January 14, 2011
Expect a Close Eye on Attorneys' Fees in Delaware Derivative Suits
According the National Law Journal (here), plaintiffs' attorneys plan to ask for $6.5 million in fees related to a derivative suit filed in connection with a proposed merger of Alberto Culver and Unilever. The Notice of Pendency and Proposed Settlement of Shareholder for In re Alberto Culver Co. Shareholder Litigation is available here. As the article explains, the shareholders derived no monetary benefit from the suit. Instead, the settlement achieved the following: (1) eliminated Unilever's right to match any competing higher offer; (2) reduced the failed merger break-up fee from $125 million dollars to $100 million; (3) required the Alberto Culver to share the same confidential documents given to Unilever to any higher bidders; and (4) delayed a shareholder meeting vote.
The question now is how the Delaware courts will look on these non-monetary gains in assessing the value added by the two plaintiffs' firms. Noted Delaware Courts expert Francis G.X. Pileggi noted in the article that it is likely the court will look closely at the settlement following the Chancery Court's decision in In re Revlon Inc. Shareholders Litigation (here) from March 2010. In that case, the court explained that "a systemic problem emerges when entrepreneurial litigators pursue a strategy of filing a large number of actions, investing relatively little time or energy in any single case, and settling the cases early to minimize case-specific investment and maximize net profit." The court in that case was concerned about "shirking by representative counsel" and determined that new counsel was necessary because "the original plaintiffs’ counsel failed to litigate the case adequately."
To me, the Alberto Culver case looks even more like In re National City Corp. Shareholders' Litigation (here), which I mentioned a while back. In that case, the court granted $400,000 in attorneys' fees and expenses, instead of the requested $1.2 million. In that case, too, no monetary benefit was gained from the settlement; only additional disclosures were gained for the shareholders.
At first glance, the Alberto Culver case seems to have gained more substantive changes and disclosures than were obtained than for National City's shareholders. In National City, the court determined that "regardless of the amount of hours spent," the gain was minimal and counsel "did not press any subsequent motion and only deposed two witnesses." For Alberto Culver shareholders, counsel did get a reduction in break-up fees, a delay, and eliminated a matching right, and apparently conducted six depositions. That said, counsel also requested about six times as much money in fees and expenses, too.
I have no inside information here, and my knowledge of the scope and quality of work done is (at best) extremely limited, but following National City and Revlon, I'd be surprised if anything close to the requested fees are granted. My best guess is that Alberto Culver counsel would be wise to expect something closer to the $1 million to $2 million range.