In November 2020, a class of investors, led by the Hollywood Firefighters' Pension Fund and Sheet Metal Workers' Local Union No. 80 Pension Trust Fund, sought injunctive relief regarding a corporate merger between GCI Liberty Incorporated and Liberty Broadband Corporation. The investors argued that the merger violated Section 203 of the Delaware General Corporation Law, which prohibits shareholders who own 15 percent or more of a corporation’s voting stock from engaging in a business combination with the corporation. At the time of the merger, two GCI managers held 5.7 percent equity ownership in GCI and 5.1 percent equity ownership in Broadband. This ownership, however, translated into approximately 35.3 percent voting control of GCI and 49.9 percent voting control of Broadband. In connection with the litigation, the parties agreed to a preliminary injunction stipulation (the PI Stipulation) that, among other things, decreased the “wedge” of disproportionate voting power held by the two GCI managers.
After securing a large settlement of other issues in the litigation and US$22 million in attorneys’ fees, the investors sought an additional US$22 million in attorneys’ fees for the alleged benefits conferred by the PI Stipulation. The defendants argued that the PI Stipulation provided only “some benefit” warranting a fee of US$1 million to US$2 million.
A court can award attorneys’ fees under the corporate benefit doctrine if an applicant shows that the suit was meritorious, that “the action producing benefit to the corporation was taken by the defendants before a judicial resolution was achieved,” and the lawsuit caused the benefit. The court determined that the PI Stipulation here met all three elements.
Finding an award of fees to be appropriate, the court next determined the value of the benefits associated with the PI Stipulation based on the five Sugarland factors: “(1) the results achieved; (2) the time and effort of counsel; (3) the relative complexities of the litigation; (4) any contingency factor; and (5) the standing and ability of counsel involved.” When determining a value for each benefit, the court looked to precedent rather than expert reports provided by the parties seeking to quantify the “wedge” reduction.
The court focused primarily on the first Sugarland factor in reaching its valuation. First, the court assigned the value of US$800,000 to additional disclosures, citing precedent that found similar disclosures to be worth US$800,000 to US$1 million. The court reasoned the value in this case was on the “low end of the scale” because the investors still viewed the revised disclosures as inadequate.
Second, with respect to the Section 203 issue, the court cited a past case in which the Chancery Court awarded US$3.85 million in fees for the resolution of Section 203 violations. Because that award also included fees for additional disclosures, the court here valued the benefit to the class of investors at US$3.05 million because additional disclosures had already been considered in its analysis.
Third, when valuing the reduction of the two GCI managers’ control, the court referred to a prior case that valued a reduction in voting power between US$5 million and US$10 million. The court concluded the reduction in the GCI managers’ voting control was worth US$5.5 million because, although it “prevented de jure control from being established,” it still left the two managers “in a position of soft control with respect to the combined company.”
Overall, and considering the remaining Sugarland factors, the court concluded that an attorneys’ fees award in the amount of US$9.35 million was an equitable award falling within the range of precedents.
Authored by Ryan M. Philp, Allison M. Wuertz, and Danielle Flanagan.