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Preserving the Benefits of a Model Appraisal Rights Case
Delay of payments to eligible appraisal rights claimants
Burdens of payments for legal services
The Dell appraisal case that has been widely viewed a model of how
investors can realize fair value now appears to be developing into an
example of what can go wrong. Last week there was a flurry of twelve
court filings, including four on the pre-holiday Friday, about how
much money should be given to everyone other than the investors who
are eligible for appraisal rights.[1]
Controversy has been focused on the fee application of Grant &
Eisenhofer (“G&E”), the firm that was appointed Lead Counsel. They are
asking the court for an order that would make the eligible appraisal
claimants responsible for paying the firm’s proposed charges, with no
charges to the firm’s direct clients that were found to be ineligible
for appraisal rights. The amount of G&E’s proposed legal fees and
expenses is $7,999,912.78, or approximately $1.45 per share if charged
only to the 5,505,730 eligible shares, and not to the firm’s
ineligible clients.[2]
Bearing some responsibility for having supported the appointment of
G&E as Lead Counsel, I feel compelled now to seek your views – those
of you who relied upon Forum support in the Dell case as well as those
of you with interests in future applications of appraisal rights –
regarding the issues summarized below.
Delay of payments to eligible appraisal rights claimants
The fight over legal fees appears to be the only open issue that is
delaying the court’s issuing a final order for the distribution of
payments to eligible claimants.[3]
We should assume that without this diversion the required court order
could be issued within a few days. The lawyers on both sides have in
fact demonstrated their ability to resolve whatever was required to
get such an order within only two days to pay G&E’s clients that were
determined to be not eligible for appraisal rights.[4]
In this context, it has also been noted that G&E has demonstrated
their ability to act quickly as Lead Counsel in their numerous filings
relating to their fees, including those of the last week as well as
their previously referenced fee application that was filed on June 2,
2016, within only two days of the court’s May 31 valuation decision[5]
that provided the basis for a fee.
Burdens of payments for legal services
While G&E’s proposal to shift the burden of payments from their
clients to non-client claimants was clearly inappropriate, it had
initially seemed fair to allocate the costs – those that the court
finds reasonable – ratably based on all shares that G&E was appointed
to serve as Lead Counsel.[6]
Recent observations, though, have raised questions about whether
anyone other than the clients that G&E was directly engaged to
represent should be required to pay for the firm’s services.
These are some of the issues that may justify consideration:
1.
Whether G&E has effectively served non-client claimants:
Although it has been suggested that the benefits G&E asserts claimants
realized from its services as Lead Counsel should be questioned, based
on the court’s stated rejection of the expert views they presented and
reliance instead on what Dell presented for the court’s development of
its own valuation, this kind of debate is not likely to serve any
productive purpose. We should instead simply credit G&E for what
appeared to be a genuine effort to support a high valuation.
After the valuation trial, however, once it was determined that most
of G&E’s direct clients were no longer eligible claimants, it does
appear that G&E has devoted efforts to serve those clients in
preference to the eligible claimants. The “secret settlement” they
negotiated for the benefit of their dismissed clients has raised many
questions,[7]
but even if it is assumed that these have no relevance to the eligible
claimants it is clear that G&E negotiated a payment for its
ineligible direct clients of $28 million in excess of what the Court
determined was required[8]
– about $.88 per share[9] – and
nothing for eligible claimants that G&E was assumed to be
serving as Lead Counsel.
As indicated in the next point, G&E’s design of the fee application
itself presents similar issues of addressing the interests of their
clients over those of non-client claimants.
2.
Allocation of payments for services provided as Lead Counsel:
To the extent that services provided by G&E as Lead Counsel for the
benefit of appraisal claimants can be identified separately from the
services they provided to clients who engaged them directly, it must
be decided who should be paying for whatever the court determines to
be reasonable charges for those Lead Counsel services.
Assuming even the full G&E proposal of $7,999,912.78 for purposes of
illustration, allocating that amount to the total 36,557,860 shares[10]
Lead Counsel was representing through the valuation trial and
post-trial briefing would reduce the cost borne by all investors to
only $0.22 per share. This compares with the $1.45 per share that G&E
is seeking by allocating their proposed charges only to the 5,505,730
shares held by remaining eligible claimants, without imposing any of
the burden on their clients.
3.
Refusals to respect Consolidation Order:
As noted in the current motion papers as well as past Forum
communications, G&E had repeatedly refused to follow the requirements
of consultation and coordination with all petitioners established in
court’s Consolidation Order as a condition of the firm’s appointment
to serve as Lead Counsel. To the extent that G&E has not respected
these conditions of the court’s Order, it may be appropriate to reduce
or eliminate the fees intended to reward services as Lead Counsel.
4.
Questions about whether direct clients are paying for services:
It has been noted that G&E carefully stated in one of its initial
responses to discovery demands relating to its fee application that
the firm had not and would not be receiving any expense
reimbursements from T Rowe Price,[11]
but neither G&E nor T Rowe Price has reported anything about payments
for other purposes such as fees for services that may be related
directly or indirectly to the appraisal case, or attributable to the
separate settlement negotiated for the benefit of ineligible clients.
Responsible management principles would require determining that
charges are not being duplicated, or shifted among clients. It is
assumed that the information required to review this issue will be
provided before the court is asked to make any decisions.
5.
Refusals to explain or document charges:
Although G&E had initially promised to provide relevant documentation
of their charges voluntarily, they subsequently refused to do so,
either voluntarily or in response to formal discovery demands.[12]
If neither claimants nor the court will be able to review conventional
supporting records and explanations, it is assumed that the charges
cannot be approved.
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Please offer your views of these or any other issues you consider
relevant to a resolution of the current controversies. This is a case
in which the court has so far supported your interests in realizing
the fair value of corporate investment, and we should assume that its
disposition of the issues relating to legal services will be designed
to preserve those interests.
GL – July 6, 2016
Gary Lutin
Chairman, The Shareholder Forum
575 Madison Avenue, New York, New York 10022
Tel: 212-605-0335
Email:
gl@shareholderforum.co
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