Seeking an appellate rehearing is always a long shot, but lawyers for Grupo Mexico may have thought the Delaware Supreme Court would take the bait in the Southern Peru derivative litigation. As we reported, Grupo Mexico opted not to contest the court’s decision last month to affirm a $2 billion judgment against the company by Delaware Chancellor Leo Strine Jr. last year. Instead, Bruce Angiolillo of Simpson Thacher & Bartlett confined Grupo’s reargument bid to the record-breaking $304 million fee award in the case, which amounts to roughly $35,000 an hour for the efforts of plaintiffs lawyers at Kessler, Topaz, Meltzer & Check and Prickett, Jones & Elliott.
The state’s high court declined to take up the issue on Friday, leaving a U.S. Supreme Court appeal as the last remaining option to undo the award. In a four-page ruling, the court concluded that its original decision–and the unprecedented award–will stand.
We won’t rehash the whole sordid history of the case, which you can read about here, here, here, and here. In a nutshell, following Southern Peru Copper Corporation’s $3.7 billion acquisition of Minera Mexico nearly a decade ago, Southern Peru shareholders alleged that Grupo Mexico, which was a majority shareholder of Southern Peru and also an owner of Minera though a subsidiary, forced the deal through even though a special committee advised by Goldman Sachs and Latham & Watkins had valued Minera at no more than $1.7 billion. The climax came in October 2011, when Strine ruled that the deal was a conflict-ridden mess and ordered Grupo to pay Southern Peru (now Southern Copper Corporation) $2.03 billion.
The Delaware Supreme Court unanimously upheld Strine’s ruling on damages last month, though one of the justices wrote that Strine’s decision on attorney fees was based more on incentivizing shareholder litigation than on Delaware law. Like Strine, the majority concluded that Delaware doesn’t have and doesn’t need a strict mechanism for limiting attorney fees in derivative cases involving humongous damages.
In their limited motion for reargument, the defendants maintained that Southern Peru’s shareholders were really only benefiting from 19 percent of the $2 billion judgment, since Grupo Mexico owns an 81 percent stake in the company. The plaintiffs lawyers’ 15 percent fee, they argued, should be based only on that portion of the judgment. The state’s high court forcefully rejected that approach on Friday, concluding that since derivative actions are filed on behalf of corporations and not shareholders, the benefit to the corporation is the only crucial benchmark for assessing fees.
Simpson Thacher’s Angiolillo declined to comment, so we can’t say whether he expected Grupo Mexico’s Hail Mary to achieve better results. In a statement, Grupo Mexico’s general counsel said the decision “sets a dangerous precedent” and “sends a clear if disturbing message to plaintiffs’ attorneys that they can be made wealthy by an award out of proportion to the benefit they actually win for their clients.”
We also reached out to Columbia Law School professor John Coffee Jr., who told a Delaware newspaper in August that he had expected Strine’s $2 billion judgment–but not the staggering fee award–to survive on appeal. Coffee told us Monday that he was “a little surprised” that the Delaware Supreme Court has allowed the state’s jurisprudence on shareholder attorney fee awards to stray so far from the standards that typically control such awards in federal litigation, such as subjecting gigantic fee requests to a lodestar cross-check. “It is an extraordinarily large fee award,” Coffee said. “I thought the court might be more motivated by the danger of creating a very visible outlier result.”
Coffee also noted that Delaware is no longer considered the only game in town for shareholder M&A litigation, and that the state has been watching with alarm as plaintiffs lawyers increasingly look to other state and federal courts to bring their claims. “It will make the plaintiffs bar pay attention,” he said. “I’m not saying I know what motivated the Delaware Supreme Court, but high fees are not inconsistent with a desire to lure the plaintiffs bar back to Delaware.”
