Saliba, et al. v. William Penn P’ship, et al., C.A. No. 111-CC (Del. Ch. Apr. 12, 2010) (Chandler, C.)

In this letter decision, the Court of Chancery ordered that the defendants pay the plaintiffs’ attorneys’ fees and court costs on the basis of the defendants’ “faithless” pre-litigation conduct.

In the underlying litigation, plaintiffs Anis Saliba and Rosa Ksebe asserted breach of fiduciary duty claims against the managers of Del Bay Associates, LLC (“Del Bay”), a Delaware limited liability company. The plaintiffs sought various forms of relief arising out of the unilateral decision of the managers of Del Bay to sell Del Bay’s sole asset – the Beacon Motel and adjacent property – for $6.6 million to a company majority-owned and controlled by the managers and their family members. As fiduciaries who indisputably stood on both sides of the sale, the manager-defendants bore the burden of demonstrating the entire fairness of the sale. In a May 2009 bench ruling, the Court held that the defendants had “utterly failed to present evidence sufficient to meet their burden of showing entire fairness.”

The Court appointed two experts to determine the property’s fair market value as of June 2003. The experts estimated the fair market value of the property to be less than $5.5 million, an amount lower than the actual sale price. The plaintiffs were therefore only entitled to nominal damages.

The plaintiffs sought an award of attorneys’ fees and costs on the basis of the defendants’ prelitigation conduct. The Court began by emphasizing that “the defendants’ litigation conduct does not warrant a fee shift.” The Court noted that the defendants had “breached their duties as fiduciaries” in failing to provide full and timely disclosures, and had structured the sale process “to benefit themselves personally.” In light of the defendants’ breaches of fiduciary duty, the Court held that it would be “unfair and inequitable” for the plaintiffs to incur the cost of demonstrating the unfairness of the sale process. The costs of litigation would be properly borne by “[t]hose who violated their fiduciary obligations and were the cause of this litigation.” Accordingly, the Court awarded plaintiffs all of their attorneys’ fees and their portion of the costs associated with the court-appointed expert witnesses.

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