Centene, a publicly traded healthcare company, agreed to acquire Magellan Health, Inc. (Magellan), a managed healthcare provider, on January 4, 2021. Earlier, in 2019, Magellan had conducted a sale process in which 24 prospective bidders entered confidentiality agreements containing “don’t ask, don’t waive” provisions. These provisions—part of a sale process that was separate from the negotiations that led to the Centene deal—were not fully described in the proxy statement issued in connection with the Centene deal.  A stockholder challenged the 2021 acquisition by Centene, arguing that the don’t-ask, don’t-waive provisions impeded the process leading to the Centene deal and that proxy was materially deficient because the don’t-ask, don’t-waive provisions were not fully disclosed. The plaintiff moved for expedited proceedings and filed a motion for preliminary injunction that was “slightly over a single page,” but never prosecuted or briefed the motion. Magellan provided supplemental disclosures with additional detail on the don’t-ask-don’t-waive provisions and agreed to waive some of the don’t-ask-don’t-waive provisions that remained in effect. No other bidders emerged, and Magellan stockholders approved the merger. The plaintiff agreed these actions mooted his claims and stipulated to dismissal.

The parties were unable to agree on a mootness fees, so the plaintiff filed a motion for counsel an award of US$1.1 million in attorneys’ fees and expenses. Magellan, supported by Professors Sean J. Griffith and Minor Myers as amici curiae, argued the benefits were nominal and warranted fees of only US$75,000–$125,000.

Chancellor McCormick issued a bench ruling authorizing fees of US$75,000. The Court explained that Delaware courts, under the corporate benefit doctrine, allow fee awards to plaintiffs’ counsel for beneficial results produced for the defendant corporation even without a favorable adjudication. However, the court must make an independent determination of the reasonableness of the amount requested, with primary consideration being “the benefit achieved in light of the nature of the claims and the likelihood of success on the merits.”

In analyzing the value of the waiving of the don’t-ask, don’t-waive provisions, the Court noted that “loosening deal protection devices makes topping bids more likely” and that sizeable fees have previously been awarded for challenges to such provisions. In those cases, Delaware courts viewed the attorney’s actions as conferring benefits on the corporation regardless of “whether or not a topping bid actually emerge[d].” Chancellor McCormick noted, however, that the plaintiffs “can only take credit for the increased likelihood of a topping bid . . . due to the plaintiff’s efforts.” Here, the waivers the corporation provided as part of the settlement only increased the number of potential bidders by three, none of which expressed any serious interest in Magellan. Thus, the plaintiff’s efforts had resulted in a very small increase in the likelihood of a topping bid and therefore did not justify a fee award.

With regard to the supplemental disclosures, the court noted that Delaware courts have been increasingly critical of disclosure-only settlements, culminating in Trulia in 2016, where the Chancery Court announced that disclosure-only settlements would be approved only if the disclosures were “plainly material.” Months later, in Xoom, the Chancery Court “ratchet[ed] down the standard from ‘material’ to ‘helpful’ when evaluating a petition for mootness fees based on the issuance of supplemental disclosures. Chancellor McCormick noted that the result of this relaxed standard was a diaspora of deal-litigation in a variety of federal courts, where plaintiffs’ attorneys repackaged their claims for breach of fiduciary duty as federal securities claims.

Referring to these cases as a “merger tax of deal litigation,” the court held that, moving forward, mootness fees would only be granted when the information is “material.” However, because the parties had not argued for a different standard, the court applied the Xoom standard (“helpful”) to the plaintiff’s case, finding that the Supplemental Disclosures were “marginally helpful” and awards the plaintiff US$75,000. The court intoned that this award, which “represents less than Movants’ lodestar . . . should send a signal that these sorts of cases are not worth the attorneys’ time” and that had they “been required to meet the materiality standard, it seems unlikely there would have been any award at all.”