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Knott Partners L.P. v. Telepathy Labs, Inc.
Citation: Not availableDocket: CA No. 2021-0583-SG
Court: Court of Chancery of Delaware; August 18, 2022; Delaware; State Appellate Court
Original Court Document: View Document
The Court of Chancery of Delaware addressed Knott Partners L.P.'s Interim Fee Petition seeking over $250,000 in attorney's fees related to a single count of its Complaint against Telepathy Labs, Inc. The petition is interim, as the case remains ongoing, and such petitions are generally disfavored due to concerns of judicial economy. The court noted that while the American Rule typically requires each party to bear its own costs, exceptions exist, including the bad faith exception, which allows for fee awards in cases where a party has acted in bad faith or with oppressive intent. Knott Partners claimed that Telepathy acted in bad faith by disputing its status as a stockholder, which led to the need for litigation over this issue. The court had previously determined that Knott Partners was indeed a stockholder, referencing concessions made by Telepathy regarding this status. However, after reviewing the submitted documents and trial records, the court found insufficient evidence of bad faith on Telepathy's part. It also noted that the dispute over stockholder status involved evolving arguments from both parties, indicating shared responsibility for the necessity of litigation regarding this issue. Knott Partners was determined to be a beneficial owner of Telepathy stock under Section 220 of the Delaware General Corporation Law, as established by clear and convincing evidence in the Memorandum Opinion. This conclusion was made within a narrow decision extending previous Section 220 case law. Despite Telepathy's concessions during litigation, the court found no evidence of bad faith conduct by Telepathy, which means the Plaintiff cannot invoke the bad faith exception to the American Rule regarding attorney's fees. Consequently, the motion put forth by the Plaintiff was denied. The decision is formally ordered by Vice Chancellor Sam Glasscock III.