Opinion ID: 2159056
Heading Depth: 1
Heading Rank: 2

Heading: The Fernandes Objection

Text: Initially, we address Appellees' contention that Appellant Fernandes lacked standing to object to the settlement in the Court of Chancery. The transcript of the settlement hearing indicates that the parties chose not to present the issue of standing to the Chancellor during that proceeding. Although class counsel stated for the record that he was unwilling to concede Fernandes' standing, he admitted that the trial court did not necessarily need to decide the issue. Because counsel did not pursue the issue at that hearing and the record reveals no further inquiry into the standing issue, we find that it was not fairly presented to the Court of Chancery for decision. This Court generally will not address the merits of any issue not presented to the trial court and we find no compelling reason to depart from that standard in our consideration of this appeal. [4] Any decision of the Court of Chancery regarding the fairness of a proposed settlement is within the discretion of that court and requires an application of its own business judgment. [5] This Court will review a decision regarding fairness only to the limited extent of determining whether the findings and conclusions of the trial judge are supported by the record and [are] the product of an orderly and logical deductive process, [if so] they will be accepted. [6] We will not substitute our own business judgment for that of the Court of Chancery. [7] Fernandes contends that the Chancellor abused his discretion by approving a settlement that was unfair to the articulated class of Infinity shareholders. His principal argument rests on the notion that close scrutiny of the facts in the record reveals that the settlement provided nothing more than an illusory benefit that failed to adequately protect the rights of the class members. Specifically, he claims that this Court should hold that the illusory benefit is insufficient to extinguish the individual claims of members of the class and that it also precludes the Chancellor's award of any substantial attorneys' fees. Fernandes argues that this Court need not look farther than the actual monetary value of the Viacom shares to find that alleged benefit to be, in essence, a sham. Because of a dramatic drop in the price of Viacom stock after the tender offer was announced, the actual cash value for Infinity's stockholders at the time of settlement was significantly reduced. In turn, he contends, this should have triggered an increase in the exchange ratio to maintain the cash-equivalent benefit conveyed to the stockholders. [8] This would be a persuasive argument, however, only if we were to consider the cash price at settlement to be the proper measure of the benefit conferred in a challenged stock-for-stock merger. In fact, our courts have found that the Court of Chancery need not limit itself to an examination of the immediate tangible results to a corporation or its shareholders in determining the fairness of a settlement agreement. [9] The probable long-term benefits of the settlement are also properly considered. [10] Indeed, mergers like that at issue in this appeal are undertaken primarily in the anticipation of long-term benefits. Assuming a rational decision-making process, Viacom would only have tendered its offer for outstanding Infinity stock if it believed that the merger would produce a net increase in value. A short-term fluctuation in stock price does nothing to alter this extended outlook. Moreover this is a benefit that Infinity shareholders can reasonably expect to reap as new holders of Viacom stock. Therefore, it could fairly be concluded that the increase in the number of Viacom shares allotted to each class member as a result of the settlement produces a long-term benefit even where there is no triggered increase in the exchange ratio to reflect an updated market price fluctuation. Having established that the benefit received by the increase in stock ratio as a result of negotiation was more than illusory, we now turn to the question of whether the terms of this settlement should properly include an award of attorneys' fees. As Fernandes is quick to point out, the timeline in the record shows that the Infinity special committee actively advocated an increased exchange ratio at the same time that class counsel sought an increase in the exchange ratio in the Delaware Action. The inference he suggests we must draw from this fact is that the special committee's work solely resulted in the benefit to the Infinity shareholders and that class counsel's efforts can fairly be considered redundant, insignificant or superficial. This disregards our well-established case law that, in the absence of evidence that the litigation did not result directly in a cognizable benefit to the class, we recognize a presumption that there is a causal relationship between the benefit and a timely filed suit. [11] Moreover, the settlement stipulation in the case at bar specifically states that Viacom took into account the desirability of satisfactorily addressing the claims asserted in the [Delaware] Action in agreeing to increase the consideration to be conveyed to Infinity's public stockholders ... and as such the Action was a positive contributing factor in Viacom's decision to increase the Merger consideration. Even though this suggests that the Delaware Action was only a partial cause of the benefit received as a result of the increase, counsel applying for attorneys' fees do not need to show that they were the sole cause of a benefit conferred by settlement in order to have earned a fair, adequate and reasonable fee for their work on behalf of the class. [12] Fernandes also appeals the Chancellor's determination that the named plaintiffs adequately represented the class as required by Court of Chancery Rule 23(a)(4) and implied in Rule 23.1. [13] We have held that the Court of Chancery's determination of the adequacy of a class representative is an essential component of the settlement approval process. [14] The Chancellor clearly addressed this issue both from the bench and in his final order approving the settlement, explicitly stating that the shareholder class had been adequately represented. Although Fernandes cites deposition testimony taken from class counsel that suggests limited contact and substantially passive involvement by certain named plaintiffs, a nominal plaintiff's lack of personal familiarity with an action is not determinative of that representative's adequacy. [15] Our case law requires little more than that a representative be generally familiar with the litigation. [16] Indeed, our legal system has long recognized the appropriateness of an attorney taking the dominant role in derivative proceedings. [17] Therefore, the mere fact that class counsel undertook the dominant role in this litigation in no way suggests that the class representatives must be found to have inadequately represented the class. We find that sufficient evidence exists in the record to support the Chancellor's conclusions on the adequacy of the named plaintiffs' representation.