Court Opinion

ID: 4385724
Source: CourtListenerOpinion
Date Created: 2019-04-10 16:02:57.005757+00
Date Added: 2024-06-11T14:23:00.104081
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CHARLES ALMOND AS TRUSTEE              )
FOR THE ALMOND FAMILY 2001             )
TRUST, ALMOND INVESTMENT               )
FUND LLC, CHARLES ALMOND, and          )
ANDREW FRANKLIN,                       )
                                       )
          Plaintiffs,                  )
    v.                                 )        C.A. No. 10477-CB
                                       )
GLENHILL ADVISORS LLC,
                                       )
GLENHILL CAPITAL LP, GLENHILL
                                       )
CAPITAL MANAGEMENT LLC,
                                       )
GLENHILL CONCENTRATED LONG
                                       )
MASTER FUND LLC, GLENHILL
                                       )
SPECIAL OPPORTUNITIES MASTER
                                       )
FUND LLC, JOHN EDELMAN,
                                       )
GLENN KREVLIN, JOHN MCPHEE,
                                       )
WILLIAM SWEEDLER,WINDSONG
                                       )
DB DWR II, LLC, WINDSONG DWR,
                                       )
LLC, WINDSONG BRANDS, LLC,
                                       )
HERMAN MILLER, INC. and HM
                                       )
CATALYST, INC.,
                                       )
          Defendants,                  )
                                       )
    and                                )
                                       )
DESIGN WITHIN REACH, INC.,             )
                                       )
          Intervenor and               )
          Counterclaim-Petitioner.     )

                        MEMORANDUM OPINION

                        Date Submitted: January 9, 2019
                         Date Decided: April 10, 2019
Peter B. Ladig and Sara E. Bussiere of BAYARD, P.A., Wilmington, Delaware;
David H. Wollmuth and Michael C. Ledley of WOLLMUTH MAHER &
DEUTSCH LLP, New York, New York. Attorneys for Plaintiffs Charles Almond
as Trustee for the Almond Family 2001 Trust, Almond Investment Fund LLC, and
Charles Almond.

David A. Jenkins of SMITH, KATZENSTEIN & JENKINS LLP, Wilmington,
Delaware; Scott J. Watnik of WILK AUSLANDER LLP, New York, New York;
Thomas A. Brown of MOREA SCHWARTZ BRADHAM FRIEDMAN & BROWN
LLP, New York, New York. Attorneys for Plaintiff Andrew Franklin.

Andrew D. Cordo and F. Troupe Mickler IV of ASHBY & GEDDES, Wilmington,
Delaware; Adrienne M. Ward and Brian Katz of OLSHAN FROME WOLOSKY
LLP, New York, New York; John B. Horgan of ELLENOFF GROSSMAN &
SCHOLE LLP, New York, New York. Attorneys for Glenhill Advisors LLC,
Glenhill Capital LP, Glenhill Capital Management LLC, Glenhill Concentrated
Long Master Fund LLC, Glenhill Special Opportunities Master Fund LLC, Glenn
Krevlin, William Sweedler, Windsong DB DWR II, LLC, and Windsong DWR LLC.

Douglas D. Herrmann of PEPPER HAMILTON LLP, Wilmington, Delaware; Paul
B. Carberry, Joshua Weedman, and Erin Smith of WHITE & CASE LLP, New York,
New York. Attorneys for John Edelman and John McPhee.

Frederick B. Rosner, Scott J. Leonhardt, and Jason A. Gibson of THE ROSNER
LAW GROUP LLC, Wilmington, Delaware; S. Preston Ricardo of Golenbock
Eiseman Assor Bell & Peskoe LLP, New York, New York. Attorneys for Windsong
Brands, LLC.

John D. Hendershot, Susan M. Hannigan, and Brian F. Morris of RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; Bryan B. House of FOLEY &
LARDNER LLP, Milwaukee, Wisconsin. Attorneys for Defendants, Counterclaim
Petitioners Herman Miller Inc. and HM Catalyst, and Intervenor and Counterclaim
Petitioner Design Within Reach, Inc.

BOUCHARD, C.
      In August 2018, the court issued a post-trial decision and entered judgment in

favor of defendants and against two stockholder plaintiffs on all claims that were

tried in this action arising out of Herman Miller, Inc.’s acquisition of Design Within

Reach, Inc. (“DWR” or the “Company”) in a transaction that involved a short-form

merger. Despite losing on all claims, plaintiffs filed a motion after trial for an award

of attorneys’ fees and expenses in the amount of $1.5 million.

      The crux of plaintiffs’ motion is that they should be rewarded for conferring

a corporate benefit on DWR and Herman Miller by identifying certain defective

corporate acts that the court judicially validated after trial under 8 Del. C. § 205.

Herman Miller made the request for judicial validation in a counterclaim it filed after

learning about the defective corporate acts that plaintiffs had discovered in this case.

The court’s validation of those and other defective corporate acts that Herman Miller

discovered in investigating the matter removed a cloud over the validity of the

merger.

      The odd aspect of plaintiffs’ application is that they seek to be rewarded for

“conferring” a benefit that they fought to prevent throughout this litigation. Rather

than work constructively with defendants to correct what should have been obvious

to plaintiffs to be a series of technical mistakes, plaintiffs chose a path of opposition.

Plaintiffs opposed Herman Miller’s motion for summary judgment on its

counterclaim, opposed at trial judicial validation of certain of the defective corporate

                                            1
acts for the evident purpose of attempting to procure a windfall for themselves, and

even now hold open the prospect that they may seek to set aside the court’s validation

ruling on appeal.

         Given these unusual circumstances, and for other reasons explained below,

the court concludes that even though plaintiffs have made a prima facie showing to

support a fee award under the corporate benefit doctrine, it would be inequitable to

grant their fee application. Accordingly, the application will be denied.

I.       BACKGROUND

         The background of this action is described extensively in the post-trial

decision issued on August 17, 2018 (the “Opinion”).1 This decision recites only

those facts directly relevant to plaintiffs’ fee application.2

         Plaintiffs are two former stockholders of the Company. In December 2014,

plaintiffs filed this action against DWR’s controlling stockholder—a group of

investment funds known as Glenhill—and the directors of DWR who approved

Herman Miller’s acquisition of the Company, which closed in July 2014. In

simplified terms, the transaction was structured so that Herman Miller would acquire

over 90% of the Company’s shares in a stock purchase and a share exchange, and

then acquire the remainder of the shares in a short-form merger effectuated under 8

1
    See Almond v. Glenhill Advisors LLC, 2018 WL 3954733 (Del. Ch. Aug. 17, 2018).
2
    Capitalized terms not defined herein have the meaning given to them in the Opinion.
                                              2
Del. C. § 253. Plaintiffs’ shares of DWR were acquired in the Merger. The total

equity value of the transaction was approximately $170 million.

         In their initial Complaint, plaintiffs challenged a number of transactions

preceding the Merger that allegedly reduced their percentage ownership of the

Company improperly and deprived them of a greater share of the Merger

consideration. One of those challenges concerned Glenhill’s conversion of shares

of Series A preferred stock into shares of common stock in October 2013. According

to plaintiffs, this conversion was wrongful because Glenhill purported to convert

more shares of Series A preferred stock than were authorized at the time and thus

received more shares of common stock than it was entitled to receive.3 The initial

Complaint did not assert, however, that the Merger was invalid.             Plaintiffs

subsequently amended their initial Complaint four times but they never challenged

the fairness of the Merger consideration.

         In their Second Amended Complaint, filed in November 2015, plaintiffs

added Herman Miller as a defendant and asserted for the first time that the Merger

was void as a result of defects concerning (i) the implementation of a 50-to-1 reverse

stock split in 2010 of both the Company’s common stock and its Series A preferred

stock (the “Reverse Stock Splits”) and (ii) the conversion in 2013 of the Series A

3
    See Verified Complaint ¶¶ 56-58 (Dkt. 1).
                                                3
preferred stock and of a convertible note into shares of common stock (the “2013

Conversions”). As explained in the Opinion, unknown to anyone at the time, the

Reverse Stock Splits were implemented in a defective manner that had the effect of

diluting the number of shares of common stock into which the Series A preferred

stock could be converted by a factor of 2500-to-1 instead of the plainly intended

result of a 50-to-1 adjustment. According to plaintiffs, because of the defects

identified in the Second Amended Complaint, Herman Miller had acquired “far less

than 90% of DWR’s shares validly issued and outstanding at the time of the Merger,”

which meant that “the Merger was not properly effected” as a short-form merger

under 8 Del. C. § 253 and was therefore invalid.4

        In February 2016, after the filing of the Second Amended Complaint, Herman

Miller took action under 8 Del. C. § 204 to ratify certain defective corporate acts and

putative stock relating to the Reverse Stock Splits and 2013 Conversions. Herman

Miller then filed a counterclaim asking the court to validate seven defective

corporate acts (the “Defective Acts”) under 8 Del. C. § 205. In July 2016, Herman

Miller moved for summary judgment on its counterclaim, which plaintiffs opposed.

Given the technical nature of the Defective Acts and the need for context concerning

the implementation of the underlying transactions, the court denied the motion for

4
    Second Amended Complaint ¶¶ 96-104, 112 (Dkt. 61).
                                           4
summary judgment so that a full factual record could be developed before

adjudicating the request for judicial validation under Section 205.5

         In August 2017, a few months before trial, plaintiffs filed their Fourth

Amended Complaint, which asserted twelve claims, including a newly added claim

for aiding and abetting against Herman Miller. Three of the twelve claims proceeded

from the premise that defendants unlawfully benefited from, or converted to their

own benefit, a greater percentage of the Company’s equity in connection with the

Merger as a result of the Defective Acts.

         In connection with the trial, plaintiffs dropped their opposition to judicial

validation of five of the Defective Acts. Plaintiffs continued to oppose, however,

validation of two of the Defective Acts that were at the heart of the double dilution

mistake arising from the Reverse Stock Splits. In other words, plaintiffs continued

to oppose Herman Miller’s efforts to ensure that the Reverse Stock Splits achieved

their intended result of reducing by a factor of 50-to-1 the number of shares of

common stock into which the Series A preferred stock could be converted instead of

a 2500-to-1 adjustment.

         In August 2018, the court issued the Opinion and entered judgment in favor

of defendants on all twelve of plaintiffs’ claims and in favor of Herman Miller on its

5
    See Tr. 97-101 (Jan. 31, 2017) (Dkt. 225).
                                                 5
counterclaim under Section 205. Relevant to the counterclaim, the court found that

there was “zero evidence in the record that anyone involved intended for the Reverse

Stock Splits to cause . . . double dilution” and that “all of the equitable considerations

identified in Section 205 overwhelmingly favor judicial validation” of all the

Defective Acts.6 The court further commented that “plaintiffs’ selective opposition

to validation of the [Defective Acts] . . . (i.e., not opposing validation of the Reverse

Stock Splits but opposing validation of the issuances to preserve the double dilution

problem) betrays an intention to obtain a windfall for themselves in this litigation.”7

          On November 2, 2018, plaintiffs filed a motion for an award of attorneys’ fees

and expenses in the amount of $1.5 million (the “Motion”).

II.       THE PARTIES’ CONTENTIONS

          Plaintiffs argue that they are entitled to a fee award under the corporate benefit

doctrine because they “identified what Herman Miller’s high-priced due diligence

team had missed: the seven defective corporate acts” that were judicially validated

in the Opinion under Section 205.8 According to plaintiffs, “[t]hat validation

legitimized the Merger for DWR” and “thereby conferred a substantial corporate

benefit on DWR and Herman Miller.”9

6
    Almond, 2018 WL 3954733, at *1, *17.
7
    Id. at *21.
8
    Mot. ¶ 2 (Dkt. 390).
9
    Id. ¶ 3.
                                              6
         The many lawyers representing plaintiffs in this action were compensated at

their standard hourly rates and did not work on a contingent basis.10 Plaintiffs assert

that their counsel’s discovery of defective corporate acts came “at Plaintiffs’

considerable expense”11 but the affidavits submitted by their counsel, which

catalogue a wide variety of issues and tasks counsel performed,12 make no effort to

estimate the amount of time devoted to identifying the defective corporate acts

alleged in their original Complaint or the Second Amended Complaint.13

         Plaintiffs note in the Motion that, for purposes of their fee application, they

“accept the Opinion’s rejection of their claims challenging the effectiveness of

DWR’s ratification of the defective corporate acts and of the Merger” but that they

“reserve the right to appeal the Court’s holdings reflected in the Opinion to the

Delaware Supreme Court.”14

         Defendants do not argue that plaintiffs’ fee application fails to satisfy the basic

elements of the corporate benefit doctrine.              Defendants instead oppose the

10
  Brown Aff. ¶ 2; Ladig Aff. ¶ 4; Ledley Aff. ¶ 4; Monhait Aff. ¶ 4; Watnik Aff. ¶ 2 (Dkt.
390).
11
     Mot. ¶ 2.
12
     Brown Aff. ¶¶ 3, 8; Ladig Aff. ¶ 2; Ledley Aff. ¶ 2; Monhait Aff. ¶ 2; Watnik Aff. ¶¶ 3,
9.
13
  See Brown Aff.; Ladig Aff.; Ledley Aff.; Monhait Aff.; Watnik Aff. In total, plaintiffs
incurred approximately $5 million in attorneys’ fees and $148,000 of expenses. Brown
Aff. ¶¶ 4, 10, 11; Ladig Aff. ¶¶ 5, 7, 9, 11; Ledley Aff. ¶¶ 5, 7; Monhait Aff. ¶¶ 5, 7; Watnik
Aff. ¶¶ 4, 5, 11, 12.
14
     Mot. ¶ 3 n.5.
                                               7
application on essentially two grounds. First, defendants argue that it would be

inequitable to grant the application because plaintiffs “endeavored to prevent” rather

than confer a benefit on DWR.15 Second, defendants argue that plaintiffs did not

confer a “net benefit” on DWR or Herman Miller because plaintiffs “subjected DWR

to a trial on the defective capital structure allegations that they now claim to have

saved DWR from—and lost.”16

          Although defendants contend that prevailing in this action “came at great cost

to DWR and Herman Miller,” they—like plaintiffs—do not quantify the amount of

expenses they incurred in connection with any particular part of this litigation,

including the effort devoted to obtaining judicial validation of the Defective Acts,

and they provide no supporting documentation concerning any of the expenses they

incurred.17 Finally, defendants contend that the amount of plaintiffs’ fee request is

excessive and that, if any award were to be granted, $15,000 would be adequate to

compensate plaintiffs fairly.

III.      ANALYSIS

          As our Supreme Court has observed, “litigants in Delaware are generally

responsible for paying their own counsel fees, absent special circumstances or a

15
     Defs.’ Opp’n Br. ¶ 14.
16
     Id. ¶ 20.
17
     Id. ¶ 22.
                                             8
contractual or statutory right to receive fees.”18 One special circumstance is that this

court “may order the payment of counsel fees and related expenses to a plaintiff

whose efforts result in the creation of a common fund . . . or the conferring of a

corporate benefit.”19 The power to award fees in this circumstance “is a flexible one

based on the historic power of the Court of Chancery to do equity in particular

situations.”20

         Under the corporate benefit doctrine, a litigant may receive an award of

attorneys’ fees if “(a) the action was meritorious at the time it was filed, (b) an

ascertainable group received a substantial benefit, and (c) a causal connection

existed between the litigation and the benefit.”21 Plaintiffs assert that each of these

elements has been satisfied here. Defendants do not contend otherwise. The court

agrees with plaintiffs that they have satisfied each of these elements.

18
  Scion Breckenridge Managing Member, LLC v. ASB Allegiance Real Estate Fund, 68
A.3d 665, 686 (Del. 2013) (internal quotation marks omitted).
19
     Tandycrafts, Inc. v. Initio P’rs, 562 A.2d 1162, 1164 (Del. 1989).
20
  Id. at 1166; see also Maurer v. Int’l Re-Ins. Corp., 95 A.2d 827, 831 (Del. 1953) (“[T]he
foundation for the historic practice of granting reimbursement for the costs of litigation
other than the conventional taxable costs is part of the original authority of the Chancellor
to do equity in a particular situation.”) (quoting Sprague v. Ticonic Nat’l Bank, 307 U.S.
161, 166 (1939)).
21
  Dover Historical Soc’y, Inc. v. City of Dover Planning Comm’n, 902 A.2d 1084, 1089
(Del. 2006). The Supreme Court in Dover Historical Society referred to a “common
benefit” instead of a “corporate benefit.” I view these phrases to be interchangeable.
                                               9
         “[F]or a suit to be considered meritorious when filed, the complaint must have

been able to have survived a motion to dismiss, whether or not such a motion was

filed.”22     Plaintiffs’ original Complaint and, more importantly, their Second

Amended Complaint identified many (but not all) of the Defective Acts for which

Herman Miller sought judicial validation under Section 205. In particular, the

Second Amended Complaint identified defective corporate acts relating to the

implementation of the Reverse Stock Splits, which caused the double dilution

mistake that imperiled the validity of the Merger. In the Opinion, the court entered

judgment in Herman Miller’s favor, granting in full the judicial validation it sought.

Thus, the aspects of plaintiffs’ pleadings asserting claims based on defective

corporate acts that were judicially validated in the Opinion were meritorious when

filed.

         With respect to the element of causation, Delaware law presumes that a

plaintiff’s action caused the benefit when a corporate defendant “takes action that

renders the claims asserted in the complaint moot” and imposes on the corporation

“the burden of persuasion to show that no causal connection existed between the

initiation of the suit and any later benefit to the shareholders.”23 Defendants made

 BTZ, Inc. v. Nat’l Intergroup, Inc., 1993 WL 133211, at *2 (Del. Ch. Apr. 7, 1993) (citing
22

Chrysler Corp. v. Dann, 223 A.2d 384, 387 (Del. 1966)).
23
     United Vanguard Fund, Inc. v. TakeCare, Inc., 693 A.2d 1076, 1080 (Del. 1997).
                                            10
no effort to rebut the presumption of causation, and for good reason. The trial record

reflects that, notwithstanding the extensive due diligence it undertook before

acquiring the Company, Herman Miller (i) was unaware of any of the Defective Acts

plaintiffs identified until it saw them in plaintiffs’ pleadings and (ii) took action to

ratify and seek judicial validation of them only after plaintiffs filed their Second

Amended Complaint.24

         Finally, plaintiffs argue that DWR and Herman Miller received a corporate

benefit as a result of judicial validation of the Defective Acts they identified because

“[t]hat validation legitimized the Merger.”25 The court agrees with this statement as

far as it goes.26 Judicial validation of the Defective Acts, particularly those relating

to implementation of the Reverse Stock Splits, ensured that Herman Miller had

acquired over 90% of DWR’s stock before the Merger so that it could utilize a short-

form merger under 8 Del. C. § 253 to acquire the balance of the Company’s shares.

In other words, the relief Herman Miller obtained under Section 205 removed a

cloud hovering over the validity of the Merger and thus its ownership of DWR.

         This court has granted awards of attorneys’ fees under the corporate benefit

24
     See Almond, 2018 WL 3954733, at *13-14.
25
     Mot. ¶ 3.
26
  As discussed below, what this statement omits, and what is relevant to the overall equities
of plaintiffs’ fee application, is that plaintiffs steadfastly opposed Herman Miller’s request
for judicial validation.
                                             11
doctrine to stockholders on a number of occasions where corporations have taken

actions to remedy defects in their capital structures, including through the use of

Section 205, in response to a stockholder’s identification of the defects. 27 But the

granting of a fee award is not automatic just because the three basic elements of the

corporate benefit doctrine have been satisfied. As this court explained in In re

Orchard Enterprises, Inc. Stockholder Litigation, satisfying those elements is

“necessary but not sufficient” to obtain a fee award.28 This is because the corporate

benefit doctrine is rooted in the application of equitable principles,29 and there are

27
   See In re Xencor, Inc., C.A. No. 10742-CB, at 4-5, 52-54 (Del. Ch. Dec. 10, 2015)
(TRANSCRIPT) (awarding $950,000 for settlement of class-action claim challenging
validity of recapitalization transactions and certificate amendments judicially validated
under Section 205); In re Colfax Corp., C.A. No. 10447-VCL, at 3-4, 36 (Del. Ch. Apr. 2,
2015) (TRANSCRIPT) (awarding counsel for derivative plaintiffs $375,000 for claim
involving violation of certificate of designations that was mooted by judicial validation
under Section 205); In re Cheniere Energy, Inc., C.A. No. 9710-VCL, at 10, 98, 104 (Del.
Ch. Mar. 16, 2015) (TRANSCRIPT) (awarding counsel for class and derivative plaintiffs
$1 million for settlement of claim challenging approval of share issuance that was judicially
validated under Section 205); Olson v. ev3, Inc., 2011 WL 704409, at *6-8, *15 (Del. Ch.
Feb. 21, 2011) (awarding $1 million to plaintiff’s counsel for settlement of claims
challenging statutory validity of top-up options that were resolved by amending merger
agreement). In each of these four cases, which were featured in plaintiffs’ briefs, counsel
worked on a contingent basis. Recently, the court awarded a fee to a party that identified
defective corporate acts that were judicially validated where counsel worked on a non-
contingent basis. See Cirillo Family Tr. v. Moezinia, C.A. No. 10116-CB, at 32-43 (Del.
Ch. Feb. 19, 2019) (TRANSCRIPT) (awarding plaintiff $70,000 for identifying defects in
written consents).
28
     2014 WL 4181912, at *3 (Del. Ch. Aug. 22, 2014).
29
   See Tandycrafts, 562 A.2d at 1166 (“The standard which governs the allowance of
counsel fees in equity is not inclusive of all occasions when such fees may be sought. The
concept is a flexible one based on the historic power of the Court of Chancery to do equity
in particular situations.”).
                                             12
circumstances where it would be inappropriate or inequitable to award attorneys’

fees even when the basic elements of the doctrine ostensibly have been satisfied.

          In Orchard, for example, the court denied a fee request by appraisal claimants

who contributed to the settlement of later-filed fiduciary duty claims brought by

other stockholders at a price higher than the appraisal claimants achieved at trial.

The court reasoned that the appraisal claimants’ “counsel lack standing to obtain a

fee award” because they “chose not to represent a class” or “to attempt to extend the

benefits of their efforts to other stockholders,” and “did not need the incentive of a

potential fee award to induce them to litigate the fair value of the common stock.”30

In reaching its conclusion, the court analyzed two groups of cases to demonstrate

that “[n]ot everyone who contributes to a benefit gets a fee award.”31

          The first group concerned hostile bidders who pursue breach of fiduciary duty

litigation against directors of the target corporation.32 The Orchard court observed

that “[e]ven when the bidder’s litigation generates relief that contributes causally to

the sale of the target corporation to a third party at a premium, thereby meeting the

30
     2014 WL 4181912, at *13.
31
     Id. at *9.
32
  See Mentor Graphics Corp. v. Quickturn Design Sys., Inc., 789 A.2d 1216, 1217 (Del.
Ch. 2001) (denying fee award to hostile bidder whose efforts otherwise met requirements
for fee award under corporate benefit doctrine), aff’d sub nom. Mentor Graphics Corp. v.
Shapiro, 818 A.2d 959 (Del. 2003); In re Dunkin’ Donuts S’holders Litig., 1990 WL
189120, at *1 (Del. Ch. Nov. 27, 1990) (same).
                                            13
requirements for a fee award, the bidder lacks standing to recover its legal fees under

a common fund or benefit theory.”33 This result is the product of “two factors that

override the bidder’s prima facie showing of entitlement to a fee award: (i) the

bidder’s pursuit of personal interests potentially at odds with those of the class [i.e.,

the bidder’s desire to pay as little as possible for the target corporation whose shares

are held by the class], and (ii) the absence of any need to incent a bidder to bring

litigation to police fiduciary misconduct.”34

          The second group of cases involved litigants who had made choices to pursue

“personal agendas at odds with the interests of other stockholders.”35 In two of these

cases, the court found that stockholder plaintiffs lacked standing to pursue claims

against directors for breach of the duty of disclosure because the stockholders could

not be said to have relied on the disclosures at issue.36 In the third case, which is

33
     2014 WL 4181912, at *9.
34
     Id. at *10.
35
     Id. at *11.
36
   See In re Aristotle Corp., 2012 WL 70654, at *3 (Del. Ch. Jan. 10, 2012) (stockholder
who pursued appraisal claim after short-form merger lacked standing to pursue breach of
fiduciary duty claim against controlling stockholder for failure to disclose all material facts
in connection with short-form merger because “the alleged disclosure inadequacies did not
in any way impair the petitioners’ ability to seek appraisal”); Andra v. Blount, 772 A.2d
183, 188-90 (Del. Ch. 2000) (stockholder who (i) abandoned motion for preliminary
injunction to challenge disclosures made in a first-step tender offer, (ii) declined to tender
her shares, and (iii) was merged out in a short-form merger, could pursue claim for unfair
dealing but lacked standing to pursue claim for breach of the duty of disclosure because
she had not been injured by any alleged disclosure violations).
                                              14
discussed in greater detail below, the Delaware Supreme Court found that a

stockholder’s abandonment of his claim after trial undermined any entitlement to a

fee award.37 Synthesizing these cases, the Orchard court explained that:

          a court of equity can deny a plaintiff standing to receive a fee award,
          regardless of whether the plaintiff otherwise can establish a prima facie
          case supporting an award, if the plaintiff has proceeded in a manner
          designed to benefit the plaintiff individually—rather than the class as a
          whole—and any benefit achieved for the class has happened as an
          incidental by-product of the plaintiff’s self-interested pursuit.38

          One of the cases addressed in Orchard that warrants further discussion is our

Supreme Court’s decision in Crothall v. Zimmerman.39 In that case, a unitholder

(Robert Zimmerman) of a limited liability company filed a derivative suit

challenging “certain financing transactions and associated unit issuances.”40 After

trial, the Court of Chancery rejected “Zimmerman’s substantive claims that the unit

issuances were in any way unfair” to the company, but found that they violated the

company’s operating agreement and awarded one dollar of nominal damages

because the breach “caused no damage.”41

37
     Crothall v. Zimmerman, 94 A.3d 733, 736-37 (Del. 2014).
38
     2014 WL 4181912, at *12.
39
     94 A.3d 733.
40
     Id. at 734.
41
     Id. at 734-35.
                                             15
          Before the parties reached an agreement about the form of final judgment,

Zimmerman decided to abandon his lawsuit and sold his units, which deprived him

of standing to continue as a derivative plaintiff. Defendants thereafter filed a motion

to dismiss the case, which the trial court granted. Undeterred by these developments,

plaintiff’s counsel sought leave to intervene in the case in order to pursue an

application for attorney’s fees for creating a corporate benefit. The trial court

permitted intervention and awarded Zimmerman’s former counsel $300,000 in

attorney’s fees.

          On appeal, the Supreme Court reversed, holding that “no corporate benefit has

been created in this case because any benefit that might have been created by

continuing this suit to a final, appealable judgment disappeared when Zimmerman

abandoned the lawsuit.”42 Although the Supreme Court ultimately did not reach the

issue, Chief Justice Strine, writing for the high court, intimated that the trial court

also should have considered whether plaintiff’s efforts had created a “net benefit” to

the company:

          The fee award also failed to consider whether a net benefit that would
          justify the support of any award of attorney’s fees had actually been
          produced by Zimmerman’s former counsel—given that the former
          plaintiff had lost on most of his claims and had cost the company great
          expense and time defending those meritless claims.43

42
     Id. at 738.
43
     Id. at 736.
                                            16
As defendants point out, these words echo those of then-Chancellor Allen who

commented in dictum almost two decades earlier: “I cannot imagine why an inquiry

into net benefit of the litigation to the corporation would not be a sound technique

for judging the equity of fee shifting in a case where defendants prevail on the most

central issues . . . .”44

       None of the cases discussed above is directly on point with this case. The

equitable considerations animating those decisions, however, convince me that the

plaintiffs’ fee application should be denied. Three interrelated factors support this

conclusion.

       First, as in Orchard, the plaintiffs here did not pursue any claims on behalf of

a class and did not seek to extend the benefits of their efforts to any other

stockholders of DWR in any meaningful sense.45 To be sure, individual stockholders

have standing to seek an award of attorneys’ fees under the corporate benefit doctrine

44
  Thorpe v. CERBCO, Inc., 1997 WL 67833, at *2 n.1 (Del. Ch. Feb. 6, 1997), aff’d, 703
A.2d 645 (Del. 1997) (TABLE).
45
   Plaintiffs note that one of them (Franklin) “brought in several assignors to share in the
recovery.” Pls.’ Reply Br. 5 n.4. The terms of the various assignments, however, reflect
that the proceeds for the assignors’ shares first would be used to reimburse Franklin for all
of his legal expenses and that 60-75% of the net proceeds would then have gone to Franklin.
See JX 463 at 1, 2 (entitling Franklin to 75% of the defined share of the proceeds after
deducting Franklin’s legal expenses); JX 467 at 16, 18 (same but entitling Franklin to about
65% of the proceeds after expenses); JX 476 at 1, 3 (same but entitling Franklin to 60% of
the proceeds after expenses).
                                             17
as a general matter.46     But the decision plaintiffs made here to refrain from

representing the interests of similarly situated stockholders of DWR suggests that

these plaintiffs—who paid their counsel on a non-contingent basis—needed no

additional incentive to pursue this litigation because their motivation was to serve

their personal interests and not the interests of DWR or any of its other stockholders.

      Second, and most importantly, it would be inequitable in my opinion to reward

plaintiffs for “conferring” a benefit they have fought to prevent throughout this

litigation. As explained above, rather than choosing to work constructively with

defendants once Herman Miller sought judicial validation of the Defective Acts in

order to promptly correct what should have been obvious to plaintiffs to be a series

of technical mistakes, plaintiffs chose a path of opposition. Specifically, plaintiffs

opposed Herman Miller’s motion for summary judgment on its counterclaim for

judicial validation, continued at trial to oppose judicial validation of the Defective

Acts central to remedying the double dilution mistake underlying the Reverse Stock

Splits, and even now have held open the prospect of further litigation over the

Defective Acts on appeal.

      As explained in the Opinion, given the lack of any evidence—as well as any

rational reason—to support the notion that the Reverse Stock Splits were intended

46
   See Tandycrafts, 562 A.2d at 1164-67 (holding that an individual stockholder had
standing to seek an award of attorneys’ fees for conferring a benefit upon the corporation
or its stockholders).
                                           18
to reduce the number of shares of common stock into which the Series A preferred

stock could be converted by a factor of 2500-to-1 (i.e., 98% dilution) instead of 50-

to-1, plaintiffs’ steadfast opposition to remedying the double dilution mistake for

which they now seek to take credit betrays their intention to obtain an inequitable

windfall for themselves.       I decline to reward these actions with an award of

attorneys’ fees under the guise of the “historic power of the Court of Chancery to do

equity in particular situations.”47

         Third, and unsurprisingly, plaintiffs have identified no precedent in which this

court has awarded attorneys’ fees in similar circumstances. Each of the four

precedents on which plaintiffs rely involved the settlement or mooting of claims

concerning defective corporate acts, where the corporations obtained the remedial

benefits quickly, consensually, and without being forced to engage in protracted

litigation.48 In other words, each of these precedents involved pursuit of the path

plaintiffs chose to eschew, i.e., to work cooperatively to correct technical defects in

a prompt and efficient manner. Here, by contrast, the path of vigorous opposition

plaintiffs chose unnecessarily caused delay in reaching a resolution and imposed

significant costs on defendants that were entirely avoidable.49

47
     Id. at 1166.
48
     See supra note 27.
49
  The record before the court is too undeveloped and fluid to conduct a “net benefit”
analysis along the lines suggested in Crothall v. Zimmerman. As noted above, plaintiffs
                                            19
       In sum, based on the factors discussed above, in particular plaintiffs’ steadfast

opposition to curing all of the Defective Acts in order to pursue an inequitable

windfall for themselves, the court declines to exercise its equitable discretion to

award attorneys’ fees to plaintiffs in this case.

IV.    CONCLUSION

       For the reasons explained above, plaintiffs’ Motion is denied.                      An

implementing order that constitutes the final order in this action accompanies this

decision.

made no effort to estimate the portion of the legal fees they incurred in identifying any of
the Defective Acts. See PaineWebber R & D P’rs II, L.P. v. Centocor, Inc., 2000 WL
130632, at *5 (Del. Ch. Jan. 31, 2000) (objector that contributed to the creation of a benefit
for the class was only entitled to reimbursement of “its hourly rate payments to its counsel”
and was not entitled to any enhancement because counsel did not take the case on a
contingent basis and thus “incurred no risk”). Defendants also did not attempt to estimate
the amount of fees they incurred by being forced to go to trial to obtain Section 205 relief.
Finally, plaintiffs expressly have reserved the right to appeal the court’s Section 205 ruling,
which would result in the incurrence of additional fees that may need to be taken into
account.
                                              20