Articles

Client Alert: Delaware Court Holds Public Entities Liable for Opponents' Attorneys' Fees in "Public Interest Litigation"

In the absence of a statute or court Order, parties to litigation usually pay their own attorneys’ fees and costs. This is the “American Rule.” However, in a recent decision which has shaken public entities throughout the state, a Delaware court has concluded that a public entity may be required to bear its opponent’s fees and costs if the civic benefits of public interest litigation are sufficiently laudable. Since many lawsuits against governmental entities may be considered “public interest litigation”, this decision warrants attention (and concern) from all Delaware municipalities and counties.
 
The “common benefit” exception to the American Rule allows a successful litigant to recover attorneys' fees if the litigation creates a monetary benefit that is shared by others. Historically, this exception has been applied to corporate litigation where, for example, a stockholder may recover funds for the benefit of the entire corporation. In 2007, the Delaware Supreme Court concluded that the rationale of the common benefit exception also applies to taxpayer suits against the government that result in a quantifiable monetary benefit for all taxpayers.
 
Until 2022, these taxpayer lawsuits were the only lawsuits against public entities where the “common benefit” exception applied. However, in a March 28, 2022 decision, the Delaware Court of Chancery concluded that the “common benefit” exception applies “more broadly to litigation that confers a civic benefit.”  In re: Delaware Public Schools Litigation, Case No. 2018-0029 JTL (decided March 28, 2022).  The decision relied upon a variety of benefits and beneficiaries, many of which were not quantifiable or monetary (e.g. societal benefits from improved public education).    
 
Creative litigants can find a variety of ways to style lawsuits against public entities as “conferring a civic benefit”, i.e., excessive force claims against police officers seeking a change in the department’s use of force policy, lawsuits challenging municipal or county code provisions, etc. The Delaware Public Schools Litigation decision may be seized upon by enterprising litigants in claims against Delaware public entities to seek recovery of their attorneys’ fees from the government.
 
The Delaware Public Schools Litigation decision also casts doubt on the premise that those who benefit from litigation should pay the fees of the prevailing party, holding instead that a “suitable intermediary” who is “best positioned to compensate the plaintiffs on behalf of the parties that benefitted” can be compelled to pay fees on behalf of beneficiaries.
 
In the wake of this decision, public entities are well-advised to recalculate their potential exposure in cases where a successful claimant could arguably contend that the result conferred some civic benefit. If the court agrees, the government is exposed to payment of the other side’s legal fees, even if taxpayers have not received a quantifiable monetary benefit from the litigation.

---

The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.