DOVER, Del. (Legal Newsline) - The Delaware Supreme Court last week upheld a fee, awarded to a group of plaintiffs lawyers, worth more than $300 million.
In an en banc decision Aug. 27, the Court majority backed the judgment of Delaware Chancery Court Judge Leo E. Strine Jr.
Strine, the court's chancellor, awarded the $304 million fee to law firms Kessler Topaz Meltzer and Check of Radnor, Pa., and Prickett, Jones and Elliott of Wilmington, Del., in October 2011 as a percentage of a judgment.
"In this case, the record supports the Court of Chancery's finding that defendants breached their duty of loyalty by exchanging over $3 billion worth of actual cash value for something that was worth much less," Justice Randy J. Holland wrote for the majority. "The record also supports the Court of Chancery's determination that the $2.031 billion judgment resulted in the creation of a common fund.
"Accordingly, plaintiff's counsel, whose efforts resulted in the creation of that common fund, are entitled to receive a reasonable fee and reimbursement for expenses from that fund."
The $304 million fee breaks down to about $35,000 per hour of work.
The firms received the fee as the result of the $2.031 billion judgment awarded to shareholders of Southern Peru Copper Corporation, which became Southern Copper Corporation in October 2005.
The shareholders brought a derivative lawsuit against the Grupo Mexico subsidiary that owned the Mexican mining company Minera Mexico, the Grupo Mexico-affiliated directors of Southern Peru and the members of a "special committee" -- a group of disinterested directors tasked with evaluating the transaction with Grupo Mexico.
In February 2004, Grupo Mexico proposed that Southern Peru buy its 99.15 percent stake in Minera.
The shareholders, in their lawsuit, alleged that the merger was unfair to Southern Peru and its minority stockholders.
"The crux of the plaintiff's argument is that Grupo Mexico received something demonstrably worth more than $3 billion (67.2 million shares of Southern Peru stock) in exchange for something that was not worth nearly that much," Strine explained in his Oct. 14, 2011 opinion.
The defendants, Strine found, breached "their fiduciary duty of loyalty."
"I remedy that unfairness by ordering the controller to return to the NYSE-listed company a number of shares necessary to remedy the harm. I apply a conservative metric because of the plaintiff's delay, which occasioned some evidentiary uncertainties and which subjected the controller to lengthy market risk," he wrote in his 106-page opinion.
"The resulting award is still large, but the record could justify a much larger award."
Two months after Strine awarded the judgment, he approved the law firms' fee.
The defendants, in response, appealed to the state Supreme Court, arguing that it was too high.
The Court majority didn't see it that way.
"The Court of Chancery carefully considered the difficulty and complexity of the case. It noted that the plaintiff's attorneys had succeeded in presenting complex valuation issues in a persuasive way before a skeptical court," Holland wrote in the Court's 108-page ruling.
"The plaintiff's attorneys established at trial that Southern Peru had agreed to overpay its controlling shareholder by more than 50 percent ($3.7 billion compared to $2.4 billion). In doing so, the Court of Chancery found that the plaintiff had to 'deal with very complex financial and valuation issues' while being 'up against major league, first-rate legal talent.'"
This factor supports a "substantial" award of attorneys' fees, the Court said, noting that the plaintiffs attorneys investigated a "significant number of hours" and incurred more than $1 million in expenses.
"The defendants litigated vigorously and forced the plaintiff to go to trial to obtain any monetary recovery. Accordingly, in undertaking this representation, the plaintiff's counsel incurred all of the classic contingent fee risks, including the ultimate risk -- no recovery whatsoever," Holland wrote.
And though it took note of the seemingly exorbitant $35,000 hourly rate, the Court said Strine "properly realized" that more important than hours is effort -- as in, what the plaintiffs' lawyers actually did.
"The Court of Chancery understood that it had to look at the hours and effort expended, but recognized the general principle from Sugarland that the hours that counsel worked is of secondary importance to the benefit achieved," Holland wrote.
Justice Carolyn Berger concurred in part and dissented in part.
Though she agreed with the majority's decision on the merits, she said the chancery court did not properly apply the law when it awarded the attorneys' fees.
Its analysis, Berger said, focused on the "perceived need to incentivize plaintiffs' lawyers to take cases to trial."
"The trial court hypothesized that a stockholder plaintiff would be happy with a lawyer who says, 'if you get really rich because of me, I want to get rich, too,'" the justice wrote.
"The trial court opined that a declining percentage for 'mega' cases would not create a healthy incentive system, and that the trial court would not embrace such an approach."
She continued, "In sum, the trial court said that the fundamental test for reasonableness is whether the fee is setting a good incentive, and that the only basis for reducing the fee would be envy."
That, Berger said, is not a decision based on Sugarland.
From Legal Newsline: Reach Jessica Karmasek by email at firstname.lastname@example.org.