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.