In a recent ruling from the bench, the Court of Chancery approved fees for a therapeutic benefit that had its genesis in a ruling from March 2015, that was previously highlighted on these pages in the matter of Strougo v. Hollander, and which determined that a bylaw amendment would not apply to former stockholders when adopted by the board on a date after the plaintiff-stockholder was cashed out in a reverse stock split. When the transcript of the settlement hearing on Feb. 3, 2016, becomes available I will upload it on this blog, but the key aspects of this ruling for future reference include the following bullet points:
- The common fund that was the result of a negotiated settlement was created in the amount of $127,000 and although the court awarded 15% of that fund for attorneys’ fees, the court first “grossed-up” the amount. The net result of that “gross-up” was more in fees as compared to taking 15% of the $127,000. That is, the court added the 15% of the $127,000 to the amount of the common fund before applying the 15% to calculate the fee.
- The court also awarded $333,000 for the fees attributable to the therapeutic benefit originating in the winning of a motion last year, highlighted on these pages and hyperlinked above, in which the court invalidated a fee shifting bylaw as applied to the former stockholders, even though no decision was made on the facial validity of that bylaw and no ruling was made regarding the substantive issues in the challenged reversed stock split. The ruling on the applicability retroactively of that bylaw did not depend on the particular type of bylaw it happened to be, but the fact that it was a fee-shifting bylaw brought more attention, and dicta, to that prior decision.
- The amount of $333,000 is notable by comparison to the much smaller amount of the common fund obtained as a result of a settlement on the merits of the case, which was made possible or more likely by the ruling which allowed the case to proceed in light of the fee shifting bylaw which was held to be inapplicable to the former stockholders.
- The amount of the fee of $333,000 for a therapeutic benefit appears identical to a fee award that was approved in a case involving the withdrawal of forum selection bylaws. In a case styled In Re Colfax, the transcript refers to that fee award in the other bylaw settlement case. The awkward and circuitous citation results from the fact that the Colfax transcript refers to a stipulated settlement in another case that I only have documented in consolidated stipulations, but those stipulations don’t mention the approved amount of the fee (as compared to a higher stipulated amount.) Refer to the stipulations of settlement in consolidated cases involving the withdraw of forum selection bylaws.
- One takeaway from this bench ruling of Feb. 3, 2016, in the Strougo matter, is that a fee award for a therapeutic benefit can be several times larger than the amount of the common fund created for stockholders in the same case, and the lack of proportionality between the two amounts is not an impediment to the amount of the fee award for the therapeutic benefit. (Yours truly was one of the defense counsel in the Strougo matter.)