Delaware Corporate and Commercial Litigation Blog : Delaware Litigation Lawyer & Attorney : Francis G. X. Pileggi : Corporate, Business, Commercial, Delaware Chancery Court

Dutiel v. Tween Brands, Inc., No. 4743-CC and No. 484-CC (Oct. 28, 2009), read letter decision here. Read prior Chancery Court decision in this case highlighted on this blog here. In this most recent ruling, the Chancellor denied a motion for reconsideration of the Court's selection of lead counsel in a consolidated class action.

Overview

This letter decision denies a motion for reargument based on the familiar standards for such a motion. In addition to reciting the high hurdle to satisfy the prerequisites in this procedural setting, citing cases at footnotes 5 through 10, the Court summarized its reasoning by saying that relief pursuant to a motion for reconsideration is available “to prevent injustice” and there was no injustice in this situation. Instead, the Court explained that the motion was based on arguments that were themselves erroneous and, the Court added, also appeared to be based on “Dutiel’s misunderstandings and misapplications of settled Delaware law.”

As explained in more detail in the prior case summary linked above, the primary focus of  the Court's initial decision was the Court’s appointment of Ohio counsel as the lead counsel in this consolidated class action.

The Court used some “Halloween humor” to explain why it disagreed with the characterization by the movant of the Court's prior opinion in connection with describing the level of cooperation among the plaintiffs in this consolidated class action. In footnote 14 the Court explained as follows:

This Court appreciates holiday festiveness and cheer, but even at this time of year, it is best not to dress up or disguise a Court’s legal reasoning.”

Analysis

The Court addressed with a robust analysis the argument that the Court “misapplied a legal precedent” to the extent that it allegedly based its decision on the appointment of lead counsel on the fact that counsel chosen represented plaintiffs that “had a greater economic interest.” The Court addressed the cited cases that referred to “relative economic stakes” as compared to “simply economic stakes.”

The Court referred to other Chancery Court opinions that relied on a determination of economic interest of a plaintiff in “absolute terms not relative ones” and did not favor the plaintiff with the higher economic interest. See Wiehl v. Eon Labs, 2005 WL 696764 at * 3 (Del. Ch. Mar. 22, 2005).

Moreover, the Court noted that it was “baffling” and not understandable why Dutiel would demand an analysis of “relative economic stakes,” when in relative terms the interest of the plaintiffs whose counsel was chosen, was 1100% larger than the interest of Dutiel. The Court also explained that the Wiehl Court did not compare the sizes of the stakes of the different shareholders relative to one another, but noted how similar the stakes were in absolute terms (that is, as a percentage of the overall company). Such an analysis is mislabeled as relative, the Court explained.

The Court, in footnote 27, provided an explanation of the meaning of the word "relative" by the “Father of Relativity himself, Albert Einstein, who is said to have explained: “Put your hand on a hot stove for a minute, and it seems like an hour, sit with a pretty girl for an hour, and it seems like a minute. THAT''s relativity.”

Clarification of Reasoning

The Court went to great lengths to emphasize that it was not advocating a bright-line rule with regard to the factors to apply in determining lead-plaintiff status. For example, the Court explained that it was not basing its decision on the plaintiff with the highest absolute economic stake. It was not setting a specific dollar amount on the stake that a plaintiff must have in order for the Court to be confident that the plaintiff will take an active interest in the outcome of the litigation. Rather, the Court underscored that it considers several factors when deciding which plaintiff the Court will appoint as lead plaintiff. For several of the factors, the race between potential lead plaintiffs was too close to call, but in no way do such close races mean the plaintiffs never even had the opportunity to “lace up their shoes.”

On Incentives and Ethics

The movant argued that the Court’s decision would “invite abuse” to encourage plaintiffs “who routinely file elsewhere to game the system and seek a second bite at the apple when they  are shut out in a competing jurisdiction.” The Court described that argument thusly: "the movant simply created a straw man - - accusing the Court of incentivizing bad behavior - - and then purports to knock it down.”

Rather, the Court emphasized that its decision merely declined to penalize a litigant because his or her counsel filed in another jurisdiction. The Court reasoned that the “initial location of filing cannot be a principled basis for this Court to resolve lead counsel disputes.” The Court also rejected the argument that it gave any weight to the lawyers who “invoke this Court’s name in a ‘fishing’ press release and then file elsewhere, only to return here after determining that their action is going to be stayed or dismissed.”

The Court underscored that the referenced online press release did not bear upon its decision. It also explained that the role of the Court is not to serve as a “professionalism policeman.” The Court concluded with a suggestion to the movant that if the movant believed that “the issuance of online press releases poses an ethical problem, her counsel should report the conduct to the appropriate disciplinary counsel.”

UPDATE: Alison Frankel of The AmLaw Litigation Daily  also reviews this case and links to our summary here.
 

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Oliver v. Boston University, No. 16570-VCN (Del. Ch., May 29, 2009), read letter decision here. Prior opinions in this case by the Chancery Court were summarized here on this blog. This latest decision addresses a few open issues after the approval of a class action settlement.

Issues Addressed and Decided

1. Award to Lead Plaintiff. The court awarded $40,000 to the lead plaintiff for the estimated 2,000 hours that the lead plaintiff spent to help class counsel pursue the action on behalf of the class. The court observed that: "Awards to representative plaintiffs should be rare. Only in exceptional cases should such an application be granted." (see footnote 1). The court reasoned that this was one of the "unusual circumstances in which compensation of the lead plaintiff is appropriate" because he (i) was deposed extensively; (ii) attended each day of trial; (iii) helped with document review and located a key document from a large set of documents; and (iv) his background brought a degree of knowledge and expertise to the task.
2. Shifting of Attorneys' Fees. The court refused to shift fees based on allegations of bad faith conduct on the part of defense counsel during the course of the litigation, nor did the court find sufficient merit to an argument that there was a conflict among defense counsel. (see footnotes 3, 4 and 6).
3. Settlement Proceeds Not Being Fully Disbursed. The court determined that the attorneys' fees would be based on the total settlement amount even if the total proceeds were not completely disbursed. There was an issue, however, of not being able to identify all the shareholders to whom the settlement was to be disbursed. The court noted that leftover, unclaimed settlement funds often are given to charity. Based on the facts of this case, the court explained the basis for its reasoning for allowing Boston University, as a charity, to retain any  leftover settlement funds.
4. Costs and Expenses. The court awarded costs pursuant to Rule 54(d) and an additional amount for expenses not covered by the settlement.
5. Structuring and Funding of the Settlement. Although the amount of the judgment was $2.8 million, and it was not disputed that interest should accrue from 1998, because it took seven years to bring the case to trial, the court did not impose interest to start on attorneys' fees until beginning with the year 2004. Moreover, the court allowed the defendants to fund the judgment on an "as due" basis in light of the likelihood that a substantial portion might revert back to Boston University in the end.

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In Re Cablevision/Rainbow Media Group Tracking Stock Litigation, No. 19819-VCN (May 22, 2009), read opinion here.

This Chancery Court decision resolved a dispute regarding the amount of fees and the division of fees between class counsel in a Delaware shareholders’ suit that challenged the exchange by Cablevision Systems Corporation of its then-outstanding tracking stock and certain assets of its Rainbow Media Division for Cablevision common stock. Shareholder actions challenging the transaction based on the adequacy of the consideration were filed in Delaware and later in New York. The allegations in both actions were similar although the New York action contained additional claims.

Procedural background

According to the court, the Delaware case “did not proceed with any great dispatch. It was the better part of two years before the Delaware plaintiffs began to move forward with their litigation here. The plaintiff in the New York action did take discovery but that case was eventually confronted by a stay of that action.” The plaintiff in the New York case moved to intervene in the Delaware action to seek a stay of the Delaware action in favor of the New York action. The Delaware Chancery Court directed counsel for both the Delaware plaintiffs and the New York plaintiff to “work together to pursue cooperatively the interests of the class. Apparently that request was not implemented.”
The proposed settlement that would also include the New York action was for payment to the class of $8.25 million, inclusive of attorneys’ fees. The proposed settlement supported a fee award of 30% of the common fund recovery.

Objections to Class Action Settlement

However, the New York plaintiff made known its objections to the proposed settlement and succeeded in negotiating an increase of $1.5 million in the settlement proceeds to a total of $9.75 million. The plaintiff in New York asserted that the Delaware plaintiffs settled “on the cheap and that its ability to negotiate an even greater settlement was severely hampered as a result.”
Nonetheless, the Chancery Court approved the settlement of a payment of $9.75 million. The court regarded this as a fair and reasonable amount under the circumstances as a settlement.

Issue: How to Split Fees Among Class Counsel

The only issue was the question of attorneys’ fees in terms of the total amount and how those amounts would be divided between counsel. Counsel for the Delaware plaintiffs sought an award of 30% of the $8.25 million. However, counsel for the New York plaintiff urged the court to reduce the total award to $1.75 million (thus increasing the amount to be distributed to the class) and then divide that amount equally between counsel for Delaware plaintiffs and counsel for the New York plaintiff.

Court's Reasoning

The court acknowledged that there was no “bright line test” to apply in this situation. The court explained why it decided that an award of 22.5% of the fund would be an appropriate amount for attorneys’ fees which would result in a total award of fees and expenses of $2,193,800 (with expenses for both Delaware and New York counsel approximating $195,000).

The court acknowledged the difficulty in allocating attorneys’ fees among lawyers for plaintiffs pursuing substantially similar claims in different jurisdictions. The court recited the standards generally for awarding attorneys’ fees in class actions and recognized that the attorneys for the New York plaintiff were able to secure an additional $1.5 million for the settlement. In sum, the court awarded 22.5% of the initial $8.5 million recovery to the Delaware plaintiffs “reduced from the additional amount paid to the class from what would have been fees paid to the Delaware plaintiffs if the proposal of the 30% fee award from the common fund had been approved.” Thus, the bottom line is that the Delaware plaintiffs were awarded $1,717,000 in fees and expenses and the New York plaintiff was awarded $476,800 in fees and expenses.

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In re William Lyon Homes Shareholder Litigation Consolidated, C.A. No. 2015-VCN (April2, 2009), read letter decision here. See prior Delaware decisions in this case here and here.

Kevin Brady, a highly respected Delaware litigator, provides us with this case summary.

On April 2, 2009, Vice Chancellor Noble denied for the second time a fee application for an award of attorneys’ fees in  this Chancery Court decision after remand from the Delaware Supreme Court. The Court found that the presumption that the party seeking the fee and its attorneys were the cause of the price increase in question had been rebutted. The earlier award of December 21, 2006 was therefore reconfirmed (See In re William Lyon Homes S’holder Litig., 2006 WL 3860916 (Del. Ch. Dec. 21, 2006)).

Background Facts – Delaware and California Actions

This case involved a going private transaction with William Lyon Homes (“Lyon Homes”), which generated litigation in Delaware and California. A settlement was reached in the Delaware Action but not the California action. As a result of a negotiated settlement in the Delaware action, the original tender price was increased from $93 per share to $100 per share. After the Delaware action settled, the California litigation continued. An increase in the share price to $109 per share resulted following negotiations between representatives of General William Lyon (“General Lyon”), Lyon Homes’ controlling stockholder, and Chesapeake Partners (“Chesapeake”) which held a sizeable interest (approximately 3.5%), in Lyon Homes.

Alaska Electrical Pension Fund (“Alaska”), the plaintiff in the California litigation, intervened in the Delaware Action to file a petition seeking attorneys fees’ for the increase from $93 to $100 per share and the increase from $100 to $109 per share. Vice Chancellor Noble denied Alaska’s fee application with respect to the initial increase (which was affirmed on appeal) and with respect to the second increase.” The Court found that the second increase would not have occurred but for the efforts of Chesapeake (not Alaska) and that “there was no evidence establishing a causal connection between Alaska’s efforts and the increase.”

The Delaware Supreme Court Reverses the Denial

The Supreme Court, in reversing and remanding the decision to the Court of Chancery determined that the Court of Chancery’s analysis was flawed because it required Alaska “to demonstrate some causal connection under Infinity Broadcasting (see In re Infinity Broad. Corp. S’holders Litig., 802 A.2d 285 (Del. 2002)) between its efforts and the second increase. The Supreme Court stated that “Alaska enjoys the benefit of a presumption that its efforts bore a causal connection to the second increase by virtue of its position as the plaintiff in the only litigation pending at the time of the second increase.”

The Court of Chancery on Remand

On remand, Vice Chancellor Noble acknowledged that he would be required to again consider Alaska’s fee request but this time he would recognize that, “unless and until proven otherwise, Alaska’s efforts are presumed to be a cause of the second increase.” The Vice Chancellor was quick to note that he would evaluate the evidence and the presumptions related thereto “[e]ven though Alaska has conceded it was not a direct cause of the second increase.” .

No Causation Between Fee Petitioner and Price Increase

The parties engaged in additional discovery and with an expanded record upon which to evaluate Alaska’s request, Vice Chancellor Noble found that: “the parties opposing Alaska’s fee application have rebutted the presumption that benefits Alaska in its application. In other words, they have demonstrated that Alaska and its attorneys were in no way a cause of the second tender offer price increase.” In particular, Vice Chancellor Noble found that after the first increase, sufficient shares had not been tendered to meet General Lyon’s needs and that for the tender offer to be successful, General Lyon needed Chesapeake to tender its shares. Thus, it was the negotiations between Chesapeake and General Lyon (or his representatives) and not Alaska (or its counsel) that resulted in the second price increase.

As a result, Vice Chancellor Noble found that the presumption that Alaska was the cause of the second price increase had been rebutted and its fee petition was denied again.

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MARIE RAYMOND REVOCABLE  TRUST  v. MAT FIVE LLC, (Del. Ch., Dec. 19, 2008), read opinion here. The Chancery Court in this 39-page decision approved a class action settlement regarding claims of inadequate disclosure in a tender offer. Included in the opinion is the court's exercise of its own business judgment in connection with approving the settlement--especially in light of the severe financial crisis in the world markets that serves as the backdrop for the transactions involved.

The Court also addressed a Motion to Intervene under Rule 24 for purposes of objecting (by the plaintiff in the New York case who was excluded from the current settlement expressly.) The court denied the motion. Also decided  was class certification under Rule 23.

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