Class action; Merger; Settlement Stipulations
By Christina Nguyen | Staff Writer
This application for attorneys’ fees derived from a putative class action based upon a completed merger between plaintiff shareholders and defendants, Medical Action Industries Inc. (“MAI”) and Owens & Minor Inc. (“OMI”). Plaintiffs submitted an application for attorneys’ fees for $925,000.
Plaintiffs’ application for attorneys’ fees is based upon the assertion that the litigation resulted in the procurement of additional disclosure that was previously omitted by corporate directors. Plaintiffs’ believe they procured a substantial benefit to the MAI public shareholders through these disclosures. The key to determining the substantial benefit question is whether the omitted fact(s) were material, such that there is a substantial likelihood that a reasonable stockholder would consider the newly revealed information important in deciding how to vote on a corporate transaction, such as the merger here. Plaintiffs claim that their disclosures produced substantial benefits to MAI and its shareholders, i.e., information about the merger.
Defendants opposed plaintiffs’ application (1) under the American Rule and (2) by stating that the supplemental disclosure was unnecessary. The American Rule requires that an award of fees must be based upon a specific contractual provision or statute. The subject stipulation stated that plaintiffs are permitted to make an application for attorneys’ fees and defendants could challenge the application. Consequently, the court determined that under the stipulation’s terms, the American rule did not control.
With respect to whether the disclosures resulted in a substantial benefit, the court examined each of the disclosures in turn. The court did not believe that the disclosure of one board member’s previous employment by MAI was withheld from shareholders, and agreed with defendants that the board member’s prior employment, which was 10 years prior, was immaterial. With respect to the valuation by a financial advisor, the court found that OWI disclosed said advisors’ valuations. The court further found and agreed that plaintiffs’ disclosure of the relative antitrust risk associated with the merger and information about competing bidders were material.
The court found that a substantial benefit was conferred by some, but not all, of the subject disclosures. To determine the amount of fees to award, the court reviewed: (1) the amount of time and effort applied to the case by counsel for plaintiffs; (2) the relative complexities of the litigation; (3) the standing and ability of petitioning counsel; (4) the contingent nature of the litigation; (5) the stage at which the litigation ended; (6) whether the particular plaintiffs can rightly receive all the credit for the benefit conferred or only a portion thereof; and (7) the size of the benefit conferred. The court awarded plaintiffs’ attorneys’ fees and expenses in the amount of $250,000.
Matter of Medical Action Indus. Inc. Shareholders Litig., Index No. 25075/2015 (Pines, J.).