Louisiana Municipal Police Employees’ Retirement System v. Black, C.A. No. 9410-VCN (Del. Ch. Feb. 19, 2016) (Noble, V.C.)

In this letter opinion, the Court of Chancery awarded a $144,375 fee to counsel for Louisiana Municipal Police Employees’ Retirement System (“Plaintiff”) on a mootness fee application in connection with the terminated merger between Comcast Corp. (“Comcast”) and Time Warner Cable Inc. (“TWC”).  In so ruling, the Court declined to enforce a purported oral agreement for a larger mootness fee, which was conditioned on a promise by Plaintiff’s counsel not to sue regarding a related transaction, finding that such an agreement would be contrary to Delaware public policy and therefore unenforceable.

On February 12, 2014, Comcast and TWC entered into a merger agreement (the “Comcast Transaction”).  Multiple stockholders sued to challenge the Comcast Transaction in Delaware and New York.  The parties in the various lawsuits ultimately agreed to settle the cases, culminating in a November 12, 2014 proposed settlement, which was conditioned on the consummation of the Comcast Transaction.  In connection with the proposed settlement, TWC issued two supplemental disclosures that the Court found “noteworthy,” and Comcast agreed to shorten the period for it to assert its matching rights. 

On April 24, 2015, TWC and Comcast terminated the Comcast Transaction due to regulatory concerns.  Approximately one month later, TWC entered into an agreement to merge with Charter Communications, Inc. (the “Charter Transaction”).  With a condition to the proposed settlement having failed, Plaintiff’s counsel sought to negotiate a mootness fee.  In connection with those negotiations, Plaintiff’s counsel “confirmed that we will not be suing TWC regarding the [Charter Transaction].”  While the mootness fee negotiations were ongoing, Plaintiff’s counsel filed a complaint against Charter’s board of directors on behalf of a different plaintiff, seeking to enjoin the Charter Transaction.  Because TWC’s counsel considered the new suit to enjoin the Charter Transaction to be contrary to the prior representations by Plaintiff’s counsel, TWC declined to continue mootness fee negotiations.  Plaintiff’s counsel then moved in the Court of Chancery for an award of fees, arguing that TWC orally contracted to pay a fee award of $475,000, and in the alternative, that Plaintiff’s suit resulted in corporate benefits justifying a $647,500 fee award.

First, the Court rejected the contract theory, finding that the parties did not intend to form a binding resolution of the mootness fee issue.  The Court also held that even had the parties intended to form an oral agreement, such an agreement would have been unenforceable as a matter of Delaware public policy, in view of the prohibition in Delaware Rule of Professional Conduct 5.6(b) against “a lawyer [] agreeing not to represent other persons in connection with settling a claim on behalf of a client.”  The Court found that the purported agreement was conditioned on the “understanding . . . that [Plaintiff’s counsel] would not initiate litigation,” thereby violating Rule 5.6(b).

Second, the Court rejected the request for a $647,500 mootness fee and instead awarded a fee of $144,375.  Applying the factors articulated by the Delaware Supreme Court in Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980), the Court determined that Plaintiff’s counsel was entitled to a 35% share of a $412,500 fee that would otherwise be owed to counsel for all the plaintiffs in the various actions who had collectively conferred the benefits, describing the corporate benefits obtained from Plaintiff’s lawsuit as “small tweaking of the deal protection measures” and issuance of disclosures that were “material, even if not much more than material.”

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