It is no secret that, over the last few years, the Court of Chancery has appeared increasingly willing to shift fees in books and records actions (pursuant to the bad faith exception to the American Rule). See, e.g., Pettry v. Gilead Scis., Inc., C.A. No. 2020-0132-KSJM (Del. Ch. July 22, 2021); Seidman v. Blue Foundry Bancorp, C.A. No. 2022-1155-MTZ (Del. Ch. July 10, 2023); Bruckel v. TAUC Hldgs., LLC, C.A. No. 2021-0579-MTZ (Del. Ch. July 17, 2023). But the bad faith exception is not the only route to fee-shifting. An applicable prevailing party provision can also do the job—even where the underlying production was made pursuant to the terms of a settlement.

In Curry v. Digitzs Solutions, Inc., Vice Chancellor Laster entered an order approving the fees and costs sought by a stockholder who—after obtaining, via settlement, a large portion of the demanded books and records—was entitled to contractual fee-shifting, pursuant to the investment agreement by which he acquired his preferred stock. C.A. No. 2022-0205-JTL (Del. Ch. June 21, 2023) (ORDER) (granting motion to quantify fee award). There, the stockholder was forced to initiate litigation after the corporation refused to respond to his demand, but he ultimately received “substantially all the documents he sought” on the eve of trial.  Id. ¶ 4. 

After the parties reached a settlement regarding the production of books and records, the stockholder filed a motion for fees and expenses pursuant to both the bad faith exception and a prevailing party provision in the operative investment agreement.  Id. ¶ 5. The relevant portion of the provision read as follows:

If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of this Agreement, the prevailing party will be entitled to reasonable attorneys' fees, costs, and necessary disbursements in addition to any other relief to which the party may be entitled. Each party shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery, and performance of the Agreement.

Id. (quoting investment agreement). Relying on this provision, the Court granted the stockholder's motion for fees and expenses. The parties were subsequently unable to agree on the amount of the fee award, and the Court ultimately approved the stockholder’s request for “an award of $374,618.53 for litigating th[e] action.”  Id. ¶ 7. 

As always, Delaware entities should be mindful of the potential consequences associated with resisting reasonable demands for books and records, especially when a prevailing party provision might be in play. Additionally, the mere fact that a books and records dispute is resolved via settlement will not insulate a company from potential fee-shifting.