Lawrence B. Seidman v. Blue Foundry Bancorp ( 2023 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
MORGAN T. ZURN LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
July 10, 2023
John M. Seaman, Esquire Kenneth J. Nachbar, Esquire
Abrams & Bayliss LLP Morris Nichols Arsht & Tunnell LLP
20 Montchanin Road 1201 North Market Street
Suite 200 Wilmington, DE 19801
Wilmington, DE 19807
RE: Lawrence B. Seidman v. Blue Foundry Bancorp,
Civil Action No. 2022-1155-MTZ
Dear Counsel:
I write to regretfully shift fees for glaringly egregious litigation conduct in
defending against a books and records request.
I. BACKGROUND
Defendant Blue Foundry Bancorp (“Blue Foundry,” the “Company,” or
“Defendant”) is a publicly traded Delaware corporation with its principal place of
business in Parsippany, New Jersey.1 The Company has been the holding company
for Blue Foundry Bank since July 15, 2021, following the completion of the
1
Docket Item (“D.I.”) 37 [hereinafter “PTO”] ¶ 11.
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mutual-to-stock conversion of Blue Foundry, MHC, a New Jersey-chartered
mutual holding company.2
Plaintiff is a stockholder of record and a beneficial owner of Blue Foundry
common stock.3 Throughout 2021, Plaintiff grew alarmed that Blue Foundry
intended to pay non-employee directors and senior management compensation that
he felt was excessive in light of the Company’s financial performance.4
Plaintiff aired his concerns to Blue Foundry’s senior management.5 On
June 7, 2021, Plaintiff met with Jim Nesci, Blue Foundry’s President and Chief
2
Blue Foundry Bancorp, Annual Report (Form 10-K), at 6 (Mar. 14, 2022). In re Rural
Metro Corp. S’holders Litig., 2013 WL 6634009, at *7 (Del. Ch. Dec. 17, 2013)
(“Applying [Delaware] Rule [of Evidence] 201, Delaware courts have taken judicial
notice of publicly available documents that ‘are required by law to be filed, and are
actually filed, with federal or state officials.’” (citations omitted) (quoting In re Tyson
Foods, Inc. Consol. S’holder Litig., 919 A.2d 563, 584 (Del. Ch. 2007))).
3
PTO ¶ 10.
4
See, e.g., D.I. 32 at Deposition Transcript of Lawrence B. Seidman [hereinafter
“Seidman Dep.”], at 61 (testifying that Plaintiff and Nesci “talked about the benefit plan
coming up with an appropriate performance standard, so that not only would his directors
be compensated, but his shareholders would make money”); id. 63 (“Q. And what did
you discuss in that phone call? A. Again, the performance standard . . . .”); id. 66
(testifying that, on May 2, 2022, Plaintiff spoke with Nesci regarding Blue Foundry’s
equity incentive plan and “discussed putting a proper performance standard upon it, so
that the directors get paid and the shareholders make money and not using the [Luse
Gorman], if you’re breathing, you get the benefits”); see also PTO ¶ 17 (“Plaintiff had at
least two meetings with Nesci and other [Blue Foundry] representatives to discuss,
among other things, the Company’s post-IPO strategic initiatives and equity incentive
plan. The first meeting occurred sometime in 2021. The second meeting occurred on
May 2, 2022.”).
5
PTO ¶ 17.
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Executive Officer, to discuss, among other things, the long-term equity incentive
plan that Blue Foundry intended to adopt following the Company’s initial public
offering.6 Plaintiff advocated for “an appropriate performance standard.”7
On July 15, 2021, Blue Foundry completed its conversion into a publicly
traded Delaware corporation.8 On March 14, 2022, Blue Foundry filed a Form
10-K disclosing that it lost $36.3 million in 2021.9
On May 2, 2022, Plaintiff met with Nesci a second time to discuss the
Company’s forthcoming long-term equity incentive plan and argued that the
restricted stock awards should be subject to a performance standard.10 The record
suggests that at this meeting, Plaintiff offered he knew “major players” in the
northern New Jersey real estate market, who he described as “real estate people
who have been referred to as the real estate Jewish mafia,” and stated he could
introduce Nesci to those “major real estate players.”11 Nesci declined Plaintiff’s
6
Seidman Dep. 59–61.
7
Id.; see id. 62 (“We discussed the frameworks of a performance standard that would be
beneficial to the management and directors and the shareholders.”).
8
Blue Foundry Bancorp, Annual Report (Form 10-K), at 6, 54, 66, 102 (Mar. 14, 2022).
9
Blue Foundry Bancorp, Annual Report (Form 10-K), at 37, 49 (Mar. 14, 2022).
10
Seidman Dep. 66; see PTO ¶ 17.
11
Seidman Dep. 61–62; D.I. 43, Ex. 9 [hereinafter “Blue Foundry’s Am. Interrog.
Resp.”] at Resp. No. 8 (placing this discussion at the May 2 meeting).
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recommendation to tie Blue Foundry’s restricted stock awards to any sort of
performance standard. In response, Plaintiff launched a “vote no” campaign
urging Blue Foundry stockholders to vote against the Company’s forthcoming
proposal.12
On July 18, 2022, Blue Foundry filed a proxy statement with the Securities
and Exchange Commission (the “Proxy”) disclosing that its board had
unanimously approved, and was recommending that the Company’s stockholders
approve, its proposed 2022 Equity Incentive Plan (the “Equity Plan”).13 The Proxy
disclosed that under the Equity Plan, the Company’s directors would each receive
42,783 restricted stock awards and 106,959 stock option awards (collectively, the
“Director Awards”).14 Blue Foundry valued the restricted stock awards at
$504,839 per director but stated it could not determine the value of the stock option
awards because their value would depend on the exercise date. The Proxy further
Plaintiff’s offhand reference to this term became a focus of the Company’s in
discovery. Perhaps the Company thought the term connoted some engagement in
organized crime. To be abundantly clear, I do not interpret the term that way, and do not
understand why the term took on such outsized importance in the Company’s defense.
12
Specifically, on June 21, 2022, Plaintiff filed a notice of exempt solicitation urging
Blue Foundry stockholders to vote against the Company’s forthcoming request for
stockholder approval of its stock-based benefit plans in light of the Company’s poor
performance. PTO ¶ 18.
13
D.I. 47, Ex. 12 [hereinafter “Proxy”]; PTO ¶ 19.
14
Proxy at SEIDMAN_00120–27.
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disclosed that the Compensation Committee intended to grant equity awards to
senior management and that such awards were “discretionary.”15
The Proxy also disclosed the factors considered by the Compensation
Committee, noting consideration of Blue Foundry’s peer group:
The Compensation Committee considers a number of factors in its
decisions regarding executive compensation, including, but not
limited to, the level of responsibility and performance of the
individual executive officers, the overall performance of Blue
Foundry Bancorp and a peer group analysis of other financial
institutions. In order to identify the appropriate compensation level
necessary to attract and retain the talent to build the institution, we
consulted with our compensation consultant in developing our peer
group. Our peer group is comprised of institutions of similar
complexity, within the tri-state geographic area, having approximately
$400 million in equity and an asset size of approximately $3 billion.16
On July 29, 2022, Plaintiff filed a second notice of exempt solicitation urging
Company stockholders to vote against the Equity Plan.17
On August 25, 2022, the Company held its annual meeting (the “Annual
Meeting”).18 During the Q&A session of the Annual Meeting, the Company
denied that it had conducted a peer group analysis of the Equity Plan. When asked
15
Proxy at SEIDMAN_00127. Blue Foundry concedes that the awards to management
were “discretionary.” See, e.g., PTO ¶ 22.
16
Proxy at SEIDMAN_00107.
17
PTO ¶ 25.
18
Id. ¶ 26.
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whether the Company had “a peer group comparison of the cost of the benefit
plan,” Nesci responded: “I do not have a peer group comparison of the cost of the
benefit plan to compare to at this juncture. My assumption is, as I work with the
comp committee, a peer comparison will be built.”19 Following the Q&A session,
Company stockholders approved the Equity Plan. Beginning on October 19, 2023,
the Compensation Committee began granting stock option awards to senior
management.
In the meantime, on September 23, 2022, Plaintiff made a written demand
pursuant to Section 220 of the Delaware General Corporation Law (“Section 220”)
seeking, among other things, copies of any compensation consulting reports
received by the board in connection with the Equity Plan (the “September 23
Demand”).20 On October 7, Blue Foundry rejected the September 23 Demand,
claiming that Plaintiff lacked a proper purpose for seeking inspection and refusing
to produce a single document.21
19
D.I. 47, Ex. 14. Plaintiff produced an audio file to the Court. The Court has verified
this quote.
20
D.I. 43, Ex. 2.
21
D.I. 43, Ex. 3.
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On October 28, Plaintiff filed a books and records action in New Jersey.22
Blue Foundry responded that the New Jersey Superior Court lacked jurisdiction
and that the Company’s forum selection clause required Plaintiff to file his books
and records action in Delaware.23 On November 7, Plaintiff voluntarily dismissed
the New Jersey action.
On December 1, Plaintiff served the operative books and records demand
(the “Demand”) requesting copies of any compensation consulting reports received
by the board and any other formal board materials concerning the evaluation and
approval of the Equity Plan and all presentations to the board by senior
management.24 The Demand explained Plaintiff sought inspection for the purposes
of investigating mismanagement and communicating with Plaintiff’s fellow
stockholders regarding any proxy contest or other corrective measures.25
Defendant refused to produce a single document.
Plaintiff filed this action on December 14. Blue Foundry pled four defenses
in its answer: (1) failure to state a claim; (2) failure to comply with 8 Del. C. §220
22
D.I. 43, Ex. 4.
23
D.I. 17, Ex. 7.
24
D.I. 1, Verified Complaint for Inspection of Books and Records, Ex. A [hereinafter
“Demand”], at 5.
25
Demand at 3–4.
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because the demand is not under oath; (3) failure to establish a proper purpose; and
(4) the books and records are not necessary and essential to Plaintiff’s stated
purposes or identified with the requisite precision.26 The parties served discovery
requests on January 3, 2023, and exchanged discovery responses on January 10. In
its interrogatory responses, Blue Foundry confirmed under oath that “it will not
contend that Plaintiff’s stated purposes are not his actual purposes.”27 Blue
Foundry also pressed merits-based defenses, including that any future plenary
action challenging the Director Awards would be dismissed under the stockholder
ratification doctrine.28 Blue Foundry refused to answer Plaintiff’s interrogatory
26
See D.I. 7 at 11–12.
27
D.I. 43, Ex. 8 [hereinafter “Blue Foundry’s Interrog. Resp.”] at Resp. No. 8. The
position that the plaintiff holds an improper purpose is an affirmative defense in response
to a books and records action. Rivest v. Hauppauge Digital, Inc., 2022 WL 3973101, at
*9 (Del. Ch. Sept. 1, 2022) (“And the Company raised a series of affirmative defenses,
including: . . . (v) the contention that the lawsuit was “brought for an improper purpose
. . . .”); Chammas v. NavLink, Inc., 2015 WL 5121095, at *1 n.3 (Del. Ch. Aug. 27, 2015)
(“The affirmative defenses include . . . that the scope of the demands exceeds any proper
purpose . . . .”); Woods Tr. of Avery L. Woods Tr. v. Sahara Enters., Inc., 238 A.3d 879,
891 (Del. Ch. 2020) (“[O]nce a stockholder has identified a proper purpose, . . . the
burden shifts to the corporation to prove that the stockholder’s avowed purpose is not her
actual purpose and that her actual purpose for conducting the inspection is improper.”
(citing Pershing Square, L.P. v. Ceridian Corp., 923 A.2d 810, 817 (Del. Ch. 2007))).
28
E.g., Blue Foundry’s Am. Interrog. Resp. at Resp. No. 3; cf. Amalgamated Bank v.
UICI, 2005 WL 1377432, at *2 (Del. Ch. June 2, 2005) (observing that evaluating the
merits in a Section 220 action of affirmative defenses to plenary claims, in some
circumstances, is inconsistent with Section 220’s summary nature); accord CHC Invs.,
LLC v. FirstSun Cap. Bancorp, 2019 WL 328414, at *3 n.47 (Del. Ch. Jan. 24, 2019)
(“This decision does not evaluate that argument, or FirstSun’s argument that a general
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asking Blue Foundry to confirm or deny what, if any, formal board materials
existed.29
On January 12, Plaintiff’s counsel emailed Blue Foundry’s counsel asking if
the Company still intended to take Plaintiff’s deposition, informing counsel that
“Mr. Seidman will be in Florida for the rest of the month” and offering to make
him available for a remote deposition on January 23 or 27.30 The Company
insisted that Plaintiff’s deposition be held in person in Delaware. The next day,
Defendant noticed Plaintiff’s deposition for Delaware,31 forcing Plaintiff to seek
relief from this Court.32 The Court granted a protective order, noting that
release bars CHC’s plenary claims, which are best addressed in the Plenary Action.”
(citing Amalgamated Bank, 2005 WL 1377432, at *2)).
29
Blue Foundry’s Am. Interrog. Resp. at Resp. No. 21 (“Category 2: Defendant will not
provide the information requested in Request No. 21.”). During oral argument, defense
counsel argued that Plaintiff should nevertheless have been able to infer that responsive
formal board materials existed because: (1) in response to interrogatory number 21, Blue
Foundry objected that the scope of Plaintiff’s inspection request “goes beyond the scope
of an 8 Del. C. 220 action for books and records where formal board material exists”; and
(2) in response to interrogatory number 12, Blue Foundry identified the board and
Compensation Committee meetings during which the Director Awards, Management
Awards and Equity Plan were discussed. D.I. 53 [hereinafter “Hr’g Tr.”] at 49–50
(quoting Blue Foundry’s Am. Interrog. Resp. at Resp. No. 21). Defense counsel
conceded that these responses did not amount to actually telling Plaintiff that formal
board materials existed for each of the meetings identified in response to interrogatory
number 12. Id. at 50.
30
D.I. 47, Ex. 15.
31
D.I. 15.
32
D.I. 17.
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Defendant “offer[ed] no real reason” the deposition needed to occur in Delaware,
particularly since Defendant was not pressing an improper purpose defense.33
At Plaintiff’s deposition, Blue Foundry’s counsel initiated a persistent line of
questioning as to whether Plaintiff was “involved in the Jewish Mafia” based on
his conversation with Nesci.34 Plaintiff clarified that he “knew” some “major real
estate players, who were referred to as” members of that purported group.35 Blue
Foundry’s counsel continued interrogating Plaintiff about “the Jewish mafia,” and
Plaintiff objected that, “[y]ou know, you use that term—it’s disgraceful that you
use that term that way.”36 Despite Plaintiff’s deposition testimony that he was not
a member of that purported group, Blue Foundry continued to claim the opposite,
asserting in an interrogatory response that “Plaintiff stated that he is a member of a
group often called the ‘Jewish Mafia.’”37
After 8:00 p.m. on the night before the close of discovery, Blue Foundry for
the first time sought to assert as an affirmative defense that Plaintiff’s stated
33
D.I. 25.
34
Seidman Dep. 61–62.
35
Id.
36
Id.
37
Blue Foundry’s Am. Interrog. Resp at Resp. No. 8.
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purpose was not his actual purpose.38 This change occurred too late for Plaintiff to
take discovery, to which he is entitled, into an issue on which the Company bears
the burden.39
On February 1, the Company identified its list of trial witnesses.40 In
response, Plaintiff’s counsel sent an email stating:
38
Compare Blue Foundry’s Interrog. Resp at Resp. No. 8 (stating on January 10, 2023:
“Subject to and without waiving its Specific and General Objections, Defendant states
that at this time it will not contend that Plaintiff’s stated purposes are not his actual
purposes, but will contend that those purposes are not adequate to justify the Demand.”),
with Blue Foundry’s Am. Interrog. Resp at Resp. No. 8 (stating on January 30, 2023:
“Subject to and without waiving its Specific and General Objections, Defendant
continues to assert as its principal defense that Plaintiff has not stated a proper purpose
for his inspection of the Company’s books and records. . . . However, based upon
Plaintiff’s deposition testimony, Blue Foundry now believes that Plaintiff’s stated
purpose is not his actual purpose. . . . As is clear, Plaintiff is attempting to use his
leverage as a stockholder of the Company to gain benefits for himself, and his books and
records demand is part of this effort. This is not a proper purpose for a books and records
demand.”). The substantial completion deadline was January 17, 2023, and discovery
closed January 30. D.I. 6 ¶¶ 2(d), 2(f).
39
Woods, 238 A.3d at 891 (citing Pershing Square, 923 A.2d at 817); Chammas, 2015
WL 5121095, at *1–2 (holding that Section 220 plaintiffs were entitled to discovery into
the defendant’s affirmative defenses).
40
D.I. 30.
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We are in receipt of defendant’s witness list. We see that defendant
has disclosed that it “may” call plaintiff at trial but not whether it
“expects” to do so, as required by Paragraph 2(g) of the scheduling
order. See Dkt. 6 ¶ 2(g) (“Parties exchange lists identifying any
witnesses the Parties expect to call at trial.”). Could you please clarify
whether defendant expects to call plaintiff as a witness at trial? We
would like to give our client a definitive answer this week on whether
he needs to appear live at trial so that he can make the necessary travel
arrangements.41
Defendant’s counsel responded: “I’m not sure what the notable difference is
between ‘may’ and ‘expects,’ as neither term commits either party to definitively
calling Mr. Seidman as a witness at trial. In any event, we ‘expect’ to call Mr.
Seidman at trial.”42 In spite of this email exchange, on March 21, Blue Foundry
misrepresented to the Court: “Contrary to Plaintiff’s false claims, it was Plaintiff
who insisted on live testimony.”43
The parties filed a Joint Pre-Trial Stipulation and [Proposed] Order on
February 9, and filed pre-trial briefs on February 13.44 At the February 15 pretrial
conference, the Court warned that “the manner in which the company has litigated
41
D.I. 47, Ex. 16 (emphasis in original).
42
Id.43
Compare D.I. 44 [hereinafter “Opp.”] ¶ 11 (emphasis in original), and id. ¶ 20
(claiming Plaintiff “insist[ed] on live testimony”), with D.I. 47, Ex. 16 (February 1, 2023
email from Plaintiff’s counsel asking defense counsel to “clarify whether defendant
expects to call plaintiff as a witness at trial” and adding that “[w]e would like to give our
client a definitive answer this week on whether he needs to appear live at trial so that he
can make the necessary travel arrangements”).
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this issue to date may very well rise to the level of fee shifting under Gilead.”45
The Court observed the Company “changed its position” and began asserting the
affirmative defense that Plaintiff’s purpose was not his actual purpose “at a
moment when it was too late for [Plaintiff] to take discovery into [Blue Foundry’s
affirmative defense], on which the [C]ompany bears the burden, which he’s
entitled to do.”46 The Court also questioned why the Company was “going through
the excessive exercise of calling Mr. Seidman live on a proceeding that’s often on
a paper record.”47
After the pretrial conference, Blue Foundry agreed to produce compensation
consulting reports and responsive formal board materials. On February 20, two
days before trial, the parties filed a Proposed Final Order and Judgment, 48 which
this Court entered the next day (the “Inspection Order”).49 On February 24,
pursuant to the Inspection Order, Blue Foundry produced approximately sixty
44
D.I. 31, D.I. 33, D.I. 34.
45
D.I. 42 [hereinafter “Pre-Trial Tr.”] at 13.
46
Id. at 12.
47
Id. at 13.
48
D.I. 39.
49
D.I. 40.
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pages of documents.50 The two compensation consulting reports that were the
focus of the Demand totaled fifteen pages.51 The Company did not designate any
portion of its production confidential.52
Plaintiff incurred $223,651.60 in attorneys’ fees and expenses through
February 20, 2023.53 On March 14, 2023, Plaintiff filed a Motion for an Award of
Attorneys’ Fees and Expenses (the “Motion”).54 On March 21, 2023, Blue
Foundry filed its Opposition to Plaintiff’s Motion for An Award of Attorneys’ Fees
and Expenses (the “Opposition”).55 On March 24, 2023, Plaintiff filed his Reply in
Support of Motion for an Award of Attorneys’ Fees and Expenses.56
Blue Foundry’s Opposition contained several falsehoods. Blue Foundry
claimed it “did not accuse Plaintiff of belonging to the ‘Jewish mafia[,]’”57 even
50
D.I. 47, Ex. 13 at 2.
51
See Blue Foundry’s Am. Interrog. Resp at Resp. No. 21 (“The approximate volume of
documents is 15 pages.”); see also Hr’g Tr. at 26.
52
Opp. ¶ 24; Hr’g Tr. at 26.
53
See D.I. 43 at Affidavit of John M. Seaman, Esq. in Support of Plaintiff’s Motion for
an Award of Attorneys’ Fees and Expenses [hereinafter “Seaman Aff.”] ¶¶ 3–4.
54
D.I. 43.
55
Opp.
56
D.I. 47.
57
Opp. ¶ 21.
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though it had done so.58 Blue Foundry stated it “did not know” that Plaintiff was
located in Florida when it noticed Plaintiff’s deposition for Delaware, even though
it did.59 Blue Foundry represented to the Court at the pretrial conference and
repeated in its Opposition that it had identified whether responsive formal board
materials existed,60 even though it had not.61 And Blue Foundry claimed “it was
Plaintiff who insisted on live testimony” at trial, even though it was Blue Foundry
that insisted that Plaintiff appear live.62
The Court heard argument on May 9, 2023, and granted the Motion. In
keeping with Gilead’s observation that glaringly egregious litigation conduct in
books and records actions exacerbates the burdens that meritorious litigation places
on this Court, I asked Plaintiff’s counsel to draft a proposed opinion shifting fees
58
Seidman Dep. 61; Blue Foundry’s Am. Interrog. Resp at Resp. No. 8 (“Plaintiff stated
that he is a member of a group often called the ‘Jewish Mafia.’”); see also Hr’g Tr. 44–
48.
59
Compare Opp. ¶ 12 n.2 (claiming that Blue Foundry “did not know” that Plaintiff was
located in Florida when it noticed Plaintiff’s deposition for Delaware on January 13,
2023), with D.I. 47, Ex. 15 at 1 (January 12, 2023 email from Plaintiff’s counsel to
defense counsel stating that “Mr. Seidman will be in Florida for the rest of the month”).
60
Pre-Trial Tr. at 14–15 (“[ATTORNEY NACHBAR:] Your Honor also said that we
haven’t identified whether documents exist. We have. . . . We’re not hiding the ball.”);
Opp. ¶ 23.
61
Blue Foundry’s Am. Interrog. Resp at Resp. No. 21 (“Category 2: Defendant will not
provide the information requested in Request No. 21.”).
62
Supra note 43 (emphasis in original).
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under Gilead to Defendant, at Defendant’s cost, which I would review de novo and
make it my own.63 Plaintiff filed his proposed order on June 2.64 This is my
decision regarding the Motion.
II. ANALYSIS
Delaware courts follow the American Rule that each party is expected to pay
its own attorneys’ fees regardless of the outcome of the litigation. But this court
retains the ability to shift fees when faced with vexatious litigation conduct “to
deter abusive litigation and to protect the integrity of the judicial process.”65 This
court may award fees “in its discretion . . . ‘where equity requires.’”66 To capture
the sorts of vexatious activities that the bad-faith exception is intended to address,
this court employs the “glaring egregiousness” standard.67 Delaware courts have
63
Hr’g Tr. 69 (“Because of the false statements in the opposition brief, I would like to
ask Abrams & Bayliss to write the draft opinion and submit that to the Court. The Court
will edit it and make it its own de novo.”); D.I. 54; Pettry v. Gilead Scis., Inc., 2020 WL
6870461, at *30 (Del. Ch. Nov. 24, 2020).
64
D.I. 55.
65
Montgomery Cellular Hldg. Co. v. Dobler, 880 A.2d 206, 227 (Del. 2005) (citing
Johnston v. Arbitrium (Cayman Is.) Handels AG (Johnston II), 720 A.2d 542, 546 (Del.
1998)).
66
Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, 68
A.3d 665, 687 (Del. 2013) (quoting Burge v. Fidelity Bond & Mortg. Co., 648 A.2d 414,
421 (Del. 1994)).
67
See, e.g., RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 879 (Del. 2015) (affirming this
Court’s determination to shift fees under the “glaring egregiousness” standard); Isr. Disc.
Bank of N.Y. v. First State Depository Co., 2013 WL 2326875, at *28–29 (Del. Ch.
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shifted fees for glaringly egregious conduct, such as forcing a plaintiff to file suit
to “secure a clearly defined and established right” to inspect the company’s books
and records.68 In Pettry v. Gilead Sciences, Inc., this Court granted the Section 220
plaintiffs leave to move for fee-shifting where the defendant “exemplified the trend
of overly aggressive litigation strategies by blocking legitimate discovery,
misrepresenting the record, and taking positions for no apparent purpose other than
obstructing the exercise of Plaintiff’s statutory rights” to books and records.69
After Blue Foundry declined to produce a single document to Plaintiff,
forcing him to commence litigation, Blue Foundry took a series of litigation
positions that, when viewed collectively, were glaringly egregious.
Blue Foundry pressed that Plaintiff was not entitled to inspection because he
could not establish a credible basis for wrongdoing. At oral argument, Blue
May 29, 2013) (applying the “glaring egregiousness” standard in assessing potential fee
shifting); eBay Domestic Hldgs., Inc. v. Newmark, 16 A.3d 1, 47–48 (Del. Ch. 2010)
(same); In re Charles Wm. Smith Tr., 1999 WL 596274, at *2–4 (Del. Ch. July 23, 1999)
(same).
68
McGowan v. Empress Ent., Inc., 791 A.2d 1, 4 (Del. Ch. 2000) (“[I]f McGowan had a
clearly established legal right to inspect Empress’s books and records, and Empress’s
conduct forced him to bring this action to secure that right, then the defendant can be
found to have acted in bad faith and be ordered to pay the plaintiff’s legal fees and
expenses.”); accord Donnelly v. Keryx Biopharmaceuticals, Inc., 2019 WL 5446015, at
*6 (Del. Ch. Oct. 24, 2019); Norman v. US MobilComm, Inc., 2006 WL 1229115, at *4
(Del. Ch. Apr. 28, 2006).
69
2020 WL 6870461, at *30.
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Foundry argued Plaintiff was required to demonstrate a credible basis to support
not only his investigative purpose but also his communicative purpose because, in
Blue Foundry’s view, the Demand cabined Plaintiff’s communicative purpose to
issues relating to mismanagement.70 But the Demand states that Plaintiff seeks “to
communicate with other Company stockholders regarding matters relating to their
interests as stockholders and as to each of the above topics, so that stockholders
may effectively address any mismanagement or improper conduct, including
without limitation, through litigation, proxy contest or by other corrective
measures.”71 The Demand therefore made clear that Plaintiff sought to
communicate with stockholders not only regarding “each of the above topics” but
also regarding “matters relating to their interests as stockholders” in connection
with an impending “proxy contest.”72 And even if the Company was correct in
cabining Plaintiff’s communicative purpose to mismanagement, Plaintiff’s
criticism of Blue Foundry’s compensation plan was supported by two experts that
70
Hr’g Tr. 32; see also Opp. ¶ 18 (arguing because Plaintiff’s intention to communicate
with other stockholders was to “effectively address any mismanagement or improper
conduct,” means there was “no proper purpose to communicate with stockholders, as
there was no ‘mismanagement or improper conduct’ to address”).
71
Demand at 4 (emphasis added).
72
Id.Lawrence B. Seidman v. Blue Foundry Bancorp,
Civil Action No. 2022-1155-MTZ
July 10, 2023
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Blue Foundry did not challenge,73 and Plaintiff pressed a disclosure violation based
on the Proxy’s reference to the Compensation Committee’s reliance on a
nonexistent peer group analysis.74 Standing alone, Blue Foundry’s credible basis
challenge might not inspire fee-shifting, but Blue Foundry faced an uphill climb.
And Blue Foundry raised more hurdles. Blue Foundry claimed that Plaintiff
was not entitled to inspection because any future plenary action challenging the
Director Awards would be dismissed under the stockholder ratification doctrine.
In so many words, Blue Foundry argued that Plaintiff was required to demonstrate
an actionable claim. Delaware law is clear that a books and records proceeding “is
not the time for a merits assessment of [a plaintiff’s] potential claims against [the
corporation’s] fiduciaries.”75 Under AmerisourceBergen, a stockholder who
demonstrates a credible basis from which the court can infer wrongdoing or
mismanagement need not demonstrate that the wrongdoing or mismanagement is
actionable.76
73
See Seidman Dep. 146–50.
74
Proxy at SEIDMAN_00197; D.I. 47, Ex. 13 at 1.
75
AmerisourceBergen Corp. v. Lebanon Cnty. Emps.’ Retirement Fund, 243 A.3d 417,
437 (Del. 2020); Lavin v. W. Corp., 2017 WL 6728702, *10 (Del. Ch. Dec. 29, 2017).
76
243 A.3d at 436 (quoting Lavin, 2017 WL 6728702, *9).
Lawrence B. Seidman v. Blue Foundry Bancorp,
Civil Action No. 2022-1155-MTZ
July 10, 2023
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Blue Foundry attacked the necessary and essential prong, even with respect
to those formal board materials that AmerisourceBergen indicates should nearly
always be produced.77 At the same time, Blue Foundry improperly refused to state
what formal board materials existed.78
Blue Foundry took aggressive positions in discovery. Despite knowing that
Plaintiff was in Florida, Blue Foundry refused to proceed by video deposition and
insisted that Plaintiff appear in person for a half-day deposition in Delaware,
forcing Plaintiff to obtain a protective order.79 After the close of discovery, Blue
Foundry sandbagged Plaintiff with an unsupported improper purpose defense,
claiming “Plaintiff’s stated purpose [was] not his actual purpose.”80 In pressing
that defense, Blue Foundry accused Plaintiff of belonging to “the Jewish Mafia,”
77
Pre-Trial Tr. at 13.
78
Lebanon Cnty. Emps.’ Retirement Fund v. AmerisourceBergen Corp., 2020 WL
132752, at *26 (Del. Ch. Jan. 13, 2020) (“Just as a defendant can serve interrogatories or
depose a plaintiff about its proper purpose, so too can a plaintiff serve interrogatories or
notice a Rule 30(b)(6) deposition to understand what books and records exist and who
has them.” (citing Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Tr. Fund IBEW,
95 A.3d 1264, 1269 (Del. 2014))).
79
D.I. 17; D.I. 22; D.I. 24.
80
D.I. 7 at 11–12; supra note 38; compare, e.g., D.I. 34 at 35 (“[T]he only purpose for
the requested inspection is for leverage against the Company so that Plaintiff can extort it
for his own personal gain.” (emphasis in original)), with, e.g., Seidman Dep. 75–76
(testifying that he never even “suggest[ed] any arrangement by which [he] or an[y] entity
of [his] would be compensated for the origination loans by Blue Foundry” and only
wanted to place his designee on the board) (emphasis added).
Lawrence B. Seidman v. Blue Foundry Bancorp,
Civil Action No. 2022-1155-MTZ
July 10, 2023
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even after Plaintiff resisted Blue Foundry’s mistaken characterization of his
conversation with Nesci and his deposition.81 And Blue Foundry insisted on
calling Plaintiff as a live witness in this books and records proceeding that
typically would have, and plainly could have, proceeded on a paper record.82
After the Court invoked Gilead and Plaintiff moved for fees, Blue Foundry
and its counsel dug further into the mud: their brief opposing fee-shifting made
four demonstrably false statements.83 First, that Blue Foundry did not accuse
Plaintiff of belonging to the “Jewish Mafia”; second, that Blue Foundry did not
know Plaintiff was in Florida when it noticed his deposition for Delaware; third,
that it had identified whether responsive board materials existed; and fourth, that it
was Plaintiff, not Blue Foundry, who insisted on Plaintiff’s live appearance.
Blue Foundry’s litigation conduct was glaringly egregious. Blue Foundry:
(i) forced Plaintiff to file suit to “secure a clearly defined and established right” to
81
Supra note 58.
82
PTO ¶ 81(a).
83
Incredibly, when the Court challenged Blue Foundry’s wielding of the term “Jewish
Mafia,” Blue Foundry’s counsel contended they were taking the high road by not
asserting Mr. Nesci, who counsel described as Italian American, was offended by the
term. Hr’g Tr. 47–48 (“If he were going to play the faux outrage game like plaintiff, we
would be asserting that we’re deeply offended that Mr. Seidman brought up the term
‘Mafia’ in a meeting with Mr. Nesci, an Italian American.”). To be clear, this is the low
road.
Lawrence B. Seidman v. Blue Foundry Bancorp,
Civil Action No. 2022-1155-MTZ
July 10, 2023
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inspect the Company’s books and records;84 (ii) “unnecessarily prolonged or
delayed litigation” by refusing to produce any documents;85 (iii) “increased the
litigation’s cost” by, among other things, insisting in bad faith on an in-person
deposition leading to motion practice;86 (iv) “completely change[d] [its] legal
argument” in a way which would prevent Plaintiff from taking discovery to which
he was entitled;87 and (v) made multiple misrepresentations to the Court.88 Justice
requires fee shifting as mitigation for such serious “vexatious behavior.”89
“Delaware law dictates that, in fee shifting cases, a judge determines
whether the fees requested are reasonable.”90 The Court “has broad discretion in
84
Supra note 68.
85
RBC Cap. Mkts., LLC v. Educ. Loan Tr. IV, 2016 WL 703852, at *3 (Del. Super.
Feb. 17, 2016) (quoting Johnston II, 720 A.2d at 546).
86
ASB Allegiance Real Estate Fund v. Scion Breckenridge Managing Member, LLC,
2013 WL 5152295, at *10 (Del. Ch. Sept. 16, 2013) (quoting Scion, 68 A.3d at 687).
87
In re SS & C Techs., Inc. S’holders Litig., 948 A.2d 1140, 1151 (Del. Ch. 2008)
(citation omitted); Gilead, 2020 WL 6870461, at *30 (“Gilead exemplified the trend of
overly aggressive litigation strategies by blocking legitimate discovery, misrepresenting
the record, and taking positions for no apparent purpose other than obstructing the
exercise of Plaintiffs’ statutory rights.”).
88
Gilead, 2020 WL 6870461, at *30.
89
Id. at *30 n.280 (internal quotation marks omitted) (quoting Martin v. Harbor
Diversified, Inc., 2020 WL 568971, at *1 (Del. Ch. Feb. 5, 2020)).
90
Mahani v. Edix Media Grp., Inc., 935 A.2d 242, 245 (Del. 2007) (citing Del. Lawyers’
R. Prof’l Conduct 1.5(a)(1)(a)); see also Aveta v. Bengoa, 2010 WL 3221823, at *4 (Del.
Ch. Aug. 13, 2010) (noting that the Court assesses fee awards for reasonableness).
Lawrence B. Seidman v. Blue Foundry Bancorp,
Civil Action No. 2022-1155-MTZ
July 10, 2023
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determining the amount of fees and expenses to award.”91 The Court reviews a fee
application pursuant to the factors set forth in Rule 1.5(a) of the Delaware
Lawyers’ Rules of Professional Conduct.92 “Determining reasonableness does not
require that this Court examine individually each time entry and disbursement.”93
Nor does it “require the Court to assess independently whether counsel
appropriately pursued and charged for a particular motion, line of argument, area
of discovery, or other litigation tactic.”94 “For a Court to second-guess, on a
hindsight basis, an attorney’s judgment” as to whether work was necessary or
91
Black v. Staffieri, 2014 WL 814122, at *4 (Del. Feb. 27, 2014) (TABLE) (citing Kaung
v. Cole Nat’l Corp., 884 A.2d 500, 506 (Del. 2005)).
92
See Mahani, 935 A.2d at 245–46. Del. Lawyers’ R. Prof’l Conduct 1.5(a) (“(1) the
time and labor required, the novelty and difficulty of the questions involved, and the skill
requisite to perform the legal service properly; (2) the likelihood, if apparent to the client,
that the acceptance of the particular employment will preclude other employment by the
lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the
amount involved and the results obtained; (5) the time limitations imposed by the client
or by the circumstances; (6) the nature and length of the professional relationship with the
client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the
services; [and] (8) whether the fee is fixed or contingent.”).
93
Aveta, 2010 WL 3221823, at *6 (citing, among other cases, M & G Polymers USA,
LLC v. Carestream Health, Inc., 2010 WL 1611042, at *76 (Del. Super. Apr. 21, 2010)
(finding no authority that “requires this Court to engage in a line-by-line analysis of the
components of an attorneys’ fee application when an award of fees is based upon the bad
faith exception to the American Rule”)).
94
Weil v. VEREIT Operating P’ship, L.P., 2018 WL 834428, at *12 (Del. Ch.
Feb. 13, 2018) (quoting Danenberg v. Fitracks, Inc., 58 A.3d 991, 997 (Del. Ch. 2012)).
Lawrence B. Seidman v. Blue Foundry Bancorp,
Civil Action No. 2022-1155-MTZ
July 10, 2023
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appropriate “is hazardous and should whenever possible be avoided.”95
“When awarding expenses as a contempt sanction or for bad faith litigation
tactics, this Court takes into account the remedial nature of the award.”96 In those
cases, the fee award “is designed to make whole the party who was injured by the
other side’s contumely. The remedial nature the award commends putting primary
emphasis on reimbursing the injured party. The results achieved are of secondary
importance.”97 And when assessing the aggregate fees requested in situations
involving contempt or bad faith, this Court considers whether they “are within the
range of what a party reasonably could incur over the course of . . . pursuing an
95
Arbitrium (Cayman Is.) Handels AG v. Johnston (Johnston I), 1998 WL 155550, at *4
(Del. Ch. Mar. 30, 1998)), aff’d, 720 A.2d 542 (Del. 1998); accord Sparton Corp. v.
O’Neil, 2018 WL 3025470, at *6 (Del. Ch. June 18, 2018) (noting that “the hourly rates
charged by Defendants’ counsel are not excessive, and the staffing of attorneys appears
appropriate” and should not be second-guessed); Aveta, 2010 WL 3221823, at *8
(expanding the rationale and noting where “staffing appears appropriate” it “need not be
second-guessed”). Still, the Court may consider “whether the number of hours devoted
to litigation was excessive, redundant, duplicative or otherwise unnecessary,” Fitracks,
58 A.3d at 996 (quoting Mahani, 935 A.2d at 247–48), and may decrease an award where
the applicant’s “own litigation efforts have in some ways been less than ideal in terms of
timeliness or prudent focus,” Auriga Cap. Corp. v. Gatz Props., 40 A.3d 839, 882 (Del.
Ch. 2012), aff’d, 59 A.3d 1206 (Del. 2012).
96
Aveta, 2010 WL 3221823, at *6 (citing In re SS &C Techs., Inc. S’holders Litig., 2008
WL 3271242, at *3 n.14 (Del. Ch. Aug. 8, 2008), and Johnston I, 1998 WL 155550, at
*3).
97
Id. (citation omitted).
Lawrence B. Seidman v. Blue Foundry Bancorp,
Civil Action No. 2022-1155-MTZ
July 10, 2023
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adversary engaged in a mix of open defiance, evasion and obstruction.”98
Blue Foundry did not dispute the reasonableness of Plaintiff’s fees and
expenses in its Opposition or at the May 9 hearing, and the Court finds Plaintiff’s
fee request reasonable under the circumstances.99
III. CONCLUSION
For the foregoing reasons, Plaintiff’s Motion for an Award of Attorneys’
Fees and Expenses is GRANTED. Plaintiff’s counsel shall file a Rule 88 affidavit
identifying Plaintiff’s reasonable attorneys’ fees and expenses incurred in
connection with preparing the draft opinion within five business days of this
opinion.100
Sincerely,
/s/ Morgan T. Zurn
Vice Chancellor
MTZ/ms
cc: All Counsel of Record, via File & ServeXpress
98
Id. (internal quotation marks omitted) (citing Aveta Inc. v. Bengoa, 986 A.2d 1166,
1178 (Del. Ch. 2009)).
99
Seaman Aff.; D.I. 54 ¶ 2 (“Plaintiff is hereby awarded attorneys’ fees and expenses in
the amount of $223,651.60 to be paid by Defendant Blue Foundry Bancorp within five
(5) business days of the entry of this Order.”).
100
D.I. 54 ¶ 3.