The Delaware Court of Chancery has an ambivalent relationship with the plaintiffs' bar. Despite considerable misgivings about the value of much shareholder litigation, the court wants shareholders to bring suits involving Delaware-incorporated companies in Chancery. Fee awards expose this dilemma. If the court is generous in awarding fees to plaintiffs' lawyers who settle cases quickly for only modest benefits, it encourages such litigation. But if it's stingy, it risks driving lawyers to bring even meritorious cases in other jurisdictions.

The problem has become even more acute in the past few years with the increasing prevalence of multijurisdictional litigation: cases arising from the same set of facts that are brought by different plaintiffs' lawyers in different legal venues.

Chancellor Leo E. Strine Jr. offered his take on multijurisdictional litigation at an Aug. 2 hearing in a shareholder suit arising from the $580 million sale of Clarient Inc. to GE Healthcare. Three firms -- Rigrodsky & Long PA; Abraham, Fruchter & Twersky LLP; and Stull, Stull & Brody -- sued Clarient and its board in Delaware on behalf of shareholders, while another firm, Robbins Geller Rudman & Dowd LLP, sued in California, where Clarient is based.

Strine suggested in the transcript that the California plaintiffs owned only a few thousand dollars in Clarient stock and that their Delaware counterparts didn't own much more than that. Nevertheless, GE had agreed to pay Robbins Geller $450,000 to settle the California action. That firm in turn agreed not to oppose a fee request of $450,000 by the Delaware plaintiffs.

Strine was not pleased with that arrangement. Early in the hearing, he acknowledged the cynicism that drives many companies to settle such cases quickly with a comment that suggested their attitude has affected his own views: "When you can pay a million bucks or less than a million bucks and get deal certainty and move on, it may not be anything anybody likes to do. But just like nobody likes fighting with the cable company or snow days, you do it."

Since neither acquiring companies nor shareholder plaintiffs with small stakes have much incentive to police the fees plaintiffs' lawyers receive, the task falls to the judges who approve settlements. In Delaware, Chancery requires parties to strike a settlement and negotiate fees thereafter, but other courts in other jurisdictions, California among them, do not impose such a requirement. In the Clarient case, Robbins Geller's Randall Baron negotiated a fee with David Graham, a partner at GE counsel Sidley Austin LLP in Chicago, after the parties had agreed on the terms of a settlement but before they had signed a memorandum of understanding.

Strine called that practice "way troubling" because it calls into question the motives of the plaintiffs' lawyers who, Strine said, "have the potential to trade off considerations about fees with substantive terms because they don't bind themselves to the substantive terms first and then only talk about fee considerations later."

The judge ended up awarding the plaintiffs' lawyers $700,000, split evenly between the firms that brought the California suit and those that pursued the case in Delaware. (Robbins Geller ended up neither seeking nor receiving an award in California.) Strine also added a warning: "I don't want to be back here within the year with another situation like this. In the future, my inclination will be to reject a settlement out of hand that puts this institution in this position. If you wish for the court to approve the settlement, then the court ought to approve the settlement, and it ought to award all the fees by the lawyers who agreed to the settlement."

Toward the end of the hearing, Strine also questioned the value of settlements that do little more than "provide additional comfort [about] why a deal is fair."

In awarding fees, the judge said, "courts should not get blinded to this. It is not a successful Revlon case to trim a termination fee in some cosmetic way for the sake of trimming it in a cosmetic way. A real successful Revlon case is when you actually prove a breach of fiduciary duty and open the door and there's somebody who wanted to pay a higher price who's been thwarted. Or if it's a disclosure [settlement], it's a disclosure that shows that this is an unfair deal. And the class plaintiffs and everybody else says, 'Hey, now we know this is an unfair deal and we vote it down.' "

That's a high bar, and one which may encourage plaintiffs' lawyers to continue their flight from Delaware.

David Marcus is senior writer for Corporate Control Alert.