By Nate Raymond

Oct 9 (Reuters) - For all of the Delaware Chancery Court's tough talk about attorneys' fees in merger class actions in which investors get no cash, the judges haven't exactly stopped rewarding plaintiffs' lawyers for bringing the cases. In fact, the Delaware bench regards a fee of $400,000 to $500,000 as the going rate for a settlement that provides one or two "meaningful" disclosures in a proxy statement. At those rates, it's well worth lawyers' time to bring M&A disclosure suits.

But in Texas, the calculus is much less straightforward. In August, a state appeals court in Dallas rejected a $1.1 million fee award that stemmed from shareholder litigation over the $3 billion merger of Centex Corp and Pulte Homes. With similar fee challenges pending before two other Texas appeals panels, the Texas Supreme Court is now deciding whether to take up the Centex fee case to decide whether lawyers who bring proxy disclosure suits in Texas can expect any fees at all.

Texas is a contrarian case study in what some academics have opined to be a competition among state courts for complex business litigation. A recent study co-authored by Ohio State University associate law professor Steven Davidoff (aka Deal Prof of The New York Times' Dealbook) found that state courts use fee awards to induce plaintiffs' lawyers to file suits in their jurisdiction, in an example of "inter-state jockeying" among the courts. The $305 million fee that Delaware Chancellor Leo Strine awarded Prickett, Jones & Elliott and Kessler Topaz Meltzer & Check in a class action against Grupo México came amid discussion that Delaware's market share for merger litigation was in decline. The outsize award seemed to provide a data point for the competition thesis.

On paper, Texas would seem like a good candidate to host M&A suits, since, according to Davidoff's study, it is second only to California as the headquarters of companies sued in M&A cases. And while Texas didn't make Davidoff's list of top fee awarders, state judges have been known to ladle out fees to plaintiffs' lawyers. In February, for instance, the 2nd District Court of Appeals in Fort Worth actually raised attorneys' fees for 20 law firms, including Brower Piven, in a disclosure-only settlement. The appeals court awarded the lawyers $8.61 million, more than twice the $3.97 million they were granted by the judge overseeing litigation stemming from Exxon Mobil Corp's $41 billion takeover of XTO Energy.

But fees of that magnitude in M&A disclosure-only cases may become as much of a bygone Texas as cattle drives through Fort Worth. In 2003, under Republican Governor Rick Perry, Texas adopted a tort reform law that discouraged so-called "coupon settlements," in which defendants get rid of class actions by offering class members discounts on their goods. Lawyers used to receive their fees in such cases in cash, not coupons, but the 2003 law said class counsel's fees had to take the same cash-to-coupon ratio as the class's recovery.

The Dallas appeals court applied the same logic as the 2003 law in evaluating an appropriate fee award for the Centex disclosure-only settlement, which was negotiated by Harwood Feffer and Vianale & Vianale. "Here, if there was no cash recovery for the class, fees could not be awarded in cash, regardless of the value of the benefit to the class," wrote Justice Martin Richter. The appellate court remanded the case back to the trial court to "consider evidence and argument offered by the parties regarding recovery of attorney's fees within the constraints" of the tort reform law.

Last week, an objecting Centex shareholder asked the Texas Supreme Court to consider whether the entire settlement should be thrown out. That should give the state high court a chance to consider the issue of fees in disclosure-only settlements. (The objector's petition was rejected on technical grounds but is expected to be refiled. Objector counsel Jeffrey Weinstein of Weinstein Law didn't return a call seeking comment. Plaintiffs' counsel, Kenneth Vianale of Vianale & Vianale, declined comment.)

Even if the state Supreme Court doesn't take the Centex case, two other intermediate appeals in Houston courts could turn up the heat on plaintiffs' lawyers. In one, an objector represented by Ted Frank of the Center for Class Action Fairness asked the 14th Court of Appeals to nix $612,500 in fees in a disclosure-only settlement in a suit arising out of the $2.85 billion merger of Holly Corp and Frontier Oil. "It was the most trivial kinds of disclosure," Frank said. "It wasn't the CEO's car color, but it was pretty close to that." (Plaintiffs' lawyers at Edison, McDowell & Hetherington and Robbins Geller Rudman & Dowdresponded that the Texas legislature never intended the coupon rule to apply to suits seeking only injunctive relief.)

The 1st Court of Appeals, also in Houston, is separately waiting for Dynergy Inc to emerge from bankruptcy to resume consideration of its appeal of a trial judge's award of $1.6 million in fees and expenses to firms (including Susman Godfrey) that handled shareholder litigation stemming from Blackstone's failed $4.7 billion bid for Dynergy and Carl Icahn's subsequent buyout proposal. Dynergy's lawyers at Skadden, Arps, Slate, Meagher & Flom argued in a brief filed in January that the fees aren't allowed under the Texas tort reform law.

It's too soon to say if Texas will lose out on M&A suits. But David Sterling, a lawyer at Baker Botts who represents Frontier, is predicting plaintiffs could turn away from the Texas state courts, opting for federal court or Delaware Chancery Court instead. "I think it makes Texas a less attractive forum for an M&A case from the plaintiffs' perspective," he said.

Harry Susman of Susman Godfrey, a lawyer for the Dynergy plaintiffs, agreed. "Either people won't file in Texas," he said, "or when they do file, there's no way class lawyers will settle unless there's a monetary settlement. So they'll fight to the death."

Follow us on Twitter @AlisonFrankel, @nateraymond, @ReutersLegal  | Like us on Facebook