Frank v. Elgamal
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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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