CITY OF MIAMI GENERAL EMPLOYEES' AND SANITATION EMPLOYEES' RETIREMENT TRUST, on behalf of itself and on behalf of all others similarly situated, Plaintiff,
C&J ENERGY SERVICES, INC., JERRY M. COMSTOCK, JR., as Independent Executor of the Estate of Joshua E. Comstock, RANDALL C. MCMULLEN, DARREN M. FRIEDMAN, ADRIANNA MA, MICHAEL ROEMER, C. JAMES STEWART, III, H.H. "TRIPP" WOMMACK, III, THEODORE "TED" MOORE, NABORS INDUSTRIES LTD., and NABORS RED LION LIMITED, and MORGAN STANLEY & CO. LLC Defendants.
Submitted: October 13, 2017
M. Grant and Mary S. Thomas, GRANT & EISENHOFER P.A.,
Wilmington, Delaware; Mark Lebovitch, Jeroen van Kwawegen,
and Christopher J. Orrico, BERNSTEIN LITOWITZ BERGER &
GROSSMANN LLP, New York, New York, Attorneys for Plaintiff.
Stephen C. Norman, Michael A. Pittenger, and Jaclyn C. Levy,
POTTER ANDERSON & CORROON LLP, Wilmington, Delaware;
Michael C. Holmes, Craig E. Zieminski, Olivia D. Howe, and
Meriwether Evans, VINSON & ELKINS LLP, Dallas, Texas,
Attorneys for Defendants C&J Energy Services, Inc., Jerry
M. Comstock, Jr., as Independent Executor of the Estate of
Joshua E. Comstock, Randall C. McMullen, Darren M. Friedman,
Adrianna Ma, Michael Roemer, C. James Stewart, III, H.H.
"Tripp" Wommack, III, and Theodore "Ted"
William M. Lafferty, MORRIS, NICHOLS, ARSHT & TUNNELL
LLP, Wilmington, Delaware, Attorneys for Defendants Nabors
Industries Ltd. and Nabors Red Lion Limited.
this case, a stockholder of C&J Energy Services, Inc.
("C&J Inc.") seeks an award of $5 million in
attorneys' fees for plaintiff's alleged role in
reducing the amount of cash that C&J Inc. needed to pay
Nabors Industries Ltd. ("Nabors") in connection
with a transaction that closed in March 2015. The beneficiary
of the price reduction was C&J Inc. and, indirectly, all
of its stockholders.
vigorously dispute that plaintiff's complaint had any
merit when it was filed or that its lawsuit caused the price
reduction in any way. According to defendants, the sole
reason the C&J Inc. board negotiated for the price
reduction was to secure stockholder approval of the
transaction, which was threatened because of a dramatic
decline in oil and natural gas prices that impacted the
economic merits of the transaction after it was originally
application also arises in an odd posture. It was filed after
C&J Inc. went through a bankruptcy proceeding discharging
it from any potential liability for a fee award. As a result,
plaintiff asks the court to require that the estate of Joshua
Comstock pay the full amount of any fee award. Before his
untimely death, Comstock was C&J Inc.'s CEO and
Chairman of the Board, who owned approximately 11% of C&J
Inc.'s shares before the transaction and who was
plaintiff's primary target in this litigation. Thus,
plaintiff's application presents a novel question:
whether a plaintiff may target a particular stockholder or
subset of stockholders to pay a fee award when the alleged
benefit redounded to the benefit of all stockholders.
reasons discussed below, I conclude that plaintiff's fee
application must be denied for two independent reasons: (1)
because defendants successfully rebutted the presumption that
plaintiff's litigation efforts caused the price
reduction, and (2) because plaintiff's demand that
Comstock's estate (or any of C&J Inc.'s other
directors) pay a fee award is inconsistent with the rationale
of the corporate benefit doctrine and would be inequitable.
factual background and procedural history of this litigation
are discussed in detail in earlier opinions of the Delaware
Supreme Court and this court. The court assumes the
reader's familiarity with those opinions and recites
below only those facts directly relevant to the pending
25, 2014, C&J Inc. and Nabors entered into a merger
agreement to combine C&J Inc. with certain business
segments of Nabors. The transaction was structured as a
merger between C&J Inc. and a wholly-owned subsidiary of
Nabors Red Lion Limited, which was wholly-owned by Nabors.
C&J Inc. was the surviving entity of the merger. Nabors
Red Lion Limited was renamed C&J Energy Services, Ltd.
("C&J Ltd.") after the merger. Under the
original terms of the proposed transaction, Nabors was to
receive approximately $938 million in cash from C&J Inc.
and approximately 53% of the shares of C&J Ltd., and the
public stockholders of C&J Inc. were to receive
approximately 47% of the shares of C&J Ltd. The
relationship between the relevant entities after the merger
is depicted below in simplified form:
30, 2014, plaintiff filed its original complaint, asserting
that C&J Inc.'s directors breached their fiduciary
duties in negotiating and approving the proposed transaction
with Nabors. The named defendants were C&J Inc., the
seven members of its board, its Executive Vice President and
General Counsel, Nabors, and Nabors Red Lion Limited, which
became C&J Ltd. after the merger.
November 25, 2014, the court issued a preliminary injunction
enjoining the proposed transaction from closing until after
C&J Inc. solicited alternative proposals to purchase the
company during a thirty-day period. A special committee of
the C&J Inc. board was formed to undertake the
solicitation process. During that process, on December 11,
2014, Cerberus Capital Management made a proposal to combine
C&J Inc. with Keane Energy, one of Cerberus'
December 18, 2014, during a special meeting of the C&J
Inc. board, certain directors asked Comstock to provide an
update on "any attempts to negotiate a reduction in the
purchase price [of the Nabors transaction] in light of
changing market conditions." The board minutes state that
"Mr. Comstock explained that he had initiated such
negotiations with Nabors and anticipated additional
discussions prior to an agreement on any reduction in
purchase price." The next day, on December 19, 2014, the
Delaware Supreme Court reversed the Court of Chancery's
decision and lifted the preliminary injunction, reinstating
the no-shop provision in the merger agreement.
February 6, 2015, C&J Inc. and Nabors reached an
agreement to reduce the cash portion of the consideration
C&J Inc. would pay to Nabors by $250 million ("Price
Reduction"), from approximately $938 million to $688
million. The proxy statement for the proposed transaction
explained the circumstances surrounding the Price Reduction,
Following significant dislocation in oil and natural gas
prices that began in late 2014 and continued into 2015, and
as a result of concerns that C&J shareholders would not
support the Transactions on the terms set forth in the
Original Merger Agreement and Original Separation Agreement
in light of such price changes, in late 2014, Messrs.
Petrello and Comstock entered into discussions with respect
to a restructuring of the Transaction that would reduce the
amount of cash paid to Nabors at closing. Discussions
continued through February 2015.
receiving the approval of over 97% of the C&J Inc.
stockholders who voted, the transaction closed in March 2015.
the next seven months after the transaction closed, plaintiff
made little effort to advance its claims. The primary
activity during this period concerned defendants' efforts
to collect damages against a $650, 000 bond plaintiff had
posted as a condition to entry of the preliminary injunction.
October 29, 2015, plaintiff amended its complaint. On August
24, 2016, the court granted defendants' motions (i) to
dismiss the amended complaint and (ii) to recover
approximately $542, 000 in damages against the injunction
meantime, on July 20, 2016, C&J Inc., C&J Ltd., and
certain other affiliated entities (the "Debtors")
filed for bankruptcy protection in the United States
Bankruptcy Court for the Southern District of Texas. On
September 25, 2016, the bankruptcy court entered an order
setting November 8, 2016 as the bar date for submitting
proofs of claim for any "claim against the Debtors that
arose before the Petition Date, " i.e., before
July 20, 2016. The order further provides that any person
"who is required, but fails, to file a Proof of Claim in
accordance with the Bar Date order on or before the
applicable Bar Date shall be forever barred, estopped, and
enjoined from asserting such claim against the Debtors"
and that "the Debtors and their property shall be
forever discharged from any and all indebtedness or liability
with respect to or arising from such
fee claim accrued in February 2015, when the Price Reduction
was secured. Accordingly, plaintiff was required to
file a proof of claim by November 8, 2016 if it wished to
obtain a recovery for its fee claim from C&J Inc. or
C&J Ltd. It is undisputed that plaintiff never filed such
a proof of claim.
December 9, 2016, plaintiff informed the bankruptcy court
that it was not objecting to the confirmation of a proposed
plan of reorganization but was reserving its rights
"with respect to pursuing any claims against defendants
in [this action] other than the Debtors, the Reorganized
Debtors, or their Estates." On December 16, 2016, the
bankruptcy court approved the proposed plan of
reorganization, discharging the Debtors of any responsibility
for plaintiff's fee application.
March 23, 2017, the Delaware Supreme Court affirmed this
court's dismissal of plaintiff's amended complaint
and its grant of defendants' motion to recover damages
against the injunction bond. On April 7, 2017, plaintiff
filed the present motion for an award of attorneys' fees
October 13, 2017, the court heard argument on plaintiff's
application for a fee award and on defendants' request
for release of the balance of the injunction
bond. At the conclusion of the hearing, the
court ruled in defendants' favor concerning the
injunction bond, and took the fee application under
contends that it is entitled to a $5 million fee award for
playing a role in causing the Price Reduction. According to
plaintiff, its "original complaint created the pressure
that led to the injunction, the solicitation process and
[the] Cerberus Bid that played a role in the Price Reduction
and the improvement of the Merger terms." In
plaintiff's view, the $250 million Price Reduction is
"akin to a common fund, ...