Court Opinion

ID: 9958151
Source: CourtListenerOpinion
Date Created: 2024-04-08 14:02:38.080801+00
Date Added: 2024-06-11T08:17:58.243920
License: Public Domain

COURT OF CHANCERY
                                      OF THE
                                STATE OF DELAWARE
   BONNIE W. DAVID                                             COURT OF CHANCERY COURTHOUSE
MAGISTRATE IN CHANCERY                                                   34 THE CIRCLE
                                                                     GEORGETOWN, DE 19947

                                Final Report: April 8, 2024
                               Date Submitted: April 5, 2024

    Patricia L. Enerio, Esquire               Elizabeth Wilburn Joyce, Esquire
    Elizabeth A. DeFelice, Esquire            Megan Ix Brison, Esquire
    Heyman Enerio Gattuso & Hirzel LLP        Pinckney, Weidinger, Urban & Joyce
    300 Delaware Avenue, Suite 200            LLC
    Wilmington, Delaware 19801                2 Mill Road, Suite 204
                                              Wilmington, Delaware 19806

         RE:   Ali Hashemi v. All.Health, Inc.,
               C.A. No. 2023-0924-BWD

   Dear Counsel:

         This letter report resolves plaintiff Ali Hashemi’s (“Plaintiff”) Motion for an

   Award of Fees and Expenses (the “Fee Motion”) in this books and records action.

   As explained below, I recommend that the Fee Motion be denied.

   I.    BACKGROUND

         The following facts are set forth in my February 27, 2024 oral post-trial final

   report in this action (the “Post-Trial Final Report”). Hashemi v. All.Health, Inc.,

   C.A. No. 2023-0924-BWD (Del. Ch. Feb. 27, 2024) (TRANSCRIPT) [hereinafter,

   “Final Report”], Dkt. 54.

         Plaintiff is a director of All.Health, Inc. (“All.Health” or the “Company”), a

   Delaware corporation that markets itself as having developed a healthcare platform
Ali Hashemi v. All.Health, Inc.,
C.A. No. 2023-0924-BWD
April 8, 2024
Page 2 of 11

using technology to provide real-time, at-risk screening for several health conditions.

Final Report at 4:17-24. Plaintiff, who serves as the managing director of non-party

Polymath Holdings (“Polymath”), joined All.Health’s four-member board of

directors (the “Board”) in 2019, when Polymath purchased a $2.5 million

convertible note from All.Health. Id. at 5:7-6:2. Plaintiff is also the co-founder and

chairman of non-party GluCare Integrated Diabetes Center LLC (“GluCare”), a

healthcare technology company that recently partnered with All.Health competitors

to incorporate data from wearable technology into its clinical framework. Id. at 5:11-

22.

       Beginning in 2019, All.Health considered transferring its intellectual property

in the diabetes sphere into a separate company. According to the Company, Plaintiff

“advocate[d] forcefully that the separate company be owned by and under

[Plaintiff’s] control, with All.Health as a minority shareholder, thereby giving

[Plaintiff] a direct ownership stake in All.Health’s intellectual property.” Id. at 6:5-

13. In addition, in late 2021, All.Health sought to negotiate an agreement with

GluCare to license All.Health’s technology. Id. at 7:5-7. On January 13, 2022, the

Board voted to form a committee comprised of all directors except Plaintiff (the

“Committee”) and delegated to it “all powers and authority of the Board related to

any transaction or potential transaction involving GluCare . . . .” Id. at 7:12-18.
Ali Hashemi v. All.Health, Inc.,
C.A. No. 2023-0924-BWD
April 8, 2024
Page 3 of 11

       In early 2022, Plaintiff, Polymath, and GluCare expressed concerns to

All.Health that the state of All.Health’s technology was not as the Company had

represented to them. Id. at 7:19-23. On March 21, 2022, the Company informed

Plaintiff that he would be excluded from Board discussion on “any matter related to

[A]ll.[H]ealth’s potential dispute with GluCare[,]” including all “decisions about

product roadmap, allocation of engineering resources, personnel, pricing, and the

relative prioritization of various customers and features.” Id. at 8:13-24. Since then,

All.Health’s directors have not met as a Board but the three directors other than

Plaintiff purportedly have met as a Committee. Id. at 8:9-12.

       On July 27, 2022, Polymath initiated litigation against All.Health, its CEO

Hosain Rahman, and others in California Superior Court asserting claims for

fraudulent and negligent misrepresentation and breach of contract (the “California

Action”). Id. at 9:14-22. In the California Action, Polymath alleges that All.Health

and Rahman fraudulently induced it to invest in the Company by misrepresenting

key features of the Company’s technology. Id. at 9:22-10:2. Also on July 27, 2022,

GluCare initiated an arbitration against All.Health and Rahman in the International

Chamber of Commerce in London (the “London Arbitration”). Id. at 10:23-11:3.

The London Arbitration demand asserts claims for fraudulent and negligent
Ali Hashemi v. All.Health, Inc.,
C.A. No. 2023-0924-BWD
April 8, 2024
Page 4 of 11

misrepresentation and breach of contract arising from a licensing agreement between

a Polymath affiliate, Lux2 InvCo, and All.Health. Id. at 11:3-9.

       On September 11, 2023, Plaintiff filed this action to compel inspection of the

Company’s books and records under 8 Del. C. § 220(d). Id. at 12:1-3. Plaintiff then

narrowed his inspection request, and on October 9, 2023, filed an amended

complaint. Id. at 12:4-6.

       The Court held a paper trial on February 20, 2024. At trial, All.Health asserted

that Plaintiff’s stated purpose for seeking books and records—to satisfy his fiduciary

duties as a director—was not his actual purpose, and that Plaintiff actually sought

inspection for several other, improper purposes: to obtain All.Health’s intellectual

property for GluCare and himself; to aid GluCare and All.Health’s competitors; to

gain an advantage in ongoing litigations against the Company; and to publicly

malign the Company to destroy its reputation. All.Health further argued that the

scope of Plaintiff’s demand was overbroad and the Court should impose certain

conditions on any inspection. Id. at 16:7-18.

       On February 27, 2024, I issued the Post-Trial Final Report, finding the

Company had not met its burden to prove by a preponderance of the evidence that

Plaintiff lacked a proper purpose for seeking books and records; Plaintiff was
Ali Hashemi v. All.Health, Inc.,
C.A. No. 2023-0924-BWD
April 8, 2024
Page 5 of 11

entitled to most, but not all, of the books and records sought; and some, but not all,

of All.Health’s requested conditions should be imposed on Plaintiff’s inspection. Id.

at 24:23-25:3, 30:13-39:1, 39:2-43:11.

       The Post-Trial Final Report also noted that “[P]laintiff ha[d] moved to shift

his fees incurred in connection with this litigation onto the [C]ompany[,]” and

permitted Plaintiff to “file a motion for fees within 14 days.” Id. at 43:16-19. On

March 12, 2024, Plaintiff filed the Fee Motion. Pl.’s Mot. For An Award Of Fees

And Expenses [hereinafter, “Mot.”], Dkt. 52. All.Health filed its opposition to the

Fee Motion on March 26, 2024. Def. All.Health’s Opp’n To Pl.’s Mot. For An

Award Of Fees And Expenses [hereinafter, “Opp’n”], Dkt. 59. Plaintiff filed a reply

on April 5, 2024. Pl.’s Reply In Further Supp. Of His Mot. For An Award Of Fees

And Expenses [hereinafter, “Reply”], Dkt. 62. Oral argument is unnecessary.

II.    ANALYSIS

       “Delaware courts follow the American Rule that ‘each party is generally

expected to pay its own attorneys’ fees regardless of the outcome of the litigation.’”

Pettry v. Gilead Scis., Inc., 2020 WL 6870461, at *29 (Del. Ch. Nov. 24, 2020

(quoting Shawe v. Elting, 157 A.3d 142, 149 (Del. 2017)). An exception exists in

equity, however, when a party litigates in bad faith. Rice v. Herrigan-Ferro, 2004

WL 1587563, at *1 (Del. Ch. July 12, 2004).
Ali Hashemi v. All.Health, Inc.,
C.A. No. 2023-0924-BWD
April 8, 2024
Page 6 of 11

       A party seeking to shift fees must satisfy “the stringent evidentiary burden of

producing ‘clear evidence’ of bad-faith . . . .” Dearing v. Mixmax, Inc., 2023 WL

2632476, at *5 (Del. Ch. Mar. 23, 2023) (ORDER) (quoting Beck v. Atl. Coast PLC,

868 A.2d 840, 851 (Del. Ch. 2005)). To warrant fees, a litigant’s conduct must be

“glaring[ly] egregious[].” Seidman v. Blue Foundry Bancorp, 2023 WL 4503948,

at *6 (Del. Ch. July 7, 2023). “Bad faith is not something this court takes lightly,

and it should not be alleged lightly.” Donnelly v. Keryx Biopharmaceuticals, Inc.,

2019 WL 5446015, at *6 (Del. Ch. Oct. 24, 2019).

       In “extraordinary circumstances,” “overly aggressive litigation strategies”

improperly employed to resist a books and records demand may warrant fee-shifting.

Pettry, 2020 WL 6870461, at *29-30 (citation and internal quotation marks omitted).

Before and after Gilead, the Court has used its “power to shift fees as a tool to deter

abusive litigation tactics.” Id. at *2. 1

1
   Compare, e.g., PVH Polymath Venture Hldgs. Ltd. v. TAG Fintech, Inc., 2024 WL
371084, at *9 (Del. Ch. Jan. 31, 2024) (shifting fees where the defendant “[s]ought to
needlessly complicate and delay the proceedings, including by (1) producing an expert
opinion attempting to inject new issues under Cyprus law after the discovery deadline;
(2) purporting to unilaterally cancel Plaintiff’s shares on the eve of the pre-trial conference
and seeking to postpone trial on that basis; (3) insisting on the presentation of live
testimony at trial when, under the circumstances, the disputed issues could easily have been
resolved on the papers; (4) refusing to stipulate to the authenticity of most documents at
trial; and (5) requiring Plaintiff to inspect the Company’s books and records in person in
Abu Dhabi” (footnotes omitted)); Myers v. Acad. Sec., Inc., 2023 WL 6380449, at *2 (Del.
Ch.) (granting partial fee award where the defendant “forced the parties to litigate [a]
Ali Hashemi v. All.Health, Inc.,
C.A. No. 2023-0924-BWD
April 8, 2024
Page 7 of 11

       Plaintiff here does not contend that All.Health employed abusive litigation

tactics. 2 Plaintiff argues, instead, that the Company forced him to file this lawsuit

even though his “entitlement to exercise inspection rights was clear.” Mot. ¶¶ 25-

26. All.Health counters that it raised reasonable defenses in good faith, emphasizing

baseless standing defense through trial” and “raised other baseless factual assertions and
legal red herrings”), R. & R. adopted, 2023 WL 6846984 (Del. Ch. 2023); Seidman, 2023
WL 4503948, at *6-8 (shifting fees where the defendant “took a series of litigation
positions that, when viewed collectively, were glaringly egregious,” including taking
“aggressive positions in discovery” and making “demonstrably false statements” in
briefing); and Pettry, 2020 WL 6870461, at *30 (shifting fees where the defendant
“block[ed] legitimate discovery, misrepresent[ed] the record, and t[ook] positions for no
apparent purpose other than obstructing the exercise of Plaintiffs’ statutory rights”); with
Mellado v. ACPDO Parent Inc., 2024 WL 481034, at *3 (Del. Ch. Feb. 8, 2024) (declining
to shift fees where “Plaintiff’s litigation positions . . . d[id] not . . . reflect an ‘abuse of
process that is manifestly incompatible with justice’ or ‘an attempt to game the system’ in
bad faith” (citation omitted)); Myers, 2023 WL 6380449, at *3 (partially denying a request
to shift fees where the defendant’s positions on motions to compel were not unreasonable,
counsel acted quickly to correct a misstatement in briefing that reflected “an honest mistake
rather than bad faith conduct,” and defendant “took some reasonable positions in the
litigation that streamlined the proceedings, including by (1) agreeing to a trial on a paper
record rather than insisting on the presentation of live testimony, and (2) taking a targeted
approach when addressing the scope of the Demand”); Meehan v. Tiger Analytics, Inc.,
2023 WL 6053017, at *3-4 (Del. Ch.) (denying a request for fees where “[t]he Company’s
initial efforts to respond to the Demand were dilatory, but on the whole, its conduct was
not ‘glaringly egregious,’” rejecting arguments that the defendant took unreasonable
positions on confidentiality and wrongfully resisted discovery), R. & R. adopted, 2023 WL
6215084 (Del. Ch. 2023); and Dearing, 2023 WL 2632476, at *7 (denying fee-shifting
where the defendant’s discovery “process could have been better, but the Court [wa]s not
persuaded that th[e] issue, when viewed in context, warrant[ed] a finding of bad faith”).
2
  Although Plaintiff asserts that “All.Health’s conduct before, during, and even after trial
evidences its desire to block [Plaintiff] from full and complete information regarding
All.Health[,]” he does not identify abusive tactics that the Company employed while
litigating this case. Mot. ¶ 28.
Ali Hashemi v. All.Health, Inc.,
C.A. No. 2023-0924-BWD
April 8, 2024
Page 8 of 11

that, although the Court found All.Health failed to meet its burden to prove that

Plaintiff lacked a proper purpose for inspection, the Court also conditioned

inspection on a confidentiality order prohibiting Plaintiff from sharing books and

records with its California counsel due to “a legitimate risk that the documents

sought through the books and records demand could be used to advance Polymath’s

interests in the California [A]ction to the detriment of the [C]ompany . . . .” See,

e.g., Opp’n ¶ 9 (quoting Final Report at 42:8-15).

       “[A]ttorneys’ fees may be awarded if it is shown that the defendant’s conduct

forced the plaintiff to file suit to ‘secure a clearly defined and established right.’”

McGowan v. Empress Entm’t, Inc., 791 A.2d 1, 4 (Del. Ch. 2000) (quoting Abex Inc.

v. Koll Real Est. Gp., Inc., 1994 WL 728827, at *20 (Del. Ch. Dec. 22, 1994)). But

winning on the merits does not automatically entitle a Section 220 plaintiff to fees;

again, fee shifting is appropriate in the rare event that a party has litigated

vexatiously or otherwise acted in subjective bad faith. 3 To support a finding of bad

3
  See PVH Polymath Venture Hldgs. Ltd., 2024 WL 371084, at *8 (shifting fees where,
“[r]ather than consider Plaintiff’s Demand in good faith,” the defendant asserted a
pretextual defense, “forcing Plaintiff ‘to file suit to ‘secure a clearly defined and established
right[ ]’’ to inspect books and records”); Carlson v. Hallinan, 925 A.2d 506, 546-47 (Del.
Ch. 2006) (shifting fees where the “[d]efendants d[id] not dispute that [the] [plaintiff] had
a proper purpose” but nevertheless forced “the plaintiff to file suit to secure a clearly
defined and established right”); McGowan, 791 A.2d at 4-5 (shifting fees where the
company “falsely promis[ed] to produce corporate records that [the] [plaintiff] was clearly
entitled to inspect,” then failed to “honor[] [those] promises,” forcing the plaintiff to file
Ali Hashemi v. All.Health, Inc.,
C.A. No. 2023-0924-BWD
April 8, 2024
Page 9 of 11

faith here, Plaintiff argues that “[t]he Company has excluded [Plaintiff] from Board

meetings for more than two years,” “stonewalled or sought to impose burdensome

conditions on the inspection,” and more recently, “threatened to remove [Plaintiff]

from the Board . . . .” Mot. ¶ 28. 4 Plaintiff does not identify any specific conduct

reflecting an “abuse of process that is manifestly incompatible with justice” or “an

attempt to game the system.” Donnelly, 2019 WL 5446015, at *6. Plaintiff also

claims the Court “found All.Health’s opposition to [Plaintiff]’s director inspection

rights was not justified” and “unsupported by evidence and based on ‘speculation

and mistrust.’” Mot. ¶ 29. Although the Court concluded that All.Health failed to

meet its burden to prove its improper purpose defense, the Company’s “argument[s]

w[ere] not frivolous, and [its] failure to satisfy its burden of proof on [a] fact issue

the action before “settl[ing] the case by giving [the] [plaintiff] essentially all the relief he
had sought”); Abex, 1994 WL 728827, at *20 (awarding fees where the defendant
“contest[ed] liability, threaten[ed] litigation, and force[d] [the] plaintiffs to prosecute th[e]
action and litigate defenses that had no factual or legal merit . . . in order to delay payment
of [a] contract obligation”).
4
  In his reply, Plaintiff asserts that, “since trial, All.Health has continued its bad-faith
conduct towards [Plaintiff] by attempting to remove him as a director in an effort to render
his trial victory meaningless . . . .” Reply ¶ 3. As Plaintiff appears to acknowledge,
however, the Court cannot determine the validity of Plaintiff’s purported removal from the
Board through this Fee Motion. See id. ¶ 8 n.4 (explaining that Plaintiff “has filed an action
under 8 Del. C. § 225 seeking a declaration that the purported removal is invalid”). In any
event, Plaintiff’s purported removal, valid or otherwise, does not provide a basis to shift
the costs of litigating this books and records action onto the Company. To be clear, though,
nothing herein prevents Plaintiff from moving to enforce the final order or seeking other
relief as appropriate.
Ali Hashemi v. All.Health, Inc.,
C.A. No. 2023-0924-BWD
April 8, 2024
Page 10 of 11

d[oes] not support a finding of bad faith.” Myers, 2023 WL 6380449, at *3 (partially

denying a request for fees despite having found the defendant failed to meet its

burden to prove by a preponderance of the evidence that the plaintiff had sent

harassing emails); see also Mellado, 2024 WL 481034, at *2 (finding “Plaintiff ha[d]

not shown that the Company acted in bad faith by improperly withholding books and

records to which Plaintiff had “‘a clearly defined and established right[,]’”

explaining that “although the Court found Plaintiff was entitled to inspect certain

categories of books and records, it also found merit in the Company’s position that

Plaintiff sought books and records for secondary purposes” (citation omitted)); Gen.

Video Corp. v. Kertesz, 2009 WL 106509, at *1 (Del. Ch. Jan. 13, 2009) (noting that

“the simple fact that” a party’s positions “were disproven at trial is not itself clear

evidence of bad faith”).

       For these reasons, the Fee Motion is denied.

III.   CONCLUSION

       “[L]awyers should think twice, three times, four times, perhaps more before

. . . moving for fees under the bad faith exception.” Coughlin v. S. Canaan Cellular

Invs., LLC, 2012 WL 2903924, at *2 (Del. Ch. July 6, 2012) (first alteration in

original) (internal quotation marks omitted) (quoting Katzman v. Comprehensive

Care Corp., C.A. No. 5892-VCL, at 13 (Del. Ch. Dec. 28, 2010) (TRANSCRIPT)).
Ali Hashemi v. All.Health, Inc.,
C.A. No. 2023-0924-BWD
April 8, 2024
Page 11 of 11

Parties also should be mindful that “[a]n unwarranted motion for fee shifting under

the bad faith exception can itself justify a finding of bad faith and fee shifting.” Id.

       Neither party litigated this action in bad faith, and I therefore recommend that

Plaintiff’s request for an award of attorneys’ fees be denied. This is a final report

pursuant to Court of Chancery Rule 144. The stay of exceptions entered under the

Chancellor’s assignment letter is hereby lifted. 5

                                               Sincerely,

                                               /s/ Bonnie W. David

                                               Bonnie W. David
                                               Magistrate in Chancery

cc:    All counsel of record (by File & ServeXpress)

5
 See Ct. Ch. R. 144(d)(2) (“In actions that are summary in nature or in which the Court
has ordered expedited proceedings, any party taking exception shall file a notice of
exceptions within three days of the date of the report.”).