On February 7, 2022, Judge J. Paul Oetken of the United States District Court for the Southern District of New York denied an application by plaintiff’s counsel for attorneys’ fees after plaintiff’s merger-related disclosure claims were “mooted” by defendant Nuance Communications Inc. (“Nuance”). Serion v. Nuance Communications, No. 21-CV-4701 (S.D.N.Y. Feb. 7, 2022). Although the Court found that the lawsuit prompted the company to issue supplemental disclosures, the Court held that the disclosure of this additional information did not confer a “substantial benefit” on shareholders.
The case arose in connection with defendant’s agreement to be acquired by Microsoft Corporation. After the company filed its proxy statement in connection with the merger, plaintiff—a Nuance shareholder—filed suit claiming violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934. Specifically, plaintiff alleged that the proxy omitted material information. Several similar complaints were also filed by other shareholders. Thereafter, defendant filed a supplement to the proxy, which disclosed the allegedly omitted information and “mooted” plaintiff’s claims. Plaintiff’s counsel sought payment of attorneys’ fees from defendant on the basis of the “common benefit” doctrine.
The Court explained that there is no entitlement to such fees unless (i) there is “a causal connection between the lawsuit and the defendant’s action mooting the suit,” and (ii) a “substantial benefit was conferred.” The Court added that to satisfy the “substantial benefit” requirement, a supplemental disclosure “must provide something more than technical in consequence and . . . accomplish[] a result which corrects or prevents an abuse. . . .” The Court noted that it was undisputed that the lawsuits prompted the supplemental disclosure. But the Court found no substantial benefit.
Specifically, the Court held that the supplemental disclosure of certain revenue and other multiples for the public company trading analysis conducted by defendant’s financial advisor did not constitute a substantial benefit. The Court explained that the proxy statement is required to contain a “fair summary” of the financial advisor’s analyses, and the company had already provided a “detailed summary” of the public company trading analysis, including among other metrics the comparable companies, as well as the mean and median multiples for the calculations. The Court also found that the supplemental disclosure of specific research analysts’ price targets—as opposed to the disclosure only of the range—did not alter the “total mix” of information provided and the additional information was also already publicly available.
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Serion v. Nuance Communications
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