Class Action And Equity: Shareholder Obtaining Minor Changes To Proxy Statement Not Entitled To Substantial Benefit Fee Recovery In The Absence of Presuit Notification To Defending Public Company

 

Fourth District, Division 3 Uses Equitable Maxims in Reaching Result.

     Our favorite line in the decision we next review is this: "Since delay defeats equity, we will hold our applause."

       Above:  Cartoon showing blinded "Justice" trying to drag the "Letter of the Law" through obstacles of "delay, postponement, re-trial, and technicality".   1912.  Library of Congress.

 

      Justice Aronson, the author of that sentence on behalf of a 3-0 panel in Pipefitters Local No. 636 Defined Benefit Plan v. Oakley, Inc., Case No. G040727 (4^th Dist., Div. 3 Jan. 13, 2010) (certified for publication), eventually ruled that a shareholder in a publicly traded company—who sought to recoup attorney's fees in the range of $325,000-$375,000—was properly denied a fee recovery under the "substantial benefit" equitable theory where the shareholder provided no presuit notification to the company and achieved fairly immaterial changes in a challenged proxy statement.

     The appellate panel found that the equities did not favor shareholder, who did not provide any presuit notification in an effort to work out the proxy statement issues. The Court of Appeal refused to limit application of Abouab v. City and County of San Francisco, 141 Cal.App.4^th 643 (2006)—which did impose a presuit notification requirement where fees were sought under a substantial benefit theory—just to public entities. Rather, its reasoning did extend to this shareholder private dispute. The panel also endorsed Abouab, refusing the invitation to part company from the decision.

     Because plaintiff shareholder's victory was largely pyrrhic, See our earlier post today for an image of King Pyrrhus.  Justice Aronson found it unreasonable to award exorbitant fees, especially in a situation where "a lion produced a mouse."

     We are considering opening a new category in our sidebar, "Pyrrhic Victories."

     BLOG UNDERVIEW—Also, the opinion reminds us that we all need to proofread carefully our pleadings before filing them. Justice Aronson dropped a footnote indicating that shareholder's complaint was identically copied from prior complaints filed against other corporations, even containing a typo that named one of the other corporations rather than Oakley. That typo did not help plaintiff when it sought fees before the trial court and then tried to obtain reversal of the fee denial on appeal.