There’s nothing better than winning a case or a motion in Court and to then follow that up with an award of attorneys’ fees. On that subject, two rulings in the Business Court last week addressed the award of attorneys’ fees. In one, the party requesting fees received them. In the other, fees were not awarded.
Fees For An Inspection Request
If you are moving for the inspection of corporate records for a shareholder, don’t forget that the statute provides for your clients to be paid their fees. Section 55A-16-04 of the General Statutes provides that the Court "shall also order the corporation to pay the member’s cost (including reasonable attorneys’ fees) incurred to obtain the order unless the corporation proves that it refused inspection in good faith because it had a reasonable basis about the right of the member to inspect the records demanded."
The Plaintiffs in Allcorn v. Bradley Creek Boatominium, Inc. — previously successful on a motion to obtain inspection of the Defendant’s corporate records — moved for an award of attorneys’ fees.
In an unpublished Order last week, Judge McGuire agreed that the Defendant had lacked a reasonable basis to withhold the records, and he awarded the Plaintiffs $14, 620.16 for their fees, the full amount they requested. The Defendant corporation claimed that it had a good faith basis for refusing to produce its records — that it was concerned that the Plaintiffs would misrepresent the contents of the records — but Judge McGuire did not find that concern to excuse its failure to produce the documents.
Fees For A Voluntarily Dismissed Trade Secrets Case
The outcome wasn’t as positive for the Defendant moving for attorneys’ fees in a trade secrets case, Velocity Solutions, Inc. v. BSG, LLC, 2015 NCBC 51. Section 66-145(d) allows for reasonable attorneys’ fees to be awarded to the "prevailing party" in a trade secrets case "if a claim of misappropriation is made in bad faith or if willful and malicious misappropriation exists."
There have not been any previous decisions in the Velocity case to write about, because Velocity took a voluntary dismissal without prejudice of its case, which included claims for misappropriation of trade secrets, in December 2014.
Whoa. Are you a prevailing party if the other side takes a voluntary dismissal? Judge Gale specifically declined to answer that question, finding other reasons to deny the Motion. Op. ¶44 & n.2.
But Judge Gale did wade into the question of what constitutes "bad faith" under the statute, which the statute does not define. The courts of other states that have enacted the Uniform Trade Secrets Act (on which the NC law is based), have looked for both "objective speciousness" and "subjective bad faith." Op. ¶45. Judge Gale, looking at appellate construction of the term "bad faith" under the unfair and deceptive trade practices statute concluded "there was no indication that our appellate courts would require a determination of subjective bad faith." Op. ¶47.
The fee request boiled down to the issue of specificity, which is always an issue in pleading a trade secrets claim. While the Court considered its recent opinions dealing with whether a pleading described the allegedly misappropriated trade secret with enough specificity to avoid a dismissal under Rule 12 (the second DSM Dyneema decision) or to allow discovery to move forward under Rule 26 (the first DSM Dyneema decision), it found that a "third standard" should be applied in considering whether fees are warranted:
whether the pleading was, when filed, devoid of factual or legal sufficiency or was brought or maintained in bad faith for an improper purpose.
Judge Gale found that the Plaintiffs had "an adequate factual and legal basis to form a reasonable, good faith belief in the merits of their claim." and that this reasonable and good faith belief precluded the imposition of sanctions under G.S. §66-154(d).
That good faith belief was supported by Plaintiffs’ affidavits attesting to twenty interviews before filing the Complaint, their review of publicly available information about the Defendant’s product and other investigation. Op. ¶24.
This probably won’t be the last time that you hear about the Velocity case on this blog. The Plaintiff has refiled its case, though its new Complaint makes no trade secrets claims.