Delaware Business Litigation Report

Defendant Fails To Rebut Presumption Of Beneficial Causation For Merger Fee Award

In re Plains Resources Inc. Shareholders Litigation, C.A. No. 071-N, 2005 WL 332811 (Del. Ch. Feb. 04, 2005). This is an action for plaintiff's attorney fees following settlement of fiduciary duty-based shareholder class actions. This is a consolidated action pertaining to a special committee's refusal to endorse a higher merger offer. Vulcan Energy intended to acquire Plain Resources and made an offer that was rejected although two Plains directors would receive 11% share interest in the acquirer. Five putative class suits initiated by the target's shareholders followed, alleging breach of fiduciary duties. The target then appointed a special committee that later approved a $16.75 offer from Vulcan. It also rejected a third-party's $18.00 offer. Plaintiffs then filed the consolidated actions alleging breach of fiduciary duties by failure to investigate the higher offer. Vulcan counsel settled for $17.25. This was publicly announced, with over 54% of shareholders voting their approval. The plaintiffs' attorneys now sought fees. In permitting the fee claim, the court applied the seven-factor Sugerland Indus. v. Thomas, 420 A.2d 142 (Del. 1980) test. The court held that the defendants had not successfully rebutted the heavy burden of dislodging the presumption of causation of benefit to the shareholders by the plaintiffs' actions. Further, the court held that the plaintiffs' counsel had contributed to both increases: (1) from $14.25 to $16.75; and (2) significantly to the second increase, from $16.75 to $17.25. The court also awarded fees for the plaintiffs' efforts that successfully brought about material supplemental disclosures, as "material" is defined under the TCS Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) test. The court thus awarded a total amount of $1.1 million in fees. Authored by: Raj Srivatsan 302-888 6831 rsrivatsan@morrisjames.com Share