COURT OF CHANCERY
OF THE
SAM GLASSCOCK III STATE OF DELAWARE COURT OF CHANCERY COURTHOUSE
VICE CHANCELLOR 34 THE CIRCLE
GEORGETOWN, DELAWARE 19947
Date Submitted: October 7, 2016
Date Decided: October 7, 2016
Jessica Zeldin, Esquire Megan Ward Cascio, Esquire
Rosenthal, Monhait & Goddess, P.A. Eric S. Klinger-Wilensky, Esquire
919 N. Market Street, Suite 1401 Glenn R. McGillivray, Esquire
Wilmington, DE 19899 Morris, Nichols, Arsht & Tunnell LLP
1201 N. Market Street
Wilmington, DE 19801
Re: Jay Frechter v. Cryo-Cell International, Inc.
Civil Action No. 11915-VCG
Dear Counsel:
This matter involves the application for a fee award in a mootness proceeding.
The Plaintiff, a stockholder of Cryo-Cell International (“the Company”), sued the
Company, seeking a declaration that a provision in its bylaws (the “Provision”) was
illegal. The Provision indicated that directors could be removed “for cause” at a
“special meeting” of stockholders. Under Section 141(k) of the Delaware General
Corporation Law, stockholders have the right to remove directors without cause.
After the Plaintiff moved for summary judgment, the Company amended its bylaw
to remove the language complained of, mooting the action.
I find that the Provision, while not explicitly illegal, was misleading to
stockholders and could have a chilling effect on the exercise of their franchise under
Section 141, because providing a procedure to remove directors for cause (and
remaining silent as to removal without cause) could indicate to a reasonable
stockholder that cause was a requisite for removal. Thus, this suit was meritorious
when filed. The Company concedes that it removed the provision as a result of the
litigation. Since, as I have found, a potential chilling effect on the exercise of the
stockholder franchise was removed by the action, a benefit was worked on the
stockholders. Therefore, a mootness fee is appropriate under the Corporate Benefit
Doctrine. The remaining issue is the appropriate size of the fee.
I have evaluated this matter using the Sugarland factors.1 Most important
here is the value of the benefit. I find that the benefit resulting from removing the
Provision is mostly theoretical. I note that the Company has never attempted to use
the Provision defensively, and that the current board was seated following a proxy
contest, as a result of which prior board members were removed without cause.
While it is impossible to determine whether stockholders have ever been dissuaded
from mounting a proxy contest by the misleading language of the bylaw, I note that
sophisticated investors, or those interested enough to hire counsel, would likely have
been undeterred. In light of the theoretical modest benefit worked here, and the other
1
Sugarland Indus., Inc. v. Thomas, 420 A.2d 142 (Del. 1980).
2
factors addressed below, I find a fee in the amount of $50,000, inclusive of expenses,
to be reasonable.
First, I note that this action—unlike the action in In re VAALCO Energy, Inc.
Stockholder Litigation,2 which generated a higher award—was not brought in light
of any pending proxy contest, or indeed, any contemplated action which might have
been deterred by the Provision. It was entirely an action to remove a bylaw provision
that was theoretically improper, in a vacuum, untethered to any immediate practical
result. Next, I consider that one of the factors mandated by the Supreme Court in
Sugarland is consideration of the contingent nature of the litigation. This is because
a fee award should reflect the risk undertaken by Plaintiff’s counsel, in computing a
fee which encourages wholesome litigation. Here, in light of the outcome in
VAALCO which provided the impetus for this action, this was largely a risk-free
pursuit, and the contingency factor is of negligible importance. It is worth pointing
out, I think, that had the Company changed its bylaw upon suit being filed (or upon
pre-suit demand, had one been made), rather than resisting the relief requested
through the time of the filing of an amended complaint and a nine-page summary
judgment motion, a nominal fee at most would have been warranted. Some effort
was required here on the part of the Plaintiff and his counsel, however, making a
more-than-nominal fee appropriate.
2
C.A. No. 11775-VCL (Del. Ch. Dec. 21, 2015) (TRANSCRIPT).
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I also note that the original complaint included a second count, seeking to hold
the Company’s directors liable for breaches of fiduciary duty in enacting the
Provision. In fact, the current directors did not create the Provision. While that
count was withdrawn, it required some effort by the Corporation and its counsel,
which was a cost imposed, ultimately, on stockholders. This count was not
meritorious when filed, and I have adjusted the contemplated fee downward, as I
believe equity requires, in reaching a fee award of $50,000.
I find the other Sugarland factors (including effort expended by Plaintiff’s
counsel) do not militate against a $50,000 fee award.
Therefore, a mootness fee in the amount of $50,000, inclusive of expenses, in
favor of the Plaintiff is appropriate. To the extent the foregoing requires an Order
to take effect, IT IS SO ORDERED.
Sincerely,
/s/ Sam Glasscock III
Sam Glasscock III
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