Americas Mining Corp. v. Theriault: Delaware Supreme Court Upholds Court of Chancery’s Award for $2 Billion in Damages and $304 Million in Attorneys’ Fees

In Americas Mining Corp. v. Theriault, Nos. 29, 2012, 30, 3012, 2012 LEXIS 459 (Del. Aug. 27, 2012), the Supreme Court of Delaware upheld the Court of Chancery’s judgment in favor of minority shareholders, affirming an award of more than $2 billion in damages and more than $304 million in attorneys’ fees.

Michael Theriault, trustee for Theriault Trust, brought a derivative suit on behalf of minority shareholders in Southern Copper Corporation (“Southern Peru”) against American Mining Corporation (“AMC”), a subsidiary of Southern Peru, and Southern Peru’s affiliate directors for breach of the duty of loyalty. Theriault alleged that AMC, a subsidiary of Grupo Mexico, the controlling shareholder of Southern Peru, caused Southern Peru to acquire a 99.15% equity interest in Minera Mexico (“Minera”), a Mexican mining company owned by Grupo Mexico. Plaintiff alleged that Southern Peru overpaid for the acquisition.

The Court of Chancery held that evidence presented at trial demonstrated that because of the Special Committee’s ineffective operation, AMC, through its controlling shareholder Grupo Mexico, “extracted a deal that was far better than market” price, constituting a breach of the duty of loyalty to Southern Peru. The defendants appealed the decision based on five distinct arguments, and the Delaware Supreme Court found each contention to be without merit.

Defendants argued that the Court of Chancery unfairly prejudiced them when it denied their request to allow one of their financial advisors from Goldman Sachs to testify at trial as a replacement for a previously identified witness. The advisor would explain the internal processes used at Goldman Sachs to issue fairness opinions to clients. The witness was proposed a week before the trial, was not available to be deposed before the trial and was not available to testify during the scheduled trial dates. Defendants requested that he be deposed after every other trial witness had testified, and sought a modification of the trial schedule so that the court could reconvene several weeks after the trial was scheduled to conclude to hear the testimony of the witness.

The Court of Chancery found that other Goldman Sachs witnesses had been deposed about the same topic. Moreover, the trial judge was willing to “watch the video” of the previously identified witness. Finally, the “eleventh-hour request” to change the trial dates “would have been unfair to the Plaintiff.” The Delaware Supreme Court found that the Chancery Court’s decision was “supported by the record and the product of a logical deductive reasoning process” and was, as a result, a proper exercise of discretion.

Defendants also asserted as error the decision of the Court of Chancery to fail to decide before trial which party had the burden of proof. The defendants asserted that their use of a Special Committee resulted in plaintiffs having the burden. The Delaware Supreme Court, however, noted that the shift in the burden depended upon the effectiveness of the Special Committee, something that could only be determined after the presentation of affirmative evidence at the trial. Moreover, the practical effect of the shift in the burden was “slight” and did not, in the opinion of the Court, alter the outcome of the decision. See Id. (“Nothing in the record reflects that a different outcome would have resulted if either the burden of proof had been shifted to the Plaintiff, or the Defendants had been advised prior to trial that the burden had not shifted.”).

The defendants also challenged the lower court’s finding that there had not been fair dealing or fair price. In particular, defendants argued that the Chancery Court incorrectly rejected Goldman Sachs’ valuation procedure without a sufficient evidentiary basis. The Delaware Supreme Court held that “the Court of Chancery did understand the [d]efendants’ argument and that its rejection of the [d]efendants’ ‘relative valuation’ . . . was the result of an orderly and logical deductive reasoning process that is supported by the record.”

The Delaware Supreme Court also reviewed the calculation of damages. In determining the amount of the overpayment, the Court of Chancery looked to three different alternate valuation techniques for Minera, concluding that the average “difference” was $1.347 billion. The court awarded that amount plus the statutory interest rate. Because the Court of Chancery had “explained the reasons for its calculation of damages with meticulous detail” and shared with the defendants “complete transparency of its actual deliberative process,” it properly exercised its discretion in calculating and awarding damages.

Finally, the defendants contended that the $304 million award for attorneys’ fees was unreasonable as it would pay the plaintiffs’ counsel at a rate of more than $35,000 per hour, an amount 66 times more than the value of the attorneys’ time and expenses. The Delaware Supreme Court affirmed the use of the “percentage of the fund” method when setting common fund fee awards. See Sugarland Indus., Inc. v. Thomas, 420 A.2d 142 (Del. 1980) (fees based on (1) the benefit achieved; (2) counsel’s time and effort; (3) the difficulty and complexity of litigating the case; (4) whether counsel’s representation was contingent; and (5) the standing and ability of counsel working on the case).

The Delaware Supreme Court explained that the “benefit achieved” factor was the most important in determining the amount of fees and that counsel, when it secures an extraordinary benefit for its clients, is “entitled to a fair percentage of the benefit” [emphasis in original]. Again, the Court of Chancery described in thorough detail its reasoning for awarding the amount of attorneys’ fees that it did, even declining the percentage based in part upon the size of the judgment, and in part upon plaintiffs’ counsels’ delay in litigating the case.

In an unusual move, Justice Berger filed a separate opinion concurring in the merits of the case, but dissenting with regard to the legal standard applied by the trial court to the award of attorneys’ fees. Justice Berger found that instead of applying the Sugarland factors, the trial court’s analysis was based upon its views of whether the fees available to plaintiffs’ lawyers were high enough to incentivize them to try “mega” cases.

The primary materials for this case may be found on the DU Corporate Governance website.

Jessica Borchers