In Norman v. US MobilComm, Inc., download file, the stockholder made the bold move of asking for attorneys’ fees in a books and records case brought under DGCL Section 220.
Seasoned or jaded practitioners might be able to predict the result of the effort. After a one day trial, the Court indicated that it was inclined to rule in favor of the Petitioner, but reserved decision and invited post-trial briefing on the proper scope of the anticipated production of documents. The parties later settled the case but entered into a stipulated order and final judgment. The Petitioner now seeks to recover its costs and attorneys’ fees. Based on extensive reasoning, the Court denied the request for fees but allowed the request for costs (typically a nominal amount compared to fees.) The demand for books and records was to “determine whether [the Company] acted properly in disposing of assets of the company, whether the company acted properly in distributing proceeds from sales transactions and otherwise assess the propriety of management decisions”. After a Motion to Dismiss, an amended complaint was filed pursuant to Chancery Court Rule 15(aaa). A second Motion to Dismiss was filed and was also denied.
The Court conducted the traditional analysis in connection with claims for attorneys’ fees and the American Rule. See, e.g., McNeil v. McNeil, 798 A.2d 503, 514 (Del. 2002); Carlson v. Hellinan, 2006 WL 771722 at *22 (Del. Ch. Mar. 21, 2006). For a prior summary on this blog of the Carlson case, which includes a smorgasbord of many legal issues, in addition to addressing a fee request in a 220 case, see this link.
The Court found that the narrow exception to the general rule that each party pays its own fees was not applicable in this case, but that as the prevailing party in the litigation, the Petitioner was entitled to its costs which amounted to approximately $5,700.
(Of course, this result confirms the view of many that asking for attorneys’ fees and spending time and money to obtain a court ruling on the request, is rarely an economically efficient exercise.)Although the Plaintiff claimed that it was clearly entitled to books and records for valuation purposes, the Court determined that it did not make that basis entirely clear. In addition, although a demand for books and records is generally proper when sought for a determination of waste and mismanagement, not every such request is the basis for required production.
Practice Tip:
The Chancery Court admonished and instructed that “merits-based defenses” to a Section 220 demand are subversive of a Section 220 action, and that a company engages in a merits-defense when it seeks to rebut a plaintiff’s allegations as to purpose in a Section 220 case by arguing that the alleged conduct never occurred. However in this case, the Court determined that there was no merits-based defense asserted and therefore no attorneys’ fees would be awarded.