A recent Law 360 story by Vince Sullivan, “Globalstar Called Shareholder $15M Fee Request ‘Exorbitant’,” reports that satellite communications company Globalstar Inc. said a $15 million attorney fee request from shareholder Mudrick Capital Management LP is far too high given the quick settlement reached in Mudrick’s Delaware Chancery Court suit over a proposed $1.6 billion insider transaction.  In an objection to the fee request, Globalstar said the fee application claimed that a substantial increase in the company’s stock trading price resulted from the announcement of the case's settlement in December, but that claim is based on “unsubstantiated conjecture” and results in an "exorbitant" request for fees.

“Setting aside that there is no precedent for awarding fees based on a claimed stock price increase, plaintiffs’ valuation is based on an expert report that is untethered from reality, as it incorrectly analyzes Globalstar’s stock price movement … ,” the objection said.

Mudrick Capital and Warlander Asset Management LP filed suit in September accusing Globalstar’s directors of acting disloyally in agreeing to a $1.6 billion transaction with Thermo Capital Partners, in which Thermo would be given additional shares of Globalstar.  At the time the deal was proposed, Globalstar board Chairman James Monroe III controlled both Globalstar and Thermo.  He held 53 percent of Globalstar stock and sought to increase his holdings to 90 percent through the transaction, according to court filings.

The fee request claims Globalstar’s market value increased by $80 million upon announcement of the suit’s settlement, which came less than two months after the minority investors’ suit was filed and five months after the Thermo merger was terminated.  The $15 million fee request was based on receiving a percentage of the alleged $80 million in value created by the settlement.

Globalstar argued in its objection that it announced several other pieces of company news that impacted its stock price the same day the settlement was made public.  The objection claims that Globalstar announced the settlement on Dec. 17, but also announced a new financing deal that would stave off loan obligation defaults and that Globalstar had achieved a significant developmental milestone by having its wireless spectrum approved for terrestrial network use.

“Plaintiffs’ experts’ dismissal of the effect of the latter two announcements on the company’s stock price is both illogical and inconsistent with his own analysis,” the objection said.  “It also ignores the pressure that the lawsuit itself put on the company’s share price … ”  Globalstar claimed that its shares were trading at $0.50 each when the Mudrick suit was filed, but the price had dropped to $0.30 by the time the settlement was announced.  These issues create doubt about whether the settlement created any value for the company that can be the basis for an award of attorney fees from a common fund, the objection said, and raises questions about the amount of work actually done by the shareholders' attorneys.

Globalstar said the fee request indicates those attorneys incurred $1.5 million in actual fees based on more than 2,700 hours of work on the case, but doesn’t provide any details on the work performed.  The objection said that figure is significantly inflated because the lawyers only drafted a complaint and negotiated a settlement.  The defense counsel in the case incurred $260,000 to review the complaint and negotiate the settlement, which, if extrapolated to the plaintiffs, would call for a much smaller fee accrual of $530,000, Globalstar claims.

Plaintiff attorney Gregory V. Varallo of Richards Layton & Finger PA said the benefits realized in the settlement are unprecedented and warrants an award of the requested fees.  "From the defendants' argument, you'd think this was a run of the mill settlement," Varallo told Law360. "But it's unprecedented.  Nothing like this has happened before."