Fee Shifting May Be New To Delaware, But It's Old Hat In California

Allen Matkins

Allen Matkins

Writing for DealLawyers.com, John Jenkins yesterday took note of the Delaware Court of Chancery's decision in Pettry v. Gilead Sciences, (Del. Ch.; 11/20).  Quoting this Cleary Gottlieb blog, John observes that Pettry "introduces a new element of risk that companies need to consider when considering their response to these requests – the possibility of an award of attorneys’ fees to the plaintiff".

That risk has existed under California's General Corporation Law since 1977.  Section 1604 provides:

"In any action or proceeding under Section 1600 or Section 1601 [other records], if the court finds the failure of the corporation to comply with a proper demand thereunder was without justification, the court may award an amount sufficient to reimburse the shareholder or holder of a voting trust certificate for the reasonable expenses incurred by such holder, including attorneys’ fees, in connection with such action or proceeding."

Section 1600, governing inspection of the shareholder list, applies to any foreign corporation that has its principal executive office in California or that customarily holds meetings of its board in California.  Section 1601, governing inspection of other records, applies to any foreign corporation that has its principal executive office in California or keeping records in California.  Because Section 1604 refers only to a "corporation", a term defined in 162, and not a "foreign corporation", a term defined in Section 171, it is unclear whether the Superior Court has the power to order a foreign corporation to pay the reasonable expenses of a shareholder.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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