Earlier this year, a State Court in Delaware determined the value of a minority shareholder’s shares which was in dispute. The unpublished opinion, In re Sunbelt Beverage Corp. Shareholder Litigation, 2010 WL 26539 (Del.Ch. Jan 05, 2010) (No. Civ. A. 16089-CC), reconsideration den., In re Sunbelt Beverage Corp. S’holder Litig., 2010 WL 692400 (Del.Ch. Feb 15, 2010) (NO. CIV.A. 16089-CC) was brought by Jane Goldring, a “former minority shareholder in [a] beverage corporation, who had been forced out of [the]corporation as result of [a] cash-out merger of a former corporation into beverage corporation. [The shareholder] filed suit against individual members of [the] beverage corporation’s board of directors, alleging breach of fiduciary duty, and seeking [rescission] or, the alternative, an appraisal of fair value of her shares as of merger date.” Id. at 1.

The Court analyzed the different ways a minority shareholder’s interest can be evaluated for purposes of determining the value the shareholder should be paid, whether in the form of a sales price or damages. The Court rejected a number of approaches, but ultimately used a discounted cash flow calculation to arrive at the compensation the minority shareholder should receive.

Importantly, the Court then granted her an additional award of court costs, such as expert witness fees, but refused to provide her with reimbursement of her attorneys fees. The reason the Court refused to award attorneys fees was based on a lack of bad faith on the part of the defendants. The Court reasoned that although the defendants’ “WPG Formula” for valuation of the shares was rejected by the Court, it was not submitted in bad faith.

“I agree with defendants’ analysis on the issue of shifting attorney fees: “to constitute bad faith [and thus warrant shifting of attorney fees contrary to the American Rule], the defendants’ action must rise to a high level of egregiousness.” Here, I cannot find defendants’ actions to be of the egregious, vexatious, or bad-faith sort that have merited the shifting of attorney fees in earlier cases… I believe defendants’ reliance on the transactions priced at the WPG Formula was sufficiently reasoned to preclude a finding that there was no legal issue in this case upon which reasonable parties could differ. That is, parties could and did reasonably differ on the legal import of the WPG Formula. The WPG Formula ultimately may have had no weight in my valuation analysis and may have played an unduly large role in guiding defendants’ other valuations of Sunbelt stock at the time of the 1997 Merger, but it did present me with a legitimate legal question and a potentially legitimate valuation metric for Sunbelt. I therefore do not find defendants to have conducted themselves with the necessary egregiousness or vexatiousness to warrant shifting attorneys’ fees.” 

Id. at 9

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