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Chancery Court Trims Fees in Shareholder Merger Action

January 18, 2019 | Posted in : Contingency Fees / POF, Expenses / Costs, Fee Award, Fee Award Factors, Fee Calculation Method, Fee Jurisprudence, Fee Reduction / Fee Denial, Fee Request

A recent Law 360 story by Vince Sullivan, “Chancery Trims Fee Award in Miramar Class Merger Challenge,” reports that a Delaware Chancery Court judge reduced an award of attorneys' fees requested by plaintiffs' counsel in a shareholder merger suit alleging conflict of interest against the directors of medical technology company Miramar Labs Inc. before approving a $410,000 cash settlement.  During a hearing in Wilmington, Chancellor Andre G. Bouchard said the Delaware Supreme Court had recently offered guidance on appropriate amounts to be awarded to attorneys when settling a lawsuit in the chancery court, saying that the 25 percent requested by attorneys for plaintiff Matthew Steve was too high based on the point in the proceedings when the settlement was reached.

"Twenty-five percent has really been recognized as the upper boundary when a case is settled before trial, but has been fully prepared for trial," Chancellor Bouchard said. "This is not that case."  While lauding the $410,000 cash settlement in the suit over Miramar’s acquisition by Sientra as a positive result in the case, the court noted that the settlement came before the defendant's motion to dismiss had been decided.  Chancellor Bouchard cut the fee award down from the requested 25 percent to a 20 percent portion of the settlement fund, or about $82,000 in fees and $14,000 in expenses.

Plaintiff attorney Juan E. Monteverde of Monteverde & Associates presented the settlement to the court, saying the proposal had gone out on notice to 1,200 shareholders and had not received any opposition.  "I am pleased to inform the court that he have not received a single objection to the settlement amount, the proposed attorneys' fees, the certification [of the class] or any other component," Monteverde said.

The settlement worked out to about 29 cents per share held by minority stockholders, he said, which would have been the same per share award of damages sought by the plaintiffs at trial.  The deal avoids the risk of litigation, where Monteverde said proving those damages would have been a difficult task.  "I don't think going to trial would have been in anyone's best interests," he said.  The settlement amount will be awarded to minority shareholders certified as members of the class who held shares at the time of the $20 million acquisition of Miramar by Sientra Inc. in 2017.  The $410,000 will be split pro rata among those stockholders and will awarded on top of the merger consideration already received.

Chancellor Bouchard approved the settlement itself, saying it was an easy call to make in this situation.  "I am satisfied this is a fair and reasonable settlement," he said.  "In fact, I think it's an excellent result."  But he cited recent guidance from the state's supreme court on attorneys' fees and incentive awards in giving greater scrutiny to the terms proposed in the stipulated settlement.  Specifically, he asked for more information from Monteverde about the participation of Steve, the named plaintiff in the case, to justify the requested $1,000 incentive award.

Monteverde said his client had spent at least 20 hours working directly with counsel on the complaint and on the valuation analysis conducted in advance of the settlement, working out to about $50 per hour for his efforts.  Chancellor Bouchard said he would approve the payment of the incentive award out of the attorneys' fees award, ruling that it was a modest request in this case.  The June 2017 merger agreement called for a base price of 31 cents per share, which could be increased to 33 cents or $1.02 if Miramar reaches certain sales milestones.  The total base price for the company is at least $20 million, going as high as $34 million if the highest sales target is hit.

The case is Matthew Steve v. Patrick F. Williams et al., case number 2017-0563, in the Court of Chancery of the State of Delaware.