Amended In re Sauer-Danfoss complaint warrants attorneys’ fee award for supplemental disclosure

The plaintiff shareholders of Sauer-Danfoss Inc. filed suit hours after Danfoss A/S, the Company's controlling stockholder, announced a plan to launch a tender offer for the Sauer-Danfoss minority shares.  After settlement talks contemplating a disclosure-only settlement broke down, the plaintiffs amended their complaint to assert that the defendants Schedule 14D-9 failed to disclose certain material information. Danfoss and Sauer- Danfoss voluntarily disclosed information mooting those disclosure claims and Danfoss later withdrew its tender offer, mooting the litigation. Plaintiffs' law firms nevertheless sought $750,000 in fees resulting from the corporate benefit conferred by the supplemental disclosures. Vice Chancellor Laster of the Delaware Chancery Court looked to the amended complaint to establish that the claims were “meritorious when filed” and awarded a fee of $75,000 because of the material benefit conferred by one of the twelve supplemental disclosures.

I was unfamiliar with the case law analysis for supplemental disclosures and found the discussion in the opinion interesting.  The full opinion is available for download here (Download In re Sauer-Danfoss).  A few highlights of the opinion and my brief summary continues below:

When a plaintiff pursues a cause of action relating to the internal affairs of a Delaware corporation and generates benefits for the corporation or its stockholders, Delaware law calls for the plaintiff to receive an award of attorneys’ fees and expenses determined based on the factors set forth in Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980).  If the defendants take action to moot the dispute, plaintiffs can still seek an award. Drawing from United Vanguard Fund, Inc. v. TakeCare, Inc., 693 A.2d 1076, 1079 (Del. 1997), to obtain a fee in a mooted case, the plaintiff must show that:

(1) the suit was meritorious when filed;

(2) the action producing benefit to the corporation was taken by the defendants before a judicial resolution was achieved; and

(3) the resulting corporate benefit was causally related to the lawsuit.

Plaintiffs challenged the Schedule TO disclosure relating to the Tender Offer price.  The disclosure regarding the tender price stated:
"$13.25 per share is greater than . . . the 52 week high closing price of [Sauer-Danfoss common stock] of $12.70 on January 20, 2010, which occurred following [Danfoss’s] announcement that it intended to make the [Tender Offer]. Prior to that announcement, the 52 week high closing price was $9.75."

Plaintiffs' Amended Complaint alleged that the statement did not define the 52-week period for which the $9.75 price was calculated and provided inaccurate pricing information because "prior to January 20, 2010, the 52-week high closing price was $12.49 on January 19, 2010." 

In response, Danfoss disclosed the following:
"The Offer Price of $13.25 per Share is greater than the 52 week high closing price of the Shares of $12.70 on January 20, 2010, for the period ending March 8, 2010, which occurred following our December 18, 2009 notification to the Board that we intended to make the Offer. Prior to that notification, the 52 week high closing price was $9.90 on January 6, 2009."

The Court concluded that the supplemental disclosure established the accurate end date for the 52-week period calculations. The Court characterized the Schedule TO’s reference to $9.75 as "a careless mistake", but concluded that the corrective disclosure provided a compensable benefit.  The $75,000 in fees was calculated in reference to this disclosure.

Anne Tucker