Allen v. Harvey, C.A. No. 2022-0248-MTZ (Del. Ch. Oct. 30, 2023)

Delaware cases provide guidance on the standard for evaluating the “corporate benefit” from supplemental disclosures in advance of a stockholder vote – and the fees that should be awarded to plaintiffs for prompting such disclosures. This case involved supplemental disclosures of potential sources of conflicts held by a special committee’s chair and advisors in advance of a merger vote. The Court held that such disclosures were not extraordinary, but they still warranted a proportional fee award.

Under the “mootness exception” to the American Rule, courts will award plaintiffs fees where defendants take actions to moot the claims, and those actions create a benefit to the corporation. In the context of the disclosure-based mootness fee, the Courts determine whether the disclosure was material to stockholders and evaluate the reasonableness of the fee sought. Here, the Court found disclosures concerning the alleged conflicts of the transaction committee’s chair and advisors to be material to the stockholders voting on the merger. Plaintiffs in this case requested a fee award of at least $600,000. The Court explained that the lower bound for minimally beneficial disclosures was $75,000, and the upper bound for meaningfully beneficial disclosures was $450,000, but extraordinary disclosures could draw $600,000 in fees. After reviewing fees awarded in comparable cases, the Court determined that the appropriate amount to award in this case was $450,000. While they provided a benefit, the Court reasoned that the disclosures here were not exceptionally valuable because, unlike in some prior cases, they did not prevent coercion, alter the perception of whether the vote was a foregone conclusion, or inform stockholders that the conflicts had any effect on the process. Thus, the Court found the disclosures here to be remarkable, but not extraordinary, and awarded the fees accordingly.