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Aug. 17 — Attorneys that sought $6 million in fees after successfully representing NavSeeker Inc. minority shareholders in a derivative lawsuit over the alleged misappropriation of corporate assets were instead awarded $650,000 by the Delaware Chancery Court Aug. 16 ( Baker v. Sadiq , 2016 BL 264696, Del. Ch., No. 9464-VCL, 8/16/16 ).
The court based its award on the settlement of the lawsuit in which the minority stockholders were bought out for $2.75 million. It rejected the attorneys' argument that the award should have been based on a derivative recovery on the company's behalf.
The derivative lawsuit alleged that NavSeeker's controlling shareholder misappropriated about $25 million worth of the company's technology assets. The parties reached a stockholder-level settlement rather than a derivative settlement through a concept used frequently in Delaware known as “transitive property.” Under the concept, parties can settle derivative actions by seeking investor-level relief.
Although a derivative recovery would have been greater, Vice Chancellor J. Travis Laster noted that the parties agreed to investor-level relief. Accordingly, the maximum benefit the plaintiffs' counsel could claim to have conferred was $2.75 million plus a possible additional $500,000 in debt forgiveness, he said. He found that an award of 20 percent of the total amount—$3.25 million—was appropriate.
The court also determined that liability for the fee award could be imposed only on NavSeeker. It rejected the request by the plaintiffs' counsel that all defendants be held jointly and severally liable.
“One could envision some type of post-settlement proceeding to determine whether grounds exist to impose fee liability on NavSeeker’s controllers, but that route appears unprecedented,” Laster said. “It also would embroil the parties in precisely the type of litigation that they reached a settlement to avoid.”
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