Noteworthy 2011 Corporate and Commercial Decisions from Delaware’s Supreme Court and Court of Chancery.

By:  Francis G.X. Pileggi and Kevin F. Brady.


This is the seventh year that we are providing an annual review of key Delaware corporate and commercial decisions. During 2011, we reviewed and summarized approximately 200 decisions from Delaware’s Supreme Court and Court of Chancery on corporate and commercial issues.  Among the decisions with the most far-reaching application and importance during 2011 include those that we are highlighting in this short overview.  We are providing links to the more complete blog summaries, and the actual court rulings, for each of the cases that we highlight below. Prior annual summaries are linked in the right margin of this blog.

Top Five Cases from 2011

We begin with the Top Five Cases on corporate and commercial law from Delaware for 2011 and we are glad to see that at least four of them have some support from the bench as these were the cases that four Vice Chancellors highlighted as important decisions in a recent panel presentation that they offered in New York City in early November 2011.  Those cases were the following:  In Re: OPENLANE Shareholders Litigation; In Re: Smurfit Stone Container Corp. Shareholder Litigation; In Re: Southern Peru Copper Corp. Shareholder Litigation and Air Products and Chemicals, Inc. v. Airgas Inc., and Kahn v. Kolberg Kravis Roberts & Co., L.P.

In Re: OPENLANE Shareholders Litigation. In what many commentators referred to as a “sign and consent” transaction, in which the majority shareholders and the board of directors had sufficient control to provide the statutorily required consent, the Court of Chancery determined that the Revlon standard was satisfied and fiduciary duties were not breached notwithstanding the Omnicare case and even without customary safeguards such as a fairness opinion. See fuller summary here.

 In Re: Smurfit Stone Container Corp. Shareholder Litigation. The Court of Chancery denied a motion for preliminary injunction and determined that the Revlon standard applied to a merger for which the consideration was split roughly evenly between cash and stock. See fuller summary here.

In Re: Southern Peru Copper Corp. Shareholder Litigation. In what may be the largest award granted in the Court of Chancery’s venerable history, a judgment was entered for $1.2 billion (later amended to $1.3 billion) for breach of fiduciary duties in connection with an interested transaction. With interest, the total is expected to be $2 billion.  The Court later awarded attorneys’ fees of 15% which amounts to $300 million, in this derivative action. See fuller summary here.

Air Products and Chemicals, Inc. v. Airgas Inc. This magnum opus of over 150-pages in length will be the focus of scholarly analysis for many years to come. For purposes of this short blurb, it ended a year-long takeover battle between two determined companies, with the Court of Chancery ruling, among other things, that the target company was not required to pull its poison pill when the board determined that the offer for the company was too low. See fuller summary here.

Kahn v. Kolberg Kravis Roberts & Co., L.P.  This Delaware Supreme Court decision reversed and remanded an opinion by the Court of Chancery interpreting “a Brophy claim as explained in Pfeiffer.”  The issue before the Court was whether a stockholder had to show that the company had suffered actual harm before  bringing  a breach of loyalty claim that a fiduciary improperly used the company’s material, non-public information (a Brophy claim).  The Supreme Court rejected that part of the Chancery’s decision in Pfeiffer v. Toll which requires a showing of actual harm to the company.  See fuller summary here.

We also selected the following additional noteworthy cases:

Shareholder Litigation

In Re: John Q. Hammons Hotels, Inc. Shareholder Litigation.  Despite the application of the entire fairness standard, the Court concluded that the merger price was entirely fair, the process leading to the transaction was fair, that there was no breach of fiduciary duty, and therefore no claims for aiding and abetting fiduciary duty.  See fuller summary here.

Reis v. Hazelett Strip-Casting Corp.  The Court applied an entire fairness analysis and held that the attempt to cash out minority shareholders via a reverse split was neither the result of a fair process nor did it involve a fair price.  See fuller summary here.

In re: Del Monte Foods Co. Shareholders Litigation. This first of three rulings enjoined a shareholder vote on a premium LBO transaction and the buyers’ deal protection devices.  The Court also held that the advice that the target board received from a financial advisor (who also did work on the deal for the bidder) was so conflicted as to give rise to a likelihood of a breach of fiduciary duty and the Court indicated that the financial advisory firm could face monetary damages due to aiding and abetting the potential breach.  See fuller summary here.

In re: Massey Energy Company Derivative and Class Action Litigation.  The Court declined to enjoin a proposed merger.  The Court noted that the derivative claims that the plaintiffs argued were not being fairly valued as part of the merger, would become assets of the surviving corporation.  The Court reasoned in part that the shareholders should decide for themselves whether to exchange their status as Massey stockholders for a chance to receive value from a third party in an arms-length merger.  See fuller summary here.

Frank v. Elgamal.  This decision exemplifies the different approach taken by different members of the Court in connection with an application for interim fees in a class action.  (Compare the different approach in the Del Monte case.)  See fuller summary here.

Krieger v. Wesco Financial Corp.  This decision determined that holders of common stock were not entitled to appraisal rights under Section 262 when they had the option of electing to receive consideration in the form of publicly traded shares of the acquiring company.  See fuller summary here.

In re: The Goldman Sachs Group, Inc. Shareholder Litigation.  In this first corporate opinion by Vice Chancellor Glasscock, the Court dismissed a derivative action brought against Goldman’s current and former directors based on a failure to make a pre-suit demand.  At issue was Goldman’s allegedly excessive compensation structure.  See fuller summary here.

Contested Director Elections

Genger v. TR Investors, LLC.  In this opinion, the Delaware Supreme Court addresses electronic discovery issues and contested elections for directors involving DGCL Section 225. See fuller summary here.

Johnston v. Pedersen.  This opinion determined that directors breached their fiduciary duties when issuing additional stock and as a result were not entitled to vote in connection with the removal of the incumbent board and the election of the new directors.  See fuller summary here.

Section 220 Cases

King v. VeriFone Holdings, Inc. This Delaware Supreme Court ruling reversed a Chancery decision that found a lack of proper purpose in a suit by a shareholder seeking books and records pursuant to Section 220.  Delaware’s High Court explained that it remains preferable to file Section 220 suits for books and records prior to filing a derivative suit, but holding that such a chronology is not, per se, a fatal flaw in a Section 220 action.  See fuller summary here.

Espinoza v. Hewlett Packard Co. This affirmance of Chancery’s denial of a §220 claim was based on the requested report to the board being protected by the attorney/client privilege.  (This is one of several decisions in this matter.) See fuller summary here.

Graulich v. Dell., Inc.  This is a Section 220 case in which Chancery denied a request for books and records due to the underlying claims being barred by a previous release and due to the shareholder not owning the shares during the period of time for which he was requesting documents.  See fuller summary here.

Alternative Entity Cases

CML V, LLC v. Bax.  This Delaware Supreme Court decision determined that creditors of an insolvent LLC are not given standing by the Delaware LLC Act to pursue derivative claims unlike the analogous situation in the corporate context.  See fuller summary here.

Sanders v. Ohmite Holding, LLC.  This decision clarified the rights of a member of an LLC that demanded books and records of an LLC.  The Court determined that pursuant to Section 18-305 of the Delaware LLC Act a member may seek records for a period prior to becoming a member of the LLC.  See fuller summary here.

Achaian, Inc. v. Leemon Family LLC.  This opinion addressed the transferability of interests of a member of an LLC and specifically whether one member of a Delaware LLC may assign its entire membership interests, including voting rights, to another existing member, notwithstanding the provision in an agreement that requires the consent of all members upon the admission of a new member.  See fuller summary here.

Jurisdictional or Procedural Issues

Central Mortgage Co. v. Morgan Stanley Mortgage Capital Holdings LLC.  In this decision, a Delaware Supreme Court determined that Delaware would not follow the standards for a motion to dismiss under Rule 12(b)(6) announced by the U.S. Supreme Court in the Twombly or Iqbal opinions.  See fuller summary here.

Hamilton Partners, LP v. Englard.  This decision addressed the issue of personal jurisdiction over directors and interlocking entities, as well as demand futility in the context of a double derivative shareholders suit.  (Although this was decided at the end of 2010, it was important enough to include in this list as it was issued after our deadline for our compilation last year). See fuller summary here.

Encite LLC v. Soni.  This decision rejected a request for an extension of a deadline for submitting expert reports because the Court did not approve an amendment to the Scheduling Order.  See fuller summary here.

Whittington v. Dragon Group.  In this latest iteration of multiple decisions in this long-running saga, the Court examines the doctrine of claim preclusion, issue preclusion and judicial estoppel.  See fuller summary here.

In re: K-Sea Transportation Partners, L.P. Unitholders Litigation.  This decision provides a useful recitation of the standard used in Chancery for deciding whether to grant a motion to expedite proceedings, and it also reviews language in a limited partnership agreement which arguably was an effective waiver of traditional fiduciary duties as allowed by the LP statute.  See fuller summary here.

Sagarra Inversiones, S.L. v. Cemento Portland Valderrivas, S.A.  This ruling determined that the standard of “irreparable harm” granting injunctive relief was not satisfied based on the financial condition of the defendant which was “not poor enough” to convince the Court that a money judgment would not make the plaintiff whole.  (This is one of several decisions in this matter.) See fuller summary here.

ASDC Holdings LLC v. The Richard J. Malauf 2008 All Smiles Grantor Retained Annuity Trust.  This decision discussed the enforceability of forum selection clauses and in particular when those clauses will be enforced despite a related case being filed first in another forum.  See fuller summary here.

Gerber v. ECE Holdings LLC.  This decision discusses the difference between a motion to supplement and a motion to amend a complaint.  See fuller summary here.


Fuhlendorf v. Isilon Systems, Inc.  This decision addresses the advancement of fees incurred by officers and directors sued in connection with their corporate roles.  The specific issue in this case was whether the corporation should pay for all of the costs of a Special Master appointed to review the interim application for fees.  The case also discusses the common procedure employed to review disputed monthly legal bills in advancement cases.  See fuller summary here.

Receiver or Dissolution

Pope Investments LLC v. Benda Pharmaceutical Inc.  This decision rejected the application for the appointment of a receiver on the grounds that while the plaintiff demonstrated that the defendant was insolvent, the plaintiff failed to show that “special circumstances existed which would warrant the appointment of a receiver.”  See fuller summary here.

Stephen Mizel Roth IRA v. Laurus U.S. Fund, L.P.  This decision rejected a request to dissolve a limited partnership and refused to appoint a receiver in the context of an investment fund that was in liquidation mode but was not dissolved, nor was it winding-up as that term is used in the statute.  See fuller summary here.

Legal Ethics

BAE Systems Information and Electronics Systems Integration, Inc. v. Lockheed Martin Corp.  This opinion addresses Delaware Lawyers’ Rule of Professional Conduct 3.4(b) and discusses those situations in which a fact witness may be compensated for the “lost time” away from his “day job” suffered while testifying.  See fuller summary here.

Judy v. Preferred Communications Systems, Inc.  This decision addresses the issue of legal ethics involved in determining whether an attorney may assert a retaining lien over the documents of a former or delinquent client.   See fuller summary here.

Common Law v. Statutory Claims

Overdrive, Inc. v. Baker & Taylor, Inc.  In this last formal decision  by Chancellor Chandler, the Court discussed how the Delaware Uniform Trade Secrets Act displaces conflicting tort and other common law claims that are grounded in the same facts which would support the statutory misappropriation of trade secret claims.  See fuller summary here.

Damages for Breach of Agreement to Negotiate in Good Faith

PharmAthene, Inc. v. SIGA Technologies, Inc. This Court of Chancery decision awarded damages for breach of a contractual obligation to negotiate in good faith and fashioned an equitable remedy that required the sharing of profits from the production of a product that the defendant failed to negotiate the license of in good faith. There are several decisions involving contract law by the Court of Chancery in this matter, the most recent ruling denying a motion for reargument. See fuller summary of the most recent decision here.


On a final note, the last week of 2011 saw the sudden and sad passing of one of the nation’s foremost experts on alternative entities, Professor Larry Ribstein, who was often cited in opinions of the Delaware Courts. He coined the word “uncorporations” to refer to alternative entities and was the author of many treatises, law review articles and other publications on uncorporations, jurisdictional competition, the business of law firms and related topics involving the intersections of law and business. He was an iconic figure in the law, and the legal profession is better because of his many contributions.


UPDATE: The Harvard Law School Corporate Governance Blog published this post here. The NACD’s site kindly published this article as a lead story on Jan. 5, 2012, available here. Professor Stephen Bainbridge graciously commented on this summary in his post available here. Professor Joshua Fershee on the Business Law Prof  Blog linked to this summary with kind references here.

This short overview was prepared by a former associate of Eckert Seamans.

The Court of Chancery’s decision in the case of In Re Del Monte Foods Company Shareholder Litigation, C.A. No. 6027-VCL (Del. Ch. June 27, 2011), clarifies the standard for awarding and calculating interim attorneys’ fees.

Del Monte logo

Issue Addressed

In this latest opinion concerning the merger of Del Monte Foods the Court focuses only on the award of interim attorneys’ fees following plaintiffs’ successful motion for a preliminary injunction.  Earlier opinions in the case were summarized here.

Brief Background

After plaintiffs filed their motion for injunctive relief, but before defendants responded, defendants supplemented Del Monte’s proxy statement concerning the proposed merger with additional disclosures and information that defendants learned only through plaintiffs’ efforts in pursuing its motion for preliminary injunction.  The supplemental proxy statement effectively mooted plaintiffs’ disclosure claims; however, the Court ruled on the remaining issues in plaintiffs’ favor and granted the injunction.

Following their success on the injunction motion, plaintiffs moved the Court for an award of interim attorneys’ fees and expenses.

Fee Analysis

The Court of Chancery has the equitable power to award interim fees.  Following the standard set out in Louisiana State Employees Retirement System v. Citrix Systems, Inc., the Court held that an interim fee award was appropriate here because (1) the plaintiffs achieved the benefit sought by the claim that had been mooted (i.e., the supplemental disclosures), and (2) the benefit received by the plaintiffs would not be subject to reversal or alteration as the remaining portion of the litigation proceeded.

The Court of Chancery awarded plaintiffs $2.75 million in interim attorneys’ fees, which the Court broke down (in much more detail that I can provide here) as follows:  $1.6 million for uncovering a third-party’s “surreptitious activities;” $950,000 for Del Monte’s supplemental bankers’ disclosures; and $200,000 for the executive compensation disclosures.  Notably, the Court awarded fees only for the plaintiffs’ success on the issuance of the qualitatively important supplemental proxy statements; not for succeeding on the preliminary injunction motion.  In doing so, the Court stated that although discretion permitted the award of interim fees for that success, future proceedings would help the Court to refine its fee analysis.

While the Court commented in a positive manner regarding plaintiffs’ contingent risk in pursuing this litigation, those factors did not increase the interim fee awarded to plaintiffs.  Perhaps those factors will be considered in the Court’s final, more complete, post-litigation award.

Providing some insight on his personal preferences for counsel seeking interim fees in the future, Vice Chancellor Laster explained that he generally prefers to address fee petitions relating to injunction applications promptly on an interim basis.

Editor’s Note: However, one must also be aware that not all members of the Court of Chancery share this view. In two recent decisions highlighted here and here, Vice Chancellor Noble explained why, generally speaking, he is not a big supporter of interim fee applications.


The Court of Chancery in  In Re Del Monte Foods Company Shareholders Litigation, Consol. C.A. No. 6027-VCL (Del. Ch. Feb. 14, 2011), read opinion here, on a preliminary record, enjoined for twenty days the Del Monte Board and the acquiring entities from proceeding with a stockholder vote on the proposed $5.3 billion leveraged buyout of Del Monte. In addition, the Court ordered that, pending the vote on the merger, the parties to the merger agreement were enjoined from enforcing the no-solicitation and match-right provisions as well as the termination fee provision relating to topping bids and changes of recommendation.

Kevin F. Brady of Connolly Bove Lodge & Hutz LLP prepared this summary.


Barclays Capital was the financial advisor to Del Monte. In 2009, Barclays met with Kohlberg, Kravis, Roberts & Co. (“KKR”) to discuss an acquisition of Del Monte. Barclays was interested in advising Del Monte and it also intended to provide buy-side financing. Vestar Capital Partners (“Vestar”) contacted Barclays and expressed an interest in Del Monte as well, but Vestar would only commit to half of the equity required in the transaction. In September 2010, Barclays paired up Vestar with KKR which eventually made a bid for Del Monte. However, the KKR offer letter did not mention Vestar. Moreover, Barclays worked with KKR to conceal Vestar’s participation from Del Monte. The Del Monte Board decided to pursue price negotiations with KKR, and while it considered a pre-signing market check, it decided that one was not needed for various reasons.

In November 2010, KKR “formally approached Barclays Capital to request that the Company allow KKR/Centerview to include Vestar in the deal as an additional member of the sponsor group.” Also at this time, Barclays finally asked Del Monte if Barclays could provide buy-side financing and Del Monte agreed.

The Merger Agreement and the Deal Protection Provisions

Section 6.5(a) of Merger Agreement provided for a 45-day post-signing go-shop period during which Del Monte had the right to “initiate, solicit and encourage any inquiry or the making of any proposal or offers that could constitute an Acquisition Proposal” which was defined as:

any bona fide inquiry, proposal or offer … involving an acquisition of the Company (or any subsidiary or subsidiaries of the Company whose business constitutes 15% or more of the net revenues, net income or assets of the Company and its subsidiaries, taken as a whole) or (B) the acquisition in any manner, directly or indirectly, of over 15% of the equity securities or consolidated total assets of the Company and its subsidiaries, in each case other than the Merger.

Once the go-shop period was over, there was a no-solicitation provision that prohibited Del Monte from, among other things, “initiat[ing], solicit[ing], or knowingly encourage[ing] any inquiries or the making of any proposal or offer that constitutes or reasonably could be expected to lead to an Acquisition Proposal.” The no-solicitation clause permitted Del Monte to respond to a Superior Proposal, defined generally as an Acquisition Proposal (but with the references to 15% changed to 50%) that the Board determined was “more favorable to the Company’s stockholders from a financial point of view” than the Merger and “is reasonably likely to be consummated.”

During the go-shop period, Del Monte was also authorized to waive or release any party from any pre-existing standstill agreements with the Company “at its sole discretion.” Section 8.3(a) of the Merger Agreement permitted Del Monte to terminate its deal with KKR to accept a Superior Proposal prior to the stockholder vote on the merger if certain conditions were met. Prior to exercising the termination right, Del Monte had to have given KKR written notice describing the material terms and conditions of the Superior Proposal, and had to have negotiated with KKR in good faith for three business days to enable KKR to match the Superior Proposal. The Del Monte Board decided to let Barclays run the go-shop which set up a direct financial conflict for Barclays. As the sell-side financial advisor, Barclays had earned $2.5 million for its fairness opinion and would earn another $21 million if the deal closed. Because Barclays was going to provide buy-side financing for KKR, Barclays stood to earn another $21 to $24 million.

The Proxy Supplement

On January 12, 2011, Del Monte issued its proxy statement but many of the disclosures about the background of the transaction were false and misleading. Late on Friday, February 4, 2011, after the completion of discovery in connection with the preliminary injunction application, Del Monte amended its 100-plus page proxy statement with significant changes in an attempt to correct the disclosure problems and “moot the plaintiffs’ claims.” The stockholders had until February 15, 2011 to “digest it, determine how to vote, and either submit proxies or revocations or appear and vote at the special meeting.”

Preliminary Injunction Analysis 

To obtain a preliminary injunction, the Court noted that the plaintiffs had to demonstrate (i) a reasonable probability of success on the merits on their breach of fiduciary duty and aiding and abetting claims; (ii) irreparable injury if an injunction was not granted; and (iii) that the balance of the equities favored the issuance of an injunction. Because of the conflicts facing the directors, the Court applied the enhanced scrutiny test where the directors bore the initial burden to “show that their motivations were proper and not selfish.” In other words, “the directors must show that they sought ‘to secure the transaction offering the best value reasonably available for the stockholders.’” Then the directors had to show that they (i) followed a reasonable decision-making process and based their decisions on a reasonable body of information, and (ii) acted reasonably in light of the circumstances then existing.

In evaluating the adequacy of the directors’ decision-making and the information available to them, the focus turned to the extent to which the board had relied on expert advisors. The Court discussed the facts surrounding the Toys “R” Us decision, where Vice Chancellor Strine considered whether an investment banker’s role in providing sell-side financing created a conflict of interest that merited injunctive relief when the banker asked about possibly providing buyer-side financing as well. Vice Chancellor Strine concluded “upon close scrutiny” that First Boston’s appearance of conflict did not have “a causal influence” on the board’s process. He cautioned that “[i]n general, however, it is advisable that investment banks representing sellers not create the appearance that they desire buy-side work, especially when it might be that they are more likely to be selected by some buyers for that lucrative role than by others.” In applying the Toys “R” Us analysis to this case, the Court found that Barclays’ activities went too far:

Barclays set out to provide acquisition financing, and as established by the internal screening memos from January and March 2010, Barclays’ Del Monte coverage officer pitched a Del Monte LBO to KKR, Apollo, and other private equity firms that would be likely to use Barclays for acquisition financing. Once it secured the sell-side role, Barclays structured a small, private process that maximized the likelihood that it could provide acquisition financing. Barclays never disclosed to the Board its interactions with the private equity shops or its desire to provide acquisition financing. [Later] Barclays paired up Vestar and KKR in violation of their confidentiality agreements with Del Monte. Barclays then assisted Vestar and KKR in preparing an indication of interest. After being re-engaged by Del Monte, Barclays again did not disclose its interactions with the banks or its plan to secure a buy-side role, and it actively concealed the fact that Vestar and KKR were working together. When KKR “formally requested” permission to make a joint bid with Vestar, Barclays did not come clean, and Del Monte agreed without seeking to extract any pro-stockholder concession or other advantage. Before the Merger Agreement was signed and with price negotiations still on¬going, Barclays sought and obtained a buy-side role and worked with KKR to develop financing. As a result, at the same time Barclays ostensibly was negotiating to get KKR to pay more, Barclays had an incentive as a well-compensated lender to ensure that a deal was reached and that KKR did not overpay.


[W]hat indisputably crossed the line was the surreptitious and unauthorized pairing of Vestar with KKR. In doing so, Barclays materially reduced the prospect of price competition for Del Monte. Vestar had been the high bidder in the early 2010 process, and although Vestar needed a partner, a non-conflicted financial advisor could have teamed Vestar with a different sponsor. It was to address precisely this risk of competition-limiting behavior that Del Monte secured the No Teaming Provision. Barclays’ efforts caused Vestar and KKR to violate the No Teaming Provision. Most egregiously, Barclays actively concealed the pairing from the Del Monte Board…Barclays continued to hide its involvement and recommended that the pairing be permitted.


Barclays similarly crossed the line with its late-stage request for permission to be one of KKR’s lead banks. There was no deal-related reason for the request, just Barclays’ desire for more fees. Del Monte did not benefit. The immediate consequence was to force Del Monte to spend $3 million to hire a second bank. The more serious consequence was to taint the final negotiations. At the time Barclays made its request, the Merger Agreement was not yet signed, and Barclays and KKR were still negotiating over price. Barclays’ internal documents from January and March 2010 had stated that ‘Barclays will look to participate in the acquisition financing once the Company has reached a definitive agreement with a buyer.’ But Barclays could not wait. In considering Barclays’ request, the Board again failed to act reasonably. The Board did not ask whether KKR could fund the deal without Barclays’ involvement, and Del Monte did not learn until this litigation that Barclays was not needed on the buy-side…Without some justification reasonably related to advancing stockholder interests, it was unreasonable for the Board to permit Barclays to take on a direct conflict when still negotiating price. It is impossible to know how the negotiations would have turned out if handled by a representative that did not have a direct conflict. The burden of that uncertainty must rest with the fiduciaries who created it.

The Court also found that Barclays’ conflict tainted the go-shop process, noting that the Strategic Committee which had delegated the task of running the go-shop to Barclays had no direct insight into how Barclays interacted with the parties it contacted. The Court also found that Barclays deceived the Del Monte Board by withholding information “about its buy-side intentions, its involvement with KKR, and its pairing of KKR and Vestar.” As a result, the Court found that “the plaintiffs have established a reasonable likelihood of success on the merits of their claim that the director defendants failed to act reasonably in connection with the sale process.”

With respect to the plaintiffs’ claim that KKR aided and abetted the directors’ breaches of fiduciary duty, the plaintiffs had to show: (1) the existence of a fiduciary relationship; (2) a breach of the fiduciary’s duty; (3) knowing participation in that breach by the defendants; and (4) damages proximately caused by the breach. The Court found that the plaintiffs had met their burden by showing that KKR knowingly participated in Barclays’ self-interested activities.

When Barclays secretly paired Vestar with KKR in September 2010, KKR knew it was bound by the No Teaming Provision and was barred from discussing a Del Monte bid with anyone absent prior written permission from Del Monte. KKR nevertheless worked with Barclays and Vestar on a joint bid and agreed to keep Vestar’s involvement hidden from the Board. KKR also knowingly participated in the creation of Barclays’ buy-side conflict. Before the Board had cleared Barclays to provide financing to KKR, Barclays and KKR had agreed that Barclays would be one of the lead banks. KKR necessarily knew that Barclays would not push as hard in the price negotiations when it stood to earn substantial fees from both sides of a successful deal. KKR later ensured that a conflicted Barclays would run the go-shop when KKR ‘squared things away’ with Goldman for 5% of the syndication, ending Goldman’s interest in running the go-shop process.

Irreparable Harm

The Court found that “[a]bsent an injunction, the Del Monte stockholders will be deprived forever of the opportunity to receive a pre-vote topping bid in a process free of taint from Barclays’ improper activities” and absent an injunction, the stockholders could seek monetary damages, and there are obvious difficulties (for example exculpation under Section 102(b)(7)) in going that route. The Court concluded that “[t]he unique nature of a sale opportunity and the difficulty of crafting an accurate post-closing damages award counsel heavily in favor of equitable relief. The plaintiffs have shown the necessary threat of irreparable harm.”

Balancing of Hardships

The Court noted that:

[o]n the one hand, without an injunction, Del Monte’s stockholders will lose forever the chance for a competitive process that could lead to a higher sale price for their company. On the other hand, granting an injunction jeopardizes the stockholders’ ability to receive a premium for their shares. No one disputes, and the evidence establishes, that $19 is an attractive price. Any delay subjects the Merger to market risk. All else equal, a longer delay means greater risk. There is also the difficult question of the parties’ contract rights, which Delaware courts strive to respect.

The plaintiffs had asked for an injunction with respect to the merger vote for 30 to 45 days and that the parties be enjoined from enforcing the deal protections in the merger agreement during that period. The Court did not believe that

[a] 30 to 45 day delay is warranted. A postponement of this length might be appropriate if Del Monte never had been exposed to the market. The reality is that although a conflicted banker conducted the go-shop process, the Del Monte transaction was shopped actively for 45 days. Since the go-shop process ended on January 10, 2011, the Company has been subject to an additional passive market check. A further delay of 30 to 45 days ignores the fact that many potential bidders have already evaluated this opportunity. I will therefore enjoin the merger vote for a period of only 20 days, which should provide ample time for a serious and motivated bidder to emerge.

The Court also ordered that during the pre-vote period, the parties to the merger agreement would be enjoined from enforcing the deal protection measures because they were the product of a fiduciary breach that could not be remedied post-closing after a full trial. The Court conditioned the injunction on the plaintiffs posting bond in the amount of $1.2 million.

In Re Novell, Inc. Shareholder Litigation, Cons. C. A. No. 6032-VCN (Del. Ch. Aug. 30, 2011). Read letter ruling here.

Issue Addressed: Whether interim application for fees in class action should be deferred as premature.  Short Answer:  Yes.   

Short Overview

This letter decision reiterated the inclination of at least one member of the Court of Chancery to defer interim applications for fees in class actions.  AccordFrank v. Elgamal. (See summary of decision reaching same result in different Chancery case here.) Compare: In re Del Monte Foods Company Shareholder Litigation. (See highlights here of recent decision from different member of the court granting interim application for fees.)

Court’s Analysis

The Court briefly reviewed the general rule, known as the American Rule, that each party pays its own fees.  In class actions there is an exception based on the corporate benefit doctrine and related theories.  In this case the Court emphasized that, as a starting point for the analysis, it is within the Court’s discretion whether to grant an interim fee application.  Based on the record presented thus far, even though the Court might agree that a fee award ultimately would be appropriate, the Court did not need to determine that issue at this stage because there was no exigency or special circumstance that supported an immediate consideration of the interim application.  Thus, the Court exercised its discretion to defer ruling on the application until the remaining claims were litigated.  The Court provides copious case citations to support its reasoning and conclusion at footnotes 11 and 21.

In Re Del Monte Foods Company Shareholders Litigation, Cons. No. 6027-VCL, (Del. Ch. Dec. 31, 2010), read opinion here.

This decision applies the Hirt factors and provides other insights into the approach the Court of Chancery uses in making its decision about who to select from among many competing firms to serve as lead counsel in a class action.

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.