A recent Law 360 story by Leslie Pappas, “Groupon Calls Fee Bid For Del. Settlement ‘Unreasonable’,” reports that attorneys for shareholders who sued Groupon Inc. in Delaware's Court of Chancery deserve at most $750,000 in fees for brokering a settlement that includes only corporate governance reforms, the e-commerce company said, calling a proposed $2.5 million fee award "unreasonable." In a court filing, the Chicago e-coupon provider said "tagalong derivative claims" in Delaware largely echoed a federal securities action in Illinois, and that attorneys hadn't shown that the work they'd put into the case deserved such a large award.
"Defendants agree that plaintiffs have earned a reasonable fee for achieving the governance reforms in the settlement," the brief said, "but defendants disagree that plaintiffs have demonstrated that a $2.5 million fee award is reasonable." The proposed settlement would resolve a trio of suits filed in Delaware Chancery Court by stockholder Alyssa Estreen and others. Groupon tentatively agreed to settle the three derivative suits and a similar federal action in March.
The Delaware complaints included allegations similar to those in a separate federal action in the Northern District of Illinois, which resulted in a $13.5 million settlement in May 2022 and a $4.5 million award of attorney fees.
The lawsuits accused Groupon's officers and directors of breaching their fiduciary duties by issuing upbeat statements about the company's performance despite a decline in 2019 third-quarter profits. The rosy outlook allegedly pushed the stock price up temporarily, but when Groupon later announced it was ending its "Select" member subscription discount program, the stock took a one-day 44% nosedive. Shareholders also alleged that Eric Lefkofsky, Groupon's co-founder, and board member Peter Barris sold thousands of shares of Groupon stock based on inside information before the stock price tanked.
Groupon argued that the $2.5 million fee award is not reasonable under the standards set forth in Sugarland Industries, Inc. v. Thomas, a 1980 Delaware Supreme Court decision that lays out several factors that a Chancery Court considers when calculating a fee award. The proposed $2.5 million fee is also not supported by Delaware precedent, the brief said.
"Delaware precedent demonstrates that courts frequently award fees below $1 million for early-stage settlements that achieve strong corporate governance reforms without a monetary component," the company argued in its filing. Even in cases when shareholder plaintiffs managed to secure monetary compensation along with corporate governance reforms, the court has awarded fees of no more than $1 million, the brief said.
Shareholders say that the appointment of an independent director alone should be worth $1 million, but Chancery Court has often valued the addition of a new independent director at "well below $1 million many times," the brief argued, suggesting that $250,000 would be more reasonable.
Corporate governance reforms that shareholders value at $1.5 million are also worth much less, given that the case wasn't highly complex, there was little to no litigation activity, and the complaints "largely piggybacked off the allegations" in the federal securities action in Illinois, the brief said.
The 1,900 total hours that shareholder attorneys spent is also not a helpful benchmark for evaluating the fee request in this situation, because it involved three uncoordinated actions and multiple law firms, which "inherently leads to redundancy and inefficiency," the brief added. "Here, awarding $2.5 million would be a windfall," the brief said.