Yesterday, I took note of a recently introduced Nevada bill, AB 304, that would, among other things, allow a Nevada corporation to impose liability on a stockholder for attorney's fees and costs in connection with an "unsuccessful internal corporate claim". I did not mention a just issued ruling by U.S. District Court Judge Robert C. Jones that did just that. Weinfeld v. Minor, 2019 U.S. Dist. LEXIS 39173.
I first wrote about this shareholder derivative suit in 2016 and then again last year when Judge Jones granted summary judgment to the defendants. The current ruling concerns the defendants' application for an award of attorneys' fees and costs. The basis for the award was not a fee-shifting bylaw, but a Nevada statutory provision that has been on the books since 1985. NRS 78.010(2) in its current version provides:
"In addition to the cases where an allowance is authorized by specific statute, the court may make an allowance of attorney’s fees to a prevailing party:
(a) When the prevailing party has not recovered more than $20,000; or
(b) Without regard to the recovery sought, when the court finds that the claim, counterclaim, cross-claim or third-party complaint or defense of the opposing party was brought or maintained without reasonable ground or to harass the prevailing party. The court shall liberally construe the provisions of this paragraph in favor of awarding attorney’s fees in all appropriate situations. It is the intent of the Legislature that the court award attorney’s fees pursuant to this paragraph and impose sanctions pursuant to Rule 11 of the Nevada Rules of Civil Procedure in all appropriate situations to punish for and deter frivolous or vexatious claims and defenses because such claims and defenses overburden limited judicial resources, hinder the timely resolution of meritorious claims and increase the costs of engaging in business and providing professional services to the public."
In finding that the plaintiffs had brought and maintained their complaint without reasonable grounds, Judge Jones leaned heavily on his ruling on summary judgment:
"This is a case where plaintiffs filed a complaint without sufficient evidence and after months of litigation have failed to find any meaningful evidence to survive summary judgment. The evidence has not grown stale, because it never existed."
Judge Jones' ruling should serve as a tocsin to plaintiffs in Nevada derivative actions that regardless of whether AB 304 is enacted they are at risk of bearing the defendants' legal fees under NRS 18.010.
