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Chancery Finds Egregious Conduct in Books and Records Action Justifying Fee-Shifting Against Corporation

PVH Polymath Venture Holdings Ltd. v. TAG Fintech Inc., C.A. No. 2023-0502-BWD (Del. Ch. Jan. 26, 2024)
Under the “bad faith” exception to the American Rule, Delaware courts will consider shifting fees when aggressive litigation strategies amount to “glaringly egregious” conduct. Here, the Court found the defendant-corporation’s extraordinary attempts to resist a stockholder’s books and records demand under 8 Del. C. § 220 (“Section 220”) warranted requiring the corporation to pay the stockholder-plaintiffs’ attorneys’ fees and expenses. 

The plaintiff alleged that the corporation submitted a forged letter to the Pakistani government falsely representing that the corporation had obtained certain funding. When the fraud was discovered, the Pakistani government revoked the corporation’s license to operate. The plaintiff requested books and records under Section 220 to investigate potential wrongdoing and to value his shares. 

The defendant denied multiple demand letters based on supposed questions about the signatory’s authority, which the Court ultimately found were pretextual because the corporation knew the individual had authority to speak for the plaintiff. Then, after the plaintiff filed suit, the corporation engaged in a campaign of obstruction, ranging from participating in obtaining multiple foreign injunctions that the corporation claimed prevented it from producing documents, to attempting to introduce issues of Cyprian corporate law well after the close of discovery, to an attempted last-minute recission of the plaintiff’s shares in a failed attempt to moot the claims one week before trial. At trial, even though the defendant conceded that the plaintiff had stated a proper purpose for the demand, it nonetheless engaged in costly litigation tactics, which included insisting on live testimony to mount its pretextual defense and refusing to stipulate to the authenticity of documents, even though many were copies of material likely in the defendant’s own possession. These tactics required the plaintiff to produce an additional witness at trial simply to authenticate documents. Ultimately, after the Court found in the plaintiff’s favor, the defendant still would provide only an in-person inspection of physical records in Abu Dhabi. The plaintiff then filed a motion for fee-shifting. In considering the totality of the defendant-corporation’s actions, the Court concluded that the “glaringly egregious” standard was met, that fee-shifting was warranted, and that the stockholder-plaintiff’s fee request was reasonable.

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