In Re Cox Radio, Inc., Shareholders’ Litigation, Cons. C.A. No. 4461-VCP (Del. Ch. May 6, 2010), read opinion here. This 58-page Court of Chancery decision approved a class action settlement and also certified the class and awarded attorneys’ fees in the reduced amount of 1/3rd of the amount requested.
This case is a class action that alleged breach of fiduciary duties in connection with a transaction consisting of a tender offer by a controlling shareholder and a second-step short-form merger. Approximately one month after the suit was filed, the plaintiffs entered into a Memorandum of Understanding (MOU) which constituted an agreement in principle to settle the action. Under the MOU, the consideration offered in the tender offer was increased and supplemental disclosures were provided. The Court approved the certification of the class; the approval of the proposed settlement; and an award of attorneys’ fees. Two sets of shareholders objected to the settlement, claiming that it only provided modest benefits compared to the high value of claims that were released.
This decision is important reading and necessary for anyone seeking to have a class action settlement approved by the Court of Chancery and seeking to obtain approval of a request for attorneys’ fees. Compare recent Revlon decision here.
The important topics addressed by the Court in this decision included the following:
• The standards to certify a class under Rule 23(b).
• The standards under Rule 23(e) to approve a class action settlement.
• The entire fairness standard does not apply to a transaction involving a non-coercive tender offer by a controlling stockholder (e.g., subject to a non-waivable majority of the minority tender condition and when the controlling shareholder promptly completes a Section 253 short form merger at the same price if it obtains 90% of the shares. See footnotes 92 to 95.
• The Court rejected the objections to the settlement by those who filed an appraisal action and claimed that the inability to satisfy the entire fairness standard made their breach of fiduciary claims worth in excess of nine figures. The Court also rejected the objections by plaintiffs who had filed a federal securities lawsuit.
• The extensive analysis by the Court of its reasoning in reducing the amount of attorneys’ fees requested can be found at page 50 through 58 of the decision and is “must reading” by anyone seeking approval in the Delaware Court of Chancery for fee requests in these types of cases.