COURT OF CHANCERY OF THE SAM GLASSCOCK III VICE CHANCELLOR STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE 34 THE CIRCLE GEORGETOWN, DELAWARE 19947
Date Submitted: May 20, 2024 Date Decided: August 30, 2024
Ned Weinberger, Esq. Edward B. Micheletti, Esq. Michael C. Wagner, Esq. Arthur R. Bookout, Esq. LABATON KELLER SUCHAROW LLP Matthew P. Majarian, Esq. 222 Delaware Avenue, Suite 1510 Peyton V. Carper, Esq. Wilmington, Delaware 19801 SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Thomas Curry, Esq. One Rodney Square SAXENA WHITE P.A. 920 North King Street 824 North Market Street, Suite 1003 Wilmington, Delaware 19899 Wilmington, Delaware 19801 Brock E. Czeschin, Esq. Joseph L. Christensen, Esq. Matthew D. Perri, Esq. Meghan D. Dougherty, Esq. Kevin M. Kidwell, Esq. CHRISTENSEN & DOUGHERTY LLP Mari Boyle, Esq. 1201 North Market Street, Suite 1404 RICHARDS, LAYTON & FINGER, P.A. Wilmington, Delaware 19801 One Rodney Square 920 North King Street A. Thompson Bayliss, Esq. Wilmington, Delaware 19801 Christopher F. Cannataro, Esq. Florentina D. Field, Esq. David E. Ross, Esq. ABRAMS & BAYLISS LLP Roger S. Stronach, Esq. 20 Montchanin Road, Suite 200 ROSS ARONSTAM & MORITZ LLP Wilmington, Delaware 19807 1313 North Market Street, Suite 1001 Wilmington, Delaware 19801
Re: In re Sculptor Capital Management, Inc. Stockholder Litigation, C.A. No. 2023-0921-SG Dear Counsel:
Before me currently is Plaintiff Gilles Beauchemin’s application for
attorneys’ fees in connection with a cash settlement and other benefits reached in
this action. That settlement resolved derivative claims relating to a merger (the
“Merger”) between Rithm Capital Corp. (“Rithm”) and Sculptor Capital
Management, Inc. (“Sculptor”). The underlying putative class action alleged, inter
alia, that Sculptor’s board of directors (the “Board”) and a special committee thereof
(the “Special Committee”) breached their fiduciary duties in connection with a
merger agreement with Rithm, because the Board locked up a sale of Sculptor to a
favored bidder despite a consortium of bidders (“Saba”) placing a higher bid. 1
Plaintiff initiated this action on September 11, 2023, by filing a verified class
action complaint along with a motion to expedite and a motion for a preliminary
injunction. 2 I denied Plaintiff’s motion to expedite at that time given the ongoing
nature of the negotiations between the Special Committee and bidders.3 Plaintiff
amended his complaint and renewed his motion to expedite on October 16, 2023.4
The next day, Daniel S. Och, Harold A. Kelly, Jr., Richard Lyon, James O’Connor,
1 See Am. Class Action Compl. for Inj. Relief ¶¶ 1–3, Dkt. No. 87. 2 See Verified Class Action Compl. for Inj. Relief, Dkt. No. 1; Pl.’s Mot. to Expedite, Dkt. No. 1; Pl.’s Mot. for Prelim. Inj., Dkt. No. 1. 3 09-26-23 Tr. of Tel. Oral Arg. and Rulings of the Ct. on Pl.’s Mot. to Expedite 44–45, Dkt. No. 26. 4 See Verified Am. and Suppl. Class Action Compl. for Inj. Relief, Dkt. No. 28; Pl.’s Renewed Mot. to Expedite, Dkt. No. 29. 2 and Zoltan Varga (the “Founders”) filed a separate class action that sought to enjoin
the Merger. 5 The matter was expedited on October 17, 2023, and a preliminary
injunction hearing was set for November 9, 2023. 6 However, on October 27, 2023,
the Founders settled their individual claims against Defendants.7 In response, on
October 29, 2023, Plaintiff filed a second amended complaint to add the Founders
as defendants in this action. 8 The hearing on the preliminary injunction was
rescheduled for November 14, 2023.9 That preliminary injunction hearing did not
occur because the parties reached an agreement-in-principle inside the Kent County
Courthouse just before the hearing was to take place. 10
On May 20, 2024, I approved the settlement for the class and the incentive
award for Plaintiff.11 The common fund created by the settlement is $6.5 million
(the “Settlement Fund”).12 Plaintiff, for his part, requests that his attorneys be
5 See Och v. Engel, C.A. No. 2023-1043-SG (Del. Ch. Oct. 17, 2023). 6 See Granted ([Proposed] Ord. to Pl.’s Renewed Mot. to Expedite), Dkt. No. 30. Plaintiff and Founder’s respective class actions were consolidated on October 23, 2023. See Granted (Stipulation and [Proposed] Ord. Consol. Related Actions), Dkt. No. 43. 7 See Letter to The Honorable Sam Glasscock from Edward B. Micheletti, Esq., advising of revised merger terms and enclosing Defs. and Founder Gp.’s Stipulation and [Proposed] Ord. Regarding Dismissal of the Founder Gp., Dkt. No. 78. 8 See Am. Class Action Compl. for Inj. Relief, Dkt. No. 87. 9 See Prelim. Inj. Hr’g before Vice Chancellor Sam Glasscock dated 11.14.23, Dkt. No. 130. 10 See Pl.’s Br. Supp. Settlement Approval, Class Certification, an Award of Att’ys’ Fees and Expenses, and an Incentive Award 21, Dkt. No. 149 (“Pl.’s OB”). 11 Tr. of 5-20-2024 Settlement Hr’g and Partial Rulings of the Ct. 52:21–24, Dkt. No. 166 (“Settlement Hr’g”). 12 Pl.’s OB 21. 3 awarded $5.75 million in fees and $109,678.73 in expenses (the “Fee and Expense
Award”). 13
At the time Plaintiff initiated this action, Rithm’s bid to purchase Sculptor was
for $11.15-per-share. 14 On October 12, 2023, Rithm submitted, and the Special
Committee preliminarily accepted, a $12.00-per-share offer (the “First Transaction
Price Increase”).15 Thereafter, on October 26, 2023, the Founders settled their
individual claims in this action and Rithm increased its bid to $12.70-per-share (the
“Second Transaction Price Increase” and collectively with the First Transaction
Price Increase, the “Transaction Price Increases”). 16 Sculptor issued two
supplemental proxy statements on November 6 (the “November 6 Disclosures”) and
November 9 (the “November 9 Disclosures” and collectively with the November 6
Disclosures, the “Supplemental Disclosures”) to inform stockholders, inter alia, of
Saba’s attempts to have Sculptor deem its bid superior to Rithm’s and developments
related to the Founders’ settlement of their individual claims.17
13 Id. at 2. 14 Pl.’s Opening Br. Supp. Mot. for Prelim. Inj. (“Pl.’s PI OB”), Ex. 30 at 3937, Dkt. No. 115. 15 Pl.’s PI OB, Ex. 2 at 90–92, Dkt. No. 113; Pl.’s PI OB, Ex. 80 at 3763, Dkt. No. 115; Pl.’s PI OB, Ex. 81 at 5099, Dkt. No. 115; Pl.’s PI OB, Ex. 82 at 5101.001, Dkt. No. 115. 16 Pl.’s PI OB, Ex. 12 at Item 1.01, 7.01, Dkt. No. 113; Pl.’s PI OB, Ex. 114 at 6–8, Dkt. No. 116. 17 Special Comm. Defs.’ Answering Br. Opp’n Pl.’s Mot. for Prelim. Inj. (“Committee’s Br.”), Ex. 87, Dkt. No. 122; Aff. of Ned Weinberger, Esq. Supp. Proposed Settlement and Award of Att’ys’ Fees and Expenses, Ex. 1, Dkt. No. 149. 4 Plaintiff’s counsel contend they should be granted their Fee and Expense
Award because they (i) obtained the Settlement Fund; (ii) contributed to the
Transaction Price Increases; and (iii) caused the Supplemental Disclosures. 18 Rithm,
however, opposes the Fee and Expense Award to the extent Plaintiff seeks fees as a
result of the Transaction Price Increases and Supplemental Disclosures. 19
A. Analysis
“The determination of any attorney fee award is a matter within the sound
judicial discretion of the Court of Chancery.”20 When exercising its judicial
discretion in this context, the Court uses the Sugarland factors: (i) the results
achieved; (ii) the contingent nature of counsel’s fee; (iii) the litigation’s relative
complexities; (iv) counsel’s efforts, including time and expenses; and (v) counsel’s
standing and ability.21 “When the benefit is quantifiable, as in this case, by the
creation of a common fund, Sugarland calls for an award of attorneys’ fees based
upon a percentage of the benefit.”22 Under the corporate benefit doctrine, fees may
be awarded if: “(a) the claim was meritorious when filed; (b) the action was
benefitting the corporation; or a class was created prior to judicial resolution of the
18 Pl.’s OB 46. 19 See Def. Rithm Cap. Corp.’s Ltd. Opp’n to Pl.’s Br. Supp. Settlement Approval, Class Certification, an Award of Att’ys’ Fees and Expenses, and an Incentive Award 18, Dkt. No. 155 (“Rithm’s Opp’n”). 20 Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1255 (Del. 2012). 21 See Sugarland Indus., Inc. v. Thomas, 420 A.2d 142 (Del. 1980). 22 Ams. Mining Corp., 51 A.3d at 1259. 5 suit; and (c) the benefit was causally related to the lawsuit.” 23 “The size of the
benefit conferred and the portion of the benefit attributable to plaintiff are often
considered the two most important elements” in determining attorneys’ fees.24
I address the four25 bases for the requested fees and expenses, below.
1. The Settlement Fund
Plaintiff requests 25% of the fund created by the settlement. 26 This
amounts to $1,597,580. 27 The Defendants do not oppose this fee award
component. 28 I note that this was a litigation conducted by Plaintiff’s counsel on a
purely contingent basis,29 that litigation was vigorous and discovery extensive, and
that the matter proceeded to the point of a full preliminary injunction hearing.30 I
find, in light of the Sugarland factors, that this fee request is reasonable.
2. The Transaction Price Increases
Plaintiff seeks a fee award for causing the Transaction Price Increases equal
to the dollar value of the Transaction Price Increases multiplied by counsel’s role (as
a percentage) in causing the Transaction Price Increases, multiplied by a “stage-of-
23 Tandycrafts, Inc. v. Initio P’rs, 562 A.2d 1162, 1167 (Del. 1989). 24 In re Quest Software, Inc. S’holders Litig., 2013 WL 5978900, at *6 (Del. Ch. Nov. 12, 2013). 25 That is, fees under the three benefits allegedly conferred, as set out above, together with reimbursement of the expenses incurred by Plaintiff’s counsel. 26 Pl.’s OB 47. 27 That is 25% of the settlement, net of expenses. Id. 28 Rithm’s Opp’n 18. 29 Pl.’s OB 63. 30 See Prelim. Inj. Hr’g before Vice Chancellor Sam Glasscock dated 11.14.23, Dkt. No. 130. 6 litigation” percentage. 31 That is, Plaintiff seeks a fee based on the increased price
that his litigation efforts caused, determined by application of the Sugarland factors,
expressed as a percentage of the fund. I endorse this approach here. Based on this
equation, Plaintiff seeks a fee award of no less than $4 million. 32 Rithm contends
that Plaintiff’s calculation of the Fee and Expense Award should exclude the
Sculptor shares held by the Defendants.33 Rithm further opines that Plaintiff
overstates its role in the price increases. 34
I start my analysis by determining the scope of the class for which Plaintiff
may be awarded fees, which will determine the starting point for arriving at the price
increase for which this litigation may be credited. Rithm contends that Defendants’
shares should be excluded from the Fee and Expense Award because the settlement,
by its terms, excludes Defendants from the defined class that Plaintiff’s counsel
represents.35 Under the unique circumstances here (which include a large block of
stock held by the Founders, who were initially plaintiffs and latterly defendants), I
disagree. Delaware courts recognize that “[a]n attorney can recover an award of fees
and expenses when the attorney creates a common fund for, or confers a common
31 Pl.’s OB 49. 32 See id. at 48, 55–57. 33 Rithm’s Opp’n 21–24. 34 Id. at 25–34. 35 Id. at 21–24. 7 benefit upon, a readily ascertainable group.” 36 While Defendants are excluded from
receiving disbursements from the Settlement Fund, Defendants did share in and
benefit from the Transaction Price Increases, which resulted, per Plaintiff, from
Plaintiff’s actions in bringing this suit. 37 In this case, it is equitable to include
Defendants’ shares in the calculation to determine Plaintiff’s Fee and Expense Award
related to the Transaction Price Increases.38
I first address the extent to which the litigation drove the price increases. The
total benefit to the stockholders of the increases is simply the increased price per
share, $1.55,39 multiplied by the outstanding shares: $80,800,000. 40 The question
is, what portion of this may reasonably be ascribed to Plaintiff’s litigation efforts?
Considering the timing of the efforts of Plaintiff, relative to each individual price
increase, the market forces at play, and the other parties involved, I conclude that
36 Smith v. Fid. Mgmt. & Rsch. Co., 2014 WL 1599935, at *8 (Del. Ch. Apr. 16, 2014) (emphasis added). 37 Defendants acknowledge that Plaintiff’s actions contributed to the Transaction Price Increases. See Stipulation and Agreement of Settlement, Compromise, and Release ¶ 16, Dkt. No. 143. 38 See Smith, 2014 WL 1599935, at *9 (quoting Tandycrafts, 562 A.2d at 1166) (“The power to award fees for a common fund or benefit ‘is a flexible one based on the historic power of the Court of Chancery to do equity in particular situations.’”). 39 Pl.’s OB 29. 40 The original total transaction value of the merger was $639 million. Pl.’s PI OB, Ex. 30 at 3937, Dkt. No. 115. After Rithm increased the transaction price from $11.15 per share to $12.00, the new total transaction value of the merger was $676 million, which is a $37 million increase in transaction value from $639 million. Pl.’s PI OB, Ex. 2 at 11, 131, Dkt. No. 113. After Rithm increased the transaction price a second time from $12.00 per share to $12.70, the new total transaction value of the merger was $719.8 million, which is a $43.8 million increase in transaction value from $676 million. Pl.’s PI OB, Ex. 12 at Ex. 99.1, Dkt. No. 113. The $37 million increase and $43.8 million increase added together equal to $80.8 million total increase in transaction value from the Transaction Price Increases. 8 Plaintiff’s litigation contributed 12% to attaining the Transaction Price Increases.
This represents the “benefit achieved by the litigation, not simply a benefit that, post
hoc ergo pro[p]ter hoc, is conferred after the litigation commences.” 41
While Plaintiff contends that this litigation should be credited as contributing
at least 50% with respect to the Transaction Price Increases,42 I disagree. The First
Transaction Price Increase occurred on October 12, 2023, 43 about a month after this
litigation was filed 44 but five days before this matter was expedited.45 This litigation
placed the Board and Special Committee on notice that Plaintiff’s counsel was
monitoring the process employed by the Special Committee to ensure that the
Special Committee was complying with its fiduciary duties, including whether it
should deem a bid by Saba superior. However, given that the First Transaction Price
Increase occurred prior to expedition being granted and before documents had been
produced, this litigation, in my mind, is reasonably seen as contributing to (but not,
substantially, the cause of) the First Transaction Price Increase.
41 In re Quest Software, 2013 WL 5978900, at *8 n.91. 42 Pl.’s OB 55. 43 Pl.’s PI OB, Ex. 2 at 90–92, Dkt. No. 113; Pl.’s PI OB, Ex. 80 at 3763, Dkt. No. 115; Pl.’s PI OB, Ex. 81 at 5099, Dkt. No. 115; Pl.’s PI OB, Ex. 82 at 5101.001, Dkt. No. 115. 44 See Verified Class Action Compl. for Inj. Relief, Dkt. No. 1. 45 See Granted ([Proposed] Ord. to Pl.’s Renewed Mot. to Expedite), Dkt. No. 30. 9 The Second Transaction Price Increase, in comparison, happened on October
26, 2023, 46 nine days after this matter was expedited.47 This was after Plaintiff
received some of its requested discovery and accordingly amended his complaint,
and less than two weeks before the then-scheduled November 9, 2023 preliminary
injunction hearing. 48 However, as Plaintiff acknowledges, the Second Transaction
Price Increase was negotiated by the Founders with Rithm in exchange for the
Founders settling their individual claims and supporting the Merger.49 That is not to
say this litigation and Plaintiff’s efforts in prosecuting it did not contribute at all to
the Second Transaction Price Increase. Rather, the record and Plaintiff’s professed
lack of knowledge of these negotiations 50 demonstrate that Plaintiff’s litigation was
not the primary cause of the Second Transaction Price Increase. Defendants were
aware of this litigation and actively participating; documents had been produced and
depositions were scheduled to begin a day after the Second Transaction Price
Increase.51 This, to my mind, is sufficient to attribute a portion of the causation to
Plaintiff’s actions in this litigation.
46 Pl.’s PI OB, Ex. 12 at Item 1.01, 7.01, Dkt. No. 113; Pl.’s PI OB, Ex. 114 at 6–8, Dkt. No. 116. 47 Granted ([Proposed] Ord. to Pl.’s Renewed Mot. to Expedite), Dkt. No. 30. 48 Pl.’s OB 53. 49 Id. at 54. 50 Id. 51 Id. at 53–54. 10 Taken together, I find that 12%, or $9,696,000 of the price increases, was a
benefit created by Plaintiff’s litigation.
Next, I consider the appropriate percentage to be applied to the benefit created
by Plaintiff’s litigation to determine the appropriate Fee and Expense Award.
Plaintiff’s counsel requests the Court apply a 25% stage-of-litigation percentage due
to the stage when the settlement was reached. 52
Above, I applied a 25% award of the settlement amount as reasonable under
the factors laid out by the Supreme Court in Sugarland. This percentage was not
opposed by the Defendant. 53 The price increases, however, occurred at an earlier
stage of litigation than the settlement, and accordingly, a lower—20%—award is
appropriate.
Together with the analysis above, the remaining Sugarland factors support
my conclusion that a reasonable amount to award Plaintiff’s attorneys for the
Transaction Price Increases may be arrived at by awarding Plaintiff 20% of the
benefit created by the litigation: $1,939,200.
3. The Supplemental Disclosures
“Whenever a plaintiff generates enhanced disclosure in connection with
stockholder action, [a] benefit is conferred.” 54 “To quantify an appropriate fee
52 Id. at 55. 53 Rithm’s Opp’n 18. Defendant does advocate for a substantially lower percentage fee recovery for the price increases. Id. at 25, 34. 54 In re Sauer-Danfoss Inc. S’holders Litig., 65 A.3d 1116, 1136 (Del. Ch. 2011). 11 award, this Court evaluates the qualitative importance of the disclosures obtained.” 55
In determining the reasonableness of the attorneys’ fees requested in connection with
disclosures, this Court considers whether the information disclosed is material to the
stockholders being asked to act in reliance thereon.56
Plaintiff seeks $1.25 million for the Supplemental Disclosures, while
Defendants contend Plaintiff is entitled to no more than $100,000. 57 The November
6 Disclosures informed stockholders, inter alia, that Saba had requested that the
Special Committee publicly disclose Saba’s proposal and the identities of the
consortium members, and that Saba expressed its commitment to minimal disruption
at Sculptor, specifically expressing that Saba did not intend to change Sculptor’s
investment strategy. 58 This information, however, had partially been disclosed to
Sculptor stockholders in the earlier October 12, 2023 proxy statement. 59 The newly
disclosed information in the November 6 Disclosures consisted of additional
information from the Special Committee’s financial advisors, that included a
summary of the results of a Selected Precedent Transaction Analysis and company-
55 Id. 56 See Anderson v. Magellan Health, Inc., 298 A.3d 734, 749 (Del. Ch. 2023) (explaining that the Court “will award mootness fees based on supplemental disclosures only when the information is material”); see also Assad v. Botha, 2023 WL 7121419, at *1 (Del. Ch. Oct. 30, 2023) (awarding $100,000 for “material—and unremarkable—disclosures”). 57 Pl.’s OB 62; Rithm’s Opp’n 39. 58 See Pl.’s OB 19 (citing Committee’s Br., Ex. 87, Dkt. No. 122). 59 See Pl.’s PI OB, Ex. 2 at 44, 64–65, 69, 80, Dkt. No. 113. 12 by-company metrics for the Trading Multiples Analysis.60 These disclosures
provided some limited material information. 61
The November 9 Disclosures informed Sculptor stockholders that Plaintiff
had filed his opening brief in support of the preliminary injunction and further
included a list of items that Plaintiff alleged were omitted from the proxy
statement. 62 Because the company did not concede the veracity of the allegations
made by a plaintiff, such disclosure is of limited material value to stockholders. 63
Overall, I find that the Supplemental Disclosures did not substantially alter
the total mix of information available to stockholders, when deciding how to vote
on the proposed Merger, in a way that justifies the large award sought. That is not
to say that the additional information attributable to Plaintiff was not material to the
stockholders. The Defendants themselves posit that the disclosures provided
Sculptor stockholders with (minimal) additional information; they suggest $100,000
as a fee for these disclosures. 64 In light of the nature of the disclosures, as well as
the substantial award for generating a common monetary benefit, detailed above, I
60 See Pl.’s OB 19 (citing Committee’s Br., Ex. 87, Dkt. No. 122). 61 See In re Trulia, Inc. S’holders Litig., 129 A.3d 884, 904 (Del. Ch. 2016) (explaining that, under Delaware law, “[a] fair summary does not require disclosure of sufficient data to allow stockholders to perform their own valuation”). 62 Pl.’s OB 19–21; Pl.’s OB, Ex. 1 at 3–4, Dkt. No. 149. 63 See, e.g., In re Mindbody, Inc. S’holders Litig., 2020 WL 5870084, at *30 (Del. Ch. Oct. 2, 2020). 64 Rithm’s Opp’n 39–45. 13 agree. Accordingly, I conclude that the Supplemental Disclosures support an award
of $100,000.
4. All-in Award
Summing the three sources of the fee award leaves a total award of
$3,636,780. Again, this is based on a purely contingent effort by Plaintiff’s
counsel. 65 By way of comparison, the amount of a fee implied by employing an
hourly rate—the lodestar—is $2,889,895. 66
5. Expenses
I find the expense reimbursement request, $109,678.73, reasonable.67
B. Conclusion
Plaintiff has created three common benefits through this litigation. For the
reasons above, he is entitled to $1,597,580 for creation of the Settlement Fund;
$1,939,200 for creating the Transaction Price Increases; and $100,000 for the
Supplemental Disclosures. Plaintiff’s counsel is further entitled to reimburse its
expenses of $109,678.73. By my calculation, this results in an all-in award of
65 Pl.’s OB 63. 66 Id. at 64 (citing Aff. of Ned Weinberger ¶¶ 3–4, 6, Dkt. No. 149; Aff. of Joseph Christensen ¶¶ 3–4, 6, Dkt. No. 149; Aff. of Thomas Curry ¶¶ 3–4, 6, Dkt. No. 149; Aff. of Jeremy Friedman ¶¶ 3–4, 6, Dkt. No. 149; Aff. of D. Seamus Kaskela ¶¶ 3, 5–6, Dkt. No. 149). 67 Id. at 46. 14 $3,746,459.68 The parties should submit a form of order in accordance with this
Letter Opinion.
Sincerely,
/s/ Sam Glasscock III Vice Chancellor
68 I have based the calculations in this Letter Opinion on the numbers provided in briefing, as I understand them. If the parties conclude that I have misapprehended these values, they should so inform me. 15