A recent Law 360 story by Jeff Montgomery, “Chancery Says ‘Game Over’ On Fee Windfalls For Easy Cases”, reports that a Delaware vice chancellor has publicly slammed stockholder attorneys who sought an $850,000 fee for "minuscule" hours spent on a corporate benefit case after a recent string of suits filed to police stockholder rights to separate class votes on company transactions.
Vice Chancellor Morgan T. Zurn, in an unusual and blunt "Statement of the Court" transcript made public, declared that the "game is over" on relatively large fee claims based on limited hours devoted to enforcing common shareholder rights to vote as a stand-alone, rather than consolidated, class on some deals and charter amendments.
The comments, given in court Feb. 15, called out Smith Katzenstein & Jenkins LLP and Purcell & Lefkowitz LLP in a ruling that rejected an $850,000 fee request for efforts that prompted car-sharing venture Getaround Inc. to revise voting plans for a share increase developed as part of its reverse, take-public merger, approved by stockholders in December 2022.
After Getaround relented and lined up a separate vote for common stockholders, the battle shifted instead to the size of the fee for the corporate benefits gained in stockholder Robert Garfield's suit. On that issue, the vice chancellor described David Jenkins of Smith Katzenstein and his plaintiffs attorney colleagues as having "lost all perspective" after "having had a really good run making a literal fortune off a minuscule number of hours of work" on charter cases and class vote challenges.
"Seeking a fee that a company CFO has affirmed in a sworn affidavit would render the company insolvent appears to be a betrayal of the stockholders you purport to represent and a betrayal of the functions that plaintiffs counsel plays in the broader ecosystem," the vice chancellor said. In a brief filed with the court in October, attorneys for Getaround argued that the $850,000 fee requested equals $35,789.47 per hour "for 23.75 hours worked with no disclosure of how the time was actually spent."
The company also argued that more than 94% of Class A shareholders redeemed their holdings for $10.11 per share before closing, and only 181,199 remaining shares were traded on the single day afterward when the price was higher than $10.11, equating to a combined $10,872, or 6 cents per share, loss.
"In this case, plaintiff does not contend, nor could he, that the outcome of the stockholder vote was altered in any way" because of objections raised before the vote in July 2022 by the attorneys who would later sue, the company argued. "The Class A stockholders, in a class vote, approved the charter amendment with 89% approval (as compared to the 92% approval of all stockholders)."
Getaround hit the court months after Vice Chancellor Zurn's relatively earthshaking decision in Garfield v. Boxed in December 2022, which found that common shareholders have a right to vote as a single class, rather than in a multiclass pool, on proposals to increase the number of company shares under Delaware's General Corporation Law. The finding triggered a surge in charter changes and litigation aimed at revising charters and correcting share counts.
The Boxed decision also upheld an $850,000 attorney fee for counsel representing stockholder Garfield, also represented by Smith Katzenstein and Purcell & Lefkowitz. Vice Chancellor Zurn concluded at the time that the Boxed case "conferred a substantial benefit" to shareholders and prevented a cloud or "ticking time bomb" of invalid shares from hanging over the company's capital structure.
Vice Chancellor Lori W. Will weeks later applied a fix to part of the threatened chaos in a ruling on In re: Lordstown Motors Corp., declaring that companies can retroactively validate wrongly issued shares. In the Getaround transcript, Jenkins pointed out to the vice chancellor that the $850,000 fee in Boxed disappeared when the company sought bankruptcy protection, "and we got nothing."