A recent Law 360 story by Jeff Montgomery, “Prickett Jones, Grant Eisenhofer, Kessler Topaz Win $19M Fee,” reports that the Delaware Chancery Court awarded $18.7 million in fees to Prickett Jones, Grant & Eisenhofer and Kessler Topaz attorneys who waged an unprecedented, nearly six-year stockholder battle over allegedly outsized stock bonus awards to software company Ebix's CEO. During a hearing in Wilmington, Vice Chancellor Joseph R. Slights III approved the award — pruned from a requested $25 million — after summarily rejecting a last-minute claim by Ebix Inc. that the court should deny any fee payment based on stockholder attorney failure to acknowledge a purported defect involving two of three class representatives' standing, or eligibility to sue.
Ebix's allegation unsuccessfully invoked the legal doctrine of "unclean hands," a defensive assertion of an ethical failure that could bar a plaintiff from winning a court judgment. “The litigation was as intense as one could imagine,” the vice chancellor said of the multiyear dispute, adding later that “plaintiffs took risks time and again to prosecute a very complex case,” gaining in the end substantial benefits for stockholders, who alleged breaches of fiduciary duties involving disclosure and corporate governance in addition to the compensation issues.
In addition to the $18.7 million, the court ordered reimbursement for $951,896 in expenses incurred by Prickett Jones & Elliott PA, Kessler Topaz Meltzer & Check LLP and Grant & Eisenhofer PA. The court also awarded $10,000 payouts to two stockholder representatives and $5,000 to a third.
During a trial in August 2018, stockholder attorneys argued that phantom approvals and disclosure failures propped up a potential $825 million in allegedly backdated stock appreciation awards to CEO Robin Raina beginning in 2009 in the event of a company sale. The stockholder suit took shape during an eventually scuttled, management-led buyout financed by Goldman Sachs, morphing into a battle over stock rights Raina began nailing down in 2006. Raina’s benefit became in time what Michael Hanrahan of Prickett Jones said was the largest change-of-control agreement in the nation, until the settlement.
“The settlement is fair and reasonable for Ebix and the class,” Hanrahan told Vice Chancellor Slights. “It gives broad release of specific claims in this litigation, which involves hundreds of millions of dollars. The court has to decide if the get is commensurate with the give.”
Under the settlement, Raina agreed not to resign as Ebix CEO for at least two years after the agreement is finalized. Ebix meanwhile dropped a CEO benefit provision that would have paid a “gross-up” supplement to offset any tax amounts owed by Raina for the stock award. Instead, the company agreed to provide 5,953,975 stock appreciation rights at the base value of $7.95 per share with a determination to be made each year prior to any acquisition if he is owed more rights.
Kevin H. Davenport of Prickett Jones said the provision assured that Raina “can’t ever get a bonus on a bonus” by way of the gross-up, reducing the cost of the benefit by $245 million at an $80-per-share price, or $155 million at $55 per share. The proposed agreement also includes conditions on Raina’s stock appreciation vesting rights if he is involuntarily terminated and offers full vesting rights if he is still employed at the time of any acquisition. Ebix also agreed to develop a “CEO succession plan” within 180 days of the settlement being finalized and will be obliged to hire a “nationally recognized independent compensation consultant to advise annually on director and officer compensation,” according to court filings.
Paul Fioravanti of Prickett Jones said three attorney teams spent 13,339 hours on the case, including taking 27 depositions on three continents, and accumulated nearly $8.6 million in uncompensated expenses. The requested award would have totaled about 2.2 times that expense. The case, Fioravanti said, involved “an unprecedented change in control agreement which was terminated shortly before trial in direct response to this litigation, which was replaced with yet another unprecedented change in control agreement which we litigated through trial. There is not another case like it.”
The bulk of the vice chancellor’s reductions to the $25 million fee request focused on throttling back assumed benefits from changes to the stock awards to better reflect contingencies and the possibility that Ebix would never have to make a payout anyway. The court accepted a request for $2 million to reflect the benefit of corporate governance reforms, however, in the second-largest of the fee components, with all other adjustments trimming the award to $18.61 million, which the court then used its discretion to round up to $18.7 million.
The case is In Re Ebix Inc. Stockholder Litigation, case number 8526, in the Court of Chancery of the State of Delaware.