In re Astex Pharmaceuticals, Inc. S'holders Litig., Consol. C.A. No. 8917-VCL (Del. Ch. Aug. 25, 2014) (Laster, V.C.)

The Delaware Court of Chancery denied a request by the parties to enter a proposed order withdrawing plaintiffs’ counsel’s request for the Court to retain jurisdiction to determine an award of attorneys’ fees and closing a stockholder class action challenging a merger transaction. The proposed order was accompanied by a stipulation regarding attorneys’ fees and expenses.  The Court refused to enter the proposed order because the parties failed to notify the remaining class members that the board had elected to pay attorneys’ fees for mooting the disclosure claims asserted in the class action.

The stockholder class action at issue challenged the acquisition of Astex Pharmaceuticals Inc. (“Astex”) by Otsuka Holdings Co. Ltd. (“Otsuka”).  After Astex announced its entry into an agreement and plan of merger with Otsuka, various stockholder plaintiffs filed lawsuits in California and Delaware asserting, among other claims, that Astex’s stockholders lacked sufficient information to make an informed decision whether to vote in favor of the merger or seek appraisal.  In response, Astex supplemented its disclosures.  Thereafter, the Court certified the class.  After the defendants moved for judgment on the pleadings, the Court granted the parties’ stipulated request to dismiss the remaining claims because plaintiffs had concluded they lacked merit.  The dismissal did not purport to release the claims of the class.

Almost a year later, the Court denied the request to close the case, holding that the failure to provide notice to the remaining class members did not comply with the principles governing payment of attorneys’ fees for mooted claims, as set forth in In re Advanced Mammography Systems, Inc. Shareholders Litigation, 1996 WL 633409 (Del. Ch. Oct. 30, 1996).  The Court reiterated the importance of the notice requirement established in Advanced Mammography, explaining that it gives class members an opportunity to object to the use of corporate funds to pay the fee and to demonstrate that the fee agreement is a collusive act between the parties.  The Court had no reason to suspect that a buy off had occurred in this case, but disagreed with the parties’ argument that there was no risk of a buy off simply because the fee agreement was not reached contemporaneously with the dismissal.

Finally, the Court explained that any approval in the past of stipulated orders that did not comply with Advanced Mammography was not a signal of a departure from that precedent.  Rather, it reflected the courts reliance on counsel.  

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