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Category: Mootness Fees

Counsel Awarded $250K in Mootness Fees in EZCorp Investor Suit

April 7, 2022

A recent Law 360 story by Rose Krebs, “Attorneys Will Get $250K For Mooted EZCorp Investor Suit” reports that counsel for an EZCorp Inc. investor who alleged that officers of the Texas-based pawnshop operator oversaw the unauthorized distribution of more than $16 million worth of company shares will get a $250,000 fee award for a now-mooted Delaware Chancery Court suit.  Chancellor Kathaleen St. J. McCormick approved a stipulated order voluntarily dismissing a derivative suit filed in January by stockholder Jerry Edelman and directing the company to pay $250,000 to his counsel Levi & Korsinsky LLP and Bielli & Klauder LLC for attorneys' fees and expenses.

In the suit, Edelman accused a group of current and former EZCorp directors and executives of unlawfully granting themselves and others more than 2.7 million nonvoting shares of the company between May 2020 and October 2021.  Although EZCorp and the other defendants "deny any and all allegations of the complaint that defendants engaged in wrongdoing in any way," they agreed to pay attorneys' fees "to avoid the potential costs, risks and distraction associated with the defense of a fee application by plaintiff's counsel," the order said.

The stipulated order was filed and signed off on by the chancellor soon after.  It was filed less than 24 hours after attorneys from Richards Layton & Finger PA entered their appearance on behalf of EZCorp and the directors and officers.  At issue in the suit was a long-term incentive plan authorized by EZCorp shareholders in May 2010 that granted company shares to officers, directors and employees.  The plan expired in May 2020, and no new deal had been reached at the time of the suit's filing, Edelman claimed.

Despite that, board members awarded 2,757,293 shares to themselves and others between May 2020 and October 2021, according to the lawsuit.  The suit said shares were distributed six times during that period.  After the suit was filed, the company's board and Phillip Cohen, the company's executive chairman and sole holder of its voting class of common stock, ratified the granting of the stock awards and issuance of company shares, according to the order.

The company's incentive plan was amended effective April 30, 2020, "to allow for the grant of awards under the plan until December 31, 2021 and to increase the number of shares of the company's Class A non-voting common stock authorized for issuance under the plan," the order said.  On March 2, Cohen approved a new equity incentive plan to replace the previous one, "provided that the plan continues to govern awards made under the plan that were outstanding as of December 31, 2021 and that the authorized shares under the 2010 plan remain available to satisfy such awards," the order said.

Parties in the litigation "agree that the ratification of the grant of the awards, the issuances, and the plan amendment, and the adoption of the company's new equity incentive plan mooted the claims set forth in the complaint," the order said.  Edelman's now mooted suit had asserted breach of fiduciary duty, waste of corporate assets and unjust enrichment claims and sought damages and a court order rescinding the awarded shares.

Court Tosses Mootness Fee Request in Microsoft Merger Case

February 8, 2022

A recent Law 360 story by Dean Seal, “Court Boots Mootness Fee Bid in Microsoft Merger Challenge,” reports that a New York federal judge denied Monteverde & Associates PC's $250,000 fee request for representing an investor whose challenge to Nuance Communications Inc.'s $19.7 billion acquisition by Microsoft wasn't found to have benefited other Nuance shareholders.  U.S. District Judge J. Paul Oetken issued a brief order rejecting the firm's motion for what is commonly referred to as a "mootness fee," siding with Nuance's argument that investor Albert Serion hadn't met his burden of showing that his suit, one of several challenging disclosures in the proxy statement for Nuance's merger, "conferred a substantial benefit on Nuance shareholders."

Monteverde had argued that its suit prompted Nuance to disclose certain previously withheld metrics used by financial adviser Evercore Group LLC when doing a comparative analysis of Nuance and its peer companies, but the judge said the Nuance proxy statement already provided investors with a detailed summary of that analysis.  "Numerous courts have concluded that prompting disclosure of underlying valuation metrics does not confer a substantial benefit on shareholders and that their disclosure is not required by law," the order said.

The law firm had also claimed that it spurred Nuance to disclose price targets from research analysts that were previously withheld, but Judge Oetken said the range of price targets that were already included in the proxy statement "provides a fair summary of Evercore's work and '[q]uibbles with a financial advisor's work simply cannot be the basis of a disclosure claim.'"

The order will be warmly welcomed by opponents of mootness fees, a controversial merger litigation practice in which plaintiff firms file objections to mergers and other large-scale transactions, many on the premise of seeking additional disclosures, and then request fee awards after defendant companies "moot" the investors' allegations by providing those additional disclosures.  Nuance, which specializes in tools that enable speech recognition and transcription services for doctor's offices, slammed the law firm's fee request last fall as a "demand to be compensated lavishly for filing a meritless copy-cat lawsuit."

In its opposition to the fee bid, Nuance said the firm didn't submit billing records but had conceded that it put in less than 100 hours of work on the case, meaning its $250,000 request would come out to a minimum $2,500 hourly rate.

The firm represents investors who appealed the decision to the Seventh Circuit and argued in April 2020 that the district court has no jurisdiction to rescind attorney fees for claims that have been voluntarily dismissed.  The federal appellate court has not yet rendered a ruling in the case, according to court records.

3 Law Firms Seek ‘Mootness Fees’ in Investor Suit

August 14, 2021

A recent Law 360 story by Rose Krebs, “3 Firms Seek Fee For Mooted ViacomCBS Board Suit in Del”, reports that Cooch & Taylor, Glancy Prongay & Murray, and Kranenburg have asked the Delaware Chancery Court award them $120,000 in attorneys' fees for an investor's suit dismissed earlier this year over a challenged bylaw as to how company directors can be removed.  In a stipulated agreement filed with Vice Chancellor Sam Glasscock III, Cooch & Taylor PA, Glancy Prongay & Murray LLP and Kranenburg, along with counsel for ViacomCBS and its directors, resolved the firms' bid for attorneys' fees and expenses now that the case has been dismissed after an action by the company's board mooted the underlying issue.

"The parties negotiated at arms' length and resolved Plaintiff's claim to entitlement to a mootness fee, with the company agreeing, in the exercise of business judgment, to pay $120,000 for any and all attorneys' fees and expenses" for the three firms, the stipulation said.  A notice that would be provided to the U.S. Securities and Exchange Commission, including a clause that the company has agreed to pay the fees and expenses, was attached to the filing.  The notice would be sent to the SEC once the court signs off an order finalizing the agreement.

The firms sought the fee in connection with a suit filed last year by stockholder Gerald Lovoi flagging a provision of the company's bylaws that gave directors the authority to remove other directors, contrary to Delaware law.  "Stockholders of a corporation organized and existing under Delaware law have the exclusive authority to remove directors," the lawsuit asserted.  Lovoi sought a declaration from that court "that the removal provision was invalid and sought attorneys' fees and expenses if the claim was successful," the suit said.

Delaware Supreme Court Affirms $12M Mootness Fee

February 25, 2021

A recent Law 360 story by Rose Krebs, “Del. Justices Let $12M Attorney Fee in Versum Case Stand,reports that the Delaware Supreme Court let stand a $12 million fee awarded to stockholder attorneys who won removal of poison pill measures that threatened to block Versum Materials Inc. from taking a $1.2 billion higher alternative bid in a 2019 merger.  In a brief order, the full court said that "after careful consideration" it decided to affirm Vice Chancellor J. Travis Laster's decision last year to award the fee to a class attorney in a consolidated action led by Prickett Jones & Elliott PA, along with Kessler Topaz Meltzer & Check LLP, Lynch & Pine and Labaton Sucharow LLP.

In a bench ruling last July, Vice Chancellor Laster acknowledged that he had concerns about the fee, which amounted to nearly $10,700 per hour.  But the result, he said, partly reflected an "aggressive" position taken by Versum's counsel against any award, or an award beyond the $680,000 that would cover regular billable hours for the firms and attorneys involved.

"The Delaware Supreme Court's summary affirmance by unanimous order confirmed that Vice Chancellor Laster's careful 38-page ruling was correct and rejected" efforts by Versum and certain interested parties in the case "to rewrite Delaware's well-established law on mootness fees," shareholders' attorney Michael Hanrahan of Prickett Jones & Elliott PA told Law360.

During oral arguments earlier this month on an appeal filed by Versum and its directors, a Supreme Court justice questioned calls for the reversal of the supposedly unsupported $12 million "mootness fee" awarded by the Chancery Court to the stockholder attorneys whose successful challenge of merger poison pill provisions begat a better deal.  Justice Karen L. Valihura told Versum's counsel that the vice chancellor had acknowledged concerns about the size of the fee awarded along with the semiconductor industry supplier's call to pay either nothing or $680,000 based on standard rates.

The justice suggested that if the vice chancellor had ""meaningful help" from Versum in establishing a fee, given his concerns about the amount, he might have reached a different conclusion.  The fee approved by the Chancery Court followed relatively brief stockholder litigation in early 2019 over Versum's consideration of a $3.8 billion all-stock merger with Entegris Inc. worth about $43 per share, and the adoption of a poison pill shield for the deal after Merck KGaA offered $48 per share.

The pill would have given all shareholders the right to buy additional, potentially deal-blocking shares at a steep discount if another party or potential buyer acquired 12.5% or more of the company's equity.  Days after the stockholders sued, Versum dropped what the vice chancellor described as a related "truly expansive" provision that would trigger the poison pill if individual stockholders were deemed to be "acting in concert" in discussions about the deal, regardless of their intent.  Soon afterward, the poison pill itself was withdrawn, with Merck soon winning the deal with a higher offer of $53 per share.

In approving the fee last year, the vice chancellor said it would have been reasonably conceivable in a motion to dismiss proceeding to conclude that Versum fielded the deal protections "to block a high-value cash deal and protect its merger of equals" with Entegris.  Versum's counsel argued earlier this month that the vice chancellor erred by conflating the better, company-secured price and the "monetary, corporate, therapeutic benefit" resulting from removal of the pill and acting-in-concert provisions.

"Plaintiff played no role in the bidding dynamic and bidding process that led to the increased merger consideration," an attorney for Versum, William M. Lafferty of Morris Nichols Arsht & Tunnell LLP, argued, adding that the vice chancellor's fee award "effectively rewards counsel as if they had created a monetary fund" and benefit, "which they didn't."

In response, Hanrahan told the justices that Lafferty was asking the court to second-guess the vice chancellor's factual findings, and said that the award amounted to about 1% of the benefit.  "The defendant basically just disagreed with the court of chancery's finding of a causal connection between the litigation and the increased merger price," Hanrahan said.  "They said no fee at all should be awarded, because the litigation did not cause Merck's offer.

But Hanrahan said that Versum conceded on appeal that the litigation caused the removal of the acting-in-concert provision.  "That's fatal to their causation argument," he said.  "The vice chancellor found those were obstacles to the Merck offer, and the removal of those obstacles caused the success of the Merck offer."

Lafferty contended that the Chancery Court's fee decision was made without an assessment of the stockholder suit's likelihood of success or merit when it was actually filed.  "The bottom line here is, the court of chancery had a duty to use its discretion to set a reasonable fee, and it didn't do that, we believe," Lafferty told the justices.

Delaware Supreme Court to Decide on ‘Mootness Fee’

February 15, 2021

A recent Law 360 story by Jeff Montgomery, “Del. Justices Unsure $12M Deal ‘Mootness Fee’ Is Off-Base”, reports that a Delaware Supreme Court justice questioned calls for the reversal of a supposedly unsupported, $12 million Chancery Court "mootness fee" to stockholder attorneys whose successful challenge to a Versum Materials Inc. merger poison pill begat a deal that was $1.2 billion higher.

During arguments on an appeal filed by Versum and its directors, Justice Karen L. Valihura told the company's counsel William Lafferty of Morris Nichols Arsht & Tunnell LLP that Vice Chancellor J. Travis Laster acknowledged concerns about both the size of the fee — amounting to about $10,700 per hour for a mooted claim — and the semiconductor industry supplier's call to pay either nothing or $680,000 based on standard rates.  "So he said you started out with a non-starter, extreme position" on the fee, "but you didn't engage with the evidence and the precedents meaningfully" to back up the position, Justice Valihura said.  "What are we supposed to do with that?" she asked Lafferty during arguments before the full five-member court.

And earlier Justice Valihura had asked Lafferty, "Isn't part of the problem here, clearly, that the vice chancellor had some misgivings about the [fee] number," but also that, if he had "meaningful help from the defendant in engaging on the matter, he might have reached a different conclusion?"  The fee approved by the Chancery Court followed relatively brief stockholder litigation in early 2019 over Versum's consideration of a $3.8 billion all-stock merger with Entegris Inc. worth about $43 per share, and the adoption of a poison pill shield for the deal after Merck KGaA offered $48 per share.

The "pill" would have given all shareholders the right to buy additional, potentially deal-blocking shares at a steep discount if another party or potential buyer acquired 12.5% or more of the company's equity.  Days after the stockholders sued, Versum dropped what the vice chancellor described as a related, "truly expansive" provision that would trigger the poison pill if individual stockholders were deemed to be "acting in concert" in discussions about the deal, regardless of their intent.  Soon afterward, the poison pill itself was withdrawn, with Merck soon winning the deal with a higher, $53 per share offer.

In approving the fee last year, the vice chancellor noted it would have been reasonably conceivable in a motion to dismiss proceeding to conclude Versum fielded the deal protections "to block a high-value cash deal and protect its merger of equals" with Entegris.  Lafferty said the vice chancellor erred by conflating the better, company-secured price with the "monetary, corporate, therapeutic benefit" resulting from removal of the pill and acting-in-concert provisions.

"Plaintiff played no role in the bidding dynamic and bidding process that led to the increased merger consideration," Lafferty said, adding that the vice chancellor's fee award "effectively rewards counsel as if they had created a monetary fund" and benefit, "which they didn't."

Michael Hanrahan of Prickett Jones & Elliott PA, counsel to the stockholders, told the justices that Lafferty was asking the court to second-guess the vice chancellor's factual findings, and said that the award amounted to about 1% of the benefit.  "The defendant basically just disagreed with the court of chancery's finding of a causal connection between the litigation and the increased merger price," Hanrahan said.  "They said no fee at all should be awarded, because the litigation did not cause Merck's offer.  The question is, what the board did" on the issues.  "They didn't put in any evidence on that."

Hanrahan said that Versum conceded on appeal that the litigation caused the removal of the acting-in-concert provision.  "That's fatal to their causation argument," he said. "The vice chancellor found those were obstacles to the Merck offer, and the removal of those obstacles caused the success of the Merck offer."  Lafferty said Versum's decision to accept Merck's offer came weeks after the stockholder suit had been mooted, while the court's fee decision was made without an assessment of the stockholder suit's likelihood of success or merit when it was filed.

"So what you're suggesting is, the process the Court of Chancery should have followed here, if your standard is likelihood of success, do they have to relitigate this case as part of the fee application?"  Chief Justice Collins J. Seitz Jr. asked. "I think what you're advocating has practical consequences for the court."  Lafferty said the case implicated important public policy considerations regarding the institutional role of shareholder suits, and the fact that past court cases have found that "generosity plays no role" in determining benefit amounts.

"If the court below wanted to exercise its discretion, if it thought there was a strong correlation between pulling the pill and the outcome, it could have awarded a multiple of plaintiff's attorney fees, not 17 times, but something reasonable," Lafferty said.  "The bottom line here is, the court of chancery had a duty to use its discretion to set a reasonable fee, and it didn't do that, we believe."