In a brief and short letter opinion of Durham v. Grapetree, LLC, Civil Action No. 2018-0174-SG (Del. Ch. Oct. 8, 2020), Vice Chancellor Glasscock ruled upon a pro se litigant’s books and records demand after it was remanded to the Court of Chancery on appeal. The plaintiff attached a number of books and records demands made to the defendant LLC, some timely and others untimely. Initially, the Court granted two of Plaintiff’s demands. Plaintiff appealed, and the case was remanded, to require that several other timely demands be considered by the Court.
The case is significant in that, on remand, the Court of Chancery revised its fee shifting award. Fee-shifting is not automatically granted in favor of the prevailing party in a books and records demand action. Rather, the Court applies the “American Rule”, with each side bearing their own fees and costs, absent a showing of bad faith or other litigation misconduct. Of course, the Court also has discretion to shift fees if there is a contractual basis to do so.
Here, fee-shifting was permitted under the LLC’s operating agreement. Initially, the Court granted fees in favor of the defendant LLC, given that plaintiff did not prevail on the majority of the demands he sought. On remand, after the Court considered each of the five demand letters submitted by plaintiff, the Court instead ruled that each side should bear their own fees.
Key Takeaway
This brief letter opinion shows the risk in asserting a books and records demand (let alone multiple demands) when the operative agreement contains a fee-shifting provision. Even though plaintiff prevailed on some of the demands at trial, fees were initially shifted against him. On remand, fees were not shifted to either side. Accordingly, parties should carefully consider fee-shifting provisions when asserting an action to inspect a company’s books and records.
Carl D. Neff is a partner with the law firm of Pierson Ferdinand LLP, and practices in Delaware. You can reach Carl at (302) 482-4244 or at carl.neff@pierferd.com.