This article originally appeared in our affiliate, Delaware Business Court Insider.
In oral arguments before the Delaware Supreme Court on Thursday, attorneys for Grupo Mexico SA argued that record-setting awards for damages and attorney fees made by Delaware Chancellor Leo Strine Jr. in the Southern Peru shareholder litigation should be reversed because Strine abused his discretion by refusing to allow a Goldman Sachs adviser to testify. Simpson Thacher & Bartlett’s Bruce Angiolillo contended that Strine erred in prohibiting the testimony of James Del Favero, the current head of Goldman Sachs’ fairness committee.
Angiolillo conceded that Del Favero was not involved with the Goldman Sachs committee that evaluated Minera Mexico–a Mexican mining company Grupo Mexico sold to Southern Peru Copper Corp. for more than $3 billion–but argued that he could have provided the court with insight into Goldman’s evaluation methods.
Strine held that the sale was unfair and awarded Southern Peru’s shareholders $1.26 billion. He went on to award $300 million in attorney fees to plaintiffs’ attorneys from Kessler Topaz Meltzer & Check and Prickett Jones & Elliott.
Angiolillo said Del Favero could have answered several questions about how Goldman Sachs valued Minera Mexico at $3.1 billion. “In the chancellor’s own words, the key question was, ‘What was Goldman Sachs thinking when it performed the analysis?’” said Angiolillo, who represents Americas Mining Corp., the division of Grupo Mexico that currently owns Southern Peru. “It is clear error to bar Goldman Sachs from coming to trial to answer that very question.”
Angiolillo added that Del Favero was actually the defense counsel’s second choice for a witness. He noted that Goldman employee Martin Sanchez worked on the team that advised a special committee of independent advisers formed by Grupo Mexico to evaluate Minera Mexico. Sanchez was no longer employed by Goldman Sachs, lived in Mexico and refused to come to trial, Angiolillo said. By barring Del Favero’s testimony, Strine was unable to adequately determine if the evaluation used by Grupo Mexico was fair, he argued.
“The court compounds the error by ruling without expert testimony to read Goldman’s mind to find the deal was unfair,” Angiolillo continued. “These errors are not inconsequential when they result in a billion-dollar judgment.”
The appellate panel consisted of Chief Justice Myron Steele; Justices Carolyn Berger, Randy Holland and Henry duPont Ridgely; and Delaware Superior Court President Judge James Vaughn Jr., who was sitting by designation.
Stephen Jenkins of Ashby & Geddes argued on behalf of Southern Peru that the fees awarded to the plaintiffs attorneys were unfair and translated to roughly $35,000 per hour.
Plaintiffs counsel Ronald Brown Jr. of Prickett Jones & Elliott maintained that Strine was correct to exclude Del Favero’s testimony because it was not clear what he was going to say, he was presented as a late witness, and the court already had videotaped testimony from Sanchez. The defense presented a “frustrating argument based on a complete and total factual misunderstanding,” he said. He noted that Sanchez’s videotaped evidence made Del Favero’s testimony unnecessary. “It is not uncommon to submit witness testimony by videotape,” he said, noting that the defense submitted “boxes and boxes” of evidence.
In addition, Brown told the high court that the defense never made a presentation of relevance for Del Favero’s testimony. He also questioned if a person who was not part of the committee that evaluated Minera Mexico could provide insight into the decision. “We have no idea what he was going to say,” Brown told the high court. “He wasn’t part of the team [that evaluated Minera Mexico], he never went to a committee meeting.”
Before ending his argument, Brown claimed that the attorney fees were well deserved because of expenses the plaintiffs incurred in pursuing a case they could have lost. He said, for example, his firm hired the pre-eminent natural resource investment evaluator to assist with the case. “It was a risky case, one which the defense counsel thought we had no chance to win,” he said.
