Delaware Court Of Chancery Slashes Attorneys’ Fee Request In Mootness Dismissal Context Despite Applying More Lenient Standard Based On Shareholder Benefit
08/15/2016On August 4, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery awarded counsel to shareholders of an acquired company $50,000 in attorneys’ fees—less than 20 percent of their requested fee award—in a mootness proceeding. In re Xoom Corp. Stockholder Litig., C.A. No. 11263-VCG (consol.) (Del. Ch. Ct. Aug. 4, 2016). The Xoom decision signals that despite the Court’s previously expressed openness to awarding attorneys’ fees to plaintiffs’ counsel for securing supplemental disclosures in the mootness context, see In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884, 898-99 (Del. Ch. 2016), that it will still heavily scrutinize the “get” part of the equation—i.e., the benefit of the additional disclosures to shareholders—even when there is no “give” (i.e., a broad class-wide release of claims) against which to weigh it.
The underlying litigation was commenced shortly after PayPal Holdings, Inc. (“PayPal”), which had just been spun off from online auction site eBay, announced its acquisition of Xoom Corporation (“Xoom”) on July 1, 2015. The consolidated class action complaint alleged that several of Xoom’s directors breached their fiduciary duties to shareholders by, among other things, filing a false and materially misleading preliminary proxy with the SEC to induce shareholders to support an allegedly unfair merger. Within one month of filing that complaint, Xoom filed a definitive proxy, which contained four supplemental disclosures that addressed some of plaintiffs’ alleged deficiencies. The additional disclosures pertained to, among other things, the amount of fees that Xoom’s financial advisor had earned from eBay within the past two years and the specifics of conversations between Xoom and PayPal concerning the potential post-merger employment of Xoom’s officers and directors. The named plaintiffs later voluntarily dismissed the action with prejudice (only as to themselves, however) and applied for a mootness fee of $275,000 to compensate their counsel for causing Xoom to make the supplemental disclosures.
The Court held that in the mootness context, as distinct from the class-wide settlement context—which entails class-wide releases—the additional disclosures need not be plainly material to the stockholders to justify any award of attorneys’ fees to plaintiffs’ counsel. Rather, plaintiffs’ entitlement to an award of attorneys’ fees, as well as the appropriate amount of such award, turns on the factors articulated by the Delaware Supreme Court in Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980)—the most important of which is the benefit of the additional disclosures to stockholders.
The Court ultimately concluded that the incremental disclosures contained in Xoom’s definitive proxy were only modestly beneficial to stockholders, which, in the Court’s view, justified an award of attorneys’ fees and costs of just $50,000. Vice Chancellor Glasscock did, however, leave the door slightly ajar for larger fee awards in merger-related litigation, noting that “[w]here litigation develops significant stockholder value, this Court will set fees accordingly.”