Delaware Business Litigation Report

Chancery Denies Fees to Stockholder who Compelled Admittedly-Overdue Annual Meeting, But Primarily for his Own Interest in Forcing a Buyout

Martin v. Harbor Diversified, Inc., C.A. 2018-0762 SG (Del. Ch. Feb. 5, 2020).

A plaintiff who achieves a corporate benefit for the enterprise may be eligible for attorney’s fees, but he is not entitled them. Here, after trial on a paper record, the stockholder-plaintiff obtained an order directing the corporation to hold an annual meeting to elect directors (its first in eight years) and to produce certain books and records. The Court agreed that compelling an annual meeting met the minimum requirements to be eligible for a fee award, but the Court concluded that the circumstances made a fee award inequitable.

The Court reasoned that the plaintiff’s pre-suit correspondence showed that he “initiated and pursued this action in his personal interest, in large part in an effort to be bought out of his ownership stake.” While a personal motive is not always fatal to a fee request, here “the corporate benefit was a mere externality to the Plaintiff’s ultimate goal of achieving a buyout of his interest.” This distinguished the case from precedents, such as EMAK Worldwide, Inc. v. Kurz, 50 A.3d 429 (Del. 2012), where the personal and corporate interests aligned because, for example, longstanding issues of disputed control were resolved. Separately, the Court also denied Martin’s request for fees based on bad faith because, although the Court noted the increased importance of books and records demands in recent years – and the corresponding incentive to resist them without a sound basis – the Court did not find that the company’s actions here rose to the level of bad faith.

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