A recent Law 360 story by Tom Zanki, “Chancery Grants Full $18M ‘Mootness’ Fees to Politan Counsel”, reports that a Delaware judge granted an activist fund's legal team its full request for a nearly $18 million "mootness" fee as reimbursement for legal expenses, ruling that its closely watched suit challenging medical technology company Masimo Corp.'s allegedly harmful control arrangements produced changes that benefited shareholders.
Vice Chancellor Nathan A. Cook's ruling stems from an October 2022 lawsuit filed in Delaware Chancery Court by Politan Capital Management LP that sought to invalidate Masimo's adoption of bylaw amendments and a "poison pill" after Politan acquired a nearly 9% stake in the company. Masimo later revoked various bylaw amendments targeted by the hedge fund, rendering moot much of Politan's complaint. "I don't think it would be an exaggeration to say that Politan blew this case out of the water in terms of achieving pretty much all of the very substantial corporate benefits that it set out to achieve by filing this litigation," Vice Chancellor Cook said while delivering his ruling during a conference call.
The vice chancellor's decision followed oral arguments. Politan's counsel sought $17.75 million to cover attorney fees, arguing that they incurred vast costs before Masimo in February rolled back control changes that prompted Politan to later voluntarily dismiss its claims. "Zero question, they would never have done that had we not sued them," said Schulte Roth & Zabel LLP partner Michael Swartz, representing Politan during oral arguments.
Five other firms have committed hours to representing Politan at various stages of the litigation, according to court filings: Morris Nichols Arsht & Tunnell LLP, Cadwalader Wickersham & Taft LLP, Young Conaway Stargatt & Taylor LLP, BLA Schwartz PC and Ashby & Geddes PA. Masimo lawyers argued that Politan's fee request was "staggering" and had no reasonable comparison to other corporate law disputes. Politan's request was also excessive, Masimo's counsel argued, because the company revoked its contested bylaws to defuse a high-profile proxy contest underway in early 2023 rather than because of Politan's suit.
Counsel for Masimo argued that Politan's team should receive no fees, or at most $3.5 million, which represented the company's estimate of what remained after removing fees Politan spent on claims that it later abandoned and other items that should not be compensated for, according to their legal briefs. "This was really a self-interested litigation designed to benefit Politan and not the stockholders at large," Hueston Hennigan LLP partner John Hueston said, representing Masimo in oral arguments.
Vice Chancellor Cook disagreed. He determined that Politan's suit opened the path for Masimo shareholders to control the company's board of directors and removed costly provisions that would have compensated Masimo CEO Joe Kiani in the event of a change in control. "This court recognizes the obvious fundamental benefit of preserving stockholders' right to vote and elect directors of their choosing — even if litigation to enforce that right ends up benefiting the plaintiff," Vice Chancellor Cook said.