{"id":85,"date":"2016-08-10T11:56:07","date_gmt":"2016-08-10T15:56:07","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/?p=85"},"modified":"2016-08-10T11:58:02","modified_gmt":"2016-08-10T15:58:02","slug":"court-of-chancery-critically-reviewing-mootness-fee-applications","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/delawarebusinesslaw\/2016\/08\/10\/court-of-chancery-critically-reviewing-mootness-fee-applications\/","title":{"rendered":"Court of Chancery Critically Reviewing “Mootness” Fee Applications"},"content":{"rendered":"

In two recent decisions, the judges of Delaware’s Court of Chancery have demonstrated their intent to carefully review fee applications made by counsel for stockholder plaintiffs where the litigation has been rendered moot by actions of the company, and the litigation has been\u00a0dismissed.<\/p>\n

In In re Xoom Corp. Stockholder Litigation, <\/em>C.A. No. 11263-VCG<\/a> (Aug. 4, 2016), Vice Chancellor Glasscock awarded plaintiff’s counsel fees of $50,000 (of a requested $275,000) after the company rendered the litigation moot by making supplemental disclosures in advance of a transaction, and which were only marginally beneficial to the stockholders.\u00a0\u00a0 A few weeks earlier, in In re Keurig Green Mountain, Inc. Stockholders Litigation<\/em>, C.A. No. 11815-CB (July 22,2016)(trans. ruling), Chancellor Bouchard\u00a0refused to award any fees to plaintiff’s counsel (of a requested $300,000) where he found the additional disclosures\u00a0by the company in advance of the transaction were of no additional\u00a0value to the company’s stockholders.<\/p>\n

A “mootness” fee application is typically filed by counsel for class or derivative plaintiffs where their litigation has arguably caused the company to take\u00a0action that renders the pending litigation moot.\u00a0 In the two cases discussed here, that action took the form of supplemental disclosures in advance of a stockholder vote to approve a transaction.\u00a0 Once it has been determined (or conceded)\u00a0that the actions of the stockholder plaintiff caused the company to take the mooting action, the court\u00a0will apply “a subspecies of the common-benefit doctrine, which recognizes that, where a litigation provides a benefit to a class or group, costs necessary to the generation of that benefit should also be shared by the group or its successor.”\u00a0 See <\/em>In re Xoom<\/em>, at p. 8.<\/p>\n

In the Xoom<\/em> matter, Vice Chancellor Glasscock declined to apply the “plainly material” standard for reviewing the value of disclosures to stockholders in advance of a stockholder vote that was announced in the Court’s earlier decision in In re Trulia, Inc. Stockholder Litigation<\/a>,<\/em> 129 A.3d 884 (Del. Ch. 2016).\u00a0 He held that where the court is reviewing a proposed settlement that includes a broad release of claims by the stockholders, the “plainly material” standard would be appropriate.\u00a0 Where, however, no such release is being sought (as in Xoom<\/em>, where the litigation had been dismissed, with prejudice, as to the named plaintiff only), the Vice Chancellor found that a fee could be awarded where the disclosures have provided “some benefit to stockholders.”\u00a0 To determine the fee that might be appropriate in the circumstances, the court will look to the five factors announced in Sugarland Indus., Inc. v. Thomas<\/em>: (1) the benefit achieved; (2) the contingent nature of the undertaking; (3) the difficulty of the litigation and the efforts of counsel; (4) the quality of the work performed; and (5) the standing and ability of counsel.<\/p>\n

Looking primarily at the benefit achieved, in Xoom<\/em> the court found that the requested fee of $275, 000 was not warranted where the benefit achieved was marginal and where\u00a0the effort expended by counsel (63 hours) on the matter would result in an implied hourly rate of $4,000\/hr.\u00a0 Instead, he awarded counsel for the plaintiff a fee of $50,000, which reflects an implied hourly rate of $794.00\/hr.<\/p>\n

In the Keurig<\/em> matter, Chancellor Bouchard also looked primarily at the benefit achieved by the litigation efforts of the stockholder plaintiff and found that the supplemental disclosures made by the company to moot the litigation did not “confer any benefit on the corporation because they did not correct a materially misleading disclosure” in the original proxy materials.\u00a0 Because he found no benefit at all had been achieved, the Chancellor rejected, in whole, the request by plaintiff’s counsel for a fee of $300,000.

\"Richard
Richard L. Renck