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Frank v. Elgamal, C.A. No. 6120-VCN (Del. Ch. July 28, 2011) (Noble, V.C.)

July 28, 2011

In this letter opinion, the Delaware Court of Chancery denied Richard Frank’s (the “Plaintiff”) interim application for attorneys’ fees and expenses (the “Application”). The Court acknowledged that supplemental disclosures issued after the filing of the complaint appeared to have mooted the Plaintiff’s disclosure claims such that the Plaintiff’s counsel would be entitled to an award of fees under the corporate benefit doctrine. However, because no exigent circumstances existed to warrant consideration of an interim fee application, and consideration of interim fees would cause delay and decrease confidence in the determination, the Court exercised its discretion to defer consideration of the Application until after the Plaintiff litigates his remaining claims.

On January 4, 2011, American Surgical Holdings, Inc. (“American Surgical”) filed a preliminary proxy statement containing disclosures related to its planned acquisition by an affiliate of Great Point Partners I, L.P. The Plaintiff, a common stockholder of American Surgical, then commenced litigation to challenge the proposed merger, alleging breaches of fiduciary duty, unfair price and process, and inadequate disclosures. When American Surgical filed its definitive proxy statement, it included supplemental disclosures that effectively mooted the Plaintiff’s disclosure claims. Because the Plaintiff’s price and process claims remained viable, the Plaintiff’s subsequent petition for attorneys’ fees and expenses was an interim application.

The Court stated that American Surgical’s filing supplemental disclosures likely entitled plaintiff’s counsel to fees under the corporate benefit doctrine, which applies when a plaintiff’s efforts produce a substantial benefit – though not necessarily monetary – to the corporation or its stockholders. In reaching this preliminary conclusion, the Court acknowledged that the benefit achieved by the supplemental disclosure that mooted the Plaintiff’s disclosure claims was not likely subject to reversal or alteration, but also stated that (i) processing interim fee applications generally delays processing the remaining substantive claims, (ii) piecemeal consideration may decrease confidence in the Court’s fee award, and (iii) “full appreciation of the benefits brought about by the Plaintiff’s counsel can best – and perhaps only – be accurately achieved when the [litigation is complete] and all of the benefits have been bestowed.” The Court held that, in the absence of exigent circumstances, it would exercise its discretion to deny the Application as premature and defer its review of the Application until the remaining claims are fully litigated.

Vice Chancellor Noble’s decision to deny an interim fee application contrasts with the recent decision of Vice Chancellor Laster to exercise his discretion to award interim fees in In re Del Monte Foods Co. S’holder Litig., Consol. C.A. No. 6027-VCL (Del. Ch. June 27, 2011) (Laster, V.C.). In Del Monte, Vice Chancellor Laster determined to exercise his discretion and grant interim fees because (i) the plaintiffs achieved a substantial benefit by causing the company to make significant supplemental disclosures, and (ii) the benefit produced by the plaintiffs was not subject to reversal or alteration as the litigation proceeded.

The full opinion is available here