We haven’t spent enough time in the Lone Star State to know whether everything really is bigger in Texas. But when it comes to plaintiffs attorney fees in shareholder M&A cases, it looks like there may be some truth to the cliche.
A state appellate court in Texas on Thursday awarded 21 plaintiffs firms $8.8 million in fees for their work on shareholder lawsuits challenging Exxon Mobil Corporation’s $41 billion acquisition of XTO Energy. The litigation settled in 2010 with no change in the merger price or closing date. As in the majority of merger challenges that survive at all, the plaintiffs succeeded only in winning additional disclosures to investors.
Contrast the Texas decision with rulings by the Delaware Court of Chancery, which is still Mecca for shareholder merger challenges, and it’s clear why the $8.8 million award amounts to a coup by lead plaintiffs counsel Brower Piven, Fort Worth solo W. Kelly Puls and Grant & Eisenhofer. While the Delaware court has garnered attention for a recent $305 million fee award, in disclosure-only cases it has often awarded fees of just $400,000 to $500,000, according to a decision by Vice Chancellor Travis Laster in May 2010. The biggest fee Laster cited in a disclosure case, a $1.2 million award in 2007, he deemed “exceptional.”
The Texas decision modifies a lower court ruling by District Court Judge Bonnie Sudderth in Fort Worth awarding the plaintiff firms just $3.97 million. Judge Sudderth had rejected the plaintiffs lawyers’ full $8.8 million request–which Exxon agreed to pay as part the settlement–after calling the plaintiffs’ firms hourly charges “excessive” and noting that the settlement did not result in a change in the merger terms or the premium Exxon paid.
Justice Lee Gabrial of the Court of Appeals for the Second District of Texas, writing for the 4-1 majority, concluded that the lower court “abused its discretion by failing to calculate an appropriate lodestar and adjusting it accordingly.” A fifth judge dissented, contending that Judge Sudderth had not abused her discretion.
Charles Piven of Brower Piven, co-lead counsel for the plaintiffs, told us that Thursday’s ruling in the XTO case may have set a record for fee awards in disclosure-only cases. “I don’t know of any disclosure fee that’s larger than that,” he said.
The decision comes at a critical juncture for the Delaware Chancery, which has welcomed a crush of shareholder cases challenging recent mergers but also faces increased competition by courts in other states. Plaintiffs lawyers have increasingly brought merger suits not just in Delaware, where companies are often incorporated, but also in the states where companies are headquartered.
XTO counsel Charles Schwartz of Skadden, Arps, Slate, Meagher & Flom and Exxon counsel Lawrence Portnoy of Davis Polk & Wardwell both declined to comment.