## Facts

- A stockholder of U.S. MobilComm, Inc. (USM) made repeated demands beginning in 2002 to inspect USM’s books and records under 8 Del. C. § 220.
- The demand stated purposes including evaluating whether USM properly disposed of company assets, properly distributed sale proceeds, and otherwise acted properly in management decisions.
- USM produced some information; the stockholder objected that production was incomplete and sent a deficiency letter, but the dispute was not resolved.
- The stockholder filed a § 220 action in 2004 after continued disagreement over the scope and adequacy of production.
- USM filed two motions to dismiss, arguing the stockholder failed to plead facts showing a credible basis to suspect mismanagement and that the alleged purposes were insufficiently supported.
- After the court denied dismissal, the matter proceeded to a one-day trial; the court stated it was inclined to grant broad inspection relief but reserved decision on scope.
- Before a written merits ruling issued, the parties entered a stipulated order and final judgment providing for document production.
- The stockholder then sought attorneys’ fees (at least $45,000) and costs, asserting USM resisted the inspection in bad faith.

## Issues

1. Whether USM’s handling of the § 220 demand and its litigation conduct constituted bad faith or other exceptional circumstances justifying fee shifting under Delaware’s exceptions to the American Rule.
2. Whether the stockholder, as the prevailing party in the § 220 action, was entitled to recover court costs.

## Decision

- The court denied the request for attorneys’ fees.
- The court found no clear evidence that USM acted in bad faith in resisting inspection or litigating, even though its positions did not succeed.
- The court granted the request for costs because the stockholder was the prevailing party under the stipulated final judgment.

## Legal Principles

- Under the American Rule, parties ordinarily bear their own attorneys’ fees; fee shifting is limited to recognized exceptions.
- The bad-faith exception permits fee shifting only upon clear evidence that the losing party conducted the litigation in bad faith; the exception is applied narrowly and cautiously.
- A party does not act in bad faith merely by advancing losing arguments; positions with a colorable basis, even if mistaken, generally do not support fee shifting.
- In the § 220 context, a stockholder must show a proper purpose reasonably related to stock ownership; investigation of wrongdoing or valuation may qualify, subject to applicable standards.
- Costs are ordinarily awarded to the prevailing party absent countervailing considerations; prevailing stockholders in § 220 actions typically recover costs.

## Conclusion

The court refused to shift attorneys’ fees because the stockholder did not prove, by clear evidence, that USM’s resistance to the § 220 demand and its litigation tactics were in bad faith, but it awarded costs because the stockholder obtained inspection relief and therefore prevailed.


Norman v. U.S. MobilComm, Inc., 2006 Del. Ch. LEXIS 81 (Del. Ch. 2006)