GROVER C. BROWN, Vice-Chancellor.
Gentlemen:
The current posture of this litigation is that Telvest, Inc. ("Telvest"), having sued as a stockholder of the defendant Outdoor Sports, Inc. ("OSI") and having obtained an injunction so as to prevent what this Court concluded to be a proposed illegal issue of preferred stock by the defendant management of OSI, now seeks to be awarded some $70,000 in counsel fees and more than $40,000 in expenses based on the theory that its efforts produced a substantial benefit on behalf of OSI and all its shareholders. The defendants oppose this application on the basis that Telvest, at the time, was seeking to gain control of OSI, that Telvest sued both individually as well as derivatively, that as a result of a tender offer for OSI stock made by a third party during the course of the litigation it reaped a profit of more than $1.5 million by tendering its shares to the third party, and that as a consequence Telvest has already realized a substantial individual benefit which should outweigh any right to recover counsel fees and expenses as a derivative plaintiff, especially since the result it achieved produced no fund or ascertainable monetary benefit to OSI.
Alternatively, the defendants take the position that even if Telvest is entitled to an award of counsel fees and expenses, the amount which it seeks is excessive. To this end, the defendants seek leave to engage in limited discovery with regard to the efforts of Telvest's counsel actually expended on the derivative aspects of this one particular suit. Defendants feel this to be pertinent in view of the fact that at the same time that this suit was proceeding, the parties were engaged in companion litigation in the federal courts in Chicago. Telvest also noticed a tender offer for OSI stock the day after the injunction was entered here, although during the course of this litigation prior to that time it had disavowed that it had any such intention in mind. Defendants would like to probe into the amount of legal time that went into this conduct on Telvest's part so as to be sure it is not included in the fee Telvest is claiming on behalf of the therapeutic benefit it feels that it produced for the corporation it was attempting to take over.
The fee application further includes a request for $35,000 for an opinion as to the marketability of OSI's stock apparently rendered to Telvest by an investment banking firm during April 1979, and thus several weeks after a hearing had been held in this Court and a preliminary injunction entered. The application also includes a request for fees to compensate for the legal services rendered by one Nathan Dardick, house counsel for, and secretary and director of, Telvest.
Defendants stress that they are not disputing the total hours spent by counsel for Telvest as set forth in their respective affidavits, nor are they questioning the hourly rates charged, the competence and standing of counsel, etc. They simply want discovery to be certain as to the hours and expenses specifically attributable to the Delaware litigation, including the time spent in defense of OSI's counterclaim. Telvest opposes such discovery, viewing it as further harassment by the defendants. It presumably follows that Telvest would have the Court decide the fee application on the briefs and affidavits of record.
Having considered the situation, and as reluctant as I am to do so, I conclude that the defendants should be entitled to reasonable discovery in the limited area into which they seek to inquire before any decision is made on the fee application. I arrive at this conclusion for the following reasons.
This case came into being because of the device seized upon by the defendants in an effort to thwart what they perceived to be an on-coming take-over attempt by Telvest. The device was a proposed issue of preferred stock by resolution of OSI's board of directors which would have increased the stockholder vote necessary to approve a merger between OSI and another entity. Telvest was the other entity at which the increased voting requirement was directed. Telvest was a 20% stockholder of OSI. I think it fair to say that it was at least exploring the possibility of obtaining control of OSI at the time OSI's board proposed the action which would have made the effort considerably more difficult. Thus I do not believe that Telvest was acting solely out of an eleemosynary concern for the rights of its fellow OSI stockholders when it instituted this individual and derivative suit to stop the proposed action of the defendants. While the result achieved by Telvest may have benefited the corporation by preventing an illegal issue of stock to public investors, it would seem just as likely that it also enhanced the private plans of Telvest. That Telvest was engaged in a planned take-over attempt all along is at least moderately indicated by its tender offer notice given one day following the entry of the injunction in its favor in its "individual and derivative" suit.
It has been judicially recognized that not all legal effort is fully compensable to a derivative plaintiff. Effort spent on individual claims can be segregated from effort spent on achieving a derivative benefit when the time comes to hand out the fees. Saks v. Gamble, Del.Ch., 154 A.2d 767 (1958); and seeDillon v. Berg, 351 F.Supp. 584 (D.Del. 1972), remanded, 482 F.2d 1273 (3rd Cir. 1973). Moreover, the award of fees in a derivative action in this Court is a discretionary act, reviewable only for an abuse of discretion. Chrysler Corporation v. Dann, Del.Supr., 223 A.2d 384 (1966). Discretion, to be properly exercised and thus adequately reviewable, should be on a record which fairly reflects the issues for decision. In fact the remand in Dillon v. Berg, supra, was for the purpose of making a more adequate record.
Accordingly, I grant the defendants the right to take discovery in the limited area requested. Since this would seem to include the purpose for some of the legal work undertaken on behalf of Telvest (since under the defendants' approach time spent cannot be categorized without knowing its purpose), I think it only fair that Telvest should have a corresponding right to take such discovery as it may need from the defendants in order to bring matters into proper focus. I do not intend, however, for such discovery by either side to be extensive. And it goes without saying that any "shot gun" approach which smacks of harassment or dilatory tactics will be darkly viewed by the Court.
If counsel feel the need for any particular form of order reflecting this decision, I shall be glad to meet with them upon request.