Case Title: Alaska Electrical v. Brown, et al.

Citation: 

Docket Number: 85, 2007

State: delaware

Court: Delaware Supreme Court

Date: 2007-12-21T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE
ALASKA ELECTRICAL PENSION )
FUND, 
)   No. 85, 2007
)
Plaintiff Intervener, 
)
Below, Appellant,
)
)   Court Below:  Court of 
     v.
)   Chancery of the State of Delaware
)   in and for New Castle County
STEPHEN L. BROWN,
)  
CRADY FAMILY TRUST,
)   C.A. No. 2015
MICHAEL CRADY,
)  
)  
Plaintiffs Below, 
)
Appellees,
) 
)
     and
)
)
LYON HOMES INC., GENERAL 
)
WILLIAM LYON, WILLIAM H.
)
LYON, HAROLD H. GREENE,
)
ARTHUR B. LAFFER, LAWRENCE )
M. HIGBY, JAMES E. DALTON,
)
RICHARD E. FRANKEL, GARY H. )
HUNT and ALEX MERUELO,
)
)
Defendants Below,
 
)
Appellees.
)
Submitted: September 19, 2007
Decided: December 21, 2007
Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS and RIDGELY,
Justices, constituting the Court en Banc.
Upon appeal from the Court of Chancery.  AFFIRMED IN PART and
2
REVERSED and REMANDED IN PART.
R. Bruce McNew, Esquire, of Taylor & McNew LLP, Wilmington, Delaware; Of
Counsel:  Kevin K. Green, Esquire (argued), of Coughlin Stoia Geller Rudman &
Robbins LLP, San Diego, California for Appellant.
Joseph A. Rosenthal, Esquire and Carmella P. Keener, Esquire of Rosenthal, Monhait
& Goddess, P.A., Wilmington, Delaware; Of Counsel:  Carl L. Stine, Esquire, of
Wolf, Popper LLP, New York, New York; Pamela S. Tikellis, Esquire, Daniel J.
Brown, Esquire and Scott M. Tucker, Esquire, of Chimicles & Tikellis LLP,
Wilmington, Delaware; Of Counsel:  Lee D. Rudy, Esquire (argued), of Schiffrin
Barroway Topaz & Kessler, LLP of Radnor, Pennsylvania for Plaintiffs-Below,
Appellees.
Catherine G. Dearlove, Esquire, Ethan A. Shaner, Esquire of Richards, Layton &
Finger, P.A., Wilmington, Delaware; Of Counsel: Michael G. Yoder, Esquire
(argued), of O’Melveny & Myers LLP, Newport Beach, California; S. Mark Hurd,
Esquire, Alan J. Stone, Esquire and Kevin M. Coen, Esquire, of Morris, Nichols,
Arsht & Tunnell LLP, Wilmington, Delaware for Defendants-Below, Appellees.
3
BERGER, Justice:
4
            In this appeal, we consider whether an out-of-state litigant should be awarded
attorneys’ fees and expenses in connection with the settlement of a Delaware
corporate class action.  Appellant, Alaska Electrical Pension Fund (“Alaska”), had
filed a class action in California, alleging substantially the same claims as those
alleged in the Delaware action.  The Delaware plaintiffs agreed to settle their claims
after they had negotiated a $7 per share increase in the disputed transaction.  Appellant
did not agree to settle at that price, and the price later increased another $9 per share.
      
Applying settled Delaware law, the Court of Chancery presumed that the
Delaware action contributed to the initial price increase, and the court awarded fees
to the Delaware plaintiffs.   The Court of Chancery denied appellant a presumption
of causation as to either the first or the second price increase.  We hold that the Court
of Chancery was correct with respect to the first price increase.  But, because appellant
was the only litigant opposing the transaction at the time of the second price increase,
appellant was entitled to a presumption of causation.  Accordingly, we remand this
matter for further consideration of the attorneys’ fees and expenses, if any, that should
be awarded to appellant.
FACTS AND PROCEDURAL HISTORY
5
William Lyon Homes, Inc., a Delaware corporation headquartered in California,
designs, builds and sells single family homes.  Before the tender offer that precipitated
this litigation, General William Lyon was Lyon Homes’s Chairman, Chief Executive
Officer and largest stockholder. Lyon owned approximately 48% of the company’s
stock  and controlled slightly more than half the voting power.  On March 17, 2006,
Lyon announced a tender offer to acquire the remaining stock for $93 per share. The
tender offer included a waivable condition that at the expiration of the tender offer
Lyon, together with certain trusts, would own 90% of the company’s outstanding
common stock.  Lyon announced his intention to acquire the remaining shares through
a short form merger after the tender offer.
The same day that the tender offer was announced, Alaska, a Lyon Homes
stockholder, filed a complaint in the Superior Court of California.  A few days later,
individual stockholders filed  two separate lawsuits in the Delaware Court of
Chancery.  The three actions purported to be class actions brought on behalf of all
Lyons Homes public stockholders, and they alleged similar breach of fiduciary duty
and disclosure claims relating to the tender offer.  The Court of Chancery consolidated
the two Delaware actions and granted expedited discovery.  Alaska also moved for
expedited discovery in California, and the California court directed Alaska to
coordinate its discovery with the Delaware plaintiffs.  Thus, both sets of plaintiffs
6
reviewed the same 30,000 pages of documentation provided by Lyon Homes on
March 29, 2006.  Delaware plaintiffs also took three depositions between March 31
and April 3, 2006.  Alaska made some effort to participate, but did not.  Later,
however, Alaska read all of the depositions taken by Delaware plaintiffs.
On April 10, 2006, the Delaware plaintiffs entered into a Memorandum of
Understanding with Lyon and the other defendants, agreeing to a settlement they
would present to the Court of Chancery for approval (the “Original Settlement”).
Under the Original Settlement, Lyon agreed, among other things, to increase the offer
price from $93 to $100 per share, and to provide additional disclosures.  Lyon also
agreed not to oppose an attorneys’ fee award up to $1.2 million and the Delaware
plaintiffs agreed not to seek more than that amount.  
Despite invitations from the parties to the Memorandum, and encouragement
by the California Court, Alaska declined to join the Original Settlement.  Alaska did
participate in the confirmatory discovery conducted by the Delaware plaintiffs,
however,  and on April 20, 2006, it sought a temporary restraining order in California
to prevent consummation of the tender offer.  The California court denied Alaska’s
motion.  
Between April 24 and April 28, 2006, a major Lyon Homes stockholder,
Chesapeake Partners Limited Partnership, began discussions with Lyon about the
7
tender offer price.  Chesapeake’s participation in the tender offer was important to
Lyon because without Chesapeake, he would be unable to acquire 90% of the
outstanding stock.  At some point during those negotiations, Chesapeake contacted
Alaska to determine its position.  Alaska advised that the revised offer price of $100
per share was too low and that a fair price would be between $108 and $126 per share.
Shortly after that conversation,  Chesapeake agreed to tender its shares at $109 per
share, which became the final tender offer price.
On June 19, 2006, after the tender offer had been completed, the parties to the
Delaware action filed a stipulation of settlement (the “Final Settlement”).  Before the
Final Settlement hearing, Delaware plaintiffs requested an award of the agreed upon
$1.2 million in attorneys’ fees, based solely on the disclosures obtained and the price
increase from $93 to $100.  On July 28, 2006, Alaska moved to intervene in the
Delaware action for the purpose of presenting its own fee application.  Alaska
requested 66% of any fee ultimately awarded, on the theory that it was 50%
responsible for the price increase to $100, 50% responsible for the additional
disclosures, and 100% responsible for the price increase to $109.  The Court of
Chancery approved the Final Settlement, awarded $1.2 million to the Delaware
plaintiffs, and denied Alaska’s fee request.  This appeal followed.
DISCUSSION
 Dover Historical Soc. Inc. v. City of Dover Planning Comm’n, 902 A.2d 1084, 1089 (Del.
1
2006).
 Goodrich v. E.F. Hutton Group, Inc., 681 A.2d 1039, 1044 (Del. 1996).
2
 United Vanguard Fund v. TakeCare, Inc., 693 A.2d 1076, 1079 (Del. 1997) (Citation omitted.).
3
8
Alaska contends that it was entitled to a presumption that its litigation
contributed to the beneficial outcome achieved for the class.  Alternatively, if it  had
the burden to establish its contribution to the result, Alaska argues that it should have
been allowed limited discovery to meet that burden.  We review the trial court’s denial
of attorneys’ fees for abuse of discretion, but we review de novo the legal principles
applicable to that decision.1
Delaware follows the American Rule, under which litigants ordinarily are
responsible to pay their own attorneys’ fees, regardless of the outcome of the lawsuit.2
One well-established exception to the rule is the corporate benefit doctrine:
 Under this doctrine, a litigant who confers a common monetary
benefit upon an ascertainable stockholder class is entitled to an
award of counsel fees and expenses for its efforts in creating the
benefit. This doctrine is premised on the theory that “all of the
stockholders ... benefitted from plaintiffs’ action and should have
to share in the costs of achieving that benefit.”   
 3
To qualify for an award of attorneys’ fees, counsel must show that, “the suit was
meritorious when filed; action producing benefit to the corporation was taken by the
defendants before a judicial resolution ...; and the resulting corporate benefit was
Allied Artists Pictures Corp. v. Baron, 413 A.2d 876, 878 (Del. 1980).
4
In re Infinity Broadcasting Corp. Shareholders Litigation, 802 A.2d 285, 290 (Del. 2002), citing
5
McDonnell Douglas Corp v. Palley, 310 A.2d 635 (Del. 1973).
Allied Artists Pictures Corp. v. Baron, 413 A.2d at 880.
6
In re Infinity Broadcasting Corp., 802 A.2d at 292.
7
Id.
8
9
causally related to the lawsuit.”  
4
This appeal focuses on the causation requirement.  When a case is litigated in
Delaware, our courts “recognize a presumption that there is a causal relationship
between the benefit and a timely filed suit.”   To overcome this presumption,
5
defendants have the burden of “demonstrating that the lawsuit did not in any way
cause their action.”   Where, as here, similar lawsuits are litigated in multiple
6
jurisdictions, the presumption of a causal relationship generally applies only to the
Delaware litigation.  As this Court explained in In re Infinity Broadcasting Corp.
7
Shareholders Litigation, attorneys who litigate in other jurisdictions are entitled to
share in a Delaware fee award, “if their efforts elsewhere conferred a benefit realized
as part of the Delaware settlement.”   But, they must substantiate their contribution to
8
the result achieved.    
  There are several reasons why the Delaware plaintiffs are usually the only
ones given a presumption of causation.  First, it is reasonable to presume that, if the
Delaware plaintiffs are able to negotiate a settlement, they, rather than out-of-state
plaintiffs, are the ones who contributed to the benefit.  Second, the Delaware plaintiffs
10
have been appearing in front of the Court of Chancery during the course of the
litigation.  Thus, even without evidence of their specific contribution to the result
achieved, the trial court is able to determine an appropriate fee award based on its
knowledge of  the Delaware plaintiffs’  activities in court.  Finally, if the presumption
were extended to all plaintiffs litigating similar claims in other jurisdictions, such a
rule would encourage the filing of multiple “mere pendency” lawsuits, wasting
judicial resources and making it more difficult to reach settlements.
Accordingly, with respect to the benefits achieved in the Original Settlement,
Delaware law gave Delaware plaintiffs the presumption of causation and required
Alaska to substantiate its contribution.  The trial court’s  factual finding that Alaska
did not contribute to the Original Settlement benefits is supported by the record.  At
best, Alaska’s discovery mirrored the discovery conducted by the Delaware plaintiffs.
Alaska posits that it was asked to join in the settlement at $100 per share because it
contributed to that result. The trial court did not agree, finding that Alaska was asked
to join in the settlement only because defendants wanted a global settlement.  We are
satisfied that the Court of Chancery acted well within its discretion in concluding that
Alaska was not entitled to any fees with respect to the Original Settlement. 
That does not end the matter, however.  After the Delaware plaintiffs had
agreed to the Original Settlement, the stockholder class received a substantial
11
additional benefit when the tender offer price was increased from $100 to $109 per
share.  The Delaware plaintiffs acknowledge that they played no role in achieving that
second increase.  They had already agreed to settle, and they did not attempt to
renegotiate the Original Settlement based on their confirmatory discovery or any other
subsequent events.  Thus, the Delaware action had effectively concluded, and
Alaska’s action was the sole remaining litigation challenging the tender offer.
The question that arises in these unusual circumstances, is whether Alaska
should be presumed to have contributed to the second increase.  Because Alaska was
the only remaining adversary, parity of reasoning requires that Alaska be given the
same presumption of causation originally granted to the Delaware plaintiffs.  The
presumption of causation is based on the apparent connection between defendants’
decision to improve the terms of a transaction and the existence of a lawsuit
challenging that transaction.  Here, any benefit achieved after the Original Settlement
would appear to be related to Alaska’s ongoing opposition to the tender offer price.
Thus, Alaska should be presumed to have contributed to the increase from $100 to
$109 per share.
We are not unmindful of the fact that Chesapeake negotiated the last price
increase, and that both the defendants and the trial court credited the increase entirely
to Chesapeake’s unique leverage.  The fact remains, however, that Chesapeake
Alaska complains that the trial court abused its discretion in denying limited discovery relating
9
to causation.  Alaska knew, or should have known, that it would be required to establish its
contribution to the benefit for the period before the Original Settlement.  See: In Re Infinity
Broadcasting Corp. Shareholders Litigation, Supra.  Because it failed to request discovery until
its motion for reconsideration, we find no abuse of discretion in denying that request.  If
defendants contest causation on remand, the trial court will be able to consider any request for
discovery relating to that issue.
12
consulted with Alaska about stock values during those negotiations.  Moreover, given
the presumption of causation, it is defendants’ burden to establish that the pending
Alaska lawsuit did not in any way contribute to the higher price.  On remand, all
parties will have the opportunity to address this issue after appropriate discovery.9
CONCLUSION
For the foregoing reasons, we AFFIRM in part, and REVERSE in part, and
REMAND for further proceedings in accordance with this decision.  We recognize
that this remand may impact the trial court’s award of fees to the Delaware plaintiffs.
We offer no opinion on the question of whether, if Alaska is awarded any fees, that
award should be in addition to the amount previously awarded to the Delaware
plaintiffs.   We, likewise, offer no opinion on the related issue of whether any award
of fees on remand should be paid in whole or in part by the defendants or by the
Delaware plaintiffs (through a deduction in their fee award).