In Badr Abdelhameed Dhia Jafar v. Vatican Challenge 2017 LLC, 2022 WL 365142 (Del. Ch. Feb. 8, 2022), the Court of Chancery held the petitioning member of the defendant LLC responsible for the fees and costs of a receiver that it sought to have appointed in connection with a Section 220 action.  After a default judgment was entered in favor of the Plaintiff in the underlying action, the Court granted the Plaintiff’s request to have a receiver appointed in order to gather and produce the requested books and records.  The Receivership Order provided that the “Receiver would be paid by the Defendant at her customary hourly rate and reimbursed for her fees and out-of-pocket expenses incurred on a monthly basis.”  However, the Receiver invoiced the Plaintiff for her fees and costs because she understood based on her investigation that the Defendant had no assets from which to pay her fees.  Plaintiff disputed its responsibility to pay the Receiver and eventually the Receiver filed a Motion To Compel Plaintiff to pay her fees and costs.

In its February 8, 2022 Letter Opinion, the Court makes clear that “[w]here a receiver is appointed at the request of and for the benefit of a party, and there is no fund out of which expenses can be paid, equity requires that the party is responsible for the receiver’s fee.”  Accordingly, the Court ordered Plaintiff to pay the Receiver’s reasonable costs and fees.  The Court declined to award the receiver its “fees on fees” in connection with her efforts to collect her fees from the Plaintiff.  Additionally, the Court’s Opinion permitted the Plaintiff to stand in the shoes of the Receiver to seek recovery of the fees and costs from the Defendant.  Plaintiff and the Receiver filed cross-motions for reargument of the Court’s February letter Opinion.  In a March 4, 2022, Letter Decision, the Court found that neither party articulated grounds for reargument.

The Court’s decision should be noted by litigants considering the appointment of a receiver for an insolvent entity.

Seth is a commercial litigator in Fox Rothschild’s Delaware office and can be reached at Seth Niederman (302) 622-4238.