Mor Ex Rel. AmerisourceBergen Corp. v. Collis ( 2016 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
No. 15-2831
______________
ELI MOR, derivatively on behalf of AMERISOURCEBERGEN CORPORATION and
individually on behalf of himself and all other similarly-situated shareholders of
AMERISOURCEBERGEN CORPORATION
v.
STEVEN COLLIS, RICHARD GOCHNAUER, RICHARD GOZON, EDWARD
HAGENLOCKER, KATHLEEN HYLE, MICHAEL LONG, HENRY MCGEE,
CHARLES COTROS, JANE HENNEY, and AMERISOURCEBERGEN
CORPORATION
Eli Mor,
Appellant
______________
On Appeal from the United States District Court
for the District of Delaware
(D.C. No. 1:13-cv-00242)
District Judge: Honorable Richard G. Andrews
______________
Submitted under Third Circuit LAR 34.1(a)
March 17, 2016
Before: CHAGARES, RESTREPO, and VAN ANTWERPEN, Circuit Judges
(Filed: July 7, 2016)
______________
OPINION*
______________
RESTREPO, Circuit Judge
On October 28, 2014, the District Court approved the parties’ negotiated
settlement of this shareholder derivative class action, reserving the issue of the amount of
attorneys’ fees to be awarded to plaintiff, Eli Mor. Although the District Court awarded
attorneys’ fees to plaintiff by Memorandum and Order filed July 1, 2015, the Court
awarded substantially less than the uncontested fees requested by plaintiff that had been
negotiated by the parties and included in the Stipulation of Settlement entered into by the
parties (“Stipulation”). See Mor v. Collis, No. 13-0242, 2015 WL 4036167, *7 (D. Del.
June 30, 2015). Mor has filed an appeal of that Memorandum and Order, and no party
has filed opposition to this appeal.1 For the reasons explained below, we vacate that
portion of the Memorandum and Order awarding fees and expenses, and we remand for
further proceedings consistent with this Opinion.
I.
*
This disposition is not an Opinion of the full Court and, pursuant to I.O.P. 5.7, does not
constitute binding precedent.
1
Under the Stipulation, the parties mutually agreed that the fee request was fair and
reasonable, plaintiff’s counsel agreed to waive any right to seek or collect any award of
attorneys’ fees, or reimbursement of costs and expenses, exceeding $1,000,000 in total,
and defendants agreed not to oppose the fee petition. See Stip. dated 8/15/13, at 7, ¶¶ 1-
2. Thus, defendants are not participating in this appeal.
2
On February 15, 2013, Mor filed a Complaint in the District Court derivatively on
behalf of AmerisourceBergen Corporation (“ABC” or “the Company”) and individually
on behalf of himself and all other similarly-situated shareholders of ABC, naming as
defendants nine members of the Company’s Board of Directors (“Board”)2 and ABC, as
nominal defendant. The Complaint alleged the Board exceeded its authority under the
Company’s shareholder-approved Equity Incentive Plan (“Plan”) resulting in a breach of
fiduciary duties, waste of corporate assets, and unjust enrichment.
Mor’s claims stemmed from his allegations that in 2012 the Board granted
758,810 stock awards to defendant Steven Collis, the Company’s President, Chief
Executive Officer and a Director, thereby exceeding the alleged 300,000-share limit
permitted to be granted to any individual participant in one calendar year under the Plan.
Mor claimed the Board members did not act in good faith toward the Company when
they breached their fiduciary duties by approving these improper stock options and by
filing with the U.S. Securities and Exchange Commission (“SEC”) on January 18, 2013 a
Proxy Statement (“2013 Proxy”) allegedly containing materially false and misleading
omissions that rendered shareholders unable to make informed decisions at the 2013
Annual Meeting of Stockholders.
On April 12, 2013, defendants filed a motion to dismiss plaintiff’s Complaint, and
the motion was subsequently briefed by the parties. In the meantime, on April 26 2013,
non-party ICLUB Investment Partnership (“ICLUB”) wrote the District Court advising of
2
Plaintiff states that Director Douglas Conant was not named as a defendant because he
joined the Board subsequently to the events challenged in the Complaint. See Pl.’s Br. 4
n.1.
3
a related action it had filed in the U.S. District Court for the Eastern District of
Pennsylvania. Further, on July 11, 2013, KBC Asset Management N.V. (“KBC”) moved
to intervene.
The parties to this action entered into and filed the Stipulation of Settlement on
August 15, 2013. The Stipulation states that on February 19, 2009, ABC’s stockholders
approved the Company’s Management Incentive Plan which provides for a 300,000-share
limit on grants of awards to eligible individuals in any calendar year commencing on or
after January 1, 2009. On May 14, 2009, ABC’s Board declared a two-for-one split of
the outstanding shares of common stock, and on June 10, 2009, pursuant to its authority
under the Plan, the Compensation Committee of the Board proportionally increased the
maximum award limit to any eligible individual in any calendar year to 600,000 shares,
effective June 15, 2009, to reflect the stock split. See Stip. 2, ¶¶ 1-3.
The Stipulation further states that on May 6, 2011, with its regular 10-Q filing
with the SEC, ABC filed the renamed Equity Incentive Plan, amended and restated
effective January 1, 2011, but this document did not reflect the Compensation
Committee’s June 10, 2009 adjustment of the 300,000-share individual limit to a
600,000-share individual limit. Id. at 2, ¶ 4. The Stipulation also reflects that the
Compensation Committee granted Collis awards covering a total of 872,423 shares
during the 2012 calendar year. Id. at 3, ¶ 8.
Ten days after the filing of plaintiff’s Complaint, ABC filed on February 25, 2013
a Form 8-K with the SEC that attached an electronic version of a Written Consent of the
Compensation Committee, dated June 10, 2009, that limited the grants of awards to
4
eligible individuals in any calendar year to 600,000 shares of common stock. Id. at 4, ¶
12. The Stipulation reflects that defendants deny that they have breached any duty, or
violated any law, or engaged in any wrongdoing, or have any liability arising out of the
facts and circumstances described in plaintiff’s Complaint. Id. at 4, ¶ 13. The Stipulation
further acknowledges that the settlement is a result of arms’ length negotiations to settle
and resolve the dispute. Id. at 4, ¶ 15.
Under the Stipulation, defendants agreed to cancel “272,423 of the stock options
awarded to Collis on November 14, 2012 pursuant to the Plan.” Id. at 5, ¶ II(A)(1). The
Stipulation also provides certain prophylactic corporate governance reforms for a period
of at least five years, including the requirement that the General Counsel of the Company
verify that all awards made under the Plan are compliant and certify that all amendments
to the Plan have been disclosed in the Company’s SEC filings.
The Stipulation further provides that plaintiff would file an application for an
award of attorneys’ fees and reimbursement of costs and expenses in an amount not to
exceed $1,000,000, an amount which “[t]he Parties mutually agree[d] [was] fair and
reasonable.” Id. at 7. Defendants agreed not to oppose plaintiff’s fee application so long
as it did not seek an amount in excess of the agreed upon fee. Indeed, upon execution of
the Stipulation, defendants paid the agreed-upon fee to plaintiff’s counsel. Under the
Stipulation, payment of the fee award is subject to plaintiff’s counsel’s obligation to
make appropriate refunds or repayments to ABC in the event of any failure to obtain final
approval of the settlement, if the amount of fees and expenses actually awarded is less
5
than the full amount of the fee award, or if the amount of fees and expenses is reduced by
the Court. Id. at 8.3
The District Court dismissed the motion to dismiss and the motion to intervene
by Order dated August 16, 2013, and the Court stayed the Stipulation of Settlement until
such time as KBC had resolved its books and records request. On September 10, 2013,
plaintiff moved to lift the stay. However, following briefing by the parties, on October
21, 2013 the Court declined to lift the stay and scheduled a status conference to be held
on December 20, 2013.
On February 4, 2014, the Court of Chancery of the State of Delaware granted the
Company’s motion for judgment on the pleadings as to KBC’s books and records
demand pertaining to ABC’s allegedly excessive grants of stock options in 2012, in that
any shareholder derivative claims were made moot in light of ABC’s aforementioned
cancellation of the excess options. The District Court then scheduled another status
conference to be held May 5, 2014. On July 23, 2014, counsel for KBC wrote the
District Court to advise that the books and records demand had been resolved with
respect to the excessive awards and that KBC no longer sought to intervene and did not
object to the Court’s consideration of the proposed settlement. The Court then entered an
Order on August 6, 2014 preliminarily approving the settlement, and plaintiff moved for
final approval of the settlement and award of attorneys’ fees.
3
Thus, plaintiff represents that if this appeal is unsuccessful, plaintiff’s counsel will be
required to reimburse defendants $450,000. See Pl.’s Br. 8.
6
ICLUB thereafter objected to the settlement and moved for its own attorneys’ fees,
which plaintiff opposed. By Order dated October 17, 2014, the District Court directed
plaintiff and ICLUB “to submit, under oath, detailed time records related to this case for
each of its attorneys, with their usual hourly billing rates.” The parties agreed to revise
the settlement language, and ICLUB withdrew its objection. Following a hearing on
October 28, 2014, the District Court issued a Final Order and Judgment approving the
settlement that same date, reserving the issues on attorneys’ fees.
II.
On July 1, 2015, the District Court filed its Memorandum and Order addressing
plaintiff’s and ICLUB’s requests for attorneys’ fees. The Court denied ICLUB’s request
for fees and awarded plaintiff attorneys’ fees and expenses in the amount of $550,000.4
The Court found that this litigation resulted in, among other things, the creation of a
common fund equaling $5.048 million.
The District Court pointed out, “In diversity cases, we apply state rules concerning
the award of attorneys’ fees.” Mor, 2015 WL 4036167, at *2 (quoting Sec. Mut. Life Ins.
Co. of N.Y. v. Contemporary Real Estate Assocs., 979 F.2d 329, 331-32 (3d Cir. 1992))
(internal quotations omitted). Thus, the District Court applied Delaware law in
determining its award of attorneys’ fees in this diversity action.
The Court noted that, under Delaware law, “[i]n the realm of corporate litigation,
the Court may order the payment of counsel fees and related expenses to a plaintiff
4
Since this appeal only involves the District Court’s award of fees and expenses to
plaintiff, the denial of ICLUB’s request for fees is not addressed herein.
7
whose efforts result in the creation of a common fund, or the conferring of a corporate
benefit.” Id. (quoting Tandycrafts, Inc. v. Initio Partners, 562 A.2d 1162, 1164 (Del.
1989) (citations omitted)). The common fund doctrine states that “a litigant or a lawyer
who recovers a common fund for the benefit of persons other than himself or his client is
entitled to a reasonable attorney’s fee from the fund as a whole.” Americas Mining Corp.
v. Theriault, 51 A.3d 1213, 1252-53 (Del. 2012) (quoting Boeing Co. v. Van Gemert, 444
U.S. 472, 478 (1980) (citations omitted)).
The District Court noted that a determination of a reasonable award of attorneys’
fees is within the Court’s “sound judicial discretion.” Mor, 2015 WL 4036167, at *3
(quoting In re Infinity Broadcasting Corp. S’holders Litig., 802 A.2d 285, 293 (Del.
2002)). The Court considered the following factors, referred to as the Sugarland factors:
“(1) the results accomplished for the benefit of the shareholders; (2) the efforts of counsel
and the time spent in connection with the case; (3) the contingent nature of the fee; (4)
the difficulty of the litigation; and (5) the standing and ability of counsel involved.” Id.(quoting Infinity Broadcasting, 802 A.2d at 293); see Sugarland Indus., Inc. v. Thomas,
420 A.2d 142, 149 (Del. 1980).
After evaluating the relevant factors, the District Court “appl[ied] the percentage
of the common fund method to determine a reasonable fee award.” Mor, 2015 WL
40336167, at *5. In doing so, the Court pointed out that the agreed-upon $1 million fee
award amounted to 19.8% of the common fund. The District Court recognized that “a
court should give weight to an agreement regarding attorneys’ fees,” id. (quoting In re
Abercrombie & Fitch Co. S’holders Derivative Litig., 886 A.2d 1271, 1275 (Del. 2005)),
8
but stated that “the weight given derives from and depends on the court’s sense of
confidence that the negotiations over the fee agreement were conducted in good faith and
had no effect on the other terms of the settlement,” id. (quoting In re Prodigy Commc’ns
Corp. S’holders Litig., No. 19113, 2002 WL 1767543, *6 (Del. Ch. July 26, 2002)).
Despite finding “no doubt that the parties negotiated the settlement in good faith,”
the Court “believe[d] that the amount of attorney’s fees agreed upon far exceed[ed] what
[was] appropriate in this case.” Id. Indeed, the Court stated that “but for the agreement, I
would think $250,000 was about what reasonable attorney’s fees would be.” Id.Ultimately, however, the Court concluded: “In light of the Delaware Supreme Court’s
statements in Americas Mining regarding settlements that occur in the early stages of
litigation, and according to my own business judgment, I think a reasonable fee award is
$550,000, which is roughly 10% of the common fund plus $50,000 for the corporate
governance reforms.” Id. Mor has appealed from that portion of the District Court’s July
1, 2015 Memorandum and Order awarding him $550,000 in attorneys’ fees and expenses.
III. 5
5
The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1332(a) and 1367(a). We
exercise appellate jurisdiction pursuant to 28 U.S.C. § 1291. We review the District
Court’s award of attorneys’ fees for an abuse of discretion, “which can occur if the judge
fails to apply the proper legal standard or to follow proper procedures in making the
determination, or bases an award upon findings of fact that are clearly erroneous.” In re
Rite Aid Corp. Sec. Litig., 396 F.3d 294, 299 (3d Cir. 2005) (quoting In re Cendant Corp.
PRIDES Litig., 243 F.3d 722, 727 (3d Cir. 2001) (internal quotations omitted)). “The
standards employed calculating attorneys’ fees awards are legal questions subject to
plenary review, but ‘[t]he amount of a fee award . . . is within the district court’s
discretion so long as it employs correct standards and procedures and makes findings of
fact not clearly erroneous.’” Id. (quoting Pub. Int. Research Grp. of N.J., Inc. v. Windall,
51 F.3d 1179, 1184 (3d Cir. 1995) (internal quotations omitted)).
9
Mor does not argue that the District Court erred in choosing to apply Delaware
law in this case. However, citing both federal and Delaware caselaw in his brief, Mor
argues that the District Court’s award in this action impermissibly deviates from
governing law, whether federal law or Delaware law is applied. See Pl.’s Br. 21-22.
“State rules concerning the award or denial of attorneys’ fees are to be applied in
cases where federal jurisdiction is based on diversity . . . , provided such rules do not run
counter to federal statutes or policy considerations.” McAdam v. Dean Witter Reynolds,
Inc., 896 F.2d 750, 775 n.47 (3d Cir. 1990). In any event, in this appeal, as Mor suggests,
see Pl.’s Br. 22 (citing Dewey v. Volkswagen Aktiengesellschaft, 558 F. App. 191, 196
(3d Cir. 2014) (non-precedential)), we need not decide what law governs an award of
attorneys’ fees since both federal law and Delaware law apply the percentage of the
common fund approach in awarding attorneys’ fees, and there is no sound reason to
believe the result of this appeal would be different depending on the law applied. See,
e.g., Rite Aid, 396 F.3d at 306 (“the percentage of common fund approach is the proper
method of awarding attorneys’ fees”); Americas Mining, 51 A.3d at 1258, 1261 (finding
that, under Delaware law, an award of attorneys’ fees in a case involving a common fund
is properly based upon a percentage of the benefit achieved in the litigation and pointing
out that federal cases consider reasonableness factors “which are similar to [the]
Sugarland factors”).
IV.
Reviewing courts retain a special and predominant interest in the fairness of class
action settlements and attorneys’ fees awards. Cendant, 243 F.3d at 731. Thus, we have
10
an “interest as a reviewing court in ensuring that district courts fulfill their obligations
and comply with [applicable] instructions and guidelines.” Id. While “fee award
reasonableness factors ‘need not be applied in a formulaic way,’” see In re AT&T Corp.
Sec. Litig., 455 F.3d 160, 166 (3d Cir. 2006) (citing Rite Aid, 396 F.3d at 301)), district
courts must “clearly set forth their reasoning for fee awards so that we will have a
sufficient basis to review for abuse of discretion,” id. at 166 (quoting Rite Aid, 396 F.3d
at 301).
“There are two primary methods for calculating attorneys’ fees: the percentage-of-
recovery method and the lodestar method.” Cendant, 243 F.3d at 732 (footnote omitted).
The percentage-of-recovery method is generally favored in cases involving a common
fund. Id. (citing In re Prudential Ins. Co. Am. Sales Practice Litig., 148 F.3d 283, 333
(3d Cir. 1998)). Indeed, “[t]he percentage-of-recovery method has long been used in this
Circuit in common-fund cases.” Id. at 734. As explained above, the District Court
applied that method in determining the amount of fees and expenses to award plaintiff’s
counsel.
Mor argues, first, that the District Court misapprehended the facts relevant to his
application for attorneys’ fees and, second, that the Court abused its discretion by
conducting a flawed and arbitrary percentage-of-recovery analysis. In support of his first
contention, Mor initially argues that the District Court relied on an erroneous
understanding of the inception of the case. In particular, he argues that the Court failed to
recognize the degree of sophistication of this litigation.
11
In considering the complexity of the litigation, the District Court stated that “[t]he
present case was less complicated than most shareholder derivative actions,” noting that
the “case was developed from public disclosures.” Mor, 2015 WL 4036167, at *4. The
Court further stated that “this matter would have been an appropriate matter for a demand
on the board.” Id. The Court describes the underlying events in this case as “a ‘one-off’
mistake by ABC,” and concludes that “ABC should, of course, have been more careful,
but what happened here was not corporate malfeasance, it was corporate carelessness.”
Id. Therefore, the District Court found that “[t]he relative straightforwardness of this
case suggests a smaller fee award.” Id.We cannot say that the District Court abused its discretion insofar as it described
this case as neither legally nor factually complex. Plaintiff’s Complaint alleged that
defendants exceeded their authority by granting Collis stock awards during the 2012
calendar year greater than the maximum amount permitted under the Plan. Following the
parties’ negotiations and the filing of the Stipulation only six months after the Complaint
was filed, the parties acknowledged, among other things, that the Compensation
Committee of the Board increased the maximum total individual stock awards permitted
in a calendar year, effective June 15, 2009, to 600,000 to reflect the stock split, see Stip.
2, ¶¶ 1-4, but the parties further acknowledged that Collis’ awards covered a total of
872,423 shares during the 2012 calendar year, id. at 3, ¶ 8. While we recognize that other
issues were involved, including the timing of the filing of the Written Consent disclosing
the adjusted maximum individual stock awards permitted under the Plan and the need for
corporate governance reforms, we agree that this litigation was not particularly
12
complicated and that was a factor to be considered in determining reasonable attorneys’
fees to be awarded.
Nevertheless, as Mor points out, the record does not appear to support the District
Court’s assertion that “what happened here was not corporate malfeasance, it was
corporate carelessness,” see Mor, 2015 WL 4036167, at *4, and the District Court does
not point to anything in the record supporting such a conclusion. While the record does
not necessarily support the contrary conclusion, and the Stipulation reflects that
defendants deny that they have breached any duty or engaged in any wrongdoing, see
Stip. at 4, ¶ 13, the District Court’s statement is not supported by the record.
Similarly, the record also does not support the conclusion that this was necessarily
“a ‘one-off’ mistake,” Mor, 2015 WL 4036167, at *4, and it is not clear what the Court
relied on in making this assertion. In other words, the District Court points to nothing to
support the implication that the type of events which plaintiff’s Complaint challenged
would not have occurred again.
Further, to the extent that the Court implies that a demand letter to the Board in
this case would have resolved this dispute, again the District Court points to nothing in
the record which supports that conclusion. As Mor points out, in defendants’ motion to
dismiss the Complaint, as well as in the Stipulation, defendants deny any Plan violation
or wrongdoing actually occurred. Plaintiff further states that he did not make a demand
upon the Board relating to excess stock awards because a majority of the Board members
were incapable of objectively considering any such demand, rendering any such demand
futile. See Pl.’s Br. 3 (citing A31, ¶ 42). Plaintiff points out that, among other things, at
13
the time plaintiff filed his Complaint, a majority of the Board either participated in the
grants or, in Collis’ case received the grants, id. at 3 (citing A31, ¶ 41; A32, ¶¶ 44-45). In
any event, to the extent that by concluding that “this matter would have been an
appropriate matter for a demand on the board,” see Mor, 2015 WL 4036167, at *4, the
District Court was implying that a demand would have resolved this case in the first
instance, the Court failed to provide any basis for such a conclusion.
In considering the complexity of the litigation, the District Court also stated that
the “case was developed from the public disclosures,” and the Court asserted “the only
complexity was the jockeying among the shareholders’ attorneys for their pieces of the
pie.” Id. However, it is not clear what the District Court was relying on in making this
assertion and suggesting that the alleged Plan violation would have been detected despite
the investigation by plaintiff’s counsel. While other related actions were filed by ICLUB
and KBC, those actions were filed after plaintiff’s counsel had issued a press release
announcing their investigation into this issue, see A95.
Again, while the conclusion that this case was relatively uncomplicated is not per
se an abuse of discretion, the aforementioned unsupported assertions by the District Court
in support of its award of fees affected the weight the District Court gave to the relevant
factors, and also could have had a significant effect on the Court’s ultimate determination
as to what amount of fees would be a reasonable award. Since the District Court failed to
“clearly set forth [its] reasoning” in support of multiple factual assertions it provided in
support of its award of attorneys’ fees, we do not have a “sufficient basis to review for
14
abuse of discretion,” see AT&T Corp., 455 F.3d at 166 (quoting Rite Aid, 396 F.3d at
301), and a remand is warranted.
Mor next argues that the District Court undervalued the recovery obtained by
plaintiff. In particular, Mor contends that although the District Court stated that it
accepted that the benefit to ABC as a result of plaintiff’s efforts resulting in the
cancellation of stock options awarded to Mr. Collis had a value of $5.048 million,
language in the Court’s discussion belies that conclusion.
In discussing the benefit conferred to ABC, the District Court pointed out that,
pursuant to the Stipulation, the Company cancelled the excess 272,423 stock options
which had been awarded to Mr. Collis in 2012 and that plaintiff’s and ICLUB’s experts
agreed that the spread value of those cancelled options, as of the cancellation date,
August 7, 2013, would have been about $5.048 million. See Mor, 2015 WL 4036167, at
*3. The District Court noted that it accepted plaintiff’s argument “that the cancellation of
Mr. Collis’s excess stock options created a common fund in the amount of $5.048 million
– the ‘spread value’ of the 272,423 cancelled options,” id., and the Court specifically
stated that “for [the] purpose of this analysis, I accept that the benefit to ABC is $5.048
million,” id. at *4 (emph. added). Such a conclusion with respect to the benefit to ABC
resulting from plaintiff’s efforts is not an abuse of discretion.
The Court stated that it accepted this amount as the common fund benefit
conferred in this litigation for purposes of its analysis, and we do not agree with Mor’s
contention that the District Court did not “truly factor into its analysis” the $5.048 million
as the benefit conferred to ABC as a result of the cancelled excess options, see Pl.’s Br.
15
18. Nevertheless, the following portion of the Court’s Memorandum Opinion gives us
pause:
In my opinion, however, the common fund calculated
by determining the spread value of the returned excess stock
options overstates the significance of the recovery predicated
as it is by the value of a volatile asset on the day it was
returned. Once the various lawsuits and records demands
were made in February 2013, the excess stock options were,
for all practical purposes, frozen. They were going to end up
back with ABC. On February 15, 2013, the stock closing
price was $45.24 per share. The spread value then was
$1,370,287.69. As of June 29, 2015, the per share value of
ABC stock was about $106, more than double what it was on
August 7, 2013. Thus, depending on the perspective taken,
the benefit to ABC caused solely by this lawsuit is smaller
than Plaintiff’s argument suggests, as most of the benefit has
arisen from the rapid appreciation of the stock. Nonetheless,
for purpose of this analysis, I accept that the benefit to ABC
is $5.048 million.
Mor, 2015 WL 4036167, at *4. In light of the fact that the Court specifically
“accept[ed]” the $5.048 million as “the benefit to ABC” for purposes of its analysis, id.,the District Court’s purpose in including this discussion in support of its Memorandum
Opinion is not altogether clear. Moreover, among other things, the Court fails to provide
a basis as to why conceptually freezing the value of the options at the time of this suit’s
inception, would be appropriate. In any event, since the Court specifically indicated that
it was considering the $5.048 million as the benefit conferred as a result of the
cancellation of the options, any conclusions that may have been based on this alternative
“perspective” shared by the District Court, would be error in that it is inconsistent with
the District Court’s explicit finding that the value to ABC of the cancellation of the
16
excess shares was $5.048 million and, moreover, the Court failed to provide any basis for
using the value of the options at the time of this lawsuit’s inception.
Finally, with regard to the District Court’s factual findings supporting its award of
fees, Mor argues that the Court failed to credit the significant majority of hours worked
by plaintiff’s counsel. Specifically, Mor complains that the Court ignored the hours spent
litigating the case subsequent to the beginning of settlement discussions.
In considering the time and effort expended by plaintiff’s counsel, the District
Court found the following:
The parties were in the very early stages of litigation
when settlement discussions began, and settled the case
before any discovery had commenced. Nevertheless,
Plaintiff’s counsel spent 63.5 hours on the case prior to filing
the complaint, and another 172 hours through the motion to
dismiss. Thus, Plaintiff’s attorneys spent a total of 235.5
hours, amounting to around $150,000 in attorney’s fees, prior
to shifting their focus to settlement. The early stage at which
the case settled, and the low number of hours spent prior to
settlement, suggest a smaller fee award.
Id. at *4. The Court was correct in pointing out that settlement discussions began in the
early stages of litigation. In fact, the parties filed the Stipulation only six months after the
filing of plaintiff’s Complaint, defendants’ motion to dismiss never needed to be resolved
by the Court, and there is no mention in the record before us that any depositions were
taken.
However, the District Court did not explain why it ignored or failed to
acknowledge the hours spent by plaintiff’s counsel in connection with this case
subsequent to “shifting their focus to settlement,” see id. Plaintiff argues in his brief that
17
counsel worked 741 hours litigating the action, see Pl.’s Br. 20 (citing A138 ¶ 5; A218 ¶
4), and that all of counsel’s efforts “were necessary to the successful prosecution of this
litigation,” id. at 21.
In determining the amount of fees to award, the District Court considered the
Sugarland factors. See Mor, 2015 WL 4036167, at *3 (citing Infinity Broadcasting, 802
A.2d at 293 (identifying the Sugarland factors)). As the District Court identified, see id.,the Supreme Court of Delaware has described the “time and effort” factor as “the efforts
of counsel and the time spent in connection with the case.” See Infinity Broadcasting,
802 A.2d at 293 (citing Sugarland Indus., 420 A.2d at 149); see also Gunter v.
Ridgewood Energy Corp., 223 F.3d 190, 195 n.1 (3d Cir. 2000) (including “the amount
of time devoted to the case by plaintiffs’ counsel” as a factor to consider in setting a fee
award). Here, the District Court neither explained why it only acknowledged about one-
third of the total hours plaintiff allegedly spent in connection with the case, nor did the
Court provide a basis or authority for doing so.
V.
In addition to challenging the aforementioned factual conclusions upon which the
District Court based its decision, Mor challenges the percentage-of-recovery analysis
conducted by the Court, and also argues that the District Court’s award of fees conflicts
with public policy. Mor does not challenge the fact that the District Court applied the
percentage-of-recovery method of calculation or the factors which the Court considered
in determining the amount of a reasonable award. Rather, he argues that the District
18
Court failed to award an amount of fees within “the lower bound of the applicable
range(s)” consistent with other cases. See Pl.’s Br. 22.
It is unnecessary for us to address the specific percentage of the benefit conferred
by the District Court or whether it is consistent with public policy, in light of the fact that
the case is being remanded for a proper consideration and re-weighing of the relevant
factors based on facts supported by the record in this case consistent with this Opinion.
Nevertheless, we point out that the Delaware Supreme Court in Americas Mining
emphasized, “The percentage awarded as attorneys’ fees from a common fund is
committed to the sound discretion of the [trial] Court” who has “broad discretion” in
applying the reasonableness factors under the circumstances of the case. Americas
Mining, 51 A.3d at 1262; see also Northeast Women’s Ctr. v. McMonagle, 889 F.2d 466,
475 (3d Cir. 1989) (The amount of a fee award is within the district court’s discretion so
long as it “employs correct standards and procedures, and makes findings of fact not
clearly erroneous.”). Thus, the Court in Americas Mining “decline[d] to impose . . . the
mandatory use of any particular range of percentages,” see Americas Mining, 51 A.3d at
1261,6 and reaffirmed that “the multiple factor Sugarland approach to determining
attorneys’ fee awards remained adequate for purposes of applying the equitable common
fund doctrine,” id. at 1258 (citing Goodrich v. E.F. Hutton Grp., Inc., 681 A.2d 1039,
6
Although Americas Mining involved the Court’s refusal to impose a mandatory range of
percentages for determining fees in “megafund cases,” the Court was clearly
“reaffirm[ing] . . . [its] holding in Sugarland [which] set[] forth the proper factors for
determining attorneys’ fees awards in all common fund cases,” see Americas Mining, 51
A.3d at 1261, and confirming that the “percentage awarded as attorneys’ fees from a
common fund is committed to the sound discretion of the [trial] Court,” id. (citing
Chrysler Corp. v. Dann, 223 A.2d 384, 386 (Del. 1966)).
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1050 (Del. 1996)); see also Cendant, 243 F.3d at 736 (“These varying ranges of
attorneys’ fees confirm that a district court may not rely on a formulaic application of the
appropriate range in awarding fees but must consider the relevant circumstances of the
particular case.”). “Delaware courts have assigned the greatest weight to the benefit
achieved in litigation.” Americas Mining, 51 A.3d at 1254.
In this case, for the reasons explained above, in considering the relevant
reasonableness factors, the District Court failed to provide a sufficient explanation and
based its award on certain factual assertions which appear to have no basis in the record
and which certainly could have had a significant effect on the ultimate award of
attorneys’ fees. Therefore, to that extent, Mor is correct that the percentage-of-recovery
analysis was flawed.
VI.
Mor argues that the District Court failed to properly value the corporate
therapeutics obtained by plaintiff. In discussing the benefit conferred as a result of
counsel’s efforts, the District Court acknowledged that, as a result of the Stipulation of
Settlement, “ABC received an additional benefit in the form of corporate governance
reforms that are intended to prevent future violations of the compensation limits provided
by ABC’s equity incentive plan.” Mor, 2015 WL 4036167, at *4. Citing Ryan v.
Gifford, No. 2213-CC, 2009 WL 18143, *10 (Del. Ch. Jan. 2, 2009), the District Court
noted that “‘significant corporate governance reforms designed to prevent future
wrongful option grants’ [are] ‘properly considered by the Court in determining a fee
award,’” see Mor, 2015 WL 4036167, at *4 (quoting Gifford, 2009 WL 18143, at *13),
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and that “corporate governance reforms can provide a substantial corporate benefit, even
if they are nonpecuniary in nature,” id. However, the District Court’s explanation for
awarding $50,000 for the corporate governance reforms is inadequate in that it is unclear
from the District Court’s Opinion its basis for asserting that ABC’s reforms resulting
from this litigation were “modest,” despite the fact that they appear to be significant
therapeutic reforms to prevent future wrongful options from being granted. Without
further explanation, it is not clear that the amount of the award for the negotiated
corporate governance reforms is not arbitrary.
VII.
For reasons explained above, the District Court’s award of attorneys’ fees and
expenses was at least partially based on factual assertions which were not supported by
the record, and the District Court failed to provide an adequate explanation in support of
its award so that we, as a reviewing court, have a sufficient basis to review for abuse of
discretion. Accordingly, that portion of the District Court’s Memorandum and Order
awarding plaintiff $550,000 in attorneys’ fees and expenses is vacated,7 and we remand
to the District Court for an award of fees and expenses consistent with this Opinion.8
7
In addition to awarding fees and expenses to plaintiff, the District Court’s Memorandum
and Order filed July 1, 2015 also denied ICLUB’s petition for attorneys’ fees, but this
appeal only involves the District Court’s award of fees and expenses to plaintiff.
8
Plaintiff argues that he “incurred substantial expenses in the course of litigation that
were not addressed in the [District Court’s] Opinion, including $11,587 in expert fees,
and totaling $14,606.” See Pl.’s Br. 30. On remand, the District Court should address the
issue of plaintiff’s expenses in awarding attorneys’ fees and expenses. See Goodrich,
681 A.2d at 1045 (“[Plaintiff’s] attorneys, whose efforts resulted in the creation of [a]
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common fund, are entitled to receive a reasonable fee and reimbursement for expenses
from that fund.”).
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