Strine
DOVER, Del. (Legal Newsline) - The Delaware Supreme Court, in an order Friday, denied a request for reargument in a case over Southern Copper Corporation's acquisition of a mining company from controlling stockholder Grupo Mexico.
In a ruling last month, the Court upheld a fee, awarded to a group of plaintiffs lawyers in the case, worth more than $300 million.
In its 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 in August. "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.
Grupo Mexico's subsidiary, Americas Mining Corporation, and Southern Copper Corporation filed a motion for reargument with the state Supreme Court earlier this month.
Both AMC and Southern Copper questioned whether the relevant "benefit achieved" for calculating attorneys' fees in a derivative case, against a majority stockholder and other defendants, is properly defined as the entire judgment paid to the corporation -- in this case, 19 percent of the entire judgment paid to the corporation, because the majority stockholder defendant owns 81 percent of the corporation that will receive the judgment.
The state's high court, in its order Friday, said the motion for reargument is "procedurally barred" under Delaware law because the issue raised was "not fully and fairly presented" in their opening briefs and because it is "substantively without merit."
"Neither of the defendants' opening briefs properly raised the issue set forth in the limited motion for reargument," the Court explained. "AMC's opening brief did not mention the issue at all and Southern Copper Corporation's opening brief only mentioned the issue indirectly in a footnote. Arguments in footnotes do not constitute raising an issue in the 'body' of the opening brief.
"On that basis alone the motion must be denied."
The Court also concluded that the chancery court properly rejected the "look through" approach to awarding attorneys' fees in a derivative action.
"Because a derivative suit is being brought on behalf of the corporation, any recovery must go to the corporation," it explained.
"In addition, a stockholder who is directly injured retains the right to bring an individual action for those injuries affecting his or her legal rights as a stockholder. Such an individual injury is distinct from an injury to the corporation alone."
The Court said it is "undisputed" that the case is a derivative proceeding.
"No stockholder, including the majority stockholder, has a claim to any particular assets of the corporation. Accordingly, Delaware law does not analyze the 'benefit achieved' for the corporation in a derivative action, against a majority stockholder and others, as if it were a class action recovery for minority stockholders only," it wrote.
"Therefore, the limited motion for reargument is substantively without merit."
In a statement issued the same day, Grupo Mexico said the ruling sets a "dangerous precedent, if not a new high" for court-sanctioned legal fees in a derivative action.
"Excluding the defendants shares, it represents an award of 80 percent of the benefit obtained for their clients. On an hourly basis, it comes to $35,000 per hour. This is an unwarranted transfer of wealth from the shareholders of a publicly traded company to plaintiffs' attorneys," Grupo Mexico General Counsel Mauricio Ibanez said.
"It turns the well-established legal principle that 'those who profited from the litigation should share its costs' on its head, and sends a clear if disturbing message to plaintiffs' attorneys they can be made wealthy by an award out of proportion to the benefit they actually win for their clients."
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.