Moss v. Towell

Moss v. Towell, 

.


STATE OF NORTH CAROLINA                 IN THE GENERAL COURT OF JUSTICE
                                            SUPERIOR COURT DIVISION
COUNTY OF WAKE                                    16 CVS 11038

JOHN MOSS, on Behalf of Himself and
All Others Similarly Situated,

                 Plaintiff,

       v.

JOSEPH H. TOWELL; SCOTT M.
CUSTER; J. ADAM ABRAM;
MICHAEL S. ALBERT; DAVID S.
BRODY; HARRY M. DAVIS; BARRY Z.
DODSON; THOMAS J. HALL;
THIERRY F. HO; STEVEN J.
                                ORDER & OPINION ON PLAINTIFF’S
LERNER; MICHAEL S. PATTERSON;
                                   MOTION FOR APPROVAL OF
MARY E. RITTLING; HARRY C.
                                ATTORNEYS’ FEES AND EXPENSES
SPELL; RICHARD A. URQUHART III;
NICOLAS D. ZERBIB; and F.N.B.
CORPORATION,

                 Defendants,

       and

YADKIN FINANCIAL
CORPORATION,

                 Nominal Defendant.


      1.     THIS MATTER is before the Court on Plaintiff’s Motion for Approval of

Attorneys’ Fees and Expenses (“Motion”). For the reasons discussed below, the Court

GRANTS in part and DENIES in part the Motion.

      Rigrodsky & Long, P.A., by Seth D. Rigrodsky (pro hac vice), Brian D.
      Long (pro hac vice), and Jeremy J. Riley (pro hac vice), and The Law
      Offices of James Scott Farrin, by Gary W. Jackson for Plaintiff John E.
      Moss.

      Reed Smith LLP, by Roy W. Arnold (pro hac vice), and Smith Moore
      Leatherwood LLP, by Robert M. Marcus for Defendant F.N.B.
      Corporation.

      Skadden, Arps, Slate, Meagher & Flom LLP, by Paul J. Lockwood (pro
      hac vice), Joseph O. Larkin (pro hac vice), and Alyssa S. O’Connell (pro
      hac vice), and Moore & Van Allen PLLC, by Mark A. Nebrig for
      Defendants Yadkin Financial Corporation, Joseph H. Towell, Scott M.
      Custer, J. Adam Abram, Michael S. Albert, David S. Brody, Harry M.
      Davis, Barry Z. Dodson, Thomas J. Hall, Thierry F. Ho, Steven J. Lerner,
      Michael S. Patterson, Mary E. Rittling, Harry C. Spell, Richard A.
      Urquhart III, and Nicolas D. Zerbib.

Gale, Senior Business Court Judge.

                                I.   INTRODUCTION

      2.    The Court earlier approved the settlement of a class action brought to

challenge a merger. The settlement consisted solely of Defendants’ submission of

supplemental merger-related disclosures in exchange for a release of Plaintiff’s

merger-related claims. The Court reserved its further consideration of the Motion,

which seeks an award of attorneys’ fees and expenses.       The Court now awards

attorneys’ fees, but in a lesser amount than requested, and denies the recovery of

expenses.

             II.    PROCEDURAL AND FACTUAL BACKGROUND

      3.    A detailed summary of the procedural and factual background of this

litigation is in the Court’s Order & Opinion Approving Settlement, Moss v. Towell,

No. 16 CVS 11038, 

, at *2–6 (N.C. Super. Ct. Mar. 6, 2018).

      4.    John E. Moss (“Plaintiff”) is a former owner of Yadkin Financial

Corporation (“Yadkin”) stock.
      5.     On July 20, 2016, Yadkin entered into a merger agreement with F.N.B.

Corporation (“FNB”), whereby Yadkin shareholders would receive 2.16 shares of FNB

stock for each Yadkin share they owned.

      6.     On August 9, 2016, pursuant to a written agreement (“Fee Agreement”),

Plaintiff retained the law firm of Rigrodsky & Long, P.A. (“Lead Counsel”), who

associated with The Law Offices of James Scott Farrin (“Local Counsel” and

collectively with Lead Counsel, “Plaintiff’s Counsel”).     Rigrodsky & Long’s Fee

Agreement states that

      [t]he Firm will represent You on a fully contingent basis. If the action
      creates a benefit for [Yadkin] or its shareholders (monetary or
      otherwise), the Firm will seek an award of fees. In the event of a
      settlement, the Firm will seek to have their attorneys’ fees paid by
      agreement with the defendants, subject to Court approval, or otherwise
      by application to the Court. Alternatively, defendants may agree to
      allocate additional monies to cover our attorneys’ fees and expenses,
      subject to Court approval. . . . The Firm agrees to pay all costs and
      expenses that they deem necessary to prosecute this case.

(Aff. Brian D. Long, Esquire Supp. Mot. Pl’s. Counsel Seeking Award

Attorneys’ Fees Expenses (“Long Aff.”), ECF No. 37, Ex. C, at 2.)

      7.     In September 2016, Plaintiff filed a putative class action against Yadkin,

Yadkin directors, and FNB (collectively, “Defendants”) asserting direct and

derivative claims that the Yadkin directors breached their fiduciary duties and

further that FNB aided and abetted those breaches.

      8.     On November 22, 2016, Plaintiff filed a motion for a preliminary

injunction, seeking to enjoin the merger until Yadkin provided supplemental merger-

related disclosures.
       9.     On November 29, 2016, the parties entered into a memorandum of

understanding (“MOU”), which memorialized the parties’ agreement to resolve the

litigation.

       10.    On November 29, 2016, Yadkin filed supplemental disclosures with the

SEC.

       11.    On December 9, 2016, Yadkin’s shareholders approved the merger.

       12.    On October 20, 2017, the parties executed a Stipulation and Agreement

of Compromise, Settlement, and Release (“Stipulation”), whereby Defendants

acknowledged Plaintiff’s Counsel’s entitlement to reasonable attorneys’ fees and

expenses. The Stipulation also provided that the parties would negotiate in good

faith to agree on a reasonable amount of attorneys’ fees and expenses, which

Defendants would pay if the Court approved. If the parties could not reach an

agreement, the issue would be submitted to the Court for resolution, and Defendants

would pay whatever amount of fees, costs, and expenses the Court approved.

(Stipulation and Agreement of Compromise, Settlement, and Release 14–15

(“Stipulation”), ECF No. 35.1.)

       13.    On February 7, 2018, Plaintiff filed a Motion for Final Approval of

Settlement and the Motion. Plaintiff’s Counsel reported that the parties had not

reached an agreement on an award and requested expenses of $4,737.86 and a fee of

$295,262.14, for a total award of $300,000. Plaintiff’s Counsel reported that a total

of 421.45 hours had been spent on the litigation, which, if the Court calculated the

fee at their normal billing rates, would equate to a lodestar of $226,842.50, or
$68,419.64 less than the fee Plaintiff’s Counsel requested. (Pl’s. Mem. L. Supp. Mot.

Approval Attorneys’ Fees Expenses 7, ECF No. 41.) Plaintiff’s Counsel’s fee request

would yield an implied rate of $700.58 per hour ($295,262.14 divided by 421.45

hours).

      14.    On February 14, 2018, FNB responded to the Motion, agreeing that

Plaintiff’s Counsel was entitled to reasonable fees and expenses, but arguing that the

requested amount was unreasonable. (FNB Corporation’s Resp. Pl’s. Mot. Attorney’s

Fees Expenses 2–3, ECF No. 44.) FNB suggested that a reasonable fee might be

$134,085.00 plus $4,737.86 in expenses.       (FNB Corporation’s Resp. Pl’s. Mot.

Attorney’s Fees Expenses 5.)

      15.    On February 28, 2018, the Court conducted the Settlement hearing. No

objection had been filed and no objector appeared.      At the Settlement hearing,

Plaintiff’s Counsel orally reduced their request for fees and expenses to a total of

$200,000. The amended request yields an implied hourly rate of $463.31 per hour

($200,000 less $4,737.86 in expenses divided by 421.45 hours).

      16.    The Court orally indicated that it would enter a written order approving

the Settlement, but reserved consideration of the request for fees and expenses. The

Court raised the question whether the Fee Agreement complies with Rules 1.5 and

1.8 of the Revised Rules of Professional Conduct of the North Carolina State Bar

(“RPC”). At that time, the Court had under consideration a request for fees and

expenses in another class settlement in which Lead Counsel are also counsel of

record. In re Krispy Kreme Doughnuts, Inc. S’holder Litig., No. 16 CVS 3669, 

, at *1 (N.C. Super. Ct. June 20, 2018) (“Krispy Kreme II”). The Court

then allowed supplemental briefing on the RPC issues in both cases.

       17.     On April 9, 2018, Lead Counsel submitted a supplemental brief

addressing the RPC issues.

       18.     The Motion is ripe for resolution.

                                     III.   ANALYSIS

A.     The Court May Award Attorneys’ Fees and Expenses Pursuant to a
       Fee-Shifting Provision in a Class-Action Settlement Agreement.

       19.     As this Court recently recognized in Krispy Kreme II, attorneys’ fees are

generally not recoverable absent statutory authority, 

, at *10

(citing Stillwell Enters., Inc. v. Interstate Equip. Co., 

, 

, 814–15 (1980)), but “parties to a class action may agree to a fee-shifting provision

in a negotiated settlement that is . . . subject to the trial court’s approval.” Ehrenhaus

v. Baker, 

, 

 (2015); see also Krispy Kreme II,

, at *11–13 (citing prior orders of this Court allowing fees on

this basis).

       20.     The Court must limit any award to an amount that is “fair and

reasonable,” Ehrenhaus, 234 N.C. App. at 30, 

, assess “the

materiality and value of the disclosures obtained against the amount of attorneys’

fees requested,” and determine whether the award comports with the factors

enumerated in RPC 1.5(a). In re Newbridge S’holder Litig., No. 15 CVS 9251, 

, at *37 (N.C. Super. Ct. Nov. 22, 2016).
      21.    The Court will conduct a “searching inquiry” to determine whether and

in what amount to award attorneys’ fees where a settlement includes a class release

in exchange for supplemental disclosures without a monetary award. Krispy Kreme

II, 

, at *12. That inquiry is necessarily case-specific.

B.    RPC 1.5(a) Favors an Award of Reasonable Attorneys’ Fees.

      22.    RPC 1.5(a) states that

      [a] lawyer shall not make an agreement for, charge, or collect an illegal
      or clearly excessive fee or charge or collect a clearly excessive amount
      for expenses. The factors to be considered in determining whether a fee
      is clearly excessive include the following: (1) the time and labor required,
      the novelty and difficulty of the questions involved, and the skill
      requisite to perform the legal service properly; (2) the likelihood, if
      apparent to the client, that the acceptance of the particular employment
      will preclude other employment by the lawyer; (3) the fee customarily
      charged in the locality for similar legal services; (4) the amount involved
      and the results obtained; (5) the time limitations imposed by the client
      or by the circumstances; (6) the nature and length of the professional
      relationship with the client; (7) the experience, reputation, and ability
      of the lawyer or lawyers performing the services; and (8) whether the fee
      is fixed or contingent.

N.C. Rev. R. Prof. Conduct 1.5(a).

      23.    In Krispy Kreme II, the Court recently concluded that it should consider

the time spent up to and including the filing of a motion for settlement approval.

, at *13–14. The Court reaches the same conclusion here. The

time spent up to and including the filing of the Motion is 421.45 hours. (Pl’s. Mem.

L. Supp. Mot. Approval Attorneys’ Fees Expenses 7.)

      24.    The Court must eliminate any unnecessary or excessive time spent that

is included within that total. Krispy Kreme II, 

, at *14–16. The

reported hours were for efforts that the Court finds necessary and appropriate,
including: researching and drafting a complaint, drafting a motion for expedited

discovery, drafting a motion for a preliminary injunction, conducting two depositions,

and effectuating the Settlement. Each of these efforts was appropriate in light of the

nature of litigation.   See N.C. Rev. R. Prof. Conduct 1.5(a)(1).      However, after

thoroughly examining the record and the underlying time records submitted in

camera, the Court concludes that some inefficient and duplicative time should be

excluded. As examples:

            Nearly a quarter of the total time spent in the entire litigation (101.24

             of 421.45 hours, or 24%) concerned the taking of two depositions. (Long

             Aff. Ex. B.) This includes a total of 67.5 hours by one associate preparing

             for a single deposition. (Long Aff. Ex. B.)

            Four attorneys spent at least 34.2 hours drafting and preparing a single,

             seventeen-page complaint. (Long. Aff. Ex. B; Aff. Gary W. Jackson,

             Esquire Supp. Mot. Pl’s. Counsel Seeking Award Attorneys’ Fees

             Expenses (“Jackson Aff.”), ECF No. 38, Ex. A.)

            One partner spent 18.5 hours on work described only as “review[ing] and

             finaliz[ing] settlement papers.” (Long Aff. Ex. B.)

      25.    Based on this review, and exercising its discretion, the Court concludes

that any award should be limited to total time spent of 350 hours. The Court made

a higher percentage reduction in Krispy Kreme, but did so to account for duplicate

efforts among multiple firms that brought multiple class action suits arising from the
same merger. Krispy Kreme II, 

, at *14–16. In contrast,

Plaintiff’s suit here was the sole lawsuit, avoiding similar duplication of effort.

      26.    The Court now examines the fee request pursuant to the RPC 1.5(a)

factors. The Court finds that neither RPC 1.5(a)(2), 1.5(a)(5), nor 1.5(a)(6) weigh

heavily in favor of or against a fee award, as there is nothing in the record to suggest

that “the nature of this engagement precluded [Plaintiff’s Counsel] from taking on

other work during the brief period of this engagement.” Newbridge, 

, at *41.

      27.    The Court considers the fee request against a lodestar calculation based

on the fee customarily charged in North Carolina for similar services, N.C. Rev. R.

Prof. Conduct 1.5(a)(3), even if those rates may be substantially less than fees that

may be regularly quoted by out-of-state counsel. Krispy Kreme II, 

, at *16. The Court finds nothing in this record to suggest that the claims could

not have been adequately and effectively prosecuted by North Carolina counsel

experienced in complex litigation of this type.

      28.    In their brief supporting the Motion, Plaintiff’s Counsel assert that their

request is based on a lodestar that is a “substantial discount” from their normal

billing rates. (Pl’s. Mem. L. Supp. Mot. Approval Attorneys’ Fees Expenses 7.) To

the contrary, the Motion seeks an implied rate about 30% above their normal billing

rates as reflected in the affidavits submitted in support of the Motion. (Pl’s. Mem. L.

Supp. Mot. Approval Attorneys’ Fees Expenses 7 (requesting $295,262.14 in fees

when Plaintiff’s Counsel’s “normal billing rates” would generate a lodestar of
$226,842.50).) Even the reduced revised request of $200,000 yields a “discount” from

Plaintiff’s Counsel’s normal billing rates of only about 12% ($200,000 request

compared to $226,842.50 if calculated using “normal rates”). And the revised request

of $200,000 yields an implied rate of $463.31 per hour before accounting for the hours

the Court has excluded as excessive ($200,000 less $4,737.86 in expenses divided by

421.45 hours). When taking into account this reduction in hours, Plaintiff Counsel’s

reduced request equates to an implied hourly rate of $557.89 ($200,000 less $4,737.86

in expenses divided by 350 hours).

      29.    This Court has in similar litigation previously recognized a range of

$250 to $550 per hour for services of highly qualified North Carolina counsel. In re

Pike S’holder Litig., No. 14 CVS 1202, 

, at *22–23 (N.C. Super.

Ct. Oct. 5, 2015) (recognizing a range from $250 to $550); see also In re Harris Teeter

Merger Litig., No. 13 CVS 12579, 

, at *24 (N.C. Super. Ct. Sept.

24, 2014) (recognizing a range from $250 to $450); Krispy Kreme II, 

, at *21 (finding that $300 per hour was a reasonable rate). The Court

recognizes the same range here. To the extent that North Carolina Court of Appeals’

decisions are in conflict regarding whether a trial court may judicially notice a range

of prevailing hourly rates, compare Simpson v. Simpson, 

, 

 (2011) (holding that a trial court “is permitted . . . to take judicial

notice of the customary hourly rates of local attorneys performing the same services

and having the same experience”) with WFC Lynnwood I LLC v. Lee of Raleigh, Inc.,

No. COA17-562, N.C. App. LEXIS 564, at *18 (June 5, 2018) (holding that “the trial
court erred by making a finding with respect to the ‘customary fee for like work’’’

absent an affidavit describing comparable local rates), the Court in this case follows

the line of cases that allow judicial notice of local prevailing rates. This is particularly

appropriate because the Court is taking judicial notice of its own cases in which it

has received affidavit testimony regarding prevailing local rates, and in light of the

Court’s regular monitoring of fee applications in similar cases in North Carolina and

Delaware.

       30.    As it determines an award within the range identified above, the Court

must “assess the reasonableness of the requested fees in light of the amount involved

and the results obtained.” Krispy Kreme II, 

, at *18; see also

N.C. Rev. R. Prof. Conduct 1.5(a)(4).

       31.    The supplemental disclosures here included “(1) disclosures relating to

the background of the [m]erger and (2) disclosures relating to Yadkin’s financial

projections.” Moss v. Towell, 

, at *14. More specifically, the

supplemental disclosures revealed an additional party not disclosed in the original

proxy that had expressed interest, that all potentially interested parties, not just

FNB, had executed non-disclosure agreements, and that three of these agreements

also included “don’t ask, don’t waive” provisions. (Pl’s. Mem. L. Supp. Mot. Final

Approval Settlement 13–14, ECF No. 43; Stipulation Ex. A, at 3–4.) Although a court

must be careful not to take disclosures out of context and consider the total body of

information available to shareholders, the Delaware Court of Chancery has

recognized supplemental disclosures of this type as particularly significant. In re
Ancestry.com Inc. S’holder Litig., C.A. No. 7988-CS, 

 (Del.

Ch. Dec. 17, 2012) (transcript).    Further, the supplemental disclosures provided

additional information that a shareholder may have considered material in assessing

the Company’s fairness opinion. In re NPS Pharmaceuticals Stockholders Litig., C.A.

No. 10553-VCN (Del. Ch. Feb. 18, 2016) (transcript).

      32.    When approving the Settlement, the Court concluded that the

supplemental disclosures constituted reasonable consideration for the release such

that they were not “‘plainly disproportionate’ to the scope of the [r]elease.” Moss,

, at *18 (quoting In re Krispy Kreme Doughnuts S’holder Litig.,

No. 16 CVS 3669, 

, at *20 (N.C. Super. Ct. Jan. 2, 2018). In now

considering the fee request, the “relevant inquiry . . . is whether the supplemental

disclosures, even if sufficiently material to constitute consideration for the

Settlement, are of such obvious value to justify a fee resulting in an implied rate at

the high end of the range for legal services for class actions in North Carolina.” Krispy

Kreme II, 

, at *19–20.

      33.    In Krispy Kreme II, the Court concluded that the value of the

supplemental disclosures did not warrant an hourly rate at the higher end of the

appropriate range and issued an award based on $300 per hour. Id. at *21. The

Court finds that the materiality of the supplemental disclosures in this case is

somewhat more apparent than those in Krispy Kreme II, but not so obvious to justify

an award at the highest end of the range.
      34.    The Court has further considered whether the contingent nature of the

fee warrants an award toward the upper end of the range, N.C. Rev. R. Prof. Conduct

1.5(a)(8), but concludes that no further upward adjustment because of this factor is

appropriate in this case.    Further, while the litigation required skilled counsel

experienced in shareholder class actions, the Court similarly concludes that neither

factor 1.5(a)(1) nor 1.5(a)(7) strongly support a further upward adjustment toward

the high end of the range. N.C. Rev. R. Prof. Conduct 1.5(a)(1) and 1.5(a)(7).

      35.    Accordingly, after considering each of the RPC 1.5(a) factors, the Court,

in its discretion, concludes that a fee award of $140,000 is appropriate, yielding an

implied rate of $400 per hour ($140,000 fee award divided by 350 hours). The Court

finds, “based on its experience, its prior conclusions, and the conclusions of many

other North Carolina courts,” that $400 per hour is “well within the standard range

for similar legal services in North Carolina.” Krispy Kreme II, 

,

at *21.

      36.     After examining supporting materials, the Court concludes that

Plaintiff’s Counsel reasonably incurred $4,737.86 in expenses.

      37.    The Court now considers whether the Fee Agreement complies with the

RPC, and, if not, what effect non-compliance must have on Plaintiff’s Counsel’s ability

to recover fees and expenses.

C.    The Fee Agreement’s RPC Violations Preclude an Award of Expenses,
      but not Attorneys’ Fees.

      38.    The Court recently examined one of Lead Counsel’s fee agreements in

Krispy Kreme II. 

, at *22–32. Lead Counsel’s fee agreement
here is identical to their agreement in Krispy Kreme II. The Court adopts its holding

and reasoning in Krispy Kreme II and concludes that, although that the Fee

Agreement may have violated RPC 1.5(c)’s requirement to state a percentage of

recovery to accrue to Plaintiff’s Counsel in the event of a monetary fund, N.C. Rev. R.

Prof. Conduct 1.5(c), under Robertson v. Steris Corp., 

, 

 (2014), any such RPC 1.5(c) violation concerns the form, not content,

of the RPC and does not justify a forfeiture of fees. Krispy Kreme II, 

, at *25.

      39.    The Court further adopts its holding and reasoning in Krispy Kreme II

and concludes that the Fee Agreement violates RPC 1.8(e)’s requirement that

repayment of advanced costs be contingent upon a matter because the agreement

absolves Plaintiff of all financial responsibility at the outset of litigation, id. at *25,

*28–30, and that this violation “offends the public policy on which the rule is based.”

Id. at *31. Accordingly, Plaintiff’s Counsel is barred from recovering its litigation

expenses.

D.    The Court Need not Address Plaintiff’s Counsel’s Alternative Request
      for an Award Based on Quantum Meruit.

      40.    Plaintiff’s Counsel assert that, beyond the Stipulation, the Court may

alternatively award fees and expenses pursuant to quantum meruit via 

. (Pl’s. Mem. L. Supp. Mot. Approval Attorneys’ Fees Expenses 5.)

“Because the Court finds the Stipulation to be a valid contract and accepts it as the

basis for the award, it need not determine whether, if the Stipulation was invalid,

recovery based on quantum meruit would be appropriate.” Krispy Kreme II, 

, at *32 (citing Robinson, Bradshaw & Hinson, P.A. v. Smith, 

, 

 (1998)).

                                  IV.   CONCLUSION

      41.    For the foregoing reasons, the Court GRANTS in part and DENIES in

part the Motion. Defendants shall pay Plaintiff’s Counsel a total of $140,000.00 as

attorneys’ fees. Plaintiff’s Counsel shall not recover their expenses in the litigation.

      This the 3rd day of July, 2018.


                                          /s/ James L. Gale
                                         James L. Gale
                                         Senior Business Court Judge