Opinion
Civil Action No. 18298
Date Submitted: June 27, 2001
Date Decided: September 17, 2001
Stuart M. Grant and Megan D. McIntyre, of GRANT EISENHOFER, P.A., Wilmington, Delaware, Attorneys for Plaintiff.
Robert K. Payson and Stephen C. Norman, of POTTER ANDERSON CORROON LLP, Wilmington, Delaware; OF COUNSEL: Michael D. Torpey, James N. Kramer, and Steven S. Kaufhold, of BROBECK, PHLEGER HARRISON LLP, San Francisco, California, Attorneys for Defendants.
MEMORANDUM OPINION
In this purported class action, plaintiff Louisiana State Employees' Retirement System ("LASERS") seeks an award of $2,000,000 in attorneys' fees and litigation costs. After LASERS filed this lawsuit, Citrix Systems, Inc. ("Citrix" or the "Company") withdrew an amendment to Citrix's stock option plan. Contending its lawsuit caused this corporate action, and asserting that the withdrawn option plan resulted in a $183,000,000 benefit to Citrix's stockholders, LASERS requests an attorneys fee of $2,000,000, plus up to $60,000 in expenses. For reasons described more fully later, I conclude that plaintiffs $2,000,000 fee request is not justified by the record in this case. Instead, the circumstances in this case warrant a fee, based on quantum meruit principles, of $140,000, together with costs of $8,250.
I. FACTUAL AND PROCEDURAL BACKGROUND
At the Citrix annual stockholder meeting held May 18, 2000 (the "Annual Meeting"), four proposals were put forth for stockholder approval. The Company closed the polls on three proposals that had been approved by a majority of stockholders. Nevertheless, Citrix adjourned the Annual Meeting with the polls still open on Proposal 3, a proposal to amend the Company's stock option plan to increase the number of stock options available to all employees from 69,945,623 to 80,000,000. Proposal 3 would have failed to pass had the polls been closed on it at the Annual Meeting. Later, on June 2, 2000, Citrix reconvened the Annual Meeting, closed the polls on Proposal 3, and Proposal 3 passed by approximately 1% of the votes cast.
Several days later, on June 12, 2000, Citrix announced that its results for its soon-to-be-completed second fiscal quarter would likely be between $105 and $110 million below expectations. Within hours, shareholders filed the first in a series of thirty stockholder class actions against the Company (and three of its former officers and directors) asserting violations of federal securities laws. On July 20, 2000, a federal district court entered an order consolidating these actions as In re Citrix Systems, Inc. Sec. Litig., No. 00| 6796-CIV-DIMITROULEAS (S.D. Fla. 2000) (order consolidating complaints).
In the meantime, LASERS took steps to inquire into the reasons justifying the adjournment of the Annual Meeting with the polls still open on Proposal 3. Toward this end, LASERS submitted, pursuant to 8 Del. C. § 220 , a request to inspect Citrix records relating to the stockholder vote. By letter dated August 31, 2000, Citrix denied this request. Shortly thereafter, on September 8, 2000, LASERS filed its class action complaint in Delaware alleging, among other things, that the defendants "inequitably manipulated the voting procedures at and after the shareholder meeting in order to pass the amendment to the 1995 incentive [stock] plan, which otherwise would have been defeated" (the "Voting Manipulation Claim"). LASERS' complaint also asserted fiduciary duty claims based on Citrix's alleged failure to disclose fully and accurately in its Proxy Statement all material information in connection with the stockholder votes at the Annual Meeting (the "Disclosure Claim"). On October 31, 2000, Citrix and the individual defendants moved to stay the Delaware class action.
"Compl., ¶ 39.
These facts chronicling this dispute do not reveal the entire context of this litigation, however. As described above, LASERS' complaint set forth two separate legal theories. Although the Disclosure Claim shared substantial similarities with the securities claims asserted in the federal action, the Voting Manipulation Claim was substantially similar, if not identical, to allegations contained in a contemporaneous lawsuit in this Court, State of Wisconsin Investment Board v. Peerless Systems, Inc. As the facts described below illustrate, that litigation (the "Peerless litigation") played an important role in this lawsuit.
Del. Ch., C.A. No. 17637, mem. op., Chandler, C. (Dec. 4, 2000).
On December 4, 2000, this Court denied cross motions for summary judgment in the Peerless action, but required the defendants to show a compelling justification for their decision to adjourn an annual meeting while leaving the polls open on a proposal that would have otherwise failed to pass On the date the Court decided Peerless, LASERS' lawsuit was moving through its briefing schedule on Citrix's motion to stay. The Citrix defendants filed an opening brief in support of their motion to stay on October 31, 2000. LASERS filed its answering brief on December 1, 2000. The defendants filed their reply brief on December 8, 2000.
Id.
The opening brief submitted by the Citrix defendants contains no references to the Peerless litigation or even to the arguments being made in that dispute. The answering brief made only one direct reference to the Peerless litigation:
See Defs.' Opening Br. on the Mot. to Stay, at 14 n. 18 ("The only allegations in the State Action which are not duplicative of those in the Federal Action are that defendants made misstatements and omissions concerning the timing of the vote on Proposal No. 3 . . . As a legal matter, these allegations cannot be parsed out from other alleged misstatements and omissions purportedly made by defendants.")
LASERS alleges that by keeping the polls open, Defendants' [sic] inequitably exercised corporate power with the purpose and effect of impairing the effective exercise of the shareholder franchise, without a compelling justification. LASERS believes that this claim raises issues which have never been decided by a Delaware court, and which are presently sub judice in [the Peerless litigation].
See PI.'s Answering Br. on the Mot. to Stay, at 2 n. 2 (emphasis added).
The defendants' reply brief, however, made three direct references to the then just-released Peerless decision. Although the defendants continued to argue in favor of a stay, Peerless was clearly within their purview as this lawsuit moved toward oral argument scheduled for December 14, 2000.
See Defs.' Reply Br. on the Mot. to Stay, at 7, 13-14.
See, e.g., Defs.' Reply Br. on the Mot. to Stay, at 13 ("the Court [in its Peerless decision] has recently and extensively addressed the very claims at issue in this case").
According to an affidavit of John P. Cunningham, the Company recognized that the Peerless decision reflected on the propriety of Citrix's decision to adjourn the Annual Meeting while leaving the polls open on Proposal 3. Throughout December 2000, Citrix's management discussed Proposal 3 and the effect of the Peerless decision. In particular, on December 12, 2000, two days before the oral argument in this Court, Cunningham participated in a conversation with the Chairman of the Citrix Board of Directors, the Chief Operating Officer of Citrix, and outside counsel concerning the possibility of withdrawing Proposal 3. To that end, senior management directed the Company's human resources department to reassess the need for Proposal 3 in light of (1) the challenge presented by the present lawsuit, (2) the weakening macroeconomic business conditions in general, and (3) the reduced need for the additional options to attract and retain qualified personnel.
Cunningham is the Chief Financial Officer, Senior Vice President of Finance and Administration, Treasurer, and Assistant Secretary of Citrix.
Defs. Answering Br. on the Mot. for Attys' Fees, Ex. A, ¶ 20.
Id. at ¶¶ 22-25.
Id. at 7para; 22.
At the December 14 oral argument on defendants' motion to stay, Peerless was clearly portrayed as an important development in this litigation. Counsel for the defendants explicitly stated that the Company was examining its conduct in light of certain considerations, including guidance provided by Peerless. Defendants' counsel also indicated that the Company was considering the possibility of withdrawing Proposal 3:
See Tr. from Oral Argument on Mot. to Stay (Dec. 14, 2001), at 10, 48-49, 72-73.
In light of Peerless, if the Company were to modify or withdraw Proposal 3, if that will make a difference to Your Honor, in staying the case, give us an opportunity to do that. As I mentioned earlier, once the company saw Peerless, they said, "You know what, this is a new development in the law. We need to look at what we have done.' If Your Honor tells me if the Company does something to modify or nullify Proposal 3 that makes a material difference, give us a couple of weeks to do that, or maybe three weeks . . . . Give us an opportunity to do that.
See Tr., at 50-51. See also Tr., at 10.
During the oral argument, the Court suggested it might conditionally grant the stay as to the Disclosure Claim but deny the stay as to the Voting Manipulation Claim. Given this inclination, the Court noted that Citrix should continue to examine the possibility of withdrawing or modifying Proposal 3 in a manner that would result in the plaintiff achieving its desired form of relief.
See Tr., at 59-62.
See Tr., at 76.
On Friday January 5, 2001, the Court conditionally stayed the Disclosure Claim, but denied the motion to stay the Voting Manipulation Claim. In the Opinion, the Court noted that the conditionally stayed Disclosure Claim "presents a clear case where the plaintiff has repackaged federal securities law claims as Delaware fiduciary duty claims." In contrast, the Court noted that the Voting Manipulation Claim "implicated . . . an issue governing the internal affairs of a Delaware corporation." On Monday, January 8, 2001, Citrix notified the Court of its intention to withdraw Proposal 3.
Louisiana State Employees' Retirement System v. Citrix Systems, Inc., Del. Ch., C.A. No. 18292, let. op., Chandler, C. (Jan. 5, 2001).
Id. at 10.
Id.
On January 30, 2001, Citrix advised the Court that Proposal 3 had been withdrawn consistent with its counsel's letter of January 8, 2001.
Following Citrix's withdrawal of Proposal 3, LASERS' counsel promptly moved for an award of fees and costs. In applying for attorney fees, plaintiffs counsel points to the analysis of its expert who estimates that the dilutive costs to plaintiff stockholders' total value as of January 25, 2001, would have been approximately $183 million had Proposal 3 not been withdrawn. Based on this expert analysis, plaintiff's attorneys have petitioned this Court for an award of $2 million in attorneys' fees and $60,000 in litigation costs.
Pl.'s Opening Br. on the Mot. for Attys' Fees, Ex. I, Aft of W. Dana Northcut, at ¶ 21 (the "Northcut Analysis").
II. ANALYSIS
A. Is the Fee Request Premature?
As a threshold matter, the defendants point out that LASERS has applied for an award of attorneys' fees while a portion of the litigation, the Disclosure Claim, remains active, albeit stayed. In general, "[j]udicial economy and the orderly conduct of litigation are usually better served if interim awards of attorneys' fees are avoided and applications for attorney fees are often rejected if the litigation has not been completed."
Gans v. Liquidating Corp., Del. Ch., C.A. No. 9630, let. op. at 3, Hartnett, V.C. (May 28, 1993).
Nevertheless, interim fee awards may be appropriate where the plaintiff has achieved the benefit sought by the claim that has been mooted or settled and that benefit is not subject to reversal or alteration as the remaining portion of the litigation proceeds. The Voting Manipulation Claim sought the withdrawal of Proposal 3, Citrix withdrew Proposal 3, and that withdrawal is in no way threatened by any aspect of the stayed Disclosure Claim. To that extent, therefore, LASERS' request for a reasonable fee in connection with the Voting Manipulation Claim is not premature. In addition, following oral argument on the fee application, LASERS voluntarily dismissed the Disclosure Claim, the only remaining aspect of this lawsuit. Although the dismissal is Without prejudice, no reason exists for delaying a decision on the pending fee request.
See, e.g., Gans, let. op. at 3-4 (denying request for interim attorneys' fee following the issuance of an interlocutory order for the primary reason that the benefit to the class was still capable of being reversed later in the litigation); Frazer v. Worldwide Energy Corp., Del. Ch., C.A. No. 8822, Jacobs, V.C. (May 6, 1991) (denying request for interim attorneys' fee where the complete benefit created for the plaintiffs could not be known until the end of the litigation after any indemnity or contribution claims had been made against the common fund).
B. Standard on a Motion to Grant Attorneys' Fees
Traditionally, parties are responsible for the payment of their own counsel fees in the absence of statutory authority or a contractual undertaking to the contrary. Where no common monetary fund has been created but the efforts of counsel have resulted in a non-monetary benefit, Delaware courts recognize an exception to this rule, an exception based on what is sometimes referred to as the therapeutic or corporate benefit doctrine. The basic principle behind this doctrine holds simply that stockholders who benefit from the litigious efforts of another should share in the costs of achieving that benefit.
See, e.g., Goodrich v. E.F. Hutton Group, Del. Supr., 681 A.2d 1039, 1044 (1996); Tandycrafts, Inc. v. Initio Partners, Del. Supr., 562 A.2d 1162, 1164 (1989).
See Tandycrafts, 562 A.2d at 1164-67.
United Vanguard Fund, Inc. v. Takecare, Inc., Del. Supr., 693 A.2d 1076, 1079 (1997).
Under the rubric of the corporate benefit doctrine exists a subcategory of cases where defendants have taken some action that effectively moots a derivative or class claim before its final adjudication. In such cases, the Court may award a fee to plaintiffs counsel if the plaintiff can demonstrate that (i) the litigation was meritorious when filed, (ii) the action rendering the litigation moot produced the same or a similar benefit sought by the litigation, and (iii) there was a causal relationship between the litigation and the action taken producing the benefit. Where the plaintiff has prevailed on this three factor inquiry, attorneys' fees are awarded at the discretion of the Court based on the fairness and reasonableness of the fee requested in proportion to the benefit achieved by the litigation.
See, e.g., Grimes v. Donald, Del. Ch., C.A. No. 13358, mem. op. at 4, Lamb, V.C. (Nov. 30, 2000); Allied Artists Picture Corp. V. Baron, Del. Supr., 413 A.2d 876 (1980).
Grimes, mem op. at 4-5; Takecare, 693 A.2d at 1079; Allied Artists, 413 A.2d at 876.
See In re Dr. Pepper/Seven Up Companies, Inc. Shareholders Litig., Del. Ch., C.A. No. 13109, Chandler, V.C. (Feb. 9, 1996), aff'd, Del. Supr., 683 A.2d 58 (Aug. 16, 1996).
1. Was the Lawsuit Meritorious When Filed?
As to the first prong of the standard, the defendants acknowledge that the Voting Manipulation Claim relating to Proposal 3 was "meritorious when filed' to the limited extent that it "implicate[d] a recently elucidated aspect of Delaware law."
Defs.' Answering Br. on the Mot. for Attys' Fees, at 12 (quoting Louisiana State Employees Retirement System v. Citrix Systems, Inc., let. op. at 10).
2. The Benefit Achieved by the Action
There is no question that the complaint in this matter sought to achieve the withdrawal of Proposal 3 as one of its main objectives. The dispute here concerns the value of the benefit that this withdrawal conferred on the Citrix stockholders. This dispute will be discussed at length below.
Compl., ¶ 12. See Tr., at 34.
3. The Causal Relationship Between the Withdrawal and the Litigation
Under well-established Delaware law, the fact that the corporate action mooting the plaintiff's claim occurred after the filing of that claim "is enough to create an inference that the two events were connected." The defendants bear the burden to demonstrate that no causal connection existed between the initiation of the lawsuit and any later benefit to the shareholders. The defendants may attempt to rebut the causal presumption by affidavit.
Grimes v. Donald, Del. Supr., 455 A.2d 388 (2000) (ORDER).
United Vanguard Fund, Inc. v. TakeCare, Inc., 693 A.2d at 1080.
Grimes, mem. op. at 10.
The defendants have offered the affidavit of Citrix's Chief Financial Officer, John P. Cunningham, to demonstrate that the present litigation was not the cause of the withdrawal. Specifically, Cunningham asserts that the senior management of Citrix and the Citrix Board decided to withdraw Proposal 3 based on "our desire to conform to the Court's guidance in the Peerless decision and on the sufficiency of the option reserves that pre-dated the amendment to the [Company's employee stock option plan]" in light of the deteriorating general business climate. Cunningham also points out that on January 3, 2001, Citrix management reached its decision to recommend to the Citrix Board that Proposal 3 be withdrawn. On Thursday, January 4, a draft version of the letter to be submitted to the Court on Monday, January 8, announcing the withdrawal of Proposal 3, was circulated at Citrix. This letter, in substantially the same form as its draft version, was submitted to the Court as planned on January 8.
Cunningham Aff., ¶¶ 25, 31.
LASERS urges this Court to reject defendants' arguments concerning causation for two reasons. First, it argues that Peerless was not new law, but rather "merely amplified the well settled standard and burden of proof applicable to [the] issue [involved in that case]." The Court's own words in its earlier decision in this matter—noting that Peerless "implicated a recently elucidated aspect of Delaware law"—belies this assertion.
Pl.'s Opening Br. on the Mot. for Attys' Fees, at 8.
Louisiana State Employees " Retirement System v. Citrix Systems, Inc., let. op. at 10.
The plaintiffs second argument challenges defendants' assertion (that Citrix would have withdrawn Proposal 3 absent this litigation) as little more than a post hoc mischaracterization of what actually occurred. of course, at a certain level, it is almost impossible for this Court to divine exactly what caused what in this corporate version of the chicken and the egg. Nevertheless, the unrebutted affidavit is clear in its assertion that Citrix management made its decision to recommend to the Citrix Board the withdrawal of Proposal 3 before the issuance of this Court's decision on the motion to stay.
LASERS points out, with good reason, that the actual withdrawal conveniently occurred almost immediately after this Court's denial of the motion to stay the Voting Manipulation Claim. That argument, however, ignores the discussion that occurred at the oral argument. That is, I indicated that although I had not come to a final conclusion, I was inclined to grant the stay as to the Disclosure Claim and deny the stay as to the Voting Manipulation Claim. Counsel for the defendants indicated that Citrix was in the process of analyzing its actions in light of Peerless and requested two-to-three weeks to complete this reexamination. Counsel clearly represented that the Company was strongly considering modifying or withdrawing Proposal 3, especially if that would make a material difference to the Court in deciding the motion to stay. True to their word, this appears to be precisely what happened.
See Tr., at 48-49.
Although I appreciate LASERS' penchant for military symbolism in arguing its case, I am not persuaded that "Citrix chose to fight on until confronted with certain defeat" before the Company "unconditionally surrendered in this litigation." Rather, while the defendants telegraphed their intentions at the oral argument, they continued to defend themselves to the best of their abilities should the Court have decided to change its mind following the oral argument. The fact that the decision on the motion to stay was followed closely by the withdrawal of Proposal 3 does not indicate that the defendants "caved," but rather that they had every intention of living up to the representations made before this Court at the oral argument.
Pl.'s Opening Br. on the Mot. for Attys' Fees, at 1, 8.
Ultimately, however, the intertwining of the Peerless litigation with this litigation and the overall totality of the circumstances leads me to the conclusion that Proposal 3 was withdrawn for a combination of reasons which included: the Peerless decision, the deterioration of the economic climate for technology companies, and the efforts of counsel in this lawsuit. It is impossible, in my opinion, to identify precisely the degree to which this lawsuit caused Citrix to withdraw Proposal 3. But I am not required to determine this issue with mathematical exactitude. I need only conclude, as I do, that the withdrawal was, at least in part, precipitated by this lawsuit. I need not conclude any stronger causal connection between the lawsuit and the withdrawal than that.
United Vanguard Fund, Inc. v. TakeCare, Inc., Del. Ch., 727 A.2d 844, 854 (1998).
See In re Duncan Donuts Shareholders Litig., Del. Ch., C.A. No. 10907, mem. op. at 14, Chandler, V.C. (Nov. 27, 1990).
LASERS has satisfied the preliminary three-factor test and may be awarded an appropriate fee in connection with its counsels' services in prosecuting this lawsuit. In determining a proper fee, however, the Court is mindful of the following indisputable fact: although the efforts of LASERS' counsel were important to achieving the desired result, those efforts were not the only cause of the benefit conferred upon the Citrix stockholders as a result of Proposal 3's withdrawal.
C. The Reasonableness of the Fee Request
In determining what fee is appropriate, the Court typically considers: (1) the results achieved for the benefit of the shareholders; (2) the efforts of counsel and the time spent in connection with the case; (3) the contingent nature of the fee; (4) the difficulty of the litigation; and (5) the standing and ability of counsel involved. "Typically, the benefit achieved by the action is accorded the greatest weight."
Sugarland Industries Inc. v. Thomas, Del. Supr., 420 A.2d 142, 149 (1980).
Dunkin Donuts, mem. op. at 17.
LASERS has offered the Northcut Analysis to support its argument that Citrix stockholders received a benefit of approximately $183 million following Proposal 3's withdrawal. Northcut used the Black-Scholes option pricing model "to determine the cost of dilution to existing shareholder value relative to the issuance of new shares proposed by Proposal 3, According to LASERS, "the cost of dilution on existing shareholder value of a new employee stock option is the fair value of the option."
Pl. s Opening Br. on the Mot. for Attys' Fees, at 7.
Id.
The defendants point to several problems inherent in this attempt to value any purported benefit to Citrix stockholders following the withdrawal. First, the defendants note that the Northcut Analysis on its own terms is fatally flawed in its attempt to value the dilutive costs associated with the withdrawal. Simply put, the Northcut Analysis attempts to quantify the dilutive effect of the additional stock options authorized by Proposal 3 in the absence of the issuance of any of these options. That is, the Northcut Analysis assumes that the additional 10,054,377 options available under Proposal 3 would have been granted by Citrix at some point in the future.
At his deposition, Professor Northcut stated, "It's an implicit assumption [of my analysis] that the options would have been exercised on January 25th, 200 1—let me restate that, would have been granted—not exercised, but granted—on January 25th, 2001." Northcut Dep. 24:22-25:1. Later in his deposition, Professor Northcut backtracked from the January 25, 2001 date as the assumed date of issuance of all 10,054,377 shares. However, he reasserted that his analysis assumed that all of the stock options would have been granted. Northcut Dep. 46:15-47:16.
Contrary to this assumption, Citrix was not required to issue any of these additional options and there is no way to predict whether Citrix would have issued these additional options. In fact, the Company never issued any of these additional options. To effect the withdrawal of Proposal 3, the Citrix Board of Directors decreased the number of shares available under the stock plan to the number of shares available before Proposal 3 passed. No other action was necessary because the additional shares had never been granted. Absent issuance of any of the additional options, plaintiffs attempt to accurately calculate the dilutive costs associated with that issuance is premature and speculative.
Second, the defendants question the applicability of the Black-Scholes option valuation model to the employee stock options at issue in the present matter. In particular, the affidavit of the defendants' expert witness, Steven R. Grenadier (the "Grenadier Affidavit"), notes that while the Black-Scholes formula may be appropriate for valuing freely tradeable options, the model overstates the value of employee stock options (technically structured as warrants, not call options) which are not liquid, freely tradeable options. I have previously indicated my concerns with the application of the Black-Scholes model when determining the significance of the benefit achieved at settlement where its use may be pivotal in influencing the size of the fee awarded to plaintiffs counsel. Those concerns are accentuated here where the model—even if applied without any hint of bias—may not accurately value the types of illiquid options at issue.
Grenadier Aff., ¶ 8.
See, e.g., In re Coleman Company, Inc. Shareholders Litig., Del. Ch., 750 A.2d 1202, 1208 (1999); Rovner v. Health-Chem Corp., Del. Ch., C.A. No. 15007, mem. op. at 12, Chandler, C. (April 27, 1998).
Third, even if the Northcut Analysis properly valued the dilutive costs associated with the additional options authorized under Proposal 3, the plaintiff's argument remains fatally flawed because it ignores any benefits that may have accrued to the Citrix stockholders due to Proposal 3. That is, the Northcut Analysis makes no attempt to calculate the net economic benefit resulting from the adoption of Proposal 3. The defendants contend that the additional stock options would have been issued "to attract and retain employees, to motivate employees, to align employees' interests with those of Citrix shareholders and to minimize the amount of cash compensation necessary for payment to Citrix employees." The Grenadier Affidavit points out that the benefits attributable to the Citrix employee stock option plan are illustrated by the Company's well-below-average employee turnover rate among technology companies, while the cash compensation paid by Citrix to its employees ranks between the 25th-to-50th percentile of peer group companies. As Grenadier points out, the plaintiffs analysis would not differ had Citrix issued the additional options to random people on the street as opposed to employees of the Company. This simple example demonstrates the fundamental difficulties with the analysis presented by LASERS as the foundation for its fee request. In recognizing costs while ignoring any possible benefits associated with Proposal 3, LASERS has presented this Court with an incomplete accounting of the economic value of the withdrawal.
Defs.' Answering Br. on the Mot. for Attys' Fees, at 17-18.
Grenadier Aff., ¶ 7.
Id.
As the defendants correctly recognize, any attempt to accurately value the net economic benefit conferred by either the passage or the withdrawal of Proposal 3 is at best an inexact science. The defendants submit that the dilutive costs, if any, associated with Proposal 3, "would have been completely offset by benefits in terms of employee recruitment, retention and motivation (as well as lower cash compensation to Citrix employees)." Quantitatively speaking, any attempt by this Court to directly calculate the precise value of the employee recruitment, retention, and motivation effects provided by Proposal 3 seems more like ill-conceived alchemy than science.
Defs.' Answering Br. on the Mot. for Attys' Fees, at 18-19.
Nevertheless, if LASERS is correct in its contention that Proposal 3's withdrawal actually resulted in a $183 million benefit to Citrix shareholders, one would clearly expect the stock market to reflect this large benefit into the price of Citrix stock. LASERS apparently agrees with this line of reasoning, as its expert asserted as part of his analysis that "[t]he dilutive effects of employee stock options should be priced into existing equity share values when the issue of new options is first announced."
See Northcut Aff., ¶ 19.
According to the event study analysis performed by Professor Grenadier, the evidence indicates neither that the market reacted negatively to any disclosure of information related to the passage of Proposal 3 nor that the market reacted positively to any disclosure concerning the withdrawal of Proposal 3. If anything, Professor Grenadier's analysis suggests that investors determined that the approval and eventual withdrawal of Proposal 3 resulted in no clear net economic benefit or harm to Citrix shareholders.
See Grenadier Aff., ¶ 9.
The plaintiff counters this analysis by pointing out that it has alleged that the proxy materials disseminated in connection with Proposal 3 and the Annual Meeting were materially false and misleading. The market, therefore, was not correctly informed as to the costs and benefits associated with the passage and withdrawal of Proposal 3. Further, plaintiff argues, any announcements regarding Proposal 3 did not occur in isolation. The proxy materials released by Citrix related to three other proposals in addition to Proposal 3. Thus, even assuming there was no statistically significant movement in the Company's stock on the dates in question, the plaintiff contends that at most this shows that the market viewed the filings as a whole to have a neutral impact on shareholder value.
These competing arguments leave me in the unenviable position of possessing two vastly different attempts to value the benefit achieved in this litigation, where both such attempts have clear shortcomings as pointed out by opposing counsel. But, even if I could accurately divine the value of the net benefit conferred, the previously referred to causation quandary also complicates the calculation of an appropriate fee. Finally, the only reason why I must even consider valuing the benefit achieved here is, of course, because the purported stockholder class will receive no direct monetary benefit as a result of this lawsuit.
Given this context, no good reason exists for me to engage in complicated and highly speculative intellectual exercises in attempting to quantify what is, in essence, the non-quantifiable benefit achieved by this litigation. Instead, I note that the primary benefits sought by LASERS as to the Voting Manipulation Claim—a vindication of its voting rights as stockholders of a Delaware corporation and its concern over stockholder dilution—has been achieved in its entirety. These benefits have clear value to stockholders of the Company.
As the Court previously has noted:
[i]n cases where the benefit created is not quantifiable, the quantum meruit approach is often appropriate. . . . When an unquantifiable benefit is involved, the quantum meruit approach gives the Court a more equitable means of determining a reasonable fee.
Dunkin Donuts, mem. op. at 17 (citation omitted).
Turning to the other Sugarland factors, I note that plaintiffs counsel expended approximately 281 hours on or before January 8, 2001, in litigating this matter. Although LASERS urges this Court to allow its counsel to recover for time and expenses incurred in connection with the fee application, that request is properly denied as that time created no direct benefit for the stockholder class and is, therefore, non-compensable. Similarly, plaintiffs counsel cannot recover for costs incurred in pursuing their fee application. That is, plaintiff's counsel may not recover for fees paid to an expert whose analysis was prepared solely for use in supporting the motion for a fee award.
In re Diamond Shamrock Corp., Del. Ch., C.A. No. 8798, let. op. at 5-6, Jacobs, V.C. (Feb. 23, 1989) (citing Lindy Bros. Builders, Inc. of Phila. V. American Radiation Sanitary Corp., 540 F.2d 102, 111 (3rd Cir. 1976)).
No one questions that LASERS' counsel aggressively and efficiently prosecuted this action on a strictly contingent basis. Similarly, no issue exists as to the superior standing and ability of plaintiffs counsel, a frequent advocate in this Court. Nevertheless, the Court also must weigh the difficulty of the litigation involved here. Although the Court in no way doubts the abilities of counsel to prosecute this litigation should Peerless have reached a different conclusion, the fact of the matter is that the Peerless decision was fortuitously on point. Even the drafting of the complaint in this matter as to the Voting Manipulation Claim was almost entirely based on the previously filed complaint in the Peerless litigation. Due to the "piggyback" relationship of this case to the Peerless litigation, by the standards set by cases commonly seen in this Court, this was not particularly difficult litigation.
LASERS instituted this lawsuit to achieve the withdrawal of Proposal 3, a hotly contested proposal among shareholders of the Company. To that end, Proposal 3's withdrawal, at least from the perspective of LASERS and other stockholders who shared its view concerning Proposal 3's wisdom, was a vindication of LASERS' voting rights as a stockholder in a Delaware corporation. Although this vindication was perhaps caused in part by the issuance of the Peerless decision, as well as worsening general economic conditions, the plaintiff's attorneys, retained at least in part to accomplish that result, successfully achieved this therapeutic benefit. A fee recognizing the efforts of counsel is, in my view, appropriate.
Mindful of the uncertainties and the concerns earlier discussed, I conclude that a reasonable fee in this case is $140,000, plus $8,250 in costs. In my view, an award of $140,000 adequately compensates plaintiffs counsel for the contingent risk inherent in this litigation and for performing the work that created a non-quantifiable, yet clearly intended and valued benefit. I also believe this fee is consistent with past fee awards granted by this Court and is reasonable given the totality of the circumstances in this matter.
Solely as a cross-check of my quantum meruit analysis, I note that a fee of $140,000 translates to an hourly rate of approximately $500 per hour. This hourly rate represents a significant premium of roughly 100% when compared to the mean billing rate charged per hour by all those who participated in plaintiffs counsel's efforts. Thus, this award— although in form based on a quantum meriut analysis—actually contains a significant premium for the quality of the work that was done.
See, e.g., Siegman v. Palomar Medical Technologies Inc., Del. Ch., C.A. No. 15894, Jacobs, V.C. (July 13, 1998) (awarding $125,000 on a quantum meruit basis in response to a fee request of $550,000 where plaintiff achieved a substantial, but unquantifiable corporate benefit claimed to be approximately $50,000,000); Dunkin Donuts, mem. op. at 11-18 (awarding shareholder class plaintiffs $125,000 in response to a request for fees of $2,500,000 where class plaintiffs litigation was, at most, only partially responsible for a substantial, but unquantifiable corporate benefit). A survey of fee awards in therapeutic benefit cases over the last three years reveals an average award of $273,586. Although the fees awarded by this Court have been slightly higher in the last two years, the fee request in this case is significantly higher than the average request. The highest fee request in a therapeutic benefit case in the last three years was $3,055,000 ( Shaev v. Wyly, Del. Ch., C.A. No. 15559, Strine, V.C. (1999), which the Court reduced to $300,000.
Finally, I note that I have chosen not to attempt to apportion any of the hours worked by LASERS' counsel between the Voting Manipulation Claim and the stayed Disclosure Claim. As a close reading of the complaint and the later-filed briefs in this matter demonstrates, the two theories on which this litigation was based were closely related in certain respects, including their mutual goal of forcing the withdrawal of Proposal 3. The efforts of plaintiff's counsel may have in part attempted to advance the Disclosure Claim. But that does not imply that those same efforts may not have also advanced the Voting Manipulation Claim, particularly during the earliest stages of the litigation ( i.e., when counsel are formulating their case, drafting the complaint, and engaging in the earliest forms of discovery).
The defendants themselves recognized these similarities earlier in this litigation. See, e.g., supra n. 4.
III. CONCLUSION
For the reasons set forth above, I grant the request for an award of a reasonable attorneys' fee and conclude that LASERS' counsel should be awarded fees of$ 140,000 and costs of $8,250.
IT IS SO ORDERED.