In CanCan Development, LLC v. Manno, C.A. No. 6283-VCL (Del. Ch. Sept. 21, 2011), the Delaware Court of Chancery denied Defendant Manno’s motion for relief from default judgment pursuant to Rule 60(b) in connection with the Court granting of an award of reasonable attorneys' fees and costs.

Background

Plaintiff CanCan Development filed this action pursuant to 6 Del. C. § 18-110 to obtain a summary determination that Manno had been removed as a manager of the underlying company, and moved to expedite the proceedings. One night before Manno was required to respond to the complaint, her out-of-state counsel sent a letter to the Court advising that she would not be filing an answer, due to a transfer of membership units of non-parties space which allegedly rendered the case moot.

However, before representing to the Court that this case was moot, Manno’s out-of-state attorney filed a plenary action in New Jersey Superior Court, which included a count to litigate Manno's removal as manager of the company. Of note, throughout the majority of this case, Manno failed to retain Delaware counsel in this matter, relying solely upon a Texas attorney, the practices of whom were disfavored by this Court. CanCan then filed a motion for default judgment in the Delaware action, also seeking attorneys' fees and costs. In response to the Court granting not only default judgment against Manno, but also an award of attorneys' fees and costs, Manno subsequently filed a Rule 60(b) motion for relief from an award of such attorneys' fees and costs.

Analysis

Under Rule 60(b)(1), the Court may vacate a judgment "upon such terms as are just" if the defendant can show that the judgment resulted from "mistake, inadvertence, surprise, or excusable neglect."

The Court held that if Manno had acted responsibly in light of changed circumstances to moot the dispute over her removal as a manager, then it would not have entered a default judgment that awarded fees to CanCan.  However, the Court found that Manno "appeared to be attempting in bad faith to eat her cake and still have it". Manno's decision to represent to the Court that the issue was mooted, while continuing to litigate the same issue in New Jersey, was the "litigation equivalent of keeping her fingers crossed behind her back."

Accordingly, the Court held that, in light of Manno's tactical gambit of conceding this case in Delaware in order to litigate in New Jersey, Manno cannot claim that the default judgment of an award of attorneys' fees resulted from mistake, inadvertence, or excusable neglect. It rather resulted from the litigation strategy that she and her out-of-state counsel consciously adopted. 

Conclusion

This decision demonstrates the importance and necessity of obtaining Delaware counsel in any matter before the Court of Chancery. The court specifically stated that “[p]arties who wish to avoid similar outcomes would be well advised to retain Delaware counsel promptly, and in any event before the conclusion of the case.”  The Court's disapproval of the practices of her out-of-state attorney likely resulted in the granting of attorneys' fees and costs against Manno.