A recent Law 360 story by Vince Sullivan, “Duke CEO Ouster Settlement OK’d, But Fee Issues Punted,” reports that a $27 million settlement that ends a Delaware Chancery Court derivative suit over the termination of Duke Energy Corp.’s CEO received the court's approval, but issues over how a $5.9 million fee award to counsel will be divvied up remain.

During a hearing in Georgetown, attorneys for the suing shareholders said the $27 million settlement amounts to an outstanding result for the litigation, which presented unique questions of fact and law surrounding the assignment of liability to Duke directors for the termination of former Progress Energy Inc. CEO William D. Johnson.

Johnson was selected to serve as the chief executive of the combined venture that resulted from the $26 billion merger of Duke and Progress in 2012, but the board of directors of the new entity terminated him just two hours after the merger closed.  The derivative suit, filed on behalf of Duke and alleging breaches of fiduciary duty by 11 members of the board, sought damages incurred by his termination, including more than $40 million in severance, as well as damages resulting from credit rating implications.

"An ultimate finding of liability [against the 11 conflicted members of the board], I think it's fair to say, was uncertain," shareholder attorney Ronald A. Brown Jr. of Prickett Jones & Elliott PA told the court.  "There was no other case like this ever, so it would have been difficult and unusual." 

Vice Chancellor Sam Glasscock III agreed, saying that the issues raised would have been novel to Delaware law in this unusual case.  "I will be shocked beyond belief if I see a case parallel to this ever again in my career," Vice Chancellor Glasscock said before approving the settlement, which includes mutual releases between the Duke directors named as defendants and the shareholders.

Vice Chancellor Glasscock also approved a 22 percent share of the settlement fund for fees and expenses of counsel, saying the $5.9 million request was justified due to the complex nature of the case and the aggressive way in which it was litigated up to this point.  The court specifically cited the shareholders' rejection of a recommendation by a mediator to settle the case for $15 million, after which it secured the $27 million settlement.  "It was an audacious gamble," the vice chancellor said.

The only remaining issue is the allocation of the fee and expense award, with plaintiffs in a federal derivative securities suit intervening to seek a 25 percent share of the award.  Those plaintiffs argued that their efforts in Delaware federal court, which themselves arise from a federal class action suit that settled for $146 million, directly led to the settlement of the Chancery derivative litigation.

Specifically, federal plaintiffs attorney Christopher Quinn of Friedlander & Gorris PA told the court that its work on the federal derivative suit allowed the Chancery case to reach settlement because it was seeking damages incurred through Duke's payment of the $146 million class action settlement.  Of that payout, all but $25 million was covered by insurance, while the rest came out of Duke's own coffers.  "Our claims were designed to recover those funds," Quinn told the Chancery Court.  "Our unique claims are what positioned Duke to recover the $25 million."

Brown said the settlement deal was reached in the Chancery action with no input from the federal derivative plaintiffs or their counsel, and in fact, they were not aware that mediation was being pursued in the Chancery action or that a deal had been reached.  "The fact of the matter is they weren't involved," Brown argued. "They had nothing to do with this settlement."

Vice Chancellor Glasscock said the prospect of wading into the allocation fight was not attractive to him.  "I'm being asked to allocate this fee award," he said. "I would prefer not to."

Instead, he cited previous orders he has approved in the case that designate lead plaintiffs counsel as the allocator of any fee and expense awards.  He said that until Prickett Jones & Elliott PA makes its determination on how the $5.9 million is to be allocated, or actually makes the allocation, he would not entertain any litigation over the disbursements.

"The litigants need to sit down and discuss how these allocations are to be made," Vice Chancellor Glasscock said.  "Once that is done, counsel can revive their objections."  He asked that the allocation decision be made within two weeks, with any opposition to be made after then, and that the court would be in a position to rule quickly on any issues since the parties made their arguments in full.

The case is In Re Duke Energy Corp. Derivative Litigation, case number 7705, in the Court of Chancery of the State of Delaware.