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In books and records actions, Delaware courts expect that a defendant company will provide accurate information about the data possessed by, or accessible to, the company. Here, a company’s failure to provide that information (despite repeated judicial instructions), coupled with its shifting positions on the existence and accessibility of its data, led to fee-shifting against the company.
In a September 2024 post-trial decision, Senior Magistrate Molina ordered the company to produce documents from a server in response to Magna-D’s books and records demand. During depositions and trial, the company’s CFO testified that the server potentially held company information and that she had access to the server. But, on exceptions to Vice Chancellor Cook, the company asserted, among other things, that in fact other entities controlled the server (and by implication, the company could not produce documents from it). The Vice Chancellor remanded the matter to the Senior Magistrate to consider this new position, and after that, the plaintiff moved for sanctions. Ultimately, the parties resolved all issues but the sanctions motion. Magistrate Molina declined the plaintiff’s request for sanctions under Rule 11, but she nonetheless awarded $314,167.26 in fees because she found the company’s post-trial conduct constituted bad faith. The company again took exceptions, arguing its conduct reflected confusion rather than bad faith, and that the fee award was unreasonable.
After de novo review, Vice Chancellor Cook agreed that the company’s conduct warranted fee-shifting. He concluded that the company exhibited bad faith by failing to accurately describe its access to the server and by changing its position only after post-trial briefing and an adverse ruling. The Vice Chancellor also agreed with the amount of the fee award because it was remedial, not excessive, and the company failed to meaningfully contest the plaintiff’s attorneys fees.
