In re Orchard Enterprises, Inc. Stockholder Litigation, Consolidated C.A. No. 7840-VCL
By Scott Waxman and Porter Sesnon
On August 22, 2014, Vice Chancellor Laster approved a fee award for counsel to certain plaintiff-stockholders related to a settlement of a class action claim alleging breaches of fiduciary duties related to a freeze-out merger. The settlement amounted to $10.725 million. In the same opinion, V.C. Laster denied a fee award due to lack of standing to counsel for other stockholders in the same freeze-out merger, who separately litigated an appraisal claim, and which was relied upon by the successful class action plaintiffs.
In July 2010, The Orchard Enterprises, Inc. (“Orchard”) and Dimensional Associates, LLC (“Dimensional”), Orchard’s controlling stockholder, effected a merger whereby the shares of stock of Orchard not held by Dimensional were cashed out for $2.05 per share (the “Merger”). A small group of minority stockholders objected to the Merger, perfected their appraisal rights and successfully litigated an appraisal proceeding that resulted in a determination, in a separate proceeding, by Chief Justice Strine, that the fair market value of the shares was $4.67. Shortly thereafter, a different subset of the minority stockholders filed a lawsuit alleging breaches of fiduciary duties related to the freeze-out merger between Orchard and Dimensional.
The class action case settled before trial, but the stockholders who pursued the appraisal action objected and claimed they should be awarded their attorneys’ fees and costs because their efforts helped lead to the later settlement by the class action plaintiffs. While V.C. Laster found that the earlier appraisal plaintiffs did contribute to the eventual settlement by the class action plaintiffs, he denied their request for a fee award, “because they did not pursue a class-wide recovery on behalf of the other minority stockholders. They were content to serve themselves, and they should be left where they stand.”
After making a discretionary determination into the allocation of causal credit for the class action settlement between the two sets of plaintiffs, V.C. Laster awarded counsel for the class action plaintiffs fees of $2.25 million ($1 million less than was requested), which represented between 22% and 25% of the settlement fund. This award fell “comfortably” within a range consistent with Delaware precedent.