The Delaware Court of Chancery recently held that certain stockholders who launched appraisal proceedings challenging a merger lacked standing to obtain reimbursement of attorneys’ fees from a $10.7 million settlement in a separate class action challenging the same merger. In 2010, a group of stockholders (Appraisal Claimants) of Orchard Enterprises, Inc. perfected their appraisal rights after Orchard effected a cash-out merger with its controlling stockholder, Dimensional Associates, LLC. In 2012, while the appraisal proceeding was pending, a group of minority stockholders filed a class action alleging that Dimensional and members of Orchard’s board of directors breached their fiduciary duty when they negotiated the merger. Although the Appraisal Claimants did not seek to intervene in or take part in the class action, after the settlement in the class action, they sought an award of attorneys’ fees for their counsel in the initial appraisal proceeding.
Although the court held that the appraisal proceeding contributed in some measure to the settlement in the class action, the court nevertheless held that the Appraisal Claimants lacked standing to obtain a fee award. The court found that the Appraisal Claimants pursued their own interests and chose not to join or take part in the class action. The court emphasized that the Appraisal Claimants chose not to represent a class or extend the benefits of their efforts to the other stockholders. The court stated, “That was a perfectly acceptable choice, but it carries a consequence: Under the circumstances, the Appraisal Claimants and their counsel lack standing to obtain a fee award.”
In re Orchard Enterprises Inc. Stockholder Litig., No. 7840-VCL (Del. Ch. Aug. 22, 2014).