Remember when Chancellor Leo Strine of Delaware Chancery Court
ruled last year that shareholders could not enjoin Alpha NaturalResources' $7 billion acquisition of Massey Energy? After a
full-blown preliminary injunction hearing, Strine concluded that
plaintiffs' lawyers at Grant & Eisenhofer, Bernstein Litowitz
Berger & Grossmann and Milberg hadn't shown that their $1
billion derivative claim against Massey's board was a good
enough reason to block the deal. That ruling, which came after
G&E and its co-counsel sank thousands of hours into
investigation, litigation and trial over the course of 18
months, was an enormous blow to shareholders and a boon to
But shareholders could take solace from the simultaneous
efforts of Johnson & Weaver, The Briscoe Law Firm, Powers Taylor
and Finkelstein Thompson in a class action in federal court in
Richmond, Virginia, that also sought to enjoin the Massey
merger. Or, I should say, at least that's what those four firms
think. In a request this summer for $900,000 in fees and
expenses (plus $2,000 each for two name plaintiffs) lawyers in
the Virginia case conceded that they hadn't actually managed to
stop the merger via the amended complaint they filed in April
2011. But thanks to their "vigorous and skillful prosecution,"
they asserted, Massey "voluntarily" made nine "crucial" changes
to its disclosure materials, "without the need for judicial
You can guess where this is going, right? But play along.
"Having succeeded in the goals of the litigation -- ensuring
that Massey's shareholders were able to make a fully informed
decision in connection with the merger -- plaintiff now seeks an
award to compensate his counsel for the time and expense
incurred in connection with achieving these significant benefits
for the shareholder class," the fee request said. Delaware law
and precedent, the firms argued, compels a fee award for the
beefed-up disclosures that followed their amended complaint
unless the defendants meet the heavy burden of showing the
plaintiffs' firms don't deserve credit for the changes. "Indeed,
once a plaintiff shows that he brought a meritorious suit and
that the benefits he sought chronologically followed, the burden
shifts to defendants to prove that plaintiffs' actions in no way
caused the benefits at issue," the brief said.
Sigh. Will plaintiffs' firms never learn? Alpha, which had
by then completed its acquisition of Massey, responded rather
incredulously to the fee request on July 27. "One is tempted to
use blunt language when considering how to characterize an
application for fees and expenses approaching $1 million in a
case in which plaintiff not only achieved no judicial
victory, but did not even attempt to achieve one," wrote lawyers
at Hunton & Williams and Cleary Gottlieb Steen & Hamilton in
Alpha's response brief. Whatever work was done for shareholders,
Alpha argued, was done by the plaintiffs' lawyers in Delaware,
who "actually litigated the claims made in this case." (Alpha
mocked the Virginia lawyers for billing the hours they spent
watching their Delaware counterparts try the preliminary
injunction case before Strine.)
The only documents the Virginia lawyers ever saw, according
to Alpha, were those the defendants voluntarily turned over
after they were produced in the Delaware litigation. And the
Virginia lawyers only reviewed them after shareholders filed
their amended complaint, which was the last substantive action
taken by the plaintiffs' lawyers in the Virginia case. According
to Alpha, all the changes made in various drafts of Massey proxy
materials were due not to the Virginia litigation but rather to
Securities and Exchange Commission requests.
In a 26-page ruling Monday, U.S. District Judge John Gibney
gave the plaintiffs' firms the benefit of a close reading of the
supposed disclosure benefits they brought to the class. (Hat tip
to Courthouse News for first reporting on the ruling.) But that
hardly helped their cause. The judge concluded that many of the
alleged new disclosures were actually old ones, including a
supposedly critical report from Massey's financial adviser that
was actually attached in full to the original draft proxy. Most
of the other changes, Gibney said, were in response to the SEC.
Whatever few additional disclosures Massey might have made
through the Virginia plaintiffs' efforts, the judge wrote, were
so piddling that they didn't meet the standard of materiality.
And besides, he said, the plaintiffs' lawyers didn't really
do anything to bring about any changes -- and certainly didn't
do anything to justify a $900,000 fee award. "The amount of
money requested is simply shocking," he wrote. "This case had a
very short life. Plaintiffs filed suit, filed an amended
complaint, and reviewed documents voluntarily provided by the
defendants. At an early stage the plaintiffs announced that they
would dismiss the case. In essence, they came to the
battlefield, pitched their tents and then retreated to safety.
For these efforts, they seek nearly one million dollars in fees.
While the court encourages creative advocacy, the plaintiffs'
request for fees is outlandish, excessive and inequitable."
You don't get much pithier than that: outlandish, excessive
and inequitable. I called lawyers at all four of the plaintiffs'
firms in the Virginia case. Robert Wilson of Finkelstein
Thompson told me he was just local counsel and referred me to
Shawn Fields of Johnson & Weaver. Fields did not return my call,
nor did Willie Briscoe of The Briscoe Law Firm, nor Patrick
Powers of Powers Taylor.
(Reporting by Alison Frankel)
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