B&N Education Board Secures Fee Award in Bay Capital Proxy Case

Barnes & Noble Education Inc.'s board persuaded Delaware’s top court Tuesday to uphold $850,000 in attorneys’ fees it won while litigating claims that its chairman used a missed deadline as a pretext for refusing to let shareholders vote on a dissident board slate.

The state’s justices affirmed a Delaware Chancery Court ruling by Vice Chancellor Kathaleen McCormick, who dismissed the lawsuit last year, ordering Bay Capital Finance LLC to pay B&N’s fees for resting its “primary case” on “a bold-faced lie.”

“The evidence supports the conclusion that” Bay Capital’s managing member “acted in bad faith” and that “Bay Capital ‘doubled down’ on its misrepresentation by repeating it during preliminary injunction proceedings, Justice James T. Vaughn Jr. wrote for the Delaware Supreme Court.

The private equity firm originally sought an injunction blocking B&N Education’s annual shareholder meeting pending litigation of its claim that it only missed the director submission deadline because it relied on misleading information in the company’s proxy notice.

Because the proposed vote could have ousted B&N Education chairman Michael P. Huseby, he was too conflicted to make a fair decision on whether to waive the deadline, the suit said, asking McCormick to grant an exception instead.

She denied the injunction bid in August 2019 and the remaining fiduciary breach claim in March 2020. For one thing, the full board, not just Huseby, had rejected Bay Capital’s nomination notice, the judge found.

More importantly, “the plaintiff first learned of the inaccurate language” in the proxy notice “after it was too late to comply with the bylaw deadline,” then lied in court and “obstructed discovery,” McCormick said.

She also granted most of B&N Education’s motion for attorneys’ fees, citing Bay Capital’s “bad faith conduct and abusive litigation tactics.”

The Delaware Supreme Court agreed.

B&N Education and its board were represented by Richards, Layton & Finger PA and Gibson, Dunn & Crutcher LLP. Bay Capital was represented by Berger Harris LLP.

The case is Bay Capital Fin. LLC v. Barnes & Noble Educ. Inc., Del., No. 239, 2020, 3/30/21.