutherland Revocable Trust dated August 18, 1976, “Martha”)1 and Defendants,
directors of Nominal Defendants Dardanelle Timber Co., Inc. and Sutherland
Lumber-Southwest, Inc. (the “Individual Defendants” and the “Companies,”
1
There is some effort to distinguish between formal representation of Martha as an
individual and as a trustee, but any distinction is not critical for purposes of this
motion. See infra, note 20.
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 2
respectively).2 Katten seeks to file a Verified Petition for a Charging Lien based
on $766,166.75 in unpaid fees and expenses incurred in representing Martha in
earlier stages of this litigation.
Martha retained Katten in 2004 in connection with an action to inspect the
books and records of the Companies under 8 Del. C. § 220. Although Katten
cannot locate the engagement letter it executed with Martha,3 it is undisputed that
Katten served as counsel in this litigation through the filing of derivative and
double-derivative claims against the Individual Defendants, a successful effort to
oppose a motion to dismiss (during the pendency of which the Individual
Defendants acted to moot some of the claims4), the filing of an amended
complaint, and a partially successful defense against a motion for summary
2
Unless otherwise noted, the facts are drawn from the representations made in
Katten’s Motion for Leave to Intervene (“Mot. to Intervene”). The Court focuses
on the facts relevant to the pending motion. A fuller background can be found in
previous opinions. See, e.g., Sutherland v. Sutherland, 2014 WL 3906500, at *1
n.2 (Del. Ch. July 31, 2014). The Court does not adjudicate the merits beyond
what is necessary to determine whether Katten is entitled to intervene by filing its
petition for a charging lien.
3
See Reply in Further Supp. of Katten Muchin Rosenman LLP’s Mot. for Leave to
Intervene (“Katten’s Reply”) ¶¶ 3, 21; Pl.’s Mem. in Opp’n to Katten Muchin
Rosenman’s Pet. for Leave to Intervene (“Pl.’s Opp’n”) 6.
4
Sutherland, 2014 WL 3906500, at *2, *5.
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 3
judgment.5 In the spring of 2011, Martha retained Kusper Law Group, Ltd.
(“Kusper”) as counsel, and Katten withdrew.
To facilitate this transition, on March 29, 2011, Katten, Kusper, and
Proctor Heyman LLP (“Proctor,” and together with Kusper, “Current Counsel”)
agreed that Katten would “delay filing for an attorney charging lien.”6 In turn,
Current Counsel would not contest the timeliness of such filing if made “within 30
days of a substantive ruling by the Delaware Chancery Court that awards monies to
Martha either as damages or as reimbursement of legal fees incurred” (the “March
Agreement”).7
5
See Mot. to Intervene ¶¶ 3-5, 8; see also Katten’s Reply ¶ 5.
6
Mot. to Intervene ¶ 11.
7
The March Agreement, in relevant part, is as follows:
(1) Except as specifically provided below, nothing contained herein
alters, amends, waives or impairs in any way the respective rights,
claims or defenses of the parties . . . concerning Katten’s assertion,
prosecution, enforcement or validity of a charging or other lien . . . ;
(2) . . . [I]f Katten files a charging lien within the time period provided
in Paragraph 3 below, then Katten’s asserted lien will be treated and
considered as though filed as of the date of this email and such lien
will have and retain the priority it would have had as if actually filed
on the date hereof . . . ;
(3) If Katten files a charging or other lien within 30 days of a
substantive ruling by the Delaware Chancery Court that awards
monies to Martha either as damages or as reimbursement of legal fees
incurred in the derivative case pending in the Delaware Chancery
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 4
The Individual Defendants ultimately prevailed at trial. However, in a
July 31, 2014, letter opinion, “the Court conclude[d] that Martha should be
awarded attorneys’ fees and expenses of $275,000” because of amendments to
certain employment agreements following “vigorous motion practice.”8 Shortly
before expiration of the time to appeal the Court’s order granting Martha’s fee
petition (and within the period prescribed by the March Agreement), Katten moved
to intervene, attaching a petition for a charging lien.
*****
Katten moves to intervene pursuant to Court of Chancery 24 (and to file a
petition for a charging lien deemed filed nunc pro tunc to the date of the March
Agreement), citing its engagement letter with Martha and the common law right to
assert an attorney charging lien. Katten highlights its unique interest in relation to
Court, then none of Martha (individually or as trustee), Kusper or
Proctor will argue, claim or contend that such filed lien is invalid or
untimely . . . because Katten failed to file it sooner than the foregoing
time period[].
Aff. of Bonita L. Stone in Supp. of Reply in Further Supp. of Katten Muchin
Rosenman LLP’s Mot. for Leave to Intervene (“Stone Aff.”) Ex. A, at 2. The
agreement defines “Kusper” as “Kusper & Raucci Chartered,” but there has been
no argument that the difference is material.
8
Sutherland, 2014 WL 3906500, at *5. The employment agreements were
amended in July 2007.
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 5
the parties to this litigation and their counsel, as well as the March Agreement
purportedly justifying its timeline.
Martha opposes intervention, emphasizing “stringent standards”9 for post-
judgment intervention due to concerns about judicial order and prejudice, given the
protracted litigation and delayed filing. Martha also focuses on a lack of evidence
supporting Katten’s contractual right to recover fees from Martha in her capacity
as trustee.10
Katten replies that the March Agreement precludes a timeliness objection
and that its right to recovery would need to be determined at some point after the
Court made a fee award. It contends that “stringent standards” do not govern this
dispute because the policy reasons underlying any enhanced standards are not
applicable. With respect to the engagement letter, Katten argues that an inability to
produce the letter is not determinative of the outcome of the pending motion and
that it undoubtedly represented Martha (technical capacity aside) in this litigation.
9
Pl.’s Opp’n 2.
10
In later correspondence, Martha adds that Katten’s desired intervention would
fall “outside of the scope of the jurisdiction retained by the Court”—namely,
“Plaintiff’s application for attorneys’ fees and expenses.” Letter from Melissa N.
Donimirski, Esq. to the Court 3, Nov. 7, 2014. The Court considers the question of
the appropriate recipient to be within the jurisdiction it retained over Martha’s
request for attorneys’ fees and expenses.
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 6
*****
A. The Standard for Intervention of Right
Court of Chancery Rule 24(a) provides for intervention of right
Upon timely application . . . when the applicant claims an interest
relating to the property or transaction which is the subject of the
action and the applicant is so situated that the disposition of the action
may as a practical matter impair or impede the applicant’s ability to
protect that interest, unless the applicant’s interest is adequately
represented by existing parties.11
“[T]imeliness is the threshold question to be determined, whether intervention is
claimed of right or as permissive.”12 While “the mere fact that judgment already
has been entered should not by itself require an application for intervention to be
denied,”13 courts are reluctant to permit post-judgment intervention.14 Courts have
11
Ct. Ch. R. 24(a).
12
Shanghai Power Co. v. Del. Trust Co., 1975 WL 4181, at *2 (Del. Ch. July 11,
1975).
13
Dugan v. Dineen, 1990 WL 82719, at *5 (Del. Ch. June 12, 1990). There is
some disagreement about whether the Court has entered a final judgment. See
Letter from Jay N. Moffitt, Esq. to the Court 2, Nov. 5, 2014. The dispute over
attorneys’ fees and expenses was the only remaining part of the litigation, and the
Court’s letter opinion “conclude[d] that Martha should be awarded attorneys’ fees
and expenses.” Sutherland, 2014 WL 3906500, at *5. The Court assumes that its
letter opinion was a final judgment but observes that the outcome here would not
be different if final judgment has not been entered.
14
Dugan, 1990 WL 82719, at *5. Dugan’s analysis occurs in the context of
permissive intervention, but the general policy considerations weighing against
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 7
“require[d] post-judgment intervenors to make a strong showing of entitlement and
of justification for failure to request intervention sooner,” based on concerns “that
allowing intervention after judgment will either (1) prejudice the rights of the
existing parties to the litigation or (2) substantially interfere with the orderly
processes of the court.”15
B. Does Katten Have an Interest Relating to the Subject of the Action?
While timeliness is the central dispute, the Court begins here with the basic
disagreement over whether Katten has an interest permitting intervention of right.
Katten asserts an interest in the Court’s fee award under contractual and common
law theories. Martha does not challenge the common law right to an attorney
charging lien but focuses on the post-judgment stage of the litigation and Katten’s
inability to prove the terms of the elusive engagement letter.
An attorney charging lien is “‘the right of an attorney at law to recover
compensation for his services from a fund recovered by his aid, and also the right
post-judgment intervention also apply to intervention of right. See Shanghai
Power, 1975 WL 4181, at *2.
15
Dugan, 1990 WL 82719, at *5 (internal citations omitted).
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 8
to be protected by the court to the end that such recovery might be effected.’” 16
Delaware precedent recognizes an attorney’s right to a charging lien at law and
equity.17 An agreement governing fees does not preclude the assertion of a
charging lien.18 For example, in Zutrau v. Jansing, this Court looked to the terms
of a fee agreement in determining the appropriate amount of an attorney charging
lien.19
From the time Martha retained Katten20 until she retained Kusper, she
incurred $766,166.75 in legal fees and expenses for Katten’s work in this litigation.
16
Doroshow, Pasquale, Krawitz & Bhaya v. Nanticoke Mem’l Hosp., Inc., 36 A.3d
336, 340 (Del. 2012) (quoting 2 Edward Mark Thornton, A Treatise on Attorneys
at Law § 578 (1914)).
17
See id. (“The reference to courts of law and equity implies that, although the lien
is equitable in nature and based on general principles of justice, it can be asserted
as a common law right. Both Welsh and Wilkins have been cited in Delaware cases
and incorporated into our common law.” (citing English common law cases)).
18
Zutrau v. Jansing, 2014 WL 7013578, at *2 (Del. Ch. Dec. 8, 2014).
19
Id.
20
Martha questions Katten’s interest in the pending matter because Katten refers to
the engagement letter between itself and “Sutherland,” a defined term in Katten’s
motion and the attached petition that refers to “Plaintiff Martha S. Sutherland”
(instead of Martha expressly as a trustee). Pl.’s Opp’n 6-7 (referring to paragraphs
one and fourteen of Katten’s Motion for Leave to Intervene and similar language in
the charging petition). Katten served as counsel in actions Martha brought as a
shareholder, and the trust “was the vehicle created to hold Dardanelle stock for the
sole benefit of Martha S. Sutherland individually.” Katten’s Reply ¶ 24. The
Court will not now engage in a technical analysis of capacity when it is clear that
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 9
In the absence of the engagement letter, the Court does not have complete
information about Katten’s contractual rights. Regardless, Martha does not dispute
that an engagement letter was signed, and the Court need not know all of its terms
to grant the pending motion.21 More importantly, there is no question that Katten
has a common law right to pursue recovery of its fees and expenses incurred on
Martha’s behalf (although considerable disagreement exists over Katten’s right to
intervene at this time). There is no party to the action who represents Katten’s
interest in recovering its fees and expenses from this Court’s award, an award that
did not cover all of Martha’s legal expenses.22 Therefore, Katten has the requisite
interest for intervention of right under Court of Chancery Rule 24.
Katten served as counsel in litigation for which fees were awarded on July 31,
2014.
21
The Court on a motion to intervene does not determine who is responsible for
the missing letter. Katten will need to substantiate its right to recover (and Martha
will have the opportunity to present her defenses) at a later point.
22
As is apparent from Martha’s opposition memorandum, Martha and Current
Counsel do not believe that Katten is entitled to any part of this Court’s fee award.
See, e.g., Pl.’s Opp’n 5 (“Katten has a full and complete remedy if it wants to
litigate with Martha Sutherland since Katten can just file a breach of contract
action in Illinois state or federal court.”). The possibility of an action in Illinois
does not deprive Katten of its interest (or prejudice Martha) here.
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 10
C. Was Katten’s Application Timely?
At the heart of this dispute is whether Katten, filing its motion for leave to
intervene arguably just before the end of the period to appeal this Court’s fee
award, has made the requisite showing of timeliness to proceed. Katten points to
the March Agreement, purportedly securing Katten’s right to file a charging lien
within thirty days of a substantive judgment on fees, and even prohibiting Martha
and Current Counsel from contesting the timeliness of the application. Martha
draws attention to the “strong showing” required for post-judgment intervention
and points out that the March Agreement did not secure Katten’s right to file a
belated motion to intervene.
Timeliness, as discussed above, is a fundamental requirement for
intervention. It “is to be determined from all the circumstances.”23 The fact that
one seeks to intervene after final judgment has been entered does not automatically
bar approval, but courts have required a strong showing that the circumstances
justify the intervention due to concerns about prejudice and judicial order.24 Under
23
Shanghai Power, 1975 WL 4181, at *2 (internal quotation marks omitted).
24
Whether this heightened standard applies, an issue Katten and Martha debate,
does not affect the Court’s decision because of the private ordering, explained
infra.
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 11
the current set of facts, it is relevant that Delaware law generally respects the
freedom of contract.25 Nonetheless, contracting parties cannot force the Court to
find that intervention is timely.26
Katten filed a motion to intervene on August 28, 2014—nearly one month
after the Court resolved the last issues remaining in what has been more than ten
years of litigation between Martha and the Individual Defendants. Katten knew
about the litigation and Martha’s accrued fees and expenses but “made no effort to
intervene during the pendency of this action such that the parties and this Court
could understand the potential impact of Katten’s involvement and plan for it as
this litigation wound up.”27 Katten’s intervention would prevent the Court’s final
judgment from taking prompt effect, and the missing engagement letter suggests
the possibility for fact discovery and a contractual dispute.
25
See, e.g., ev3, Inc. v. Lesh, 103 A.3d 179, 181 n.3 (Del. 2014).
26
Cf. e.g., de Adler v. Upper N.Y. Inv. Co. LLC, 2013 WL 5874645, at *8 (Del. Ch.
Oct. 31, 2013) (“The Court’s subject matter jurisdiction cannot be determined by
contract, by consent in the pleadings, or even by procedural waiver.” (footnotes
omitted)); Del. Elevator, Inc. v. Williams, 2011 WL 1005181, at *15 (Del. Ch.
Mar. 16, 2011) (“In Delaware, a contractual stipulation to irreparable harm does
not force the Court’s hand but is sufficient to support injunctive relief.”).
27
Pl.’s Opp’n 4.
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 12
The critical fact, however, is that Martha, Katten, and Current Counsel
reached an agreement, on March 29, 2011,28 anticipating the filing of a charging
lien within thirty days of a substantive judgment on fees by this Court. Katten
entered into the March Agreement to facilitate Martha’s ongoing litigation, not to
cause delay or to pursue some other improper purpose. Given the current record,
the Court does not find the agreement to postpone filing unenforceable or illusory.
As noted above, a private agreement cannot compel the Court to find that a filing is
timely (although a private agreement might prevent the parties from arguing about
timeliness among themselves). Here, for the goals the parties sought to accomplish
with respect to the change in representation, the March Agreement appears to set a
permissible timeline.
Martha contends that granting the motion will “cause prejudice to the parties
and this Court by impacting negatively upon the orderly process of this
litigation.”29 Admittedly, allowing intervention will add issues to resolve and
prevent this litigation from coming to its anticipated end. Yet the March
Agreement provides for an attorney charging lien to be filed within thirty days of
28
See Stone Aff. Ex. A, at 1-2 (email chain showing acceptance).
29
Pl.’s Opp’n 5.
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 13
this Court’s decision on fees, and attorneys generally have a right to be
compensated for their work. The Court does not deem prejudicial the resolution of
a dispute that Martha and her counsel all expected to resolve at some reasonable
time. Under these circumstances, granting the motion to intervene does not
prejudice the Court or the parties.30 Additionally, the intervention is not disruptive.
Allowing intervention for the limited purpose of Katten’s charging lien petition
will not reopen issues that the Court has already decided. Rather, it would give
proper effect to the agreement among Martha, Katten, and Current Counsel to
prioritize litigation for their own necessary purposes. Therefore, policy concerns
do not persuade the Court to deny Katten’s motion.31
Finally, there is a suggestion that the March Agreement does not protect the
filing of a motion to intervene (as opposed to a charging lien petition which could
be filed in another court). The March Agreement technically did not address a
motion to intervene. Nonetheless, the motion is a procedurally reasonable step to
30
To the extent that Current Counsel argue that they should have been given notice
earlier so that they could have planned for the claim, the Court observes that it, too,
might have benefited from knowing of the agreement reached by Martha and her
counsel.
31
Or, framed in a more focused manner, the March Agreement offers a compelling
justification for Katten’s timeline.
Sutherland v. Sutherland
C.A. No. 2399-VCN
February 27, 2015
Page 14
lodge the charging lien: in order to file a charging lien, Katten should become a
party to the action. Katten’s argument that the implied covenant of good faith and
fair dealing protects the procedural mechanism to file the charging lien petition,32
thus, also is persuasive. Katten participated in this litigation in this Court, and
Delaware law recognizes a right to a charging lien. Therefore, Katten has met the
requirements for intervention pursuant to Court of Chancery Rule 24(a).
*****
For the reasons above, Katten’s Motion for Leave to Intervene is granted.33
IT IS SO ORDERED.
Very truly yours,
/s/ John W. Noble
JWN/cap
cc: Jay N. Moffitt, Esquire
Robert S. Saunders, Esquire
Register in Chancery-K
32
Katten’s Reply ¶ 9.
33
Katten asks that the charging petition be deemed filed and effective as of
March 29, 2011, the date of the March Agreement. Determination of an effective
date is not essential to the question of whether leave to intervene should be
granted.