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Sciabacucchi v. Salzberg

Court of Chancery of Delaware

July 8, 2019

MATTHEW SCIABACUCCHI, on behalf of himself and all others similarly situated, Plaintiff,
v.
MATTHEW B. SALZBERG, JULIE M.B. BRADLEY, TRACY BRITT COOL, KENNETH A. FOX, ROBERT P. GOODMAN, GARY R. HIRSHBERG, BRIAN P. KELLEY, KATRINA LAKE, STEVEN ANDERSON, J. WILLIAM GURLEY, MARKA HANSEN, SHARON MCCOLLAM, ANTHONY WOOD, RAVI AHUJA, SHAWN CAROLAN, JEFFREY HASTINGS, ALAN HENDRICKS, NEIL HUNT, DANIEL LEFF, and RAY ROTHROCK, Defendants, and BLUE APRON HOLDINGS, INC., STITCH FIX, INC., and ROKU, INC.,

          Date Submitted: April 30, 2019

          Kurt M. Heyman, Melissa N. Donimirski, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware; Jason M. Leviton, Joel A. Fleming, BLOCK & LEVITON LLP, Boston, Massachusetts; Counsel for Plaintiff.

          William B. Chandler III, Randy J. Holland, Bradley D. Sorrels, Lindsay Kwoka Faccenda, WILSON SONSINI GOODRICH & ROSATI, P.C., Wilmington, Delaware; Boris Feldman, David J. Berger, WILSON SONSINI GOODRICH & ROSATI, P.C., Palo Alto, California; Counsel for Defendants Katrina Lake, Steven Anderson, J. William Gurley, Marka Hansen, Sharon McCollam, Anthony Wood, Ravi Ahuja, Shawn Carolan, Jeffrey Hastings, Alan Hendricks, Neil Hunt, Daniel Leff, Ray Rothrock, and Nominal Defendants Stitch Fix, Inc. and Roku, Inc.

          Catherine G. Dearlove, Sarah T. Andrade, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Michael G. Bongiorno, WILMER CUTLER PICKERING HALE AND DORR LLP, New York, New York; Timothy J. Perla, WILMER CUTLER PICKERING HALE AND DORR LLP, Boston, Massachusetts; Counsel for Defendants Matthew B. Salzberg, Julie M.B. Bradley, Tracy Britt Cool, Kenneth A. Fox, Robert P. Goodman, Gary R. Hirshberg, and Brian P. Kelley, and Nominal Defendant Blue Apron Holdings, Inc.

          MEMORANDUM OPINION

          LASTER, V.C.

         Before their initial public offerings, the three nominal defendants adopted provisions in their certificates of incorporation that required any claim under the Securities Act of 1933 to be filed in federal court (the "Federal Forum Provisions"). The plaintiff challenged the validity of the provisions, and the parties cross-moved for summary judgment. This court held that the provisions are ineffective (the "Merits Decision"). See Sciabacucchi v. Salzberg, 2018 WL 6719718 (Del. Ch. Dec. 19, 2018).

         Relying on the benefit conferred by the Merits Decision, the plaintiff applied for an all-in award of attorneys' fees and expenses in the amount of $3 million. The defendants opposed the award, arguing that the plaintiff should receive at most $364, 723 plus expenses.

         The controlling authority governing fee awards is Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980). In that decision, the Delaware Supreme Court identified factors for this court to consider when determining a reasonable fee. See id. at 149-50. More recently, the Delaware Supreme Court has summarized the relevant factors concisely: "1) the results achieved; 2) the time and effort of counsel; 3) the relative complexities of the litigation; 4) any contingency factor; and 5) the standing and ability of counsel involved." Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1254 (Del. 2012).

         "In determining the size of an award of attorney's fees, courts assign the greatest weight to the benefit achieved by the litigation." Franklin Balance Sheet Inv. Fund v. Crowley, 2007 WL 2495018, at *8 (Del. Ch. Aug. 30, 2007). "Secondary factors include the complexity of the litigation, the standing and skill of counsel, and the contingent nature of the fee arrangement together with the level of contingency risk actually involved in the case." Olson v. ev3, Inc., 2011 WL 704409, at *8 (Del. Ch. Feb. 21, 2011). "Hours worked are considered as a crosscheck to guard against windfall awards, particularly in therapeutic benefit cases." Id.

         If the benefit is quantifiable, then "Sugarland calls for an award of attorneys' fees based upon a percentage of the benefit." Ams. Mining, 51 A.3d at 1259. The Americas Mining decision provided guideline ranges for this court to consider when awarding fees. Id. at 1259-60. Selecting an appropriate percentage requires an exercise of judicial discretion, but the use of guideline ranges helps promote consistent awards so that similar cases are treated similarly. See id. at 1261.

         In cases where the value of the benefit is not easily quantified, this court often looks to "[p]recedent awards from similar cases." Olson, 2011 WL 704409, at *8. Like the use of guideline ranges, reliance on precedent promotes fairness and fulfills the equitable principle that "like cases should be treated alike."[1]

         1. The Results Achieved

         In this case, the plaintiff achieved a significant and substantive result by successfully invalidating the Federal Forum Provisions. Because the value of the relief is non-quantifiable, the plaintiff looked to precedent to determine an appropriate fee. He found an analogous case in the litigation that generated the principal authority on which the Merits Decision relied: Boilermakers Local 154 Retirement Fund v. Chevron Corp., 73 A.3d 934 (Del. Ch. 2013). The plaintiffs in the Boilermakers litigation and their affiliates initially sued eleven different companies that had adopted bylaw provisions that selected the courts of the State of Delaware as the exclusive forum for internal-affairs claims. They also sued four other companies that had proposed to adopt comparable provisions in their certificates of incorporation.

         After the plaintiffs filed suit, nine of the companies that had adopted bylaw provisions voluntarily eliminated them. The four companies that had proposed to adopt charter-based provisions voluntarily withdrew their proposals. Two of the companies that had adopted exclusive-forum bylaws stood by their provisions, and the litigation over those provisions eventually generated the Boilermakers decision.

         By voluntarily withdrawing their provisions and proposals, the other thirteen companies mooted the plaintiffs' challenges and provided the plaintiffs with a basis to seek a fee award. The plaintiffs approached the companies to discuss an aggregate award, and six of the defendants made a joint offer back to the plaintiffs. See In re Exclusive Forum Provision Mootness Fee Petitions (Exclusive Forum), Consol. C.A. No. 7216-CS, at 17- 18 (Del. Ch. May 29, 2012) (TRANSCRIPT). After further discussion, defense counsel asked the plaintiffs to reframe their request as a per-company figure. See id. at 56.

         The settlement discussions eventually broke down, and the plaintiffs filed a fee petition against each company. In their petitions, the plaintiffs requested an award of $400, 000 for each company that had withdrawn a bylaw, for a total award of $3.6 million from those defendants. The plaintiffs requested $500, 000 for each company that had withdrawn a charter provision, for a total award of $2 million from those defendants. See id. at 56-57. The petitions were later consolidated into a single proceeding.

         Chief Justice Strine, then serving as Chancellor, convened an office conference to discuss the petitions. The bulk of the conference focused on the plaintiffs' request for a total of $3.6 million from the nine defendants who had withdrawn their bylaw provisions. See Exclusive Forum, Consol. C.A. No. 7216-CS, at 34, 56-57. Then-Chancellor Strine described this figure as "nothing at all shocking" and something that did not "strike [him] as absurd when you think about it globally." Id. at 31, 37. He pointed out that the plaintiffs had taken on "a hotly contested, open issue" and that the defendants "gave them their victory." Id. at 11, 13; see id. at 59.

         The Chancellor also explained that the plaintiffs' request appeared reasonable when judged against fee awards in other therapeutic benefit situations:

Here, let's not pretend -- there's one simple reason why the defendants themselves can't say that this is an insubstantial issue. It's because their own clients chose to make it a bylaw; right? So there's a certain dignity to a ...

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