United States: Plaintiff Held Responsible For Receivership Fees In Section 220 Books And Records Action

In the decision of Badr Abdelhameed Dhia Jafar v. Vatican Challenge 2017 LLC, C.A. No. 2020-0151-SG, 2022 WL 365142 (Del. Ch. Feb. 8, 2022) (Letter Op.), the Delaware Court of Chancery held the Plaintiff, a member of the Defendant LLC, responsible for the fees accrued by an appointed Receiver during her oversight of records production in the Section 220 action.

Vice Chancellor Glasscock had entered a default judgment in favor of the Plaintiff in the underlying action and, accordingly, placed the first responsibility of the Receiver's compensation on the defaulting Defendant. However, after holding the Defendant in contempt for its failure to compensate the Receiver, the Vice Chancellor placed the secondary responsibility for compensation on the "benefiting party"-here, the Plaintiff. Letter Op., at 6.

The Court reasoned that the Receiver had been appointed "at the request of and for the benefit of the [Plaintiff]," id., and noted that due to the Defendant's insolvency, no funds existed from which the Defendant could pay the Receiver. While the Plaintiff can choose to seek recoupment from the Defendant, the Court held that equity required the Plaintiff be held responsible for the fees owed under the agreed-upon Receivership Order.

The Court then analyzed the reasonableness of the Receiver's fees. It held that fees incurred during the performance of duties pursuant to the Receivership Order were reasonable and payable by the Plaintiff. The fees incurred in the Receiver's efforts to secure payment did not need to be paid by the Plaintiff, though, consistent with the general principle that a party is responsible for its own litigation costs, absent special circumstances.

Key Takeaway: Litigants seeking the appointment of a receiver to assist in a Section 220 books and records demand could ultimately be held responsible for the compensation of that receiver if the opposing party is unable to pay the receiver's fees.

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