City of Miami General Employees' and Sanitation Employees' Retirement Trust v. C&J Energy Services, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CITY OF MIAMI GENERAL )
EMPLOYEES’ AND SANITATION )
EMPLOYEES’ RETIREMENT )
TRUST, on behalf of itself and on )
behalf of all others similarly situated, )
)
Plaintiff, )
)
v. ) C.A. No. 9980-CB
)
C&J ENERGY SERVICES, INC., )
JERRY M. COMSTOCK, JR., as )
Independent Executor of the Estate of )
Joshua E. Comstock, RANDALL C. )
MCMULLEN, DARREN M. )
FRIEDMAN, ADRIANNA MA, )
MICHAEL ROEMER, C. JAMES )
STEWART, III, H.H. “TRIPP” )
WOMMACK, III, THEODORE )
“TED” MOORE, NABORS )
INDUSTRIES LTD., and NABORS )
RED LION LIMITED, and MORGAN )
STANLEY & CO. LLC )
)
Defendants. )
OPINION
Date Submitted: October 13, 2017
Date Decided: January 23, 2018
Stuart M. Grant and Mary S. Thomas, GRANT & EISENHOFER P.A., Wilmington,
Delaware; Mark Lebovitch, Jeroen van Kwawegen, and Christopher J. Orrico,
BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York,
Attorneys for Plaintiff.
Stephen C. Norman, Michael A. Pittenger, and Jaclyn C. Levy, POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; Michael C. Holmes,
Craig E. Zieminski, Olivia D. Howe, and Meriwether Evans, VINSON & ELKINS
LLP, Dallas, Texas, Attorneys for Defendants C&J Energy Services, Inc., Jerry M.
Comstock, Jr., as Independent Executor of the Estate of Joshua E. Comstock,
Randall C. McMullen, Darren M. Friedman, Adrianna Ma, Michael Roemer, C.
James Stewart, III, H.H. “Tripp” Wommack, III, and Theodore “Ted” Moore.
William M. Lafferty, MORRIS, NICHOLS, ARSHT & TUNNELL LLP,
Wilmington, Delaware, Attorneys for Defendants Nabors Industries Ltd. and Nabors
Red Lion Limited.
BOUCHARD, C.
In this case, a stockholder of C&J Energy Services, Inc. (“C&J Inc.”) seeks
an award of $5 million in attorneys’ fees for plaintiff’s alleged role in reducing the
amount of cash that C&J Inc. needed to pay Nabors Industries Ltd. (“Nabors”) in
connection with a transaction that closed in March 2015. The beneficiary of the
price reduction was C&J Inc. and, indirectly, all of its stockholders.
Defendants vigorously dispute that plaintiff’s complaint had any merit when
it was filed or that its lawsuit caused the price reduction in any way. According to
defendants, the sole reason the C&J Inc. board negotiated for the price reduction was
to secure stockholder approval of the transaction, which was threatened because of
a dramatic decline in oil and natural gas prices that impacted the economic merits of
the transaction after it was originally negotiated.
Plaintiff’s application also arises in an odd posture. It was filed after C&J Inc.
went through a bankruptcy proceeding discharging it from any potential liability for
a fee award. As a result, plaintiff asks the court to require that the estate of Joshua
Comstock pay the full amount of any fee award. Before his untimely death,
Comstock was C&J Inc.’s CEO and Chairman of the Board, who owned
approximately 11% of C&J Inc.’s shares before the transaction and who was
plaintiff’s primary target in this litigation. Thus, plaintiff’s application presents a
novel question: whether a plaintiff may target a particular stockholder or subset of
1
stockholders to pay a fee award when the alleged benefit redounded to the benefit of
all stockholders.
For the reasons discussed below, I conclude that plaintiff’s fee application
must be denied for two independent reasons: (1) because defendants successfully
rebutted the presumption that plaintiff’s litigation efforts caused the price reduction,
and (2) because plaintiff’s demand that Comstock’s estate (or any of C&J Inc.’s
other directors) pay a fee award is inconsistent with the rationale of the corporate
benefit doctrine and would be inequitable.
I. BACKGROUND
The factual background and procedural history of this litigation are discussed
in detail in earlier opinions of the Delaware Supreme Court and this court.1 The
court assumes the reader’s familiarity with those opinions and recites below only
those facts directly relevant to the pending motion.
On June 25, 2014, C&J Inc. and Nabors entered into a merger agreement to
combine C&J Inc. with certain business segments of Nabors. The transaction was
structured as a merger between C&J Inc. and a wholly-owned subsidiary of Nabors
Red Lion Limited, which was wholly-owned by Nabors. C&J Inc. was the surviving
1
See C&J Energy Servs., Inc. v. City of Miami Gen. Empls.’ & Sanitation Empls.’ Ret. Tr.,
107 A.3d 1049 (Del. 2014); City of Miami Gen. Empls.’ & Sanitation Empls.’ Ret. Tr. v.
Comstock, 2016 WL 4464156, at *7 (Del. Ch. Aug. 24, 2016), aff’d. 158 A.3d 885 (Del.
2017).
2
entity of the merger. Nabors Red Lion Limited was renamed C&J Energy Services,
Ltd. (“C&J Ltd.”) after the merger.2 Under the original terms of the proposed
transaction, Nabors was to receive approximately $938 million in cash from C&J
Inc. and approximately 53% of the shares of C&J Ltd., and the public stockholders
of C&J Inc. were to receive approximately 47% of the shares of C&J Ltd. The
relationship between the relevant entities after the merger is depicted below in
simplified form:
On July 30, 2014, plaintiff filed its original complaint, asserting that C&J
Inc.’s directors breached their fiduciary duties in negotiating and approving the
proposed transaction with Nabors. The named defendants were C&J Inc., the seven
2
After emerging from bankruptcy in 2016, C&J Inc. became CJ Spec-Rent Services, Inc.,
and C&J Ltd. was renamed C&J Energy Services, Inc. This decision does not refer to those
post-bankruptcy entity names.
3
members of its board, its Executive Vice President and General Counsel, Nabors,
and Nabors Red Lion Limited, which became C&J Ltd. after the merger.3
On November 25, 2014, the court issued a preliminary injunction enjoining
the proposed transaction from closing until after C&J Inc. solicited alternative
proposals to purchase the company during a thirty-day period. A special committee
of the C&J Inc. board was formed to undertake the solicitation process. During that
process, on December 11, 2014, Cerberus Capital Management made a proposal to
combine C&J Inc. with Keane Energy, one of Cerberus’ portfolio companies.
On December 18, 2014, during a special meeting of the C&J Inc. board,
certain directors asked Comstock to provide an update on “any attempts to negotiate
a reduction in the purchase price [of the Nabors transaction] in light of changing
market conditions.”4 The board minutes state that “Mr. Comstock explained that he
had initiated such negotiations with Nabors and anticipated additional discussions
prior to an agreement on any reduction in purchase price.”5 The next day, on
December 19, 2014, the Delaware Supreme Court reversed the Court of Chancery’s
decision and lifted the preliminary injunction, reinstating the no-shop provision in
the merger agreement.
3
Comstock passed away on March 11, 2016. On June 2, 2016, his estate’s executor (Jerry
M. Comstock, Jr.) was substituted as a party defendant in his place. Dkt. 301.
4
Defs.’ Opp’n Br. Ex. D at 2.
5
Id.
4
On February 6, 2015, C&J Inc. and Nabors reached an agreement to reduce
the cash portion of the consideration C&J Inc. would pay to Nabors by $250 million
(“Price Reduction”), from approximately $938 million to $688 million. The proxy
statement for the proposed transaction explained the circumstances surrounding the
Price Reduction, as follows:
Following significant dislocation in oil and natural gas prices that began
in late 2014 and continued into 2015, and as a result of concerns that
C&J shareholders would not support the Transactions on the terms set
forth in the Original Merger Agreement and Original Separation
Agreement in light of such price changes, in late 2014, Messrs. Petrello
and Comstock entered into discussions with respect to a restructuring
of the Transaction that would reduce the amount of cash paid to Nabors
at closing. Discussions continued through February 2015.6
After receiving the approval of over 97% of the C&J Inc. stockholders who voted,
the transaction closed in March 2015.
Over the next seven months after the transaction closed, plaintiff made little
effort to advance its claims. The primary activity during this period concerned
defendants’ efforts to collect damages against a $650,000 bond plaintiff had posted
as a condition to entry of the preliminary injunction.
On October 29, 2015, plaintiff amended its complaint. On August 24, 2016,
the court granted defendants’ motions (i) to dismiss the amended complaint and (ii)
to recover approximately $542,000 in damages against the injunction bond.
6
Defs.’ Opp’n Br. Ex. G at 74.
5
In the meantime, on July 20, 2016, C&J Inc., C&J Ltd., and certain other
affiliated entities (the “Debtors”) filed for bankruptcy protection in the United States
Bankruptcy Court for the Southern District of Texas. On September 25, 2016, the
bankruptcy court entered an order setting November 8, 2016 as the bar date for
submitting proofs of claim for any “claim against the Debtors that arose before the
Petition Date,” i.e., before July 20, 2016.7 The order further provides that any person
“who is required, but fails, to file a Proof of Claim in accordance with the Bar Date
order on or before the applicable Bar Date shall be forever barred, estopped, and
enjoined from asserting such claim against the Debtors” and that “the Debtors and
their property shall be forever discharged from any and all indebtedness or liability
with respect to or arising from such claim.”8
Plaintiff’s fee claim accrued in February 2015, when the Price Reduction was
secured.9 Accordingly, plaintiff was required to file a proof of claim by November
8, 2016 if it wished to obtain a recovery for its fee claim from C&J Inc. or C&J Ltd.
It is undisputed that plaintiff never filed such a proof of claim.
On December 9, 2016, plaintiff informed the bankruptcy court that it was not
objecting to the confirmation of a proposed plan of reorganization but was reserving
7
Defs.’ Opp’n Br. Ex. J ¶¶ 2-3. The bar date order contained certain exceptions not
relevant here.
8
Defs.’ Opp’n Br. Ex. J ¶ 17.
9
See Pl.’s Opening Br. 21 (seeking fees for hours worked until February 9, 2015).
6
its rights “with respect to pursuing any claims against defendants in [this action]
other than the Debtors, the Reorganized Debtors, or their Estates.”10 On December
16, 2016, the bankruptcy court approved the proposed plan of reorganization,
discharging the Debtors of any responsibility for plaintiff’s fee application.11
On March 23, 2017, the Delaware Supreme Court affirmed this court’s
dismissal of plaintiff’s amended complaint and its grant of defendants’ motion to
recover damages against the injunction bond. On April 7, 2017, plaintiff filed the
present motion for an award of attorneys’ fees and expenses.
On October 13, 2017, the court heard argument on plaintiff’s application for
a fee award and on defendants’ request for release of the balance of the injunction
bond.12 At the conclusion of the hearing, the court ruled in defendants’ favor
concerning the injunction bond, and took the fee application under advisement.
10
Defs.’ Opp’n Br. Ex. L ¶¶ 1, 5.
11
“[E]xcept as otherwise specifically provided in the Plan or in any contract, . . . the
distributions, rights, and treatment that are provided in the Plan shall be in complete
satisfaction, discharge, and release, effective as of the Effective Date, of Claims [or] Causes
of Action of any nature whatsoever, . . . liabilities of, liens on, obligations of, rights against,
and Interests in, the Debtors . . .” Defs.’ Opp’n Br. Ex. M at VIII.A.
12
Plaintiff continued to oppose the release of the bond notwithstanding this court’s earlier
grant of defendants’ motion to recover against the bond and the Supreme Court’s
affirmance of that decision.
7
II. ANALYSIS
Plaintiff contends that it is entitled to a $5 million fee award for playing a role
in causing the Price Reduction. According to plaintiff, its “original complaint
created the pressure that led to the injunction, the solicitation process and [the]
Cerberus Bid that played a role in the Price Reduction and the improvement of the
Merger terms.”13 In plaintiff’s view, the $250 million Price Reduction is “akin to a
common fund,” the creation of which entitles plaintiff to receive compensation for
its litigation efforts.14
The “common fund” and “corporate benefit” doctrines are two well-
recognized exceptions to the American Rule, under which a prevailing party is
responsible for paying its own counsel fees. “Under the common fund doctrine, ‘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.’”15 “‘[T]he corporate benefit doctrine comes into play when a tangible
monetary benefit has not been conferred,’ but some other valuable benefit is realized
13
Pl.’s Reply Br. 9-10.
14
Pl.’s Opening Br. 19.
15
Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1252-53 (Del. 2012) (quoting Boeing Co.
v. Van Gemert, 444 U.S. 472, 478 (1980)); see also In re Dunkin’ Donuts S’holders
Litig.,1990 WL 189120, at *3 (Del. Ch. Nov. 27, 1990) (“Under the common fund doctrine,
a litigant who confers a common monetary benefit upon an ascertainable class is entitled
to an allowance for fees and expenses to be paid from the fund or property which his efforts
have created.”).
8
by the corporate enterprise or the stockholders as a group.”16 To obtain an award
under either doctrine outside of a negotiated settlement, “an applicant must show, as
a preliminary matter, that: (1) the suit was meritorious when filed; (2) the action
producing benefit to the corporation was taken by the defendants before a judicial
resolution was achieved; and (3) the resulting corporate benefit was causally related
to the lawsuit.”17
With respect to the element of causation, Delaware law presumes that a
plaintiff’s action caused the benefit when a corporate defendant “takes action that
renders the claims asserted in the complaint moot” and imposes on the corporation
“the burden of persuasion to show that no causal connection existed between the
initiation of the suit and any later benefit to the shareholders.”18 As our Supreme
Court has explained, “[t]his rebuttable presumption exists because it is the
‘defendant and not the plaintiff, who is in a position to know the reasons, events and
decisions leading up to the defendant’s action.’”19
16
In re First Interstate Bancorp Consol. S’holder Litig., 756 A.2d 353, 357 (Del. Ch.
1999), aff’d sub nom. First Interstate Bancorp v. Williamson, 755 A.2d 388 (Del. 2000)
(citing Dunkin’ Donuts, 1990 WL 189120, at *7).
17
United Vanguard Fund, Inc. v. TakeCare, Inc., 693 A.2d 1076, 1079 (Del. 1997); see
also Cal-Maine Foods, Inc. v. Pyles, 858 A.2d 927, 929 (Del. 2004).
18
United Vanguard, 693 A.2d at 1080.
19
Id. (citing Allied Artists Pictures Corp. v. Baron, 413 A.2d 876, 880 (Del. 1980)).
9
Defendants argue that the burden to disprove causation should not be placed
on them because “the Price Reduction did not moot any of Plaintiff’s claims or
requested relief.”20 According to defendants, plaintiff’s original complaint only
“sought injunctive relief to fix purported process and disclosure concerns” and had
nothing to do with the Price Reduction.21 Defendants also vigorously dispute
plaintiff’s contentions that this action was meritorious when filed or that plaintiff
played any role in causing the Price Reduction as a factual matter.
With respect to the latter point, defendants submitted an affidavit from
Michael Roemer, a C&J Inc. director. He categorically denies that plaintiff’s lawsuit
caused the Price Reduction “in any way” and attributes the cause of the Price
Reduction solely to industry conditions:
Plaintiff’s lawsuit did not cause the Price Reduction in any way. At no
time during the C&J Board’s evaluation, negotiation, or approval of the
Price Reduction was it connected or attributed to Plaintiff’s lawsuit.
For instance, the C&J Board did not believe that Plaintiff’s lawsuit had
reduced the chances of C&J’s stockholders approving the Transaction,
and the Price Reduction was not an attempt to counteract any alleged
negative publicity arising from Plaintiff’s lawsuit. When the C&J
Board was evaluating, negotiating, and approving the Price Reduction,
Plaintiff’s lawsuit was not a concern to the C&J Board, particularly in
light of the Delaware Supreme Court’s December 2014 decision.
Industry conditions, and not Plaintiff’s lawsuit, caused the Price
Reduction. More specifically, the C&J Board determined that it was
appropriate to ask Nabors for the Price Reduction in light of declining
20
Defs.’ Opp’n Br. 19-20.
21
Defs.’ Opp’n Br. 20.
10
oil and natural gas prices, which contributed to a significant industry
downturn and lower equity values. The C&J Board discussed the
potential impact of deteriorating industry conditions on stockholder
approval of the Transaction. At no time was Plaintiff’s lawsuit
considered during these discussions.22
Plaintiff questions Roemer’s assertion that the decline in the energy markets
was the cause of the Price Reduction. According to plaintiff, the energy markets had
declined significantly in the September to November 2014 timeframe, before the
court ordered the solicitation process, yet the C&J Inc. board made no effort to
renegotiate with Nabors during that period. Relying on the minutes from C&J Inc.’s
December 18, 2014 board meeting, referenced above, plaintiff further argues that
the timing of the commencement of negotiations with Nabors shows that its efforts
contributed to the Price Reduction. More specifically, according to plaintiff, the
minutes reflect that Comstock started negotiations for the Price Reduction between
the time when Cerberus made a “potentially superior proposal” on December 11,
2014, and when the Delaware Supreme Court reversed the injunction on December
19, 2014.23
22
Defs.’ Opp’n Br. Ex. N ¶¶ 4-5.
23
Pl.’s Reply Br. 3-4. The December 18 board minutes reflect that Comstock “had initiated
such negotiations” by that date, but the record is unclear as to whether those negotiations
began before or after Cerberus made its proposal on December 11. Defs.’ Opp’n Br. Ex.
D at 2. The December 18 board minutes also reflect that the special committee’s financial
advisor, Morgan Stanley & Co. LLC, “explained that the materials presented to the Special
Committee reflected that the transaction between the Company [C&J Inc.] and Nabors
11
Although it can be difficult to draw firm conclusions about causation on a
paper record,24 I am satisfied from the record before me that defendants have
rebutted the presumption of causation and demonstrated that no causal connection
existed between the initiation of this action and the Price Reduction.25 In particular,
I find Roemer’s affidavit to be persuasive.26 It provides a logical and compelling
explanation that C&J Inc. sought the Price Reduction to assuage its stockholders’
concerns about the economic merits of the proposed transaction as originally
negotiated in view of subsequent deteriorating conditions in the oil and gas industry
in order to secure stockholder approval of the transaction. In that regard, it makes
sense to me that the Price Reduction negotiations began in the late December
creates more potential value to the Company’s stockholders from a financial point of view
than would the Cerberus proposal.” Id. at 1.
24
United Vanguard, 693 A.2d at 1080 (noting that “a defendant’s burden is particularly
heavy” on a motion for summary judgment “because it must show on undisputed facts that
the assertions of the lawsuit had no causative effect on the subsequent benefit”).
25
Because defendants have rebutted the presumption of causation, I do not address their
other arguments, namely, whether the rebuttable presumption should apply here in the first
place or whether plaintiff’s claims were meritorious when filed.
26
Plaintiff did not seek to depose Roemer or to take any discovery to respond directly to
his affidavit. When asked why not, plaintiff pointed to an earlier ruling of the court. See
Tr. (Oct. 13, 2017) 150-154 (Dkt. 341). On July 14, 2015, the court denied plaintiff’s
request to take discovery into the Price Reduction for the purpose of trying to establish an
“offset” for any damages defendants might be awarded against the injunction bond. See
Tr. (July 14, 2015) 78-81 (Dkt 180). The court denied that request as irrelevant to the bond
issue. The court made clear, however, that whether plaintiff had conferred a benefit in
connection with the Price Reduction was an issue for another day, thus leaving open the
opportunity for plaintiff to seek discovery in aid of a fee application if and when that issue
became ripe. Id. 92. Plaintiff elected not to do so and decided instead to press its fee
application based on the present record.
12
timeframe even if the decline in the energy markets had begun earlier, not because
of the existence of the litigation, but because that was when the stockholder vote was
approaching and the need to ensure sufficient stockholder support became imminent.
The fact that the negotiations continued into February 2015, well after the Supreme
Court lifted the preliminary injunction, further supports Roemer’s sworn assertion
that the negotiations were motivated by a desire to obtain stockholder approval of
the transaction and were not undertaken in response to plaintiff’s litigation efforts.
Apart from my conclusion that defendants successfully rebutted the
presumption of causation, there is another issue implicated by plaintiff’s fee
application that provides an independent ground for its denial, which is: even if some
fee award were appropriate in this case, would it be appropriate to require
Comstock’s estate to pay it?
The direct beneficiary of the Price Reduction was C&J Inc., which saved itself
from paying $250 million of the approximately $938 million in cash consideration
it initially agreed to pay Nabors when they entered into the merger agreement in June
2014. The Price Reduction thus can be conceived of as a benefit that accrued to all
of C&J Inc.’s stockholders collectively as of the closing of the merger.
The payment of a fee award from a common fund ordinarily should be taken
out of the fund itself before it is disbursed. Here, there was no actual “fund” to be
disbursed, but there was a cost savings for C&J Inc. In such a scenario, it would be
13
logical that payment of a mootness fee be taken from the corporate treasury of C&J
Inc. for reasons discussed below. In this case, however, the corporate treasury of
C&J Inc. and its post-merger parent (C&J Ltd.) are not available as a source of
payment. As discussed above, plaintiff never filed a proof of claim against either
entity, and any liability either of them could have had for a fee application in this
case was discharged as a result of the bankruptcy court’s approval of their
reorganization plan.
Confronted with the reality that C&J Inc. and C&J Ltd. are not available to
pay a fee award, plaintiff’s application takes a novel approach. Plaintiff asks the
court to require that Comstock’s estate pay a fee award on the theory that Comstock
was one of the company’s “top shareholders” who owned approximately 11% of
C&J Inc.’s outstanding shares as of the date of the merger and who “benefited the
most from this litigation.”27 In support of this request, plaintiff relies on this court’s
decision in In re First Interstate Bancorp Consol. S’holder Litig.28
27
Pl.’s Opening Br. 25-27. In its reply brief, plaintiff sought to broaden the target for its
fee request to include the other “non-debtor defendants.” Pl.’s Reply Br. 26. In addition
to being without merit for the reasons discussed above, this argument was waived because
plaintiff failed to fairly raise it in its opening brief. See Emerald Partners v. Berlin, 726
A.2d 1215, 1224 (Del. 1999) (holding that plaintiff waived arguments by failing to raise
them in its opening brief).
28
756 A.2d 353 (Del. Ch. 1999).
14
In First Interstate, stockholders of First Interstate Bancorp filed suit against
its directors for taking actions to ward off the efforts of Wells Fargo & Co. to acquire
First Interstate. The directors of First Interstate eventually dropped their opposition
to Wells Fargo’s overtures, and the two companies entered into a merger agreement.
The closing of the merger rendered major aspects of plaintiffs’ case moot, prompting
plaintiffs to seek an award of attorneys’ fees for having provided First Interstate’s
stockholders “greater value in the acquisition of their shares than would otherwise
have been the case.”29
Before reaching the merits of the fee claim, the court noted that “it [was]
necessary to resolve a more basic dispute. If a fee is to be paid, where will the money
come from to pay it?”30 Plaintiffs could not recover fees from the stockholders of
First Interstate because “the ‘common fund’ represented by the increased
consideration paid to the First Interstate stockholders . . . was disbursed to them
several years ago.”31 The court held, however, that “First Interstate, or its successor
by merger [Wells Fargo], should be held responsible for the payment of fees to
plaintiffs’ counsel.”32
29
Id. at 359 n.3.
30
Id. at 356-57.
31
Id. at 357.
32
Id. at 362.
15
In reaching this conclusion, the court explained that “where individual or class
litigation results in the conferral of an unquantified benefit on the stockholders as a
whole, the corporation may be liable to pay fees . . . ‘the assets of the corporation
being a fund belonging to the stockholders in common.’”33 The court further
reasoned that, because the merger was stock-for-stock, the stockholders of the post-
merger entity (Wells Fargo) were, “in some substantial degree,” former stockholders
of First Interstate who received the litigation benefit.34 The court’s ultimate
conclusion also was influenced by the equitable consideration that the record
reflected “that plaintiffs’ counsel had some understanding, engendered by their
communications with counsel for Wells Fargo, that the corporate entities would pay
whatever fee was awarded.”35
Applied to this case, the holding of First Interstate supports looking to the
corporate treasury of C&J Inc. and potentially of C&J Ltd. as a source of payment
if plaintiff was entitled to a fee award. Permitting recovery from C&J Ltd., the post-
merger parent of C&J Inc., would be analogous to the court’s decision in First
Interstate to permit recovery from Wells Fargo. The case provides no support,
however, for singling out Comstock or a subset of former director-stockholders of
33
Id. at 358 (quoting Richman v. DeVal Aerodynamics, Inc., 185 A.2d 884, 885 (Del. Ch.
1962) (Seitz, C.)).
34
Id. at 360.
35
Id.
16
C&J Inc. as the source of payment when the alleged benefit warranting a fee award
redounded to the benefit of all stockholders. Plaintiff has identified no authority in
which the Court of Chancery (or any other court) has approved such an application,
and it would be inequitable to do so in my view.
“The common benefit doctrine is ‘founded on the equitable principle that
those who have profited from litigation should share its costs.’”36 As former
Chancellor Chandler explained, the doctrine “provides that where a common benefit
has been conferred upon stockholders, all stockholders should contribute to the costs
incurred to confer the benefit.”37 The “doctrine’s underlying rationale is that all of
the stockholders benefited from plaintiffs’ action and should have to share in the
costs of achieving that benefit.”38 Stated another way, “the benefited class,” i.e. the
corporate enterprise or the stockholders as a group, “should foot the bill of whoever
cause[d] the benefit to be conferred”39 so that the costs are shared pro rata. Thus,
permitting plaintiff to cherry-pick which of C&J Inc.’s stockholders should foot the
bill for a potential fee award cannot be squared with the equitable rationale of the
36
Chen v. Howard-Anderson, 2017 WL 2842185, at *1 (Del. Ch. June 30, 2017) (quoting
Goodrich v. E.F. Hutton Group, Inc., 681 A.2d 1039, 1044 (Del. 1996)).
37
Berger v. Pubco Corp., 2008 WL 4173860, at *1 (Del. Ch. Sept. 8, 2008) (citing
Weinberger v. UOP, Inc., 517 A.2d 653, 656 (Del. Ch. 1986)); see also United Vanguard,
693 A.2d at 1079 (same).
38
Robert M. Bass Grp., Inc. v. Evans, 1989 WL 137936, at *2 (Del. Ch. Nov. 16, 1989)
(internal quotations and citation omitted).
39
Dunkin’ Donuts, 1990 WL 189120, at *10.
17
doctrine. Indeed, permitting such a result would sanction the invidious treatment of
stockholders, which would be inequitable and could lead to the absurd result of
exposing stockholders to non-pro rata liability.
I also am unpersuaded by plaintiff’s invocation of the principle of unjust
enrichment to justify isolating Comstock or any of the other C&J Inc. directors as a
source of payment. All of the claims asserted against the directors in this action
were dismissed under Court of Chancery Rule 12(b)(6) for failure to state a claim
for relief. Thus, there is nothing “unjust” in allowing these individuals to retain
whatever benefit this litigation theoretically may have conferred on them as
stockholders to the same extent as the company’s other stockholders are permitted
to retain such a benefit.
Finally, I reject plaintiff’s suggestion that Comstock’s estate “should be
jointly and severally liable” with the company for a fee award.40 Putting aside that
it would be inequitable to assess a fee award against Comstock’s estate or a small
subset of director-stockholders on a non-pro rata basis, as discussed above, plaintiff
appears to be statutorily barred from seeking payment from any C&J Inc.
40
Pl.’s Reply Br. 28; see also Pl.’s Opening Br. 25 (“Comstock’s estate should be jointly
liable for fees.”).
18
stockholder for a debt of the corporation because plaintiff failed to secure a judgment
from the corporation in the first place.41
In sum, plaintiff’s assertion that Comstock’s estate or any of the C&J Inc.
director defendants should be held liable for the entirety of a fee award based on a
benefit all stockholders allegedly received would be unprecedented, inconsistent
with the rationale of the corporate benefit doctrine, and inequitable.42 Thus, I deny
plaintiff’s fee application for this additional reason.
IV. CONCLUSION
For the reasons explained above, plaintiff’s application for an award of
attorneys’ fees is denied.
IT IS SO ORDERED.
41
See 8 Del. C. § 325(b) (“No suit shall be brought against any officer, director or
stockholder for any debt of a corporation of which such person is an officer, director or
stockholder, until judgment be obtained therefor against the corporation and execution
thereon return unsatisfied.”); see also Territory of U.S. Virgin Islands v. Goldman, Sachs
& Co., 937 A.2d 760, 764 (Del. Ch. 2007), aff’d, 956 A.2d 32 (Del. 2008) (holding that
“325(b) of the Delaware General Corporation Law bar[red] [plaintiff] from seeking to hold
Goldman Sachs [a single stockholder] responsible for” a company’s liability because
plaintiff could not secure a judgment against the company) (Strine, V.C.).
42
At oral argument, plaintiff raised for the first time the possibility of seeking fees from
Nabors. Tr. 109 (Oct. 13, 2017) (Dkt. 341). Apart from the fact that plaintiff waived the
argument by never raising it in its briefs, it would be totally illogical to permit such a result.
The Price Reduction redounded to Nabors’ detriment by decreasing the compensation it
received in connection with its transaction with C&J Inc.
19