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In Mootness Proceeding, Delaware Chancery Court Awards Plaintiffs “Modest” Attorneys’ Fees
In re Xoom Corp. Stockholder Litig.
In In re Xoom Corp. Stockholder Litig., C.A. No. 11262-VCG (Del. Ch. Aug. 4, 2016), the Delaware Chancery Court analyzed whether stockholder Plaintiffs were entitled to attorneys’ fees for the benefit of all stockholders after voluntarily dismissing their deficiency action. The Court found in the affirmative, but significantly reduced the fee award.
On November 12, 2015, a merger closed between PayPal Holdings, Inc. (“PayPal”) and Xoom Corporation (“Xoom”). In light of the merger announcement, Plaintiffs filed individual complaints, alleging unfair price and process claims against the directors of Xoom, and aiding and abetting claims against the merging parties. The Plaintiffs, shortly after, added claims that Xoom’s directors breached their fiduciary duties by filing a false and materially misleading Preliminary Proxy Statement to induce Xoom stockholders to get on board with the merger. Specifically, Plaintiffs alleged thirty-eight (38) mal-disclosures requiring relief.
Shortly after Plaintiffs moved to expedite, Xoom filed a Schedule 14A with the SEC, supplementing the disclosures contained in the Preliminary Proxy Statement, and on November 19, 2015, Plaintiffs voluntarily dismissed their action, reserving the right to seek a mootness fee. In their fee application, Plaintiffs sought $275,000 in attorneys’ fees, claiming that their efforts in bringing forth litigation caused Xoom to make four (4) supplemental disclosures, mooting four (4) of their disclosure claims. These supplemental disclosures pertained to: (1) the fees paid to Xoom’s financial advisor; (2) the value to Xoom of any potential recovery of money lost from a business-email compromise fraud; (3) elements as to Xoom’s financial advisor’s analysis of the company’s value; and (4) details of conversations between PayPal and Xoom’s board of directors regarding post-closing employment.
The court began its analysis of whether Plaintiffs were entitled to attorneys’ fees, and if so, how much, by describing the peculiar scenario that is a mootness proceeding. The Court described a mootness fee as a “subspecies of the common-benefit doctrine, which recognizes that, where a litigation provides a benefit to a class or group, costs necessary to the generation of that benefit should also be shared by the group or its successor. See Waterside Partners v. C. Brewer & Co., Ltd., 739 A.2d 768, 770 (Del. 1999); Allied Artists Pictures Corp. v. Baron, 413 A.2d 876, 878 (Del. 1980). The question was, did the supplemental disclosures add value to the stockholders, and, if so, how much of Plaintiffs’ costs should be shifted to the Defendants. Distinguishing the Court’s recent decision in In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884, 898 (Del. Ch. 2016), the Court explained that, in the mootness context, Plaintiffs would be entitled to a fee award if the generated disclosures provided some benefit to the stockholders, whether or not the benefit was material to the merger approval vote.
The Court examined each individual supplemental disclosure through the lens of Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980). Sugarland laid out five (5) factors to determine whether a fee was appropriate: (1) the benefit achieved in the action; (2) the contingent nature of the undertaking; (3) the difficulty of the litigation; (4) the work quality; and (5) the standing and ability of counsel. See Franklin Balance Sheet Inv. Fund v. Crowley, 2007 WL 2495018, at *12 (Del. Ch. Aug. 30, 2007).
First, using vague language, the Court determined that the first supplemental disclosure, concerning Xoom’s financial adviser fees and potential conflicts, was mildly helpful to the stockholders. Second, the Court found that, with respect to the information about Xoom’s lack of value ascribed to the potential recovery of funds lost in the fraud, information that Xoom’s management viewed this asset as worthless was somewhat valuable to the stockholders. Third, the Court determined that the supplemental disclosure about management’s general discussions of future employment with PayPal provided only somewhat of value. Finally, the Court found that the supplemental disclosure of information regarding Xoom’s financial adviser’s individual metrics in its market-value comparable-company analysis was of minimal benefit to the stockholders in light of the merger.
While the Court explained that none of the supplemental disclosures were particularly strong in terms of benefits to the stockholders, the Court still determined that the financial adviser fees and potential conflicts and the post-merger employment discussions provided a modest benefit to the stockholders. Accordingly, the Court held that because there was a benefit provided, Plaintiffs were entitled to an award of attorneys’ fees.
The sum of the fees, however, could not be as far-reaching as initially proposed. The Court, breaking down Plaintiffs’ ask of $275,000 in fees, explained that this would equate to charging $4,000/hour, a sum far more than reasonable. Applying the Sugarland factors, and its own equitable reasoning, the Court determined that the appropriate amount of attorneys’ fees and costs was $50,000.
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