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Chancery Approves Reduced Fee Award for Derivative Settlement Based on Therapeutic Benefits

Sciabacucchi v. Howley, C.A. No. 2021-0938-LWW (Del. Ch. July 3, 2023)

A stockholder filed a derivative action alleging breach of fiduciary duty and unjust enrichment in connection with a board compensation committee’s decision to award compensation to directors. Months later, the parties reached a therapeutic settlement, including that dividend-equivalent payments to directors on their unexercised stock options would no longer be in cash; rather, they would be applied to reduce the options’ exercise price. The plaintiff valued the alleged benefit to the company at $23.8 million. In exchange for the therapeutic terms, the plaintiff released all claims. The plaintiff’s counsel sought a fee and expense award of $2.8 million, which the defendants agreed not to oppose.

The Court of Chancery approved the settlement but not the $2.8 million fee request. The Court noted that the litigation was “a ready-made settlement opportunity” that involved little risk, and that the requested fee would be a 4.6 multiplier on the actual fees billed by the plaintiff’s counsel. The Court explained that while a 4.6 multiplier has been deemed reasonable for cases that settle after substantial litigation, a multiplier that high was not appropriate for a case that settled right out of the gate. Finding inequitable a $2.8 million award, the Court approved an award of $1 million, which involved a multiplier of 1.65.

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