Delaware Business Litigation Report

Chancery Permits Receiver to Tax Petitioner for Costs of Receivership

Longoria v. Somers, C.A. No. 2018-0190-JTL (Del. Ch. May 28, 2019).

The Court of Chancery may appoint a receiver to wind up a deadlocked corporate entity.  When that happens, the corporation normally pays the receiver’s fees and expenses.  Here, however, the entity was insolvent and unable to pay, and the Petitioner (a 50% owner) opposed contributing to the payment of certain expenses. 

Addressing the Petitioner’s arguments that he should be excused from payment, the Court agreed that, under the Delaware General Corporation Law, stockholders and directors typically are not liable for the debts of their company.  In their capacity as litigants, however, the Delaware Supreme Court has held that stockholders or directors may be liable for a corporate party’s litigation expenses in circumstances where shifting fees or costs otherwise would be appropriate; that is, the fact a litigant also is a stockholder or director does not make her immune from general fee-shifting doctrines.  In this case, the Court reasoned, the Petitioner was not only a litigant.  He also sought a receivership for an insolvent corporation that has no liquid assets and no other means to cover the costs.  The Court of Chancery accordingly held he could be taxed for his half of the expenses of the receivership.

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