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Scott v. DST Systems, Inc.

United States District Court, D. Delaware

August 23, 2019

BRIAN SCOTT, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
v.
DST SYSTEMS, INC., STEPHEN C. HOOLEY, GARY D. FORSEE, CHARLES EDGAR HALDEMAN, SAMUEL G. LISS, JEROME H. BAILEY, JOSEPH C. ANTONELLIS, LOWELL L. BRYAN, and LYNN DORSEY BLEIL, Defendants. JAMES D. WILLIAMS, Plaintiff,
v.
DST SYSTEMS, INC., STEPHEN C. HOOLEY, CHARLES E. HALDEMAN, SAMUEL G. LISS, LOWELL L. BRYAN, LYNN D. BLIEL, JEROME H. BAILEY, JOSEPH C. ANTONELLIS, and GARY D. FORSEE, Defendants.

          MEMORANDUM OPINION

          ANDREWS, U.S. DISTRICT JUDGE:

         Presently before me are Plaintiff Brian Scott's Motion for Attorney Fees[1] (C.A. 18-286, D.I. 19) and Plaintiff James Williams's Motion for Attorney Fees (C.A. 18-322, D.I. 7). The Parties have briefed the motions (C.A. 18-286, D.I. 20, 25, 28; C.A. 18-322, D.I 8, 16, 19) and submitted supplemental briefing at my request (C.A. 18-286, D.I. 32, 33; C.A. 18-322, D.I. 23, 26). Scott seeks $115, 000. (C.A. 18-286, D.I. 20 at 1). Williams seeks $100, 000. (C.A. 18-322, D.I. 8 at 24). For the reasons discussed more fully below, I will deny Plaintiffs' motions.

         I. Background

         These cases stem from the March 28, 2018 merger of DST Systems, Inc. ("DST") with SS&C Technologies, Inc. ("SS&C"). (D.I. 20 at 1-3).[2] The DST Board initiated the transaction on January 11, 2018 when it entered into an agreement and plan of merger with SS&C. (Id. at 1). SS&C was to acquire DST for $84.00 per share of common stock. (Id.). The merger was valued at $5.4 billion. (D.I. 1 at ¶ 25). Defendants issued a preliminary proxy statement describing the details of the transaction on February 7, 2018. (D.I. 25 at 1). Three lawsuits, two in this court and another in Missouri, were filed within weeks.[3] (Id.). The lawsuits alleged that the preliminary proxy statement omitted material information in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934. (Id.; see also D.I. 1). DST filed its definitive proxy statement ("Proxy") with the SEC on February 27, 2018. (D.I. 25 at 5). Two weeks later DST voluntarily issued a supplemental disclosure ("Supplement") to moot the pending lawsuits. (Id.). The Plaintiffs agreed that the supplemental disclosures mooted their lawsuits and began pursuit of attorneys' fees. (Id. at 6). These motions followed.

         II. Legal Standard

         A. Claims Under Section 14(a)

         Section 14(a) of the Securities Exchange Act of 1934 renders it unlawful to seek proxies in violation of "such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors." 15 U.S.C. § 78n(a)(1). Rule 14-a9, promulgated by the SEC pursuant to Section 14(a), provides:

No solicitation subject to this regulation shall be made by means of any proxy statement. . . which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.

17 C.F.R. § 240.14a-9. There is a private cause of action under Section 14(a). J. I. Case Co. v. Borak, 377 U.S. 426, 431 (1964). In the Third Circuit, to prevail in such an action a plaintiff must prove:

(1) a proxy statement contained a material misrepresentation or omission which (2) caused the plaintiff injury and (3) that the proxy solicitation itself, rather than the particular defect in the solicitation materials, was an essential link in the accomplishment of the transaction.

Gen. Elec. Co. by Levit v. Cathcart, 980 F.2d 927, 932 (3d Cir. 1992) (quotation marks omitted).

An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. This standard is fully consistent with Mills general description of materiality as a requirement that "the defect have a significant propensity to affect the voting process." It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available.

TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976) (emphasis in original).

         A "determination of materiality concerns a mixed question of law and fact, involving as it does the application of a legal standard to a particular set of facts." Gen. Elec. Co., 980 F.2d at 932 (internal quotation marks omitted). "[M]ateriality depends on the significance the reasonable investor would place on the withheld or misrepresented information." Basic Inc. v. Levinson, 485 U.S. 224, 240 (1988). Thus, whether information is material in "any particular case . .. depends on the facts." Id. at 239. "Only if the established omissions are so obviously important to an investor, that reasonable minds cannot differ on the question of materiality is the ultimate issue of materiality appropriately resolved as a matter of law. . .." TSC Indus., Inc., 426 U.S. at 450 (quotation marks omitted).

         B. Attorneys' Fees

         "[T]he traditional American rule disfavors the award of attorney's fees in the absence of statutory or contractual authorization." Polonski v. Trump Taj Mahal Assocs.,137 F.3d 139, 145 (3d Cir. 1998). A court may, however, exercise its equitable powers to award attorneys' fees to a litigant who "successfully maintained a suit, usually on behalf of a class, that benefits a group of others in the same manner as himself." Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 392 (1970). "This well recognized exception, known as the 'common benefit' or 'common fund' equitable doctrine, is premised upon the rationale that it would be unfair to require one party to bear the entire expense which results in the benefit to a large class of persons." Cooperstock v. Pennwalt Corp., 820 F.Supp. 921, 923 (E.D. Pa. 1993). This doctrine applies when three elements are satisfied: "(1) the plaintiff must confer a substantial benefit; (2) to members of an ascertainable class; and (3) the court must ensure that the costs are proportionally spread among that class." Polonski, 137 F.3d at 145. Moreover, when a suit is ...


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