On December 27, 2022, Vice Chancellor Morgan T. Zurn of the Delaware Court of Chancery substantially granted plaintiff’s motion for summary judgment in an action seeking attorneys’ fees.  Garfield v. Boxed, Inc., No. 2022-0132-MTZ (Del. Ch. Dec. 27, 2022).  Plaintiff, a stockholder of defendant Seven Oaks Acquisition Corp., a special purpose acquisition company (the “SPAC”), made a demand on the board challenging the structure of stockholder votes on proposed charter amendments regarding the issuance of shares in connection with a merger.  The SPAC made the change demanded by plaintiff and consummated the deal.  However, defendant opposed the attorneys’ fees award, contending that the previously contemplated voting structure had already been legally compliant.  The Court held that plaintiff had correctly determined that the contemplated voting structure would have been inconsistent with Delaware law.  The Court thus awarded attorneys’ fees because “[b]y taking the [SPAC] off a path that violated [Delaware law] and the stockholder franchise, [p]laintiff conferred a substantial benefit.”

On February 7, 2022, Judge J. Paul Oetken of the United States District Court for the Southern District of New York denied an application by plaintiff’s counsel for attorneys’ fees after plaintiff’s merger-related disclosure claims were “mooted” by defendant Nuance Communications Inc. (“Nuance”).  Serion v. Nuance Communications, No. 21-CV-4701 (S.D.N.Y. Feb. 7, 2022).  Although the Court found that the lawsuit prompted the company to issue supplemental disclosures, the Court held that the disclosure of this additional information did not confer a “substantial benefit” on shareholders.

On February 4, 2021, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery granted a motion for summary judgment on entitlement to legal fees brought by unitholding members of Benchmark Investments, LLC and Benchmark General, LLC.  Agahi, et al. v. Benchmark Investments, LLC, et al., No. 2020-0784 (Del. Ch. Sept. 15, 2020).  Plaintiffs asserted claims against the companies for advancement of legal expenses incurred in connection with their defense against claims brought by the companies against them in a separate underlying action for alleged tortious interference and breach of contract.  The Court granted plaintiffs’ motion for summary judgment without oral argument, finding it “clear from the complaint” in the underlying action that plaintiffs were entitled to advancement of legal fees under the indemnification and advancement rights conferred by the operative LLC agreements.
 

On July 8, 2019, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery awarded $3 million to plaintiffs’ lawyers in Sciabacucchi v. Salzberg, C.A. No. 2017-0931-JTL (Del. Ch. July 8, 2019).  As we discussed in a prior post, Vice Chancellor Laster had previously granted summary judgment to a shareholder challenging the validity of forum-selection charter provisions adopted by three corporations requiring shareholders to litigate claims under the Securities Act of 1933 in federal courts.  Sciabacucchi v. Salzberg, C.A. No. 2017-0931-JTL (Del. Ch. Dec. 18, 2018).  Even though the relief awarded—the invalidation of the provisions—was non-monetary and non-quantifiable, plaintiff’s counsel argued that $3 million in aggregate fees was warranted because of the significance of the result achieved.  The Court agreed.

On April 30, 2019, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery held that plaintiff Freeman Family LLC (“Freeman”), a member of Park Avenue Landing LLC (the “Company”), is entitled to advancement pursuant to Delaware corporate case law.  Freeman Family LLC v. Park Avenue Landing LLC, No. C.A. 2018-0683 (Del. Ch. April 30, 2019).  In January 2017, plaintiff was sued by the Company’s managing member in the United States District Court for the District of New Jersey (the “New Jersey action”).  Thereafter, plaintiff argued the Company must provide advancement of legal fees arising from the New Jersey action because its operating agreement provides that all members shall receive advancement if they are made party to an action as a result of their status as a member.  In granting plaintiff’s motion for judgment on the pleadings, the Court first found that Delaware corporate case law applied “by analogy” because the advancement provision in the Company’s operating agreement incorporated language from the Delaware General Corporation Law, 8 Del. C. § 145.  However, the Court found that plaintiff was nevertheless entitled to advancement because a “causal relationship” existed between the New Jersey action and plaintiff’s official capacity as manager.

On February 8, 2018, Justice Shirley Werner Kornreich of the New York Supreme Court denied a motion for final approval of a disclosure-only settlement in a class action suit brought by shareholders of Martin Marietta Materials, Inc. (“MMM”) regarding its acquisition of Texas Industries, Inc. (“TXI”).  City Trading Fund v. Nye, 2018 WL 792283 (N.Y. Sup. Ct., Feb. 8, 2018).  Plaintiff, which owned only ten shares in MMM, asserted breach of fiduciary duty claims and sought to enjoin the merger on the ground of inadequate disclosures in the proxy provided to shareholders.  The parties, however, reached a settlement, which required defendants to make certain “supplemental disclosures” and provided for the payment of $500,000 in attorneys’ fees to plaintiff’s counsel.  Justice Kornreich previously denied approval of the settlement, but that decision was reversed by the New York Supreme Court, Appellate Division and remanded for a fairness hearing.  City Trading Fund v. Nye, 144 A.D.3d 595, 21 (N.Y. App. Div. 2016).  Moreover, in the interim, the Appellate Division, in Gordon v. Verizon Communications, Inc., 148 A.D.3d 146 (N.Y. App. Div. 2017), adopted a more lenient approval standard for disclosure-only settlements than that followed recently by courts in Delaware and elsewhere.  Nevertheless, Justice Kornreich found the supplemental disclosures “utterly useless to the shareholders” and, therefore, declined to approve the settlement.

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On February 2, 2017, in Gordon v. Verizon Communications, Inc., No. 653084/13 (N.Y. App. Div. Feb. 2, 2017) (“Gordon”), the New York Supreme Court, Appellate Division, First Department reversed the decision of the trial court and approved a proposed nonmonetary settlement of a putative shareholders’ class action challenging the acquisition by Verizon Communications, Inc. (“Verizon”) of the 45% interest in Verizon Wireless held by subsidiaries of Vodafone Group PLC.  In doing so, the Appellate Division added to the five-factor Colt standard of review—and focused on—two additional factors for the evaluation of proposed nonmonetary class action settlements:  “whether the proposed settlement is in the best interests of the putative settlement class as a whole, and whether the settlement is in the best interest of the corporation.”  Id. at *21; see also In re Colt Indus. S’holder Litig., 155 A.D.2d 154 (N.Y. App. Div. 1990), aff’d as modified sub nom. Colt Indus. S’holder Litig. v. Colt Indus. Inc., 77 N.Y.2d 185 (1991).

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On November 28, 2016, in a decision penned by Chief Justice Leo E. Strine Jr., the Delaware Supreme Court affirmed the Delaware Court of Chancery’s ruling that fraud in the inducement could not be raised as a defense to a summary advancement proceeding.  Trascent Mgmt. Consulting, LLC v. Bouri, No. 126, 2016 (Del. Nov. 28, 2016).  More specifically, the Court held: “Where a party has employed an officer under a contract where that party agreed to provide for advancement [of legal fees and costs] . . . until a court’s final judgment that the officer is not entitled to indemnification, that party may not escape the obligation by injecting into a summary advancement proceeding a defense based on the argument that the underlying contract under which the parties are operating is invalid altogether, because of fraud in the inducement.”

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On September 19, 2016, Vice Chancellor Travis Laster of the Delaware Court of Chancery denied a fee application submitted by Preferred Spectrum Investments, LLC (“PSI”), a third-party that had funded successful shareholder litigation against Preferred Communication Systems, Inc. (“PCSI”).  Judy v. Preferred Communication Systems, Inc., Consol. C.A. No. 4662-VCL (Del. Ch. Sept. 19, 2016).  In rejecting PSI’s application, the Court held that litigation financiers that are not parties to the action lack standing to seek a fee award under Delaware’s “common benefit doctrine,” and that “parties cannot obtain an equitable fee award when they use litigation in support of a takeover.”

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On 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.

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