Delaware Business Litigation Report

Chancery Shifts Fees, Finds That Defendant’s Litigation Tactics in Books and Records Case Crossed The Line Between Aggressive Litigation And Glaringly Egregious Conduct

Pettry, et al. v. Gilead Sciences, Inc., C.A. Nos. 2020-0132-KSJM; 2020-0138-KSJM; 2020-0155-KSJM; 2020-0173-KSJM (Del. Ch. July 22, 2021).
Delaware follows the American Rule: all litigants pay their own attorneys’ fees, no matter the outcome of the litigation. In rare cases where a litigant’s conduct is “glaringly egregious,” Delaware courts will make an exception and shift fees. This is known as the “bad faith” exception.

In this post-trial decision granting stockholders’ demands for books and records under Section 220 of the DGCL, the Court of Chancery found that the defendant-corporation’s litigation conduct met the “glaringly egregious” standard, entitling the other side to recover its attorneys’ fees. Specifically, the Court held that defendant’s conduct as a whole, which included, among other things, (1) arguing that plaintiffs had not met the low threshold for investigating wrongdoing at the company, despite ample evidence to the contrary; (2) arguing that the underlying claims were not actionable, when the standard for inspection does not require actionable underlying claims; (3) misrepresenting the record; and (4) claiming that plaintiffs were not knowledgeable about the demands, when deposition testimony showed otherwise, crossed the line between aggressive litigation and glaringly egregious conduct. 

The Court also rejected the defendant’s argument that the “bad faith” exception requires a showing of subjective bad faith. The Court noted that, in any event, should subjective bad faith be necessary to shift fees, the Court could infer it from the defendant’s glaringly egregious conduct.

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