In re Del Monte Foods Co. S’holder Litig., Consol. C.A. No. 6027-VCL (Del. Ch. June 27, 2011) (V.C. Laster)
In this memorandum opinion, Vice Chancellor Laster awarded $2.75 million to plaintiffs in interim attorneys’ fees and expenses for causing the defendants to issue supplemental disclosures, but deferred awarding fees for obtaining a preliminary injunction.
On November 25, 2010, Del Monte Foods Company (“Del Monte”) announced that it had agreed to be acquired by a consortium of private investors (the “Sponsors”). Shortly thereafter, plaintiff shareholders brought several putative class actions challenging the planned merger (the “Merger”). The Court consolidated these actions. Plaintiffs’ lead counsel (“Lead Counsel”) then negotiated an aggressive litigation schedule and engaged in “hard-nosed discovery” to further plaintiffs’ case.
In light of discovery and in advance of a preliminary injunction hearing, Del Monte issued a proxy supplement to moot plaintiffs’ disclosure claims. The supplemental disclosures included information concerning one of Del Monte’s financial advisors and the analysis underlying the fairness opinions of its advisors, as well as key details regarding the proceeds received by Del Monte executives involved in the Merger.
On February 14, 2011, the Court enjoined the stockholder vote on the Merger for twenty days. It also enjoined enforcement of the Merger agreement’s deal protection measures in order to permit a further market check. Despite the market check, Del Monte did not receive a topping bid and its shareholders approved the Merger.
Plaintiffs applied for interim fees for the benefits of the injunction and Del Monte’s supplemental disclosures.
In its analysis, the Court observed that its equitable authority empowers it to award interim fees when changing circumstances cannot alter the benefits for which plaintiffs’ attorneys seek compensation. While Vice Chancellor Laster expressed a personal preference for addressing fee petitions relating to preliminary injunction applications “promptly on an interim basis,” he noted that, even when a party can satisfy the requirements for an interim fee award, the decision to entertain the petitions remains at the discretion of the trial court. Because neither Del Monte’s disclosures in the proxy supplement nor defendants’ compliance with the injunction could be unwound, the Court held it could exercise its discretion to determine whether to award interim fees. Accordingly, the Court deemed it appropriate to award fees at this stage for the proxy supplement. Believing further developments in the case would help refine its assessment of the benefits it conferred, the Court elected not to award interim fees for the injunction.
To determine the appropriate fee award for the supplemental disclosures, the Court applied the factors identified in Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980), though it noted that the last two elements, “whether the plaintiff can rightly receive all the credit for the benefit conferred . . . ; and . . . the size of the benefit conferred . . . , are often considered the most important.”
The Court first considered the disclosures in the proxy supplement relating to the activities of one of the financial advisors which it considered the “most significant.” The Court found on a preliminary injunction record that these facts had been previously unknown to both Del Monte’s stockholders and its board. The Court awarded $1.6 million for the banker conflict-related disclosures, noting that such an award “represents the high end of the range.”
The Court next considered the disclosures relating to the bankers’ fairness analyses, fees, and prior engagements. The Court found that, when compared to prior precedent, “[t]he significance of the banker disclosures in this case warrants a fee outside the cluster.” The Court found it appropriate to award an additional $950,000.
The Court also observed that, while the original proxy statement disclosed detailed information regarding the compensation Del Monte’s executives would receive on consummation of a merger, the proxy supplement provided additional details that compared those figures to what the executives would obtain if terminated without a change of control. In keeping with prior precedent involving similar disclosures, the Court awarded $200,000 for this benefit.
Finally, though the Court declined to award interim fees in connection with the benefits achieved by the injunction, it expressed the view that the opportunity to receive a topping bid provided a compensable benefit independent of an actual topping bid. The Court asserted that had the procedural posture required, it could have determined a fee by looking at fees awarded for similar benefits, but concluded that further proceedings would help the Court more accurately evaluate the benefit’s value.