The Delaware Court of Chancery decision in In re Quest Software Shareholders Litigation, Consol. CA No. 7357-VCG (Del Ch. Nov. 12, 2013), awarding shareholder plaintiffs $1 million in attorney fees, was largely unprecedented, not for the size of the award but for the circumstances of the court’s decision. Upon announcement of a CEO-led management buyout of Quest Software Inc., the shareholder plaintiffs filed the kind of litigation that is now ubiquitous in public company mergers, alleging that the deal was a breach of the Quest board’s fiduciary duties. The deal was subject to a lengthy go-shop period negotiated and initiated before litigation was ever filed. As a result of the go-shop, Dell Inc. made a superior proposal, several dollars per share above the original deal.
The plaintiffs’ litigation efforts during the go-shop involved filing a motion to expedite that was repeatedly denied, and serving discovery requests that were largely unanswered. When the Quest-Dell merger was announced, the plaintiffs dismissed their case as moot. Nevertheless, the court concluded that the Dell merger was 5 percent impacted by the plaintiffs’ “raptorious and unblinking oversight,” and thus awarded the fee under the corporate benefit doctrine. Given the frequency with which such suits are filed following the announcement of corporate transactions, this decision calls for serious reconsideration of the corporate benefit doctrine.
