In re Compellent Technologies, Inc. S’holder Litig., Del. Ch., Consol. C.A. No. 6084-VCL (Dec. 9, 2011).
This summary was prepared by an associate at Eckert Seamans.
Issue Addressed: Despite the length of this fifty-four page opinion, the only issue involved was the proper amount of attorneys’ fees. The Court noted that it has not—to this point—developed a framework for evaluating the benefits conferred by changing deal protections because attorneys’ fees are typically part of the related settlement agreement.
A group of shareholders of Compellent Technologies, Inc., a cloud-based computing company, recently sought a preliminary injunction against the company’s acquisition by Dell Inc. Before the parties began seriously litigating the acquisition, the parties settled. The Court approved the settlement, but left the issue of attorneys’ fees for another day.
When Dell set out to acquire Compellent Technologies, it had just wrapped up an earlier deal with 3PAR that left Dell with a sore spot for loosely drafted (and non-buyer friendly) merger agreements. In its deal with Compellent, Dell wanted to make sure that any agreement related to the merger contained aggressive lock-up provisions and deal protections that would prevent an unwanted takeover situation. The original merger agreement presented by Dell contained the following deal protections: (i) a no-shop clause and superior offer out, which required any competing bidder to enter into a 275-day standstill before receiving any non-public information; (ii) potential contractual liability for any (even non-material) breach of the merger agreement; (iii) expansive information rights that required Compellent to divulge the name of any potential competing bidder at least two days before entering into discussions with the bidder; (iv) a termination fee of $37 million (approximately 3.85% of equity); and (v) a rights plan.
After some discovery but before briefing, Dell and Compellent agreed to a less restrictive merger agreement to increase the possibility that a topping bid for Compellent would be made. The parties also agreed to some additional public disclosures about the agreement.
Plaintiffs’ attorneys requested $6 million in fees, and defendants’ argued for a cap of $1.25 million.
The Court did not doubt that plaintiffs’ counsel conferred a benefit to Compellent Technologies and its shareholders. The problem arose when the Court wanted to enumerate that benefit. Since every corporate acquisition is different, the Court turned to the factors set forth in Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980) to determine the proper award of attorneys’ fees in this action. The Sugarland factors include:
(i) the amount of time and effort applied to the case by counsel for the plaintiffs; (ii) the relative complexities of the litigation; (iii) the standing and ability of petitioning counsel; (iv) the contingent nature of the litigation; (v) the stage at which the litigation ended; (vi) whether the plaintiff can rightly receive all the credit for the benefit conferred or only a portion thereof; and (vii) the size of the benefit conferred.
First, the Court considered the factors it considered to be the most important: the amount of the benefit conferred on Compellent’s shareholders by the relaxed deal protections and the additional disclosures; and the amount of those benefits that were attributable to plaintiffs’ counsel. The relaxed deal protections “should” increase the chance of a topping bid, even though there were no topping bids in the Dell/Compellent deal. Citing In re Del Monte Foods Co. Sh’holders Litig., 2011 WL 2535256 (Del. Ch. June 27, 2011), the Court held that “the size of the benefit is not affected by whether or not a topping bid actually emerges,” as long as an opportunity for a topping bid exists.
The Court recited that fee awards cannot be calculated with scientific precision, and that courts have “substantial discretion” in awarding attorneys’ fees. Then the Court dove head first into the reports submitted by the parties, and rather than relying on one or the other, the Court garnered evidence for its decision from all of the reports. It is worth noting that the plaintiffs submitted an expert report and defendants did not; rather, defendants challenged the scientific evidentiary value of plaintiffs’ expert’s report.
The Court awarded $2.3 million to plaintiffs’ counsel for increasing the possibility of a topping bid; and $100,000 for extracting the additional disclosures. The Court briefly touched on the other Sugarland factors, determining that, with the exception of the time and effort put forth by counsel (which supports the award of $2.4 million), the other factors did not merit an upward or downward adjustment of the Court’s determination of fees.