A recent Law 360 story by Jeff Montgomery, “Chancery OKs $14.5M Atty Fee in Landmark $53M Settlement,” reports that in a possible Delaware litigation milestone, the Chancery Court approved a $53 million settlement with a $14.5 million attorney fee carveout in a stockholder suit that challenged the $640 million acquisition of a real estate investment trust by another REIT with the same private equity controller. Christopher M. Foulds of Friedlander & Gorris PA told Vice Chancellor Joseph R. Slights III that the agreement with New Senior Investment Group and its directors ranks as the largest derivative action settlement, by far, as a percentage of market capitalization to date in Delaware.
New Senior, managed by Wesley Edens' Fortress Investment Group LLC, had a little over $450 million in market capitalization, or the shares times price, for the time period in Foulds' comparison. Stockholder John Cumming sued the company in January 2017 after Fortress spun off and sold to New Senior 28 senior housing properties owned by Fortress-controlled Holiday Retirement Corp. in 2015. The derivative suit argued that Fortress — standing on both sides of the deal — received an unfair price from New Senior, under terms that included a secondary offering that diluted shareholder value.
"We believe we were able to extract the $53 million payment because we went so deep into the case. That provided us with both maximum leverage and a wealth of information," Foulds said. "We had maximum leverage because it [the settlement] was the result of a mediator's recommendation that occurred the weekend before a summary judgment hearing."
Vice Chancellor Slights approved the proposed settlement total and fee award — paid out of the total — without change, but rejected a proposed $4,500 incentive payment to Cumming. He noted that recent decisions have generally held lead stockholders to the same value from a settlement as other investors, barring extensive contributions to the case. In explaining his approval and ruling, the vice chancellor said that the suit involved extensive discovery investigation efforts, with a special master eventually appointed by the court to assist the process.
The $53 million, meanwhile, "represents at least more than half the amount that plaintiff's counsel might have achieved on their best day at trial, in my view," Vice Chancellor Slights said. "In my view, that's a very solid, risk-adjusted outcome." New Senior put up a substantial fight, the court noted, with Foulds describing the opposition as "the greatest litigation war machine ever assembled in our state." Under a defense assessment, the vice chancellor noted, New Senior underpaid for the retirement home chain, rather than overpaying, producing an alleged but rejected estimate of an $80 million benefit for shareholders.
The $14.5 million fee amounts to 27.5% of the settlement amount, but includes more than $1.1 million in expenses, the vice chancellor said. After expenses, fees would total 25% of the settlement. "The percentage of benefits paid is on the higher end of the range for pretrial fee awards, but the benefit achieved is significant and the effort to achieve that benefit is substantial and commensurate with the fee request," the vice chancellor said. He added that the fee reflected an $850-per-hour rate that he viewed as "eminently reasonable under the circumstances."
The case is Cumming v. Edens et al., case number 13007-VCS, in the Court of Chancery of the State of Delaware.