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Court of Chancery Awards Attorneys' Fees Only for Work Devoted to Meritorious Claims

In re Triarc Companies, Inc. S'holders Litig., C.A. No. 16700, 2006 WL 903338 (Del. Ch. Mar. 29, 2006). After the voluntary dismissal of a class action, plaintiffs petitioned the Court of Chancery for attorneys' fees and expenses. The court found that plaintiffs' counsel was entitled to fees for the preparation of the amended complaint and litigation efforts undertaken before the action that caused the voluntary dismissal. Plaintiffs' counsel was not entitled to fees for their work in connection with the original complaint nor for their work performed after the claims in the amended complaint were mooted.

Plaintiff shareholders originally filed a class action with respect to Triarc's going-private for $18 per share. A special committee of the Triarc board decided not to recommend the transaction at that price level. The company withdrew the offer and also announced that the board had approved an auction tender offer, which closed at $18.25 per share. In their amended complaint, plaintiffs challenged the adequacy of the disclosures contained in the tender offer because the defendants failed to disclose that the special committee found the $18 per share going-private offer to be inadequate. Shortly thereafter, Triarc supplemented its tender offer materials informing the shareholders of the special committee's decision. Plaintiffs argued that they were entitled to fees and expenses for their efforts causing Triarc to amend its materials to disclose the material fact of the special committee decision. Under Delaware law, when litigation results "in benefit to all members of a class, the successful litigant is entitled to an allowance for counsel fees to be paid from the fund or property which his efforts created." The court concluded that the plaintiffs were entitled to recover from the corporation for a benefit conferred generally on the non-controlling shareholders. The court found that the amended complaint was meritorious when filed and that when Triarc amended its disclosures rendering this suit moot, a benefit was conferred on Triarc and its shareholders. Plaintiffs' counsel was only entitled to recover fees for the preparation of the amended complaint and their litigation efforts undertaken before the release of the corrective disclosures. Plaintiffs' counsel was not entitled to recover fees for their work in connection with the original complaint concerning the abandoned going-private proposal. Nor could plaintiffs' counsel recover fees for work performed after the defendants' corrective disclosure was made, since that disclosure mooted the claims in the amended complaint. Any work done after that disclosure was devoted to non-meritorious claims, and thus fees were not recoverable. Authored by: Fotini Antonia Skouvakis 302.888.5202 fskouvakis@morrisjames.com