If Goldman Discloses a Conflict in Delaware, Does Anyone Make a Sound?

At the end of April, the Delaware Supreme Court approved a settlement in shareholder litigation related to National City Corp.’s (NCC) merger with PNC Financial Services Group. The settlement resulted only in additional merger-related disclosures (i.e., no financial terms were modified). The Supreme Court affirmed on the “basis of and for the reasons assigned by the Court of Chancery” in the decision approving the settlement.

In his July 2009 opinion, Chancellor Chandler approved the settlement, but reduced the attorneys’ fees from the negotiated amount of $1.2 million to $400,000 because the disclosures “amount[ed] to an exceedingly modest benefit to the shareholder class.” The Chancellor explained that plaintiffs' counsel “only achieved meager additional disclosures that failed to be significant enough to warrant placement as an amendment to the proxy statement and were only reported on NCC's form 8-K.” Finally, the opinion states that there was no evidence the additional disclosures had any significant impact on the ultimate shareholder vote, and that, in fact, “NCC's shareholders overwhelmingly voted in favor of the merger.”

I found one of the disclosures that plaintiffs’ counsel obtained particularly interesting: “The potential conflict of NCC's financial advisor, Goldman Sachs, which advised both PNC and NCC at various times.” Obviously, at the time, this disclosure did not mean much to the shareholders, but I have to wonder if shareholders might feel differently today in light of what they know about Goldman’s behavior with other clients. Furthermore, how many other cases are out there where Goldman did not disclose such a potential conflict. (My guess: many.)

I’m not sure that disclosure in every case where Goldman (or any other bank) might have had a conflict would change shareholder behavior. As I have noted before, I’m inclined to think it would not matter much. But it might, so I still think there is continued value in requiring the required disclosures.

For the record, I also happen to think Chancellor Chandler got the fees right on this one. As he explained, counsel achieved a

non-monetary, therapeutic and modest achievement in a case where counsel bitterly complained that NCC shareholders were being shortchanged, plaintiffs' counsel seeks the princely sum of $1.2 million as their fees and expenses. . . . Moreover, plaintiffs' counsel, after winning an early motion to expedite, did not press any subsequent motion and only deposed two witnesses. This effort, regardless of the amount of hours spent, does not justify a fee award of $1.2 million, especially since the benefit obtained for the shareholder class was miniscule.

--Josh Fershee