In re Xoom Corp. Stockholder Litigation: $50,000 Attorneys Fee Awarded in a Mootness Proceeding related to PayPal Merger

In re Xoom Corp. Stockholder Litigation, No. 11263-VCG, 2016 BL 252274 (Del. Ch. Aug. 4, 2016), the Delaware Court of Chancery awarded representatives of the shareholder class (“Plaintiffs”) $50,000 in attorneys’ fees during mootness proceedings against the directors of Xoom Corporation (“Individual Defendants”)(collectively, “Defendants”).

According to the allegations, PayPal Holdings, Inc. (“PayPal”) and Xoom Corporation (“Xoom”) announced on July 1, 2015, a merger through which PayPal would acquire Xoom for $25 per share (“Merger”). On July 21, 2015, Plaintiffs filed suit alleging Individual Defendants breached their fiduciary duties by filing a false and materially misleading Preliminary Proxy to the Securities and Exchange Commission (“SEC”) in order to induce Xoom shareholders in supporting the merger. Two days later, as a response to the complaint, Xoom filed a Definitive Proxy supplementing the initial disclosures in the Preliminary Proxy. As a result, Plaintiffs voluntarily dismissed the action with prejudice while reserving the right to seek attorney fees.

Plaintiffs sought $275,000 in attorney fees claiming as a direct result of their efforts in bringing litigation, Xoom provided additional disclosure that mooted their claim. Defendants conceded that the disclosures occurred as a result of the litigation. Defendants, however, argued that the fee application should be denied “in its entirety” because the supplemental disclosures did not significantly alter the total mix of information. In the alternative, Defendants argued that the factors set out in Sugarland Indus., Inc. v. Thomas, 420 A.2d 142 (Del. 1980) factors did not support an award of $275,000. 

Delaware follows the American Rule regarding attorney fees and costs, which provides that parties are responsible for their own fees. The Rule has exceptions.  The “mootness fee” is a “subspecies of the common-benefit doctrine,” which provides for the award of fees and costs in connection with litigation that benefited “the group or its successor."  In resolving the issue, the court looked to the factors enumerated in Sugarland, characterizing the “benefit worked” as the “most important here”. 

The court held that the disclosures cumulatively provided a “modest benefit” to the stockholders. The court noted that the decision to bring a contingency fee case following the announcement of a merger “involves significant risk” to counsel and that the court needed to “aware a fee sufficient to encourage wholesome levels of litigation.”  After considering the other Sugarland factors and the stage of litigation, the court awarded fees and costs of $50,000 instead of the requested $275,000.

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

Ken Monington