Polymath Venture Holdings LTD v. TAG Fintech, Inc. ( 2024 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
PVH POLYMATH VENTURE )
HOLDINGS LTD, )
)
Plaintiff, )
)
v. ) C.A. No. 2023-0502-BWD
)
TAG FINTECH, INC., a Delaware )
corporation, )
)
Defendant. )
FINAL REPORT
Final Report: January 31, 2024
Date Submitted: January 26, 2024
Jody C. Barillare, MORGAN, LEWIS & BOCKIUS LLP, Wilmington, Delaware;
OF COUNSEL: Jason R. Scherr, MORGAN, LEWIS & BOCKIUS LLP,
Washington, D.C.; Attorneys for Plaintiff PVH Polymath Venture Holdings Ltd.
David L. Finger, FINGER & SLANINA, LLC, Wilmington, Delaware; Attorneys
for Defendant TAG Fintech, Inc.
DAVID, M.
On October 9, 2023, I issued an oral post-trial report1 in this Section 220
proceeding, ordering defendant TAG Fintech, Inc. (“TAG” or the “Company”) to
produce certain books and records to plaintiff PVH Polymath Venture Holdings Ltd.
(“Plaintiff” or “Polymath”). The October 9 report permitted Plaintiff to move for an
award of attorneys’ fees within thirty days.
This report grants Plaintiff’s Motion for an Award of Attorneys’ Fees and
Expenses. Throughout this action, TAG sought to evade its statutory obligations to
produce books and records, including by needlessly complicating and delaying the
proceedings. TAG’s glaringly egregious litigation conduct, detailed herein, warrants
fee-shifting.
I. BACKGROUND
A. Polymath Serves A Demand To Inspect TAG’s Books And Records.
TAG is a privately held Delaware corporation that serves as a holding
company for TAG Innovation (Private) Limited (“TAG-Pakistan”), a Pakistani
entity.2 TAG’s business, operated through TAG-Pakistan, uses e-commerce
technology to deliver banking services like employee salary processing, Visa-
1
The parties stipulated to submit this action to me for a final decision pursuant to Court of
Chancery Rule 144(h). See Stipulation and Order for Final Resolution by the [Magistrate]
in Chancery, Dkt. 12.
2
PVH Polymath Venture Hldgs. Ltd. v. TAG Fintech, Inc., C.A. No. 2023-0502-BWD, at
56:22-57:3 (Oct. 9, 2023) (TRANSCRIPT) [hereinafter, “Post-Trial Report Tr.”], Dkt. 70.
1
network virtual and physical cards, bill payment, and person-to-person payments.3
From TAG’s inception through May 2022, non-party Talal Ahmad Gondal served
as TAG’s sole director and CEO.4
In April 2021, Polymath, an entity incorporated under the laws of the Republic
of Cyprus, became TAG’s first non-founder stockholder when it acquired TAG
Class A and Class B common stock pursuant to two Stock Purchase Agreements.5
Hamervate Limited, another Cyprus entity, is Polymath’s sole director and owns all
of Polymath’s shares in trust for non-party Abhishek Gupta.6 Gupta is the sole
beneficial owner of Polymath shares, makes all decisions for Polymath, and signed
the Stock Purchase Agreements on Polymath’s behalf.7
On December 19, 2022, Polymath sent TAG a letter demanding to inspect the
Company’s books and records pursuant to 8 Del. C. § 220 (the “Initial Demand”).8
The Initial Demand recounts that on October 28, 2020, the State Bank of Pakistan
(“SBP”) issued a license for TAG-Pakistan to operate as an electronic money
3
Id. at 59:5-10; Verified Compl. for Inspection of Books and Records [hereinafter,
“Compl.”] ¶ 14, Dkt.1.
4
Post-Trial Report Tr. at 57:6-7.
5
Id. at 57:11-14, 58:14-15.
6
Id. at 57:15-21.
7
Id. at 57:22-58:13.
8
Id. at 58:24-59:3; Compl., Ex. E [hereinafter, “Initial Demand”].
2
institution in Pakistan.9 In February 2022, however, TAG submitted a forged letter
to the SBP, which appeared to come from a Hong Kong investment advisory firm
promising to commit additional funding to TAG-Pakistan.10 After the forgery was
discovered, the SBP revoked TAG-Pakistan’s business license.11 Premised on those
allegations, the Initial Demand sought books and records to investigate (1) whether
TAG’s board of directors (the “Board”) and senior management had engaged in
misconduct, (2) the independence and disinterestedness of the Board, (3) the count
and valuation of Polymath’s shares of TAG common stock, and (4) whether pre-suit
demand would be excused prior to commencing a derivative action.12
The Initial Demand stated that it was from “Polymath Venture Holdings
Ltd.”—in other words, it omitted the “PVH” in Polymath’s full legal name. 13 On
December 27, 2022, TAG rejected the Initial Demand because “Polymath Venture
Holdings Ltd.” was not a record stockholder.14
On January 12, 2023, Polymath sent TAG a revised books and records demand
that included Polymath’s correct legal name (the “Demand”).15 The Demand
9
Post-Trial Report Tr. at 59:13-24; Initial Demand at 3.
10
Post-Trial Report Tr. at 60:1-5; Initial Demand at 3.
11
Post-Trial Report Tr. at 60:24-61:3; Initial Demand at 3.
12
Post-Trial Report Tr. at 62:13-63:12; Initial Demand at 2.
13
Post-Trial Report Tr. at 63:13-16; Initial Demand at 1.
14
Post-Trial Report Tr. at 63:17-23; Compl., Ex. F.
15
Post-Trial Report Tr. at 63:23-64:2; Compl., Ex. G [hereinafter, “Demand”], Dkt. 1.
3
attached a declaration stating that Gupta was authorized “to speak and represent on
[Polymath’s] behalf for purposes of claims of stock ownership.”16
On January 20, 2023, TAG rejected the Demand, citing “serious concerns”
that Gupta lacked authority to make the Demand on behalf of Polymath based on
“public information from the registration system of Cyprus . . . indicat[ing] that there
is only one director of Polymath, an entity named Hamervate Limited.”17 In
response, Plaintiff explained that Hamervate Limited acts at Gupta’s direction and
also reminded TAG’s principals that they knew him personally and had dealt with
him directly on numerous occasions, including when Polymath signed the Stock
Purchase Agreements.18
B. Polymath Sues To Compel Inspection And TAG Raises Defenses.
On May 8, 2023, Polymath initiated this action through the filing of a Verified
Complaint for Inspection of Books and Records (the “Complaint”).19 On June 5,
2023, TAG filed an answer to the Complaint (the “Answer”).20 As previewed in the
parties’ correspondence, the Answer asserted that the Demand was “invalid because
16
Post-Trial Report Tr. at 64:6-12; Demand at Ex. 1.
17
Post-Trial Report Tr. at 64:24-65:4; Compl., Ex. H at 1-2.
18
Compl., Ex. I.
19
Post-Trial Report Tr. at 65:6-7; Compl. at 1.
20
Post-Trial Report Tr. at 65:8-9; Def’s. Ans. to Verified Compl. for Inspection of Books
and Records [hereinafter, “Ans.”], Dkt. 14.
4
Abhishek Gupta is neither a director nor an officer of Plaintiff and was not
authorized by Plaintiff to make such demand on its behalf.”21
The Answer also raised another, more surprising, defense—that TAG-
Pakistan was “subject to an injunction from a Pakistani court which prohibits
disclosure of its documents to third parties.”22
According to TAG, when the Company received the Initial Demand in
December 2022, it sent TAG-Pakistan a document preservation notice.23
Purportedly in response to that notice, on January 7, 2023, Gondal’s brother, Ijlal
Gondal, filed a civil suit in Lahore, Pakistan District Court, seeking to enjoin the
production of TAG-Pakistan’s confidential information to third parties, including
Plaintiff.24 The same day, the Pakistan District Court issued an ex parte injunction
restraining TAG-Pakistan and Gondal “from any illegal activity regarding the
subject matter of the suit, till next date of hearing” (the “First Injunction”).25 The
First Injunction included the caveat that “this order shall not effect [sic] the
legal/judicial proceedings of any other department or Court.”26 Neither TAG nor
21
Ans. at 17.
22
Id. at 18.
23
Post-Trial Report Tr. at 65:14-16.
24
Id. at 65:22-66:3; see also Pl.’s Mot. to Compel, Ex. G, Dkt. 22.
25
Post-Trial Report Tr. at 66:4-10; see also Pl.’s Mot. to Compel, Ex H [hereinafter, “First
Injunction”] ¶ 3.
26
Post-Trial Report Tr. at 66:10-12; see also First Injunction ¶ 3.
5
TAG-Pakistan appeared before the Pakistan District Court to oppose the First
Injunction.27
C. The Motion to Compel
In discovery, Plaintiff served TAG with document requests and
interrogatories to discover the degree to which TAG exercises control over TAG-
Pakistan and to identify the location of documents in TAG-Pakistan’s possession
responsive to the Demand. TAG objected to those requests on the grounds that the
Company was “prevented from disclosing [such] information pursuant to the [First]
Injunction.”28
On June 29, 2023, Plaintiff filed a motion to compel (the “Motion to
Compel”).29 At a July 7, 2023 hearing on the Motion to Compel, I explained that
“[t]he language of the [First Injunction] [wa]s not entirely clear,”30 and that, “[i]n
27
Post-Trial Report Tr. at 66:13-15; see also First Injunction ¶ 4.
Post-Trial Report Tr. at 67:6-9; see also Pl.’s Mot. to Compel, Ex. C ¶¶ 3, 9, 11, 13, 18,
28
Dkt. 22.
29
Post-Trial Report Tr. at 66:24-67:1; see also Pl.’s Mot. to Compel at 1.
30
PVH Polymath Venture Hldgs. Ltd. v. TAG Fintech, Inc., C.A. No. 2023-0502-BWD, at
35:20-21 (July 7, 2023) (TRANSCRIPT) [hereinafter, “July 7, 2023 Tr.”], Dkt. 28; see also
id. at 35:1-19
The plaintiff[] argue[s] that the injunction does not apply to plaintiff’s
discovery requests because producing discovery to a stockholder plaintiff in
a books and records action brought against a Delaware corporation isn’t
illegal activity, and the order specifically states that the order shall not affect
judicial proceedings in any other court. But the company argues that the
Pakistani injunction does apply and that, although ‘Orders passed at the civil
court level are not always well drafted, . . . the practice is that if an application
6
assessing the company’s defenses in this action, I [would] have to decide the impact
of the injunction on the parent company’s ability to produce books and records from
its Pakistani subsidiary[,]”31 which I preferred to do on a full record. I therefore
declined to compel production at that time, noting that TAG would be precluded
from asserting it does not control TAG-Pakistan32 and that “targeted discovery into
the location of potentially responsive documents after trial could be needed.”33
After that, TAG and TAG-Pakistan entered their appearances before the
Pakistan District Court, and Ijlal Gondal sought permission to withdraw and refile
has been allowed, the order is read with the contents of the injunction
application when construing the injunction order of a court.’ The company
also argues that the language stating that the order shall not affect judicial
proceedings of any other court appears in every injunction and isn’t intended
to limit the effect of the injunction as it applies to sharing information in this
proceeding.
(omission in original).
31
Id. at 35:23-36:5.
32
See id. at 36:8-22
As to the requests that seek information intended to demonstrate the degree
of control that TAG Fintech, the Delaware parent company, exercises over
the Pakistani subsidiary, those requests are denied because the company has
agreed that it doesn’t intend to argue, separate from its argument about the
Pakistani injunction, that the parent company lacks access to the subsidiary’s
books and records. Since those are not live issues, these requests are not
relevant to the parties’ claims and defenses, and they’re denied on that basis.
But of course, the parent company will be estopped from arguing at trial that
it doesn’t possess or control TAG-Pakistan’s documents, subject to its
arguments about the Pakistani injunction.
33
Id. at 37:11-13.
7
his action.34 On July 24, 2023, Ijlal Gondal refiled his action to obtain a new
injunction more clearly prohibiting the defendants in that action “from sharing
information and documents of [TAG-Pakistan] to anyone else/in any proceedings;
till further orders” (the “Second Injunction”).35
D. TAG Levels Ups Its Aggressive Tactics.
On June 28, 2023, the Court entered a Stipulation and Scheduling Order (the
“Scheduling Order”) setting a pre-trial conference for August 17, 2023 and a one-
day trial for August 24, 2023.36 The Scheduling Order required the parties to
exchange witness lists by June 19, 2023 and to complete discovery by June 29,
2023.37
On July 24, 2023—almost a month after the discovery deadline—TAG
produced an expert opinion to show that under the law of the Republic of Cypress,
Gupta lacked authority to make the Demand or to initiate litigation on behalf of
Polymath.38 The next day, TAG filed a Notice of Foreign Law Pursuant to Chancery
34
Post-Trial Report Tr. at 68:21-22.
35
Id. at 68:24-69:6; see also Defs.’ Pre-Trial Ans. Br [hereinafter, “AB”], Ex. E at 1, Dkt.
38 (emphasis added).
36
Dkt. 21 at 6.
37
Id. ¶ 3(d); id. ¶¶ 3(f), 8. The reference to “paragraph (f)” appears to be a typo intended
to mean Paragraph 3(d).
38
Dkt. 33 ¶ 13.
8
Rule 44.1, stating that TAG intended to introduce the corporate law of the Republic
of Cyprus.39
On July 26, 2023, Plaintiff filed a Motion in Limine to Bar Evidence
Regarding Cyprus Law.40 On August 3, 2023, I issued a letter report granting that
motion because “TAG ha[d] not demonstrated good cause why it should be
permitted to advance th[e expert] opinion” after the discovery deadline and because
TAG’s Rule 44 disclosure was untimely.41 The August 3, 2023 letter report warned
that “[t]o litigate efficiently under a summary schedule, the parties need to cooperate
with one another to tee up issues for resolution” because “[t]here isn’t time for
‘overly aggressive litigation strategies’ and games of ‘gotcha.’”42
TAG failed to heed that warning. Instead, it leveled up its aggressive tactics.
At 11:15 p.m. the night before the pre-trial conference, TAG filed a letter informing
the Court that TAG had rescinded Polymath’s shares under the Stock Purchase
Agreements.43 TAG claimed “[t]his raise[d] a substantial question as to whether the
39
Dkt. 30, Ex. A.
40
Dkt. 33.
41
Post-Trial Report Tr. at 71:24-72:8; PVH Polymath Venture Hldgs. Ltd. v. TAG Fintech,
Inc., C.A. No. 2023-0502-BWD, at 5 (Aug. 3, 2023), Dkt. 37.
42
Id. (quoting Pettry v. Gilead Scis., Inc., 2020 WL 6870461, at *30 (Del. Ch. Nov. 24,
2020) (footnotes omitted).
43
Dkt. 43 at 2.
9
rescission of those shares render[ed] Plaintiff’s claim moot[,]” and requested that
trial be postponed to permit discovery into this new argument.44
TAG’s delay tactic was rejected at the pre-trial conference the next morning
because:
The authority issues that were raised in the letter that was filed last night
are the same issues that were raised in the company’s notice of foreign
law that was filed back on July 25th. So the decision to take this action
and file a letter at 11:15 p.m. on the eve of the pretrial conference and
one week before the trial certainly appears to me to be strategic and not
a good faith effort to provide the other side with notice of the relevant
issues for trial.45
During the pre-trial conference, the parties could not agree on whether to
present live testimony at trial the following week.46 Plaintiff argued that the
44
Id.45
PVH Polymath Venture Hldgs. Ltd. v. TAG Fintech, Inc., C.A. No. 2023-0502-BWD, at
23:3-12 (Aug. 17, 2023) (TRANSCRIPT) [hereinafter, “Aug. 17, 2023 Tr.”], Dkt. 52; see
also id. at 23:13-24:9
The argument that’s presented in that letter is that Polymath breached a
representation in its purchase agreement with TAG, which gives TAG the
right to rescind the agreement or otherwise voided the agreement, and, as a
result, Polymath no longer has standing to seek books and records under
Section 220. Any standing argument is waived given that TAG could have
raised this argument nearly a month ago but didn’t. . . . There are also legal
issues that haven’t been briefed, like the impact of purportedly losing
stockholder status after a Section 220 complaint has been filed. My
understanding under the case law is that the relevant inquiry is whether a
plaintiff is a stockholder at the time of the complaint, not whether they lose
stockholder status after the complaint is filed. I’m not ruling on that issue
because the argument is waived, but that is my understanding of the case law.
46
Id. at 24:12-25:9.
10
Scheduling Order, which required the parties to “[e]xchange lists identifying
potential witnesses each party may introduce at trial through affidavit, if any,”
precluded the presentation of live witnesses.47 TAG insisted that the Scheduling
Order did not explicitly preclude the presentation of live witnesses even though TAG
still had not identified any witnesses.48 After additional briefing and another status
conference, trial was briefly postponed to accommodate the exchange of witness
lists and depositions.49
47
Id. at 10:11-17.
48
Id. at 15:1-24; see also id. at 16:15-17:12
[W]hen are you going to let the Court know and the other side know what
witnesses are going to be presented? I mean, we’re at the pretrial conference,
and I’m hearing that you are not sure which witnesses are going to testify.
There is a reason that parties negotiate a case schedule that anticipates the
exchange of witnesses. The way I interpret the case schedule here is that
witnesses were supposed to be exchanged back in June, on June 19th. So
we’re one week before trial, and I’m hearing that the parties haven’t agreed
on a list of witnesses. That doesn’t make sense to me. I understand the
company’s interpretation of this schedule is that at the time it was being
negotiated, the plaintiffs were pushing for a trial on a paper record and the
company wanted live witnesses. But it’s not a reasonable interpretation of
this schedule that if the parties couldn’t agree on whether or not there would
be live witnesses, then the company could wait until the day before trial or
show up the day of trial and identify their witnesses. That’s not how
litigation works.
See also id. at 18:7-10 (“[A]nother problem with the parties not exchanging witness lists
in June is that now whichever witnesses are identified, the plaintiffs don’t have an
opportunity to depose them.”).
49
Dkts. 45, 47-49.
11
E. The Trial
On September 28, 2023, the Court held a one-day trial.50 Two fact witnesses
testified. Plaintiff also produced a third witness to authenticate documents because
TAG refused to stipulate to the authenticity of most documents.51 Despite conceding
the propriety of Plaintiff’s purpose for the Demand, TAG spent most of its trial time
putting on merits-based defenses to the allegations of wrongdoing raised in the
Demand.
On October 9, 2023, the Court heard oral argument in lieu of post-trial
briefing.52 After the argument, I issued an oral post-trial report (the “Post-Trial
50
Dkt. 58.
51
PVH Polymath Venture Hldgs. Ltd. v. TAG Fintech, Inc., C.A. No. 2023-0502-BWD, at
87:10-88:20 (Sept. 28, 2023) (TRANSCRIPT) [hereinafter, “Sept. 28, 2023 Tr.], Dkt. 60
THE COURT: [L]et me just ask you, the documents that were just
authenticated by Mr. Muktar, it strikes me that most, if not all, of those
documents would likely be in the possession or the custody of the company.
So I just wanted to ask you, what efforts, if any, did the company take to
confirm whether copies of these documents resided in their records before
the company determined whether to stipulate to the authenticity of those
documents?
[COUNSEL]: I cannot answer the question directly. I don’t have a direct
answer. What I can say is these documents were produced in discovery.
...
THE COURT: What I’m trying to understand is whether the company has
any basis to challenge the authenticity of these documents, given that it seems
very likely to me that the company has copies of these documents. . . . I’m
trying to understand . . . whether the parties made a good-faith effort to
stipulate to the authenticity of these documents or if this was really just a
tactic to impose additional costs in these proceedings.
52
Dkt. 58.
12
Report”), concluding that Plaintiff was entitled to inspect certain categories of
TAG’s books and records.
The Post-Trial Report found that Plaintiff had met its burden to establish
Gupta’s authority to make the Demand on behalf of Polymath53 and that Plaintiff’s
purposes for making the Demand were proper.54 The Post-Trial Report further found
that the Second Injunction did not foreclose inspection of TAG-Pakistan’s books and
records, explaining:
Courts in and outside of Delaware have, on several occasions,
addressed whether parties to litigation in the U.S. can obtain relief from
document production obligations by invoking foreign laws. The case
law, including the U.S. Supreme Court’s decision in Société Nationale
Industrielle Aérospatiale v. U.S. District Court for the Southern District
of Iowa, 482 U.S. 522, makes clear that an American Court has the
power to require a party to produce documents in accordance with its
rules or laws, although the court must make a discretionary
determination about whether to do so on the facts of the case.
In In re Activision Blizzard, Inc., 86 A.3d 531, . . . Vice Chancellor
Laster followed the principles set out in Aérospatiale and the
53
Post-Trial Report Tr. at 71:1-18; see also id. at 73:7-76:6
I find that plaintiff has met his burden to demonstrate that Gupta was
authorized to make the demand on Polymath’s behalf, and the failure to
produce a formal board resolution authorizing the demand or initiation of this
lawsuit does not alter that conclusion. As numerous cases from this Court
make clear, a stockholder plaintiff seeking books and records under Section
220 is not required to produce written proof, such as a formal board
resolution, evidencing its authority to make the demand. . . . Based on all of
the authority that I just cited, the credible testimony presented at trial is
sufficient to satisfy the plaintiff’s burden to demonstrate that Mr. Gupta was
authorized to act on behalf of Polymath to make the demand.
54
Id. at 76:7-79:19.
13
Restatement (Third) of Foreign Relations Law. Section 442 of the
Restatement makes clear that a Delaware Court may order a person
subject to its jurisdiction to produce documents, even if the information
is outside of the United States, and that the failure to comply may result
in sanctions.55
Guided by the principles outlined in Activision and Section 442 of the Restatement,56
the Post-Trial Report explained that “[f]our of the five factors set forth in Section
442 of the Restatement weigh[ed] heavily in favor of requiring a books and records
production notwithstanding the [Second Injunction].”57 The Post-Trial Report also
55
Id. at 82:12-83:13.
56
Id. at 83:17-84:6
(1) the importance to the . . . litigation of the documents or other information
requested; (2) the degree of specificity of the request; (3) whether the
information originated in the United States; (4) the availability of alternative
means of securing the information; (5) the extent to which noncompliance
with the request would undermine important interests of the United States,
or compliance with the request would undermine important interests of the
state where the information is located.
(quoting In re Activision Blizzard, Inc., 86 A.3d 531, 541 (Del. Ch. 2014)).
57
Id. at 84:22-85:1; see also id. at 85:2-24
On the first factor, the documents ordered to be produced are not only
important to the litigation—they are, in fact, the final relief sought in this
books and records proceeding. So, in other words, this whole matter is about
documents. As to the second factor, in crafting a final order, I must order
production only of those documents that are necessary and essential to
accomplishing the proper purposes stated in the demand. So the documents
ordered to be produced will be specific. On the fourth factor, there are no
alternative means available for accessing this information. On the fifth
factor, Delaware has a paramount interest in enforcing the statutory rights of
stockholders in Delaware corporations under the Delaware General
Corporation Law, including the right to access books and records under
Section 220. It’s not clear if the third factor, whether the information
14
considered whether TAG had made a good faith effort to secure permission from the
Pakistan District Court to make the documents available, but found the opposite—
that TAG had “not made a good faith effort to seek relief from the Pakistani
injunction,” and it was “highly likely that Mr. Gondal caused or coordinated with
his brother to seek the first injunction, and following my ruling on the motion to
compel, caused or coordinated the withdrawal of the first injunction to seek a
clarified order with the second injunction.”58 The Post-Trial Report concluded that
TAG could not withhold TAG-Pakistan’s books and records based on the Second
Injunction, but in the interest of judicial economy, it afforded TAG an additional
fourteen days from entry of a final order to seek relief from the Pakistan District
Court.59
originated in the United States, favors production of the documents, but all
other factors clearly do.
58
Id. at 86:11-18; see also id. at 86:19-87:5
I note that Talal Gondal is the CEO of TAG-Pakistan, oversees litigation at
TAG-Pakistan, is relying on the advice of TAG-Pakistan’s Pakistani counsel
in determining not to violate the injunction, and is represented by the same
counsel as TAG-Pakistan and Ijlal Gondal in other pending litigation. Mr.
Gondal testified that he has not discussed the Pakistani injunctions with his
brother, but I do not find that testimony credible. And neither TAG nor TAG-
Pakistan opposed either injunction.
59
Id. at 87:6-11.
15
At trial, Plaintiff sought an award of costs and attorneys’ fees.60 The Post-
Trial Report permitted Plaintiff to move for attorneys’ fees within thirty days.61
F. The Motion to Enforce
On October 19, 2023, the Court entered a Final Order and Judgment (the
“Final Order”) implementing the Post-Trial Report.62
Six days later, on October 25, 2023, Plaintiff moved to enforce the Final
Order, complaining that TAG had not produced bank statements required by the
Final Order (the “Motion to Enforce”).63 The next day, TAG agreed to permit
Plaintiff to inspect bank statements in person at TAG’s Abu Dhabi office.64 Plaintiff
objected to an in-person inspection, but on November 1, 2023, sent a representative
to inspect printed bank records in person in Abu Dhabi.65
60
Id. at 93:18-94:1 (arguing fee-shifting was warranted because “TAG unnecessarily
prolonged production of documents in response to Plaintiff’s inspection[,] knowingly
asserted frivolous claims,” “wrongfully refused Plaintiff’s inspection rights, refused to
produce a single document, and forced Plaintiff to bring this litigation at significant
expense”).
61
Id. at 94:2-7.
62
Dkt. 63.
63
Dkt. 65 at 2.
64
Dkt. 68, Ex. A at 1, 3.
65
See Nov. 13, 2023 Tr. at 7:16-8:3
TAG explains that notwithstanding plaintiff’s request for an electronic
production of bank account records, TAG insisted on plaintiff sending a
representative to TAG’s offices in Abu Dhabi because, in TAG’s view,
Section 220 anticipates copying and inspection in the corporation’s physical
offices. TAG doesn’t suggest that it would have been burdensome to send
an electronic copy of the production or offer any justification whatsoever for
16
Later that day, TAG filed an opposition to the Motion to Enforce, claiming
the motion was moot.66 On November 6, 2023, Plaintiff filed a reply, explaining
that TAG still had not produced bank records from newly discovered accounts.67 On
November 9, 2023, TAG filed a sur-reply, blaming Plaintiff for TAG’s failure to
produce account statements required under the Final Order.68 At a hearing on
November 13, 2023, I granted the Motion to Enforce69 and shifted fees incurred in
increasing the burden on plaintiff other than TAG thinks it has a right under
the statute to insist on in-person inspection.
See also id. at 11:2-5 (“[T]he fact that TAG insisted that plaintiff send a representative in
person to its offices in Abu Dhabi to inspect the books and records is concerning.”).
66
Dkt. 67 ¶ 3.
67
Dkt. 71 ¶ 16.
68
Dkt. 74 ¶ 5.
69
See Nov. 13, 2023 Tr. at 9:24-10:18
[P]laintiff has identified several categories of documents required to be
produced under the final order and judgment that have not yet been produced.
TAG’s explanation for why some of those documents, including certain bank
account statements, have not been produced does not justify its
noncompliance with the final order. For example, TAG points the finger at
plaintiff’s representative and suggests that the representative should have
asked for a more comprehensive set of bank records when he came to inspect
the documents at TAG’s offices in Abu Dhabi. That’s wrong. TAG is
obligated to produce all of the documents listed in the final order and
judgment. It’s not the obligation of plaintiff’s representative conducting the
inspection to ask whether TAG has additional bank records that it’s
withholding. Those documents are required to be produced under the final
order.
17
connection with that motion,70 but declined to appoint a receiver to coerce
compliance with the Final Order at that time.71
G. The Fee Motion
On November 29, 2023, Plaintiff filed its Motion for an Award of Attorneys’
Fees and Expenses (the “Fee Motion”).72 On December 15, 2023, TAG filed its
Opposition to Plaintiff’s Motion for an Award of Attorneys’ Fees and Expenses.73
On January 26, 2024, Plaintiff filed a reply in further support of the Fee Motion.74
II. ANALYSIS
Plaintiff seeks an award of fees and costs incurred in connection with this
litigation. “Delaware courts follow the American Rule that ‘each party is generally
expected to pay its own attorneys’ fees regardless of the outcome of the litigation.’”
Pettry, 2020 WL 6870461, at *29 (quoting Shawe v. Elting, 157 A.3d 142, 149 (Del.
2017)). An exception exists in equity, however, when a party litigates in bad faith.
70
See id. at 12:14-18 (“Plaintiff is entitled to its reasonable fees incurred in connection
with this motion, which TAG mooted in part by permitting inspection of some documents
at its offices and which prompted TAG to request additional bank records from TD
Canada.”).
71
See id. at 13:2-5 (“I’m going to defer ruling on the request for appointment of a receiver
and, instead, I’m going to order the parties to meet and confer on the outstanding requests
by the end of this week.”).
72
Dkt. 82.
73
Def.’s Opp’n To Pl.’s Mot. For An Award Of Attorneys’ Fees And Expenses
[hereinafter, “Opp’n”], Dkt. 85.
74
Dkt. 87.
18
Rice v. Herrigan-Ferro, 2004 WL 1587563, at *1 (Del. Ch. July 12, 2004). This
Court has recognized that in “extraordinary circumstances,” “overly aggressive
litigation strategies” employed to improperly resist a books and records demand may
warrant fee-shifting. Pettry, 2020 WL 6870461, at *29-30 (citation and internal
quotation marks omitted). A party seeking to shift fees must satisfy “the stringent
evidentiary burden of producing ‘clear evidence’ of bad faith . . . .” Dearing v.
Mixmax, Inc., 2023 WL 2632476, at *5 (Del. Ch. Mar. 23, 2023) (ORDER) (quoting
Beck v. Atl. Coast PLC, 868 A.2d 840, 851 (Del. Ch. 2005)). To warrant fees, a
litigant’s conduct must be “glaring[ly] egregious.” Seidman v. Blue Foundry
Bancorp, 2023 WL 4503948, at *6 (Del. Ch. July 7, 2023). Regrettably, TAG’s
conduct throughout this litigation rises (or sinks) to the level of glaring
egregiousness.
Despite conceding that Plaintiff stated a proper purpose for making the
Demand,75 TAG refused to produce documents in response, forcing Plaintiff “to file
suit to ‘secure a clearly defined and established right[]’” to inspect books and
records. Pettry v. Gilead Scis., Inc., 2021 WL 3087027, at *1 (Del. Ch. July 22,
2021) (quoting McGowan v. Empress Ent., Inc., 791 A.2d 1, 4 (Del. Ch. 2000)).
75
Post-Trial Report Tr. at 70:2-10; Opp’n ¶¶ 4-5.
19
Rather than consider Plaintiff’s Demand in good faith, TAG asserted that
Gupta lacked authority to make the Demand on behalf of Polymath under Cyprus
law, insisting that live testimony was needed to resolve this issue at trial.76 The
defense was pretextual; TAG’s principals knew Gupta personally and had negotiated
with him directly when Polymath invested in TAG.77
TAG also tried to evade its statutory obligation to produce books and records
by hiding behind foreign injunctions that, at best, TAG’s principals made a strategic
decision not to oppose, and at worst, they colluded to obtain.78 TAG blocked
relevant discovery on that basis, as well.79
TAG then claimed in briefing and at trial that “there [we]re no documents
responsive to the requests [in the Demand] that ha[d] not already been produced
(save for those subject to the Pakistan Injunction).”80 TAG’s position was
demonstrably false, and TAG continued to withhold responsive documents even
after entry of the Final Order.81
76
See Post-Trial Report Tr. at 71:19-23; Opp’n ¶ 9.
77
See n.53, supra.
78
See n.58, supra.
79
See Seidman, 2023 WL 4503948, at *7 (shifting fees where, among other conduct, the
defendant “took aggressive positions in discovery”); Pettry, 2021 WL 3087027, at *2
(same).
80
See Sept. 28, 2023 Tr. at 113:12-114:11; see also AB at 16.
81
See Myers v. Acad. Sec., Inc., 2023 WL 6380449, at *2 (Del. Ch. Oct. 2, 2023) (shifting
fees where the defendant raised baseless defenses designed to deprive plaintiff of his
inspection rights), R&R adopted, 2023 WL 6846984 (Del. Ch.); Martin v. Med-Dev Corp.,
20
Throughout the litigation, TAG also sought to needlessly complicate and
delay the proceedings,82 including by (1) producing an expert opinion attempting to
inject new issues under Cyprus law after the discovery deadline;83 (2) purporting to
unilaterally cancel Plaintiff’s shares on the eve of the pre-trial conference and
seeking to postpone trial on that basis;84 (3) insisting on the presentation of live
testimony at trial when, under the circumstances, the disputed issues could easily
have been resolved on the papers;85 (4) refusing to stipulate to the authenticity of
most documents at trial;86 and (5) requiring Plaintiff to inspect the Company’s books
and records in person in Abu Dhabi.87
2015 WL 6472597, at *21 (Del. Ch. Oct. 27, 2015) (explaining that a party’s “dogged
pursuit of . . . borderline frivolous or near frivolous [issues] me[t] th[e] standard [for bad
faith] because it utterly lacked any legal or factual bases”).
TAG argues that it “had a good faith basis in law and fact for asserting its defenses.” Opp’n
¶ 6. In Gilead, the Court rejected a similar argument that the defendant “vigorously
defended the lawsuit . . . on the ‘good-faith belief that the case law and factual record
developed through discovery supported its arguments[,]” explaining that “this court has
shifted fees based on litigation conduct without launching a fact-intensive investigation
into the offending party’s state of mind. . . . [W]here this court shifts fees to curb and
correct for overly vexatious litigation behavior, a showing of glaringly egregious litigation
conduct is enough.” Pettry, 2021 WL 3087027, at *2 (footnotes and internal quotation
marks omitted).
82
Id. at *1 (quoting RBC Cap. Mkts., LLC v. Educ. Loan Tr. IV, 2016 WL 703852, at *3
(Del. Super. Feb. 17, 2016)).
83
See n.38, supra.
84
See n.43, supra.
85
See n.48, supra.
86
See n.51, supra.
87
See nn.64-65, supra.
21
These positions, taken together, are glaringly egregious and warrant fee-
shifting. See Myers, 2023 WL 6380449, at *2 (shifting fees where the defendant’s
litigation strategies, in the aggregate, “reflect[ed] an unfortunate pattern of
unreasonable positions designed to unnecessarily complicate the proceedings”);
Auriga Cap. Corp. v. Gatz Props., 40 A.3d 839, 881 (Del. Ch. 2012) (shifting fees
where, “[r]ather than focus on only bona fide arguments, [defendant] and his counsel
simply splattered the record with a series of legally and factually implausible
assertions” in a strategy to “exhaust” the plaintiffs), aff’d sub nom. Gatz Props., LLC
v. Auriga Cap. Corp., 59 A.3d 1206 (Del.); see also Pettry, 2021 WL 3087027, at
*2 (noting that “[p]erhaps one of these positions, standing alone, could be forgiven
as merely an aggressive defense,” but “collectively, these positions rise to the level
of glaringly egregious litigation conduct”).
Having concluded that fee shifting is warranted under the circumstances, I
consider the reasonableness of Plaintiff’s fee request.
“Delaware law dictates that, in fee shifting cases, a judge determines
whether the fees requested are reasonable.” The Court “has broad
discretion in determining the amount of fees and expenses to award.”
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.
“Determining reasonableness does not require that this Court examine
individually each time entry and disbursement.” 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.” “For a Court to second-guess, on
a hindsight basis, an attorney’s judgment” as to whether work was
22
necessary or appropriate “is hazardous and should whenever possible
be avoided.”
Seidman, 2023 WL 4503948, at *8 (citations and footnotes omitted). TAG does not
dispute the reasonableness of the fees and expenses set forth in the Affidavit of Jody
C. Barillare in Support of Plaintiff’s Motion for an Award of Attorneys’ Fees and
Expenses (the “Affidavit”). Those fees, I find, “are within the range of what a party
reasonably could incur over the course of . . . pursuing an adversary engaged in a
‘mix of open defiance, evasion and obstruction.’” Aveta Inc. v. Bengoa, 2010 WL
3221823, at *6 (Del. Ch. Aug. 13, 2010) (citation omitted).
Accordingly, Plaintiff is entitled to fees and expenses in the amount set forth
in the Affidavit.88
III. CONCLUSION
For the reasons explained above, the Fee Motion is granted. The parties are
directed to submit an appropriate form of implementing order.
88
On January 10, 2024, I entered with modifications an Order Granting Plaintiff’s Rule 88
Request for Fees and Costs Incurred in Connection with Polymath’s Motion to Enforce
§ 220 Order (the “January 10 Order”). See Dkt. 86. The January 10 Order stated that the
Court would consider Plaintiff’s request for $8,562 incurred in connection with the meet-
and-confer process and $734.50 incurred for an attorney to physically appear at TAG’s
Abu Dhabi offices as part of the Fee Motion. Id. at 3. I have considered the reasonableness
of those fees and determined that they also should be included within the amount of fees
and expenses to which Plaintiff is entitled.
23