Fee-as-Damages Claims Based on Pre-Litigation Bad Faith Must Be Raised Pretrial or Are Waived

I. Introduction

Young Min Ban v. Joseph P. Manheim (Del. Aug. 21, 2026) addresses a recurring boundary problem in Delaware fee-shifting doctrine: when may a prevailing party recover attorneys’ fees under exceptions to the American Rule, and—critically—when must that claim be raised?

The dispute arose out of the removal of Young Min Ban’s interests in entities connected to an EB-5 investment business, Delaware Valley Regional Center, LLC (“DVRC”). Joseph P. Manheim, who controlled DVRC through West 36th, Inc. (“WestCo”), executed transactions that eliminated Ban’s equity: (i) a same-day adoption and exercise of a call-right bylaw to acquire Ban’s WestCo shares at $100/share, and (ii) a DVRC redemption of Penfold, L.P.’s member interest (in which Ban held a one-third limited partnership interest) at a price Manheim calculated.

The Court of Chancery found Manheim breached fiduciary duties and awarded Ban $6,898,612 in damages (fair value of the eliminated interests). After trial, Ban sought additional recovery of attorneys’ fees and expenses, arguing Manheim’s pre-litigation conduct was bad faith and that litigation spend was therefore part of Ban’s damages. The Supreme Court affirmed the damages determination but reversed the post-trial fee award, holding the fee-as-damages theory was waived because it was not raised before trial in a way that gave notice.

II. Summary of the Opinion

  • Valuation / expert supplementation: The Supreme Court held the Court of Chancery acted within its discretion in declining to consider Ban’s expert’s supplemental valuation, which introduced a substantially new model and inputs rather than a true supplementation tied to deposition testimony.
  • Attorneys’ fees: The Supreme Court reversed the award of attorneys’ fees and expenses that the Court of Chancery had treated as “part of the damages.” The Court held that when fees are sought as damages based on an adversary’s pre-litigation conduct, the claim must be raised before trial to provide fair notice. Because Ban did not plead or otherwise present that theory until months after the post-trial opinion, it was waived.

III. Analysis

A. Precedents Cited

1. Standards of review and trial-management discretion

The Court relied on Coleman v. PricewaterhouseCoopers, LLC to frame the abuse-of-discretion standard for a trial court’s decision to exclude or decline to consider late-submitted expert material. This deference mattered because Ban’s appellate challenge targeted the Chancery Court’s control of expert supplementation and reliability assessments.

It also cited RBC Cap. Mkts., LLC v. Jervis for the abuse-of-discretion standard applicable to fee awards under exceptions to the American Rule—setting the lens through which the Supreme Court reviewed (and ultimately rejected) the Court of Chancery’s post-trial fee award.

2. The American Rule and the “bad faith” exception

The Court anchored the default rule in Kaung v. Cole Nat'l Corp.: absent an exception, each side bears its own attorneys’ fees. The Court further used Kaung and RBC Cap. Mkts., LLC v. Jervis to describe the bad-faith exception as “extraordinary” and typically focused on abuse of the litigation process (e.g., prolonging litigation without cause, falsifying records, asserting frivolous claims).

The Court then drew a sharp doctrinal line using its own prior statements:

  • RBC Cap. Mkts., LLC v. Jervis (quoting Versata Enters., Inc. v. Selectica, Inc.): fee awards for bad faith must derive from bad faith in commencing or conducting litigation, “and not from conduct that gave rise to the underlying cause of action.”
  • Johnston v. Arbitrium (Cayman Is.) Handels AG: the bad-faith exception “does not apply to conduct that gives rise to the substantive claim itself.”

These cases established the baseline presumption against fee shifting based solely on the wrongdoing that generated the lawsuit.

3. A narrow “fees as damages” category tied to egregious pre-litigation conduct

The Court acknowledged that Delaware equity recognizes a distinct and narrow path: in exceptional circumstances, attorneys’ fees may be awarded as an element of damages where the underlying wrong itself is sufficiently egregious. The key authority was Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, which, quoting Barrows v. Bowen, referenced “bad faith, fraud, ‘conduct that was totally unjustified, or the like,’” where fees are an appropriate part of damages.

The Court also pointed to William Penn Partnership v. Saliba, where fiduciary disloyalty justified a broader remedial scope and supported shifting fees and expenses in circumstances where the plaintiffs’ recovery otherwise would have been nominal—illustrating that equity can treat litigation spend as part of the injury caused by faithless fiduciaries.

4. Waiver via failure to plead/raise fee exceptions before trial

The Court’s waiver holding was reinforced by In re Mobilactive Media, LLC, where the Court of Chancery found a request for attorneys’ fees under an exception to the American Rule was waived when not sought in the complaint, the pretrial stipulation and order, or trial briefs. The Supreme Court adopted the same practical fairness logic: a party must have notice to develop evidence and defenses.

B. Legal Reasoning

1. The Court’s central doctrinal move: categorize the fee request correctly

The Court distinguished between two different kinds of fee claims:

  • Litigation-conduct fee shifting (classic bad-faith exception): arises from how a party litigates (or initiates) the case. Because the misconduct unfolds during the case, an after-the-fact application is often procedurally sensible.
  • Fee-as-damages based on pre-litigation conduct: treats attorneys’ fees as part of compensatory relief flowing from the underlying wrong (e.g., egregious fiduciary misconduct that forced the plaintiff to litigate to vindicate rights).

That classification determined the procedural consequence: a fee-as-damages theory places the defendant’s pre-litigation character and culpability at issue as a fact-intensive matter. Therefore, due process and trial fairness require pretrial notice.

2. Notice and prejudice drove the waiver outcome

The Court held Ban did not provide notice because:

  • The complaints did not plead attorneys’ fees as damages based on pre-litigation bad faith.
  • The pre-trial order sought fees only “in connection with the derivative action,” not as damages for pre-litigation wrongdoing.
  • Trial briefs did not articulate a bad-faith, pre-litigation fee-as-damages theory.
  • The theory first appeared months after the post-trial opinion in a fee motion.

The Court found prejudice plausible and concrete. The Court of Chancery itself noted Manheim “largely punted” on liability and focused on damages. Had Manheim known fees would be pursued as damages based on pre-litigation conduct, he could have presented evidence and argument on the egregiousness (or justification) of that conduct.

3. The “narrow category” admonition

Even while recognizing a limited pathway for fees as damages (consistent with Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund and William Penn Partnership v. Saliba), the Court emphasized such claims are appropriate only in a “very narrow category of cases.” This functions as both a substantive limitation (not every fiduciary breach qualifies) and a procedural warning (if you intend to try for it, plead it).

C. Impact

The opinion establishes a clear procedural rule with immediate consequences for Delaware trial practice:

  • New practical requirement: A plaintiff seeking attorneys’ fees as damages based on the defendant’s pre-litigation conduct must raise that theory before trial (pleading, pretrial order, or otherwise in a manner that provides notice). Waiting until a post-trial motion risks outright waiver.
  • Strategic litigation effects: Plaintiffs will likely include more explicit fee-as-damages allegations in fiduciary duty complaints, particularly where the theory is that faithless conduct forced litigation. Defendants, in turn, will prepare evidentiary records on justification, good faith, reliance on advice, and proportionality of conduct—issues that may not be front-and-center when the only relief sought is fair value damages.
  • Trial management and discovery: If fees are in play as damages, discovery and trial preparation may expand to cover pre-litigation intent, communications, and “egregiousness,” increasing costs and sharpening disputes over privilege, advice-of-counsel, and fiduciary decision-making processes.
  • Remedial clarity: The decision preserves the conceptual distinction between (i) fees as a litigation sanction/deterrent and (ii) fees as compensation for harm caused by exceptional pre-litigation wrongdoing—while ensuring that the latter is tried with the same procedural fairness as other damages theories.

IV. Complex Concepts Simplified

  • American Rule: The default rule that each side pays its own lawyers, win or lose, unless a statute, contract, or narrow equitable exception applies.
  • Bad-faith exception (litigation focus): A court may shift fees if a party abuses the judicial process—e.g., filing a case in bad faith, prolonging litigation without cause, falsifying evidence.
  • Fees as “damages”: Instead of treating fees as a punishment for litigation misconduct, the court treats the plaintiff’s legal spend as part of the injury caused by the defendant’s underlying wrongful conduct (rare, and reserved for particularly egregious situations).
  • Waiver (procedural forfeiture): You can lose a claim by not raising it at the right time. Here, the Court held that failing to raise a fee-as-damages theory pretrial deprived the defendant of fair notice and the chance to defend, so the claim was waived.
  • Abuse of discretion review: An appellate court gives deference to the trial court’s judgment calls (e.g., evidentiary rulings, fee decisions) and reverses only if the decision exceeded the bounds of reasoned judgment.

V. Conclusion

Young Min Ban v. Joseph P. Manheim clarifies that Delaware’s narrow doctrine permitting attorneys’ fees as a component of damages for egregious pre-litigation wrongdoing comes with an essential procedural condition: the defendant must receive notice before trial. Post-trial presentation is acceptable for fee requests grounded in litigation conduct, but not for fee-as-damages theories that turn on the nature of pre-litigation behavior.

The decision thus tightens alignment between equitable remedial flexibility and trial fairness, pushing litigants to identify (and litigate) fee-as-damages theories openly and early—or lose them.