April 3, 2024
DE Chancery Tells Plaintiffs’ Counsel “Game is Over” for Outsized Fees
After a number of Delaware judicial developments that have presented complications for practitioners, this Sidley Enhanced Scrutiny blog highlights a welcome development for the defense bar, public companies and M&A practitioners. Garfield v. Getaround involved a SPAC receiving a stockholder demand letter challenging the structure of stockholder votes on proposed charter amendments being sought in connection with a de-SPAC. The demand letter took issue with the Class A and B stockholders voting together on certain proposals. Following the demand, “the SPAC revised its voting structure, and the charter amendments and merger were approved by stockholders in December 2022.” The stockholder then brought an action for attorneys’ fees.
Getaround opposed the motion, arguing that Plaintiff’s letter did not alter the outcome of the stockholder vote. “The Class A stockholders, in a class vote, approved the charter amendment with 89% approval (as compared to the 92% approval of all stockholders).” Getaround also noted that the $850,000 fee for 23.75 hours of work, which Plaintiff did not describe in detail, “equat[ed] to $35,789.47 per hour for repurposing and sending a form letter.” In addition, Getaround represented that paying the fee would lead to insolvency.
The blog explains that Vice Chancellor Zurn issued an atypical “Statement of the Court”:
In its six-minute ruling, the Court did not analyze precedent cited by Plaintiff or Defendant. Instead, it focused on the role of plaintiffs’ counsel in “obtaining value for stockholders” as part of “the machinery of improving corporate hygiene.” The Court reasoned that “seeking a fee that a company CFO has affirmed in a sworn affidavit would render the company insolvent appears to be a betrayal of the stockholders [whom counsel] purport[s] to represent and a betrayal of the functions that plaintiffs [sic] counsel plays in the broader ecosystem.”
In short, the Court found that the fee request was “not equitable,” “not flattering to [] personal reputations,” and is “not to be rewarded.” The Court concluded by directing the parties to confer to determine a more reasonable amount, noting that if the matter were left to the Court “one or both” of the parties “will be unhappy. ” We have an educated guess as to which one.
– Meredith Ervine