2015 IL App (2d) 140271

No. 2-14-0271

Opinion filed February 19, 2015

______________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

______________________________________________________________________________

MILTON PFEIFFER, Derivatively on Behalf ) Appeal from the Circuit Court

of DeVry, Inc., ) of Du Page County.

)

Plaintiff-Appellant and Cross-Appellee, )

)

v. ) No. 12-CH-5105

)

CHRISTOPHER B. BEGLEY, DAVID S. )

BROWN, GARY BUTLER, CONNIE R. )

CURRAN, DANIEL HAMBURGER, )

DARREN R. HUSTON, WILLIAM T. )

KEEVAN, LYLE LOGAN, JULIA A. )

McGEE, FERNANDO RUIZ, HAROLD T. )

SHAPIRO, RONALD L. TAYLOR, and )

LISA W.WARDELL, )

)

Defendants-Appellees and )

Cross-Appellants )

) Honorable

(DeVry, Inc., Nominal Defendant-Appellee ) Paul M. Fullerton,

and Cross-Appellant). ) Judge, Presiding.

______________________________________________________________________________

JUSTICE McLAREN delivered the judgment of the court, with opinion.

Justices Hudson and Spence concurred in the judgment and opinion.

OPINION

¶ 1 Plaintiff, Milton Pfeiffer, and defendants, Christopher B. Begley, David S. Brown, Gary 

Butler, Connie R. Curran, Daniel Hamburger, Darren R. Huston, William T. Keevan, Lyle 

Logan, Julia A. McGee, Fernando Ruiz, Harold T. Shapiro, Ronald L. Taylor, and Lisa W. 
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Wardell (collectively, the Board), appeal from the trial court’s order awarding $75,000 in 

attorney fees to Pfeiffer. We affirm.

¶ 2 I. BACKGROUND

¶ 3 On October 5, 2012, Pfeiffer, the owner of one share of DeVry, Inc., stock, filed a threecount shareholder derivative complaint against the Board (and, nominally, DeVry), alleging 

breach of fiduciary duty, waste of corporate assets, and unjust enrichment. According to

Pfeiffer, the Board had granted to Hamburger (DeVry’s chief executive officer and a member of 

the Board), as part of his compensation in 2010, 2011, and 2012, 159,725 more stock options,

than were allowed pursuant to DeVry’s 2005 shareholder-approved incentive plan. Pfeiffer did 

not make a demand on the Board prior to filing suit; such a demand was “futile” according to 

Pfeiffer, because the “transactions at issue in this Action did not result from a valid exercise of 

business judgment.” In addition, Pfeiffer alleged that various members of the Board were 

incapable of objectively considering a demand, because of a lack of independence. Among other 

things, Pfeiffer sought (1) rescission of the excess stock options, (2) damages sustained by 

DeVry, (3) reform of corporate governance and internal procedures, and (4) an award to him of 

“costs and disbursements of this action, including reasonable allowance of fees and costs for 

Plaintiff’s attorneys, experts, and accountants.”

¶ 4 Despite the claim that a demand would be futile, two months later, on December 17, 

2012, DeVry filed amended forms with the Securities and Exchange Commission showing that 

any grants of stock options to Hamburger beyond the 150,000 per year under the 2005 plan were 

“ineffective”; thus, the number of options shown to be held by Hamburger was reduced. For 

2010, Hamburger’s non-qualified stock options (NQSOs) were reduced by 34,100, and his 2011 

holdings were reduced by 20,200. However, DeVry explained that some of Hamburger’s 2012 
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options were granted under a 2003 incentive plan rather than pursuant to the 2005 plan; thus, 

Hamburger’s options were reduced by 17,515 instead of the 105,425 that Pfeiffer alleged were 

improperly awarded. In February 2013, DeVry awarded Hamburger “restrictive stock units” as 

compensation “to replace the value” of stock option grants, which Hamburger had been told he 

was receiving “but were not fulfilled to the extent they exceeded the number of stock options that 

may be granted” to an individual in one year under the 2005 plan.

¶ 5 On April 8, 2013, defendants filed a motion to dismiss pursuant to section 2-619.1 of the 

Code of Civil Procedure (735 ILCS 5/2-619.1 (West 2012)), arguing that: (1) Pfeiffer’s claims 

were now moot (section 2-619(a)(9)); and (2) Pfeiffer had not adequately alleged the futility of 

making a demand prior to filing suit (section 2-615). The trial court granted the motion to 

dismiss on the ground of mootness. While noting that Pfeiffer contended that a material issue of 

fact remained regarding the 2012 options, the court said that the only evidence before it on that 

issue showed “that they were awarded under a different plan, the 2003 plan.” Thus, Hamburger 

had no more than 150,000 options for the years in question, and DeVry had “remedied the 

situation.” The dismissal for mootness would be with prejudice upon adjudication of any fee 

petition filed by Pfeiffer. While the court’s written order stated that the court “makes no ruling”

on the section 2-615 motion regarding demand futility, the court orally stated that it was “in 

agreement” with defendants in that:

“I don’t believe that there were sufficient allegations, not that they couldn’t be made; but 

based on the Complaint I had before me, those allegations, there weren’t sufficient 

factual allegations to show the serious threat of liability, the violations were deliberate, 

intentional or some type of breach of loyalty or bad faith that would excuse the presuit 

demand or that a presuit demand would be futile.”
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The court subsequently denied Pfeiffer’s motion to reconsider.

¶ 6 On September 25, 2013, Pfeiffer filed a petition for an award of attorney fees and 

expenses totaling $820,706. Pfeiffer argued that his instigation of the litigation secured “an 

immediate benefit” for DeVry of approximately $2.1 million (the value of the stock options 

“surrendered” by Hamburger) and long-term savings of $1.1 million from the “prevention of 

future wrongful option grants.” Pfeiffer sought attorney fees of $800,000 (25% of the $3.2 

million) plus costs of $20,706. Defendants responded that the lawsuit had not actually resulted 

in any real monetary benefit, because DeVry had provided Hamburger with alternate 

compensation of equal value; they requested that the court deny Pfeiffer’s petition in its entirety 

or, in the alternative, award “no more than $20,000 to $30,000 in fees under a quantum meruit 

theory.” After hearing argument, the court found that the litigation created a “common fund” of 

$2.1 million for the benefit of DeVry shareholders, but it did “not accept” the alleged future 

savings of $1.1 million. The court granted $75,000 in fees and $20,706 in costs, the total amount 

being “just under 5 percent of that $2.1 million.” The court also characterized the fee award as 

“a lot of fees for the amount of work performed.” The appeal and cross-appeal then followed.

¶ 7 II. ANALYSIS

¶ 8 We first note that DeVry is a Delaware corporation. Illinois courts apply the law of the 

state of incorporation. Housman v. Albright, 368 Ill. App. 3d 214, 218 (2006). Therefore, we 

will apply Delaware law.

¶ 9 Pfeiffer appeals from the trial court’s award of fees, arguing that the court abused its 

discretion in fashioning that award. However, in their cross-appeal, defendants argue that 

Pfeiffer failed to show that he was entitled to any fee award. We will address the cross-appeal 

first.
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¶ 10 A. CROSS-APPEAL

¶ 11 The trial court found that the litigation created a “common fund” of $2.1 million for the 

benefit of DeVry shareholders. The “common fund” doctrine is a commonly recognized 

exception to the general, so-called American Rule, under which the prevailing party is 

responsible for the payment of his own attorney fees. In re First Interstate Bancorp 

Consolidated Shareholder Litigation, 756 A.2d 353, 357 (Del. Ch. 1999). Under this doctrine, a 

litigant who confers a common monetary benefit upon an ascertainable class is entitled to an 

allowance for fees and expenses, to be paid from the fund or property that his efforts have 

created. Id. Fees may be recovered even though the claims in the case had been mooted before a 

final judgment had been entered. See id.; Crothall v. Zimmerman, 94 A.3d 733 (Del. 2014). In 

such a case, the claims were rendered moot because of actions taken by the defendants, and those 

same actions simultaneously created the benefit that the plaintiff had been seeking and for which 

the plaintiff thus was entitled to have its fees paid. Crothall, 94 A.3d at 737-38.

¶ 12 Defendants argue that the trial court erred in considering only the value of the withdrawal 

of the improperly granted NQSOs in determining whether Pfeiffer’s actions created an economic 

benefit. Instead, the court should have considered the “net economic benefit” achieved through 

Pfeiffer’s litigation efforts. That is, the court should have considered that, after the options had 

been withdrawn, DeVry provided Hamburger with alternate compensation of approximately 

equal value. Thus, according to defendants, the withdrawal of the options was offset by the 

alternate compensation, leaving DeVry no better off than it had been before the filing of the 

lawsuit. Further, according to defendants, because their decision to “make Mr. Hamburger 

whole” after Pfeiffer pointed out their improper awards was “directly, causally linked” to 
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Pfeiffer’s complaint, that decision was material to whether Pfeiffer had conferred any net benefit 

on DeVry.

¶ 13 “Delaware law rewards plaintiffs’ attorneys who provide a benefit to a Delaware 

corporation, even if the benefit does not produce immediate monetary rewards.” EMAK 

Worldwide, Inc. v. Kurz, 50 A.3d 429, 430 (Del. 2012). The corporate-benefit doctrine provides 

that a plaintiff may be reimbursed for his fees and expenses if (1) the suit was meritorious when 

filed; (2) the defendants took an action that produced a corporate benefit before the plaintiff 

obtained a judicial resolution; and (3) the suit and the corporate benefit were causally related. Id. 

at 432. Under the “mootness rule,” when a defendant takes an action that moots a suit, there is a 

rebuttable presumption that the suit and the benefit were causally related, because the defendant 

is in the best position to know the events, reasons, and decisions behind its action. Id. at 433. 

Typically, a successful derivative or class-action suit that results in the recovery of money or 

property wrongfully diverted from the corporation, or that results in the imposition of changes in 

internal operating procedures that are designed to produce such savings in the future, is viewed 

as a fund-creating action. Tandycrafts, Inc. v. Initio Partners, 562 A.2d 1162, 1164-65 (Del. 

1989). The definition of a corporate benefit is elastic:

“While the benefit achieved may have an indirect economic effect on the corporation, in 

the sense that the interests of the plaintiff class reflect a value not theretofore apparent, 

the benefit need not be measurable in economic terms. Changes in corporate policy or, as 

here, a heightened level of corporate disclosure, if attributable to the filing of a 

meritorious suit, may justify an award of counsel fees.” Id. at 1165.

¶ 14 Defendants attempt to frame Pfeiffer’s claim as procedural, rather than substantive. 

Pfeiffer never claimed that Hamburger was compensated excessively; he claimed only that 
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elements of Hamburger’s compensation violated the 2005 plan. Thus, while Pfeiffer was 

successful in his quest to get Hamburger’s excess stock options cancelled, defendants merely 

changed the source of Hamburger’s compensation, not the amount of the compensation. 

According to defendants, their decision to make Hamburger whole through alternate sources of 

compensation offset the benefit to DeVry, and the trial court should have considered this offset 

in its corporate-benefit analysis.

¶ 15 We find unpersuasive the cases cited by defendants in support of this argument. In 

Louisiana State Employees’ Retirement System v. Citrix Systems, Inc., No. Civ. A. 18298, 2001 

WL 1131364 (Del. Ch. Sept. 19, 2001), the plaintiff challenged Citrix’s planned amendment to 

its stock option plan. Citrix withdrew the amendment without ever issuing the proposed 10

million new options. The plaintiff asserted that the withdrawn option plan resulted in a benefit 

of $183 million to Citrix shareholders and sought attorney fees of $2 million plus expenses. Id. 

at *1. The court granted fees of $140,000 on a quantum meruit basis. Id. at *10 n.56.

¶ 16 Defendants’ analysis of the chancery court’s basis for declining to grant fees on a 

corporate-benefit basis is incomplete and misleading. As defendants note, the chancery court did 

state that the plaintiff’s analysis failed to recognize possible benefits of the stock option plan, 

especially as related to employee morale, attraction, and retention. Id. at *7. However, this was 

only one shortcoming that the chancery court found in the plaintiff’s analysis. It also found that

there was no attempt to “offset” the plaintiff’s proposed recovery with those alleged benefits. In 

addressing the defendants’ claim that those possible benefits would offset the costs of dilution, 

the chancery court noted:
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“Quantitatively speaking, any attempt by this Court to directly calculate the precise value 

of the employee recruitment, retention, and motivation effects provided by Proposal 3 

seems more like ill-conceived alchemy than science.” Id. at *8.

Ultimately, the chancery court could not “accurately value the net economic benefit conferred by 

either the passage or the withdrawal of Proposal 3.” Id. However, the chancery court was not 

merely noting the difficulty of quantifying offset components; it was also addressing larger 

issues of stock market reactions, the difficulty of quantifying the dilutive effect of stock options

that were never issued, and the difficulty of quantifying the value of stock options that were not 

liquid, freely tradable options. Id. at *7.1

¶ 17 Further, defendants’ decision to “make Mr. Hamburger whole [with alternate 

compensation] once the error was pointed out” was not, as defendants argue, “directly, causally 

linked” to Pfeiffer’s complaint in any but the most superficial way. Of course, defendants would 

not have had to make up for Hamburger’s lost stock options if Pfeiffer had not brought suit and 

brought the improper compensation to light. However, defendants’ decision to do so was purely 

discretionary; they were not required by Pfeiffer’s suit to make up for that compensation. 

Defendants’ decision, while maybe logical, was not inevitable, nor was it an imperative required 

by the lawsuit. It was a discretionary action made outside of the boundaries of the suit and its 

potential consequences.

¶ 18 Ultimately, defendants have failed to demonstrate that the trial court erred in finding that 

Pfeiffer was eligible to be reimbursed for his fees and expenses pursuant to the corporate-benefit 

 1 Defendants’ reliance on Crothall, 94 A.3d 733, is even more misplaced, as that case 

involved a plaintiff’s attorney seeking to obtain fees on a corporate-benefit basis after the 

plaintiff abandoned his lawsuit.
2015 IL App (2d) 140271

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doctrine as defined in EMAK Worldwide, Inc., 50 A.3d 429. See supra ¶ 13. Therefore, we 

affirm the trial court as to defendants’ cross-appeal.

¶ 19 B. PFEIFFER’S APPEAL

¶ 20 Pfeiffer contends that the trial court erred in awarding him attorney fees and expenses 

totaling only 3.5% of the $2.1 million benefit that his action conferred on DeVry and its 

shareholders. This court will review a fee award for an abuse of discretion. EMAK Worldwide, 

Inc., 50 A.3d at 432. We will not substitute our own notions of what is right for those of the trial 

judge if that judgment was based upon conscience and reason, as opposed to capriciousness or 

arbitrariness, and we will not set aside or overturn factual findings unless they are clearly wrong 

and justice requires it, or they are not the product of an orderly and logical deductive process. Id.

¶ 21 Typically, when a plaintiff’s efforts on behalf of a corporation result in the creation of a 

quantifiable common fund, the court will use a percentage-of-the-benefit approach in 

determining an award of attorney fees and costs. Americas Mining Corp. v. Theriault, 51 A.3d 

1213, 1255 (Del. 2012). Delaware courts use the factors set out in Sugarland Industries, Inc. v. 

Thomas, 420 A.2d 142, 149-53 (Del. 1980), to determine an award’s amount. EMAK 

Worldwide, Inc., 50 A.3d at 433. These factors are: (1) the results achieved; (2) the time and 

effort of counsel; (3) the complexity of the issues; (4) whether counsel was working on a 

contingent basis; and (5) counsel’s standing and ability. Id. at 433 n.22. The first factor, the 

benefit achieved, is considered the most important. See Americas Mining Corp., 51 A.3d at 

1255.

¶ 22 There is no argument that the trial court failed to apply the Sugarland factors. Indeed, the 

court specifically addressed each factor and announced in whose favor each factor weighed. The 

court found a common fund of $2.1 million and awarded attorney fees of $75,000 plus costs of 
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$20,706. The court noted that the total of $95,706 was “just under 5 percent” of the common 

fund and expressed its belief that “that’s a lot of fees for the amount of work performed.”

¶ 23 However, Pfeiffer argues that the court abused its discretion, “inexplicably” granting a 

“paltry” 3.5% of the common fund in attorney fees. Pfeiffer requested 25% of the benefit in his 

fee petition and argues that courts have recently granted fees in the range of 25% to 33% of the 

benefit. Most of Pfeiffer’s argument involves citations to cases in which Delaware courts 

awarded fees in that range and his contention that “the Circuit Court did not appear to give any

weight to the fee awards in similar cases.” (Emphasis in original.) However, fee awards in other 

cases was not a factor that the trial court was required to consider. The trial court specifically 

addressed every factor required. Our review of the record indicates that this award was “based 

upon conscience and reason, as opposed to capriciousness or arbitrariness,” and that the court’s

factual findings were “the product of an orderly and logical deductive process.” EMAK 

Worldwide, Inc., 50 A.3d at 432. Thus we find no abuse of discretion.

¶ 24 III. CONCLUSION

¶ 25 For these reasons, the judgment of the circuit court of Du Page County is affirmed.

¶ 26 Affirmed.