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.