Shareholder Lawrence B. Seidman (Plaintiff) opposed Blue Foundry Bancorp’s (Blue Foundry or the Company) proposed equity incentive plan and sought access to the company’s books and records pursuant to Section 220 of the Delaware General Corporation Law. Blue Foundry rejected the demand, claiming that Seidman lacked a proper purpose. Plaintiff ultimately filed suit in Delaware Court of Chancery to obtain the requested books and records, which Blue Foundry opposed until two days before trial. At that time, the parties filed a proposed final order and judgment that resulted in production of about seventy-five pages of records by Blue Foundry. After this order was entered, the plaintiff filed a motion for an award of US$223,651.60 in attorneys’ fees and expenses.
The Court of Chancery granted the plaintiff’s request for fees due to the “glaringly egregious” behavior of Blue Foundry. For example, the court found that the Company unnecessarily prolonged litigation by refusing to produce any documents and declining to disclose what (if any) formal board materials existed. It also increased litigation cost by insisting “in bad faith” on an in-person deposition of the plaintiff in Delaware. The plaintiff’s counsel had informed Blue Foundry that Seidman was in Florida and had offered to make him available for a remote deposition, but Blue Foundry was adamant (for “no real reason,” according to the court) that the deposition take place in-person in Delaware. Blue Foundry also waited until the very end of discovery to assert an improper purpose defense (which the court called “unsupported”), depriving the plaintiff the opportunity to take discovery on the defense. The court even found Blue Foundry’s decision to force the plaintiff to file suit to “secure a clearly defined and established right” to inspect the Company’s books and record to be, in itself, grounds for fee shifting.
The Court identified a number of other issues with Blue Foundry’s litigation conduct as well. The Company presented “several falsehoods” and “multiple misrepresentations” to the Court and pressed “merits-based defenses” that were clearly inappropriate in a books and records dispute.
This case serves as a reminder to practitioners that the Court of Chancery expects legitimate requests under Section 220 to be analysed and addressed seriously by a corporation, and that counsel and the parties will avoid taking positions or engaging in tactics that needlessly multiply what are intended to be summary proceedings.
Authored by Christopher T. Pickens, Jordan D. Teti, and Tyler Waywell.
