Justia.com Opinion Summary: Plaintiff brought this lawsuit to challenge the approximately $42.5 million acquisition of American Surgical Holdings, Inc. (American Surgical) by AH Holdings, Inc. Now before the court was plaintiff's interim application for an award of attorneys' fees and expenses where plaintiff contended that an award of $450,000 was appropriate under Delaware law and would compensate his attorneys for bringing this action, which he argued resulted in American Surgical's corrective disclosures in its definitive proxy statement. The court denied plaintiff's Interim Application for an Award of Attorneys' Fees and Expenses as it was premature where the amount of $450,000 was interim in nature because plaintiff's price and process claims remained viable. The court held that it would reconsider the application once plaintiff's remaining claims have been litigated.
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EFiled: Jul 28 2011 1:54PM EDT
Transaction ID 38964791
Case No. 6120-VCN
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
JOHN W. NOBLE
VICE CHANCELLOR
417 SOUTH STATE STREET
DOVER, DELAWARE 19901
TELEPHONE: (302) 739-4397
FACSIMILE: (302) 739-6179
July 28, 2011
Jessica Zeldin, Esquire
Rosenthal, Monhait & Goddess, P.A.
919 Market Street, Suite 1401
Wilmington, DE 19801
Kenneth J. Nachbar, Esquire
Morris, Nichols, Arsht & Tunnell LLP
1201 North Market Street
Wilmington, DE 19801
Steven L. Caponi, Esquire
Blank Rome LLP
1201 Market Street, Suite 800
Wilmington, DE 19801
Re:
Frank v. Elgamal
C.A. No. 6120-VCN
Date Submitted: May 9, 2011
Dear Counsel:
Richard Frank
approximately
$42.5 million acquis
an affiliate of Great Point
Partners I, L.P.
. Now before the Court is his interim application for
Frank v. Elgamal
C.A. No. 6120-VCN
July 28, 2011
Page 2
s and expenses
$450,000.
, which seeks
Frank contends that an award in that amount is appropriate under
Delaware law and would compensate his attorneys for bringing this action, which he
argues resulted in
corrective disclosures in its definitive proxy
statement.
by the
Court in the post-merger context. For the reasons set forth below, the Court will
defer ruling on the Application because it is premature.
I. BACKGROUND
Frank has been at all relevant times an owner of American Surgical common
stock. The Company is a Delaware corporation that, through its wholly owned
subsidiary American Surgical Assistants, Inc., provides surgical assistant staffing
services. Other defendants in this action include
directors,1 and certain American Surgical employees who purportedly exchanged a
portion of their stock in the Company for equity in the surviving entity
1
Olmo-
-
post-
Frank v. Elgamal
C.A. No. 6120-VCN
July 28, 2011
Page 3
merger parent company.2 Great Point is a private equity fund that is affiliated with
Great Point Partners. It formed Holdings for the sole purpose of effectuating the
merger with American Surgical.
The transaction at issue in
20
arose out of a December 20,
. Before then,
atives for the
Company.
For that reason, in August 2009, the directors approved creating a
mergers and acquisitions committee
of the
and the engagement
as a financial advisor. Subsequently, in December
2009, a special committee comprised of independent directors was formed (the
er decision to engage Polaris, retained its
to Polaris to
conduct a broad solicitation of the market regarding potential business
2
The complaint alleged that this form of merger consideration differs from that provided to all
other American Surgical shareholders, who received only cash for their shares of common stock.
These defendants include Elgamal and Olmo-Rivas, along with Bland E. Chamberlain III and Jose
Chapa, Jr. both of whom had been employed as surgical assistants by the Company. The
complaint further alleges that these sovoting agreements, to vote their collective 64% stake in the Company in favor of the transaction
with Great Point.
Frank v. Elgamal
C.A. No. 6120-VCN
July 28, 2011
Page 4
combinations. Those solicitation efforts were conducted from August 2009 through
December 2009.
After various rounds of information sharing involving many strategic and
financial entities, four parties emerged as having a continued interest in discussing a
possible transaction. Representatives from American Surgical met with personnel
from those four entities from September through November 2009. Thereafter, each
of the four interested parties submitted non-binding written proposals; three of the
entities
including Great Point
submitted proposals that were structured in
requirements. Revised offers either in
the form of a letter of intent or an indication of interest
were later submitted by
those three entities, and the Special Committee deliberated on them before
authorizing negotiations to commence with the three potential acquirors.
With its discussions ongoing with other bidders, American Surgical began
lengthy negotiations with Great Point.
Through that dialogue, the Special
posal represented the most favorable
transaction
excluding the Rollover Defendants,
whose interests differed because of their continuing post-merger equity stake. The
Frank v. Elgamal
C.A. No. 6120-VCN
July 28, 2011
Page 5
Special Committee subsequently retained a separate financial advisor
Frazier Barker Elliott, Inc.
Howard
to render a fairness opinion with respect to a possible
transaction with Great Point.
After months of additional negotiations between the Company and Great
Point, the Merger Agreement was executed in December 2010. That agreement
provides that
shareholders were to receive $2.87 per share in
cash and a final cash dividend payable by American Surgical
a dividend of $0.02
per share was later issued on March 23, 2011.
The Company filed its preliminary proxy statement on January 4, 2011. Soon
thereafter, the Plaintiff filed this action alleging breaches of fiduciary duty, unfair
price and process, inadequate disclosures, and aiding and abetting by Great Point
and its affiliates. On January 14th, Frank moved for expedited proceedings and a
preliminary injunction. American Surgical subsequently filed its definitive proxy
statement on January 21st, which contained supplemental disclosures that
s.
For that reason, Frank
withdrew his motions for expedited proceedings and for a preliminary injunction on
January 24th.
Frank v. Elgamal
C.A. No. 6120-VCN
July 28, 2011
Page 6
transaction with Great Point at a February 23rd meeting, and the merger closed on
March 23rd.
II. DISCUSSION
disclosure claims, his price and process claims remain viable. As a result, the
450,000 is interim
in nature. For that reason, the Court must determine at the outset whether the timing
of the Application is appropriate, or whether it must be denied as premature.
Under the American Rule, litigants normally bear the burden of paying their
o
.3 Nevertheless, Delaware recognizes certain well-
established exceptions to that rule.4 The Application invokes the corporate benefit
doctrine, an exception to the American Rule, under which
payment of counsel fees and related expenses to a plaintiff whose efforts result
in . . .
3
5
Notably, the litigation need not
Goodrich v. E.F. Hutton Group, Inc., 681 A.2d 1039, 1043-44 (Del. 1996).
See, e.g., id. at 1044; In re Dunkin Donuts
, 1990 WL 189120, at *3 (Del. Ch.
Nov. 27, 1990).
5
Tandycrafts, Inc. v. Initio Partners, 562 A.2d 1162, 1164 (Del. 1989) (citing Chrysler Corp. v.
Dann, 223 A.2d 384, 386 (Del. 1966)).
4
Frank v. Elgamal
C.A. No. 6120-VCN
July 28, 2011
Page 7
achieve a pecuniary benefit under that exception; rather, a plaintiff may be entitled
to a fee award if the lawsuit produces a substantial benefit to the corporation or its
stockholders.6
Where a defendant corporation or board of directors moots a
.7 An
claims, as was the case in this instance,
award may be granted under those circumstances if (1) the suit was meritorious
when filed, (2) the action producing the corporate benefit was taken by the
defendant corporation before a judicial resolution, and (3) the resulting corporate
benefit was causally related to the lawsuit.8 In challenging a fee application in that
context, the defendant must demonstrate that no causal link exists between the
benefit produced and the filing of the
6
.9
Dover Historical Soc , Inc. v. City of Dover
n, 902 A.2d 1084, 1090 (Del.
2006); see also
Donuts
creati
Because the corporate benefit
a heightened level of corporate
disclosure, if attributable to the filing of a meritorious suit,
Tandycrafts, Inc., 562 A.2d at 1165 (citing Chrysler Corp., 223 A.2d at 386; Allied Artists
Pictures Corp. v. Baron, 413 A.2d 876, 878 (Del. 1980)).
7
Off v. Ross, 2009 WL 4725978, at *4 (Del. Ch. Dec. 10, 2009).
8
United Vanguard Fund, Inc. v. TakeCare, Inc., 693 A.2d 1076, 1079 (Del. 1997) (citing Allied
Artists, 413 A.2d at 878).
9
Id. at 1080.
Frank v. Elgamal
C.A. No. 6120-VCN
July 28, 2011
Page 8
The decision as to whether to award
fees is committed to the
discretion.10 Interim fee awards are generally disfavored.11 For that reason,
applications for attorney fees are often rejected if the litigation has not been
completed
12
The basis for disfavoring interim fee awards is th
udicial
economy and the orderly conduct of litigation are usually better served if interim
awards of attorneys fees are avoided . . .
13
Thus, absent exigent circumstances,
when a
lawsuit has concluded.14
interim fee awards may be
appropriate[,]
when the plaintiff has achieved the benefit sought by the
claim that has been mooted or settled and that benefit is not subject to reversal or
10
Donuts, 1990 WL 189120, at *3.
Emerald Partners v. Berlin, 1994 WL 48993, at *1 (Del. Ch. Feb. 4, 1994); see also In re Art
, C.A. No. 5955-VCL, at 3 (Del. Ch. May 16, 2011)
-Vice Chancellor Hartnett that say we
Kurz v. Holbrook,
C.A. No. 5019-VCL, at 3 (Del. Ch. July 19, 2010) (TRANSCRIPT) (awarding interim fees, but
, C.A. No. 4536VCS (Del. Ch. Dec. 18, 2009) (ORDER
11
12
Gans v. MDR Liquidating Corp., 1993 WL 193526, at *1 (Del. Ch. May 28, 1993).
Id.; see also
Ret. Sys. v. Citrix Sys., Inc., 2001 WL 1131364, at *3 (Del.
Ch. Sept. 19, 2001).
14
Emulex, C.A. No. 4536-VCS (Del. Ch. Dec. 18, 2009) (ORDER).
13
Frank v. Elgamal
C.A. No. 6120-VCN
July 28, 2011
Page 9
alteration as the remaining portion of the litigation proceeds.
15
Arguably, these
circumstances are present here because the corporate benefit claimed
disclosures
curative
was sought in the complaint and those claims were mooted by
American Surgical
that were published in the definitive
proxy statement. Nevertheless, even if a sufficient basis exists for the Court to make
the decision to entertain the application
remains at the discretion of the trial court.
16
Because the Court is not required to
consider an interim fee request, it may properly defer ruling on a fee application
until the conclusion of the litigation.17
Although Frank seems to assert correctly that his counsel is entitled to a fee
award because this action produced a corporate benefit when American Surgical
made supplemental disclosures mooting some of his claims, the Court need not
presently determine that issue. There are no exigent circumstances that counsel
against deferring a decision on the Application. Accordingly, the Court, in its
15
Citrix Sys., 2001 WL 1131364, at *4.
holders Litig., 2011 WL 2535256, at *7 (Del. Ch. June 27, 2011);
see also Art Tech. Group, C.A. No. 5955-VCL, at 3 (Del. Ch. May 16, 2011) (TRANSCRIPT)
16
17
Del Monte Foods, 2011 WL 2535256, at *7.
Frank v. Elgamal
C.A. No. 6120-VCN
July 28, 2011
Page 10
discretion, will wait to rule on the Application until
have been litigated.
claims
At that time, the Court will be able to make a single
determination as to what, if any, benefits have been achieved by this action, whether
the three-part test cited supra has been satisfied, and what total fee award is
appropriate based on that analysis. Processing fee applications will generally delay
the processing of the remaining substantive claims.
Moreover, piecemeal
applications presents added risk that
determination effort may generate even less confidence. That risk arises because
full appreciation of the benefits brought about by the Plaintiff s counsel can best
and perhaps only
be accurately achieved when the work is done and all the
benefits have been bestowed.18
18
This, of course, is not to say that the Court should never, in the exercise of its discretion, award
interim fees. For example, where extensive effort is required to achieve a milestone benefit, an
interim fee award would likely be appropriate. In most instances, however, efficiency concerns
steer the Court towards making a single fee determination at the conclusion of litigation. See Art
Tech. Group, C.A. No. 5955-VCL, at 4
them is the reason repeatedly cited by Vice Chancellor Hartnett, which is it makes sense to do
Emulex, C.A. No. 4536-VCS (Del. Ch. Dec. 18, 2009)
ome exigency, requests for
Frank v. Elgamal
C.A. No. 6120-VCN
July 28, 2011
Page 11
III. CONCLUSION
For the foregoing reasons,
Interim Application for an Award of
Attorneys Fees and Expenses is denied as premature. The Court will reconsider the
Application once
. An implementing
order will be entered.
Very truly yours,
/s/ John W. Noble
JWN/cap
cc: Register in Chancery-K
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