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JOY MFG. CORP. v. PULLMAN-PEABODY CO.

December 1, 1989

JOY MANUFACTURING CORPORATION, a Pennsylvania Corporation, Plaintiff,
v.
The PULLMAN-PEABODY COMPANY, Thomas M. Begel, Gerald R. Ford, Jane Mack Gould, John E. McConnaughy, Jr., Edward A. Montgomery, Jr., James R. Shepley, Steven Shulman, Yedco Partners L.P., Yed Corp., CCI Acquisition Corp. and Pullman Acquisition Company, Defendants, and Cynthia Berger, Custodian for Andrew C. Berger, Plaintiff in Intervention



The opinion of the court was delivered by: DIAMOND

 The matter presently before the court is a petition for attorneys' fees filed by proposed intervenor, Cynthia Berger. For the reasons which follow, the motion will be granted.

 I. Background

 Contemporaneously with its tender offer, Pullman brought suit against Joy in the United States District Court for the District of New Jersey wherein it sought a judgment declaring Joy's pension termination plan to be invalid and an injunction against its implementation. On December 9, 1986, Judge, then Chief Judge, Clarkson S. Fisher granted Joy's motion to dismiss the Pullman action on the ground, among others, that Pullman lacked standing to challenge the pension parachute because of the lack of contemporaneous stock ownership by Pullman. In other words, Pullman lacked standing to challenge the pension termination plan because it was in place when Pullman first acquired Joy stock on September 19, 1986. Pullman did not attack the stock rights plan. Had it done so, the result would have been the same, since the adoption of that plan also predated Pullman's acquisition of Joy stock.

 On December 8, Joy's board of directors unanimously rejected Pullman's tender offer as inadequate and recommended to Joy's shareholders that they not tender their shares to Pullman. The Joy board also authorized the release of confidential information to potential bidders but only upon their execution of a so-called "standstill" agreement whereunder they agreed that for a period of two years they would not attempt to acquire Joy without its prior written approval.

 On the same day, Joy commenced the instant action against Pullman seeking a judgment declaring the poison pills to be valid and an order enjoining the Pullman tender offer. In its answer and counterclaim filed on December 12, Pullman sought to have the poison pills declared invalid. On the same day, the petitioner herein, Cynthia Berger, filed a motion to intervene in this action in order to file a derivative class action on behalf of Joy challenging the validity of the poison pills.

 Oral argument on the motion to intervene was held on December 15 (references to that proceeding will be "Tr. p. "). Initially, the court questioned the need for the proposed intervention since Berger's claim for relief appeared to be virtually identical to the several Pullman counterclaims. (Tr. p. 3). Paul M. Bernstein, Esquire, one of the attorneys for Berger, explained that the Berger intervention was necessary because there was a serious question as to whether or not Pullman adequately could represent the shareholders who formed the derivative class in challenging the poison pills. Mr. Bernstein noted that in the New Jersey suit Chief Judge Fisher had granted Joy's motion to dismiss on the ground that Pullman lacked standing to attack the pension termination plan because Pullman had acquired its stock after that plan had been adopted by Joy. It was likely, therefore, Mr. Bernstein reasoned, that a similar motion filed by Joy earlier that day in the instant action would produce the same result. (Tr. pp. 4-6). Indeed, counsel for Joy agreed with this assessment. (Tr. p. 18). On the other hand, Mr. Bernstein argued, the proposed intervenor, Cynthia Berger, was not vulnerable to such a challenge because she had been a shareholder of Joy continuously for the past seventeen years. Counsel for Joy opposed intervention, while Pullman urged the court to permit it. The court took the motion under advisement, indicating that it would make a ruling on all outstanding matters before the end of the year but that in the meantime Cynthia Berger could participate in all discovery and other pretrial matters, and she did.

 On, or immediately after, December 15, Joy announced that any party interested in acquiring it should submit its bid on or before December 18, 1986. Joy then scheduled a meeting of its board of directors for December 19, 1986, to consider these bids.

 In response to the Joy invitation to bid, Pullman increased its offer for all of the common stock of Joy from $ 31.00 to $ 34.00 a share and Adler and Shaykin ("A & S") tendered a bid of $ 35.00 for 94.3% of the common stock of Joy. At a special meeting on December 22, 1986, the Joy board approved a definitive merger agreement with Joy Acquisition Corporation, formed by A & S. The A & S offer provided that if over 94.3% of the shares subscribed, as in fact occurred, all shareholders would be paid in cash and preferred stock of the surviving company on a subsequent merger. Joy became the surviving corporation under the merger agreement.

 A telephone status conference in this case was scheduled by the court for December 29, 1986. However, on that day before the conference was scheduled to commence counsel for Joy and Pullman announced that they had agreed to settle and discontinue this litigation. A subsequent press release by Pullman indicated that the settlement included an agreement by Joy to pay to Pullman $ 750,000.

 Although petitioner did not object to the discontinuance of this action or attempt or threaten to interfere with any of the actions contemplated by Joy, Pullman, or A & S, petitioner had advised Joy on December 22, and all parties and the court on December 29 during the status conference call, that petitioner intended to apply for counsel fees and expenses.

 II. Discussion

 A. Contention of the Parties

 Petitioner contends that as the combined result of her proposed intervention and the hostile takeover actions of Pullman, the management of Joy concluded that its efforts to prevent a hostile takeover ultimately would fail and that Joy would be vulnerable to purchase by hostile buyers, i.e., those who would operate the company on their own terms including, inter alia, the replacement of incumbent officers and directors. As a consequence, petitioner contends, some time on or after December 15, 1986, the day on which the court heard argument on the Berger petition to intervene, the management of Joy decided to put the company on the trading block and to solicit offers from all bidders. (See Deposition of Joseph J. Bellas, Vice President and Controller of Joy, Plaintiff-in-intervention, Appendix of exhibits "F", app. 0028-29). All of this according to petitioner, resulted in a 37 1/4% increase in the value of Joy common stock from $ 25.50 at close on December 1, 1986, to the $ 35.00 A & S offer of December 19, ultimately approved by Joy's board on December 22, 1986.

 From the foregoing, petitioner contends that she conferred a benefit on the corporation and its shareholders which entitles her to collect attorneys' fees and costs from the corporation. Petitioner argues that all of the shareholders who benefited from the Pullman-Berger actions remained as shareholders following the merger resulting from the A & S tender offer under which Joy became the surviving company. Since the A & S tender offer was fully subscribed, a part of the payment to the tendering shareholders was in the form of preferred stock in the surviving corporation. In addition to the pecuniary benefit resulting from the appreciation in the value of Joy common stock, petitioner contends that the corporation derived an additional benefit from the therapeutic effect resulting from the judicial challenge to the poison pills.

 Joy resists the petitioner's attempt to obtain attorneys' fees and costs on several grounds. First, Joy contends that because the intervenor's suit lacked merit the intervenor was not entitled to counsel fees on any theory. Second, Joy argues that there was no causal relationship between the Berger proposed intervention, alone or in combination with the actions of Pullman, and the decision by Joy management to put the company on the auction block. And, finally, Joy maintains that in any event there was no benefit conferred on the corporation to justify assessing fees and costs against it, even though there may have been a benefit conferred on the shareholders.

 B. Applicable Law

 The petitioner correctly states at page two of her brief that where a party has by his or her effort and expense through litigation created a benefit for others a fee award is appropriate whether or not the litigation is mooted before judgment and regardless of whether there is a monetary fund created from which fees may be paid. See Kahan v. Rosenstiel, 424 F.2d 161 (3d Cir.), cert. denied, 398 U.S. 950, 90 S. Ct. 1870, 26 L. Ed. 2d 290 (1970) and Koppel v. Wien, 743 F.2d 129 (2d Cir. 1984).

 This rule is to be applied liberally, Thomas v. Honeybrook Mines, Inc., 428 F.2d 981 (3d Cir. 1970), cert. denied, 401 U.S. 911, 27 L. Ed. 2d 809, 91 S. Ct. 874 (1971), and the benefit need not be conferred solely by the efforts of the party seeking compensation. See Institutionalized Juveniles v. Sec. of Pub. Wel., 758 F.2d 897, 916 (3d Cir. 1985), for a discussion of the standard applied in the Third Circuit for determining the causal relationship. There the court quoted Morrison v. Ayoob, 627 F.2d 669, 671 (3d Cir. 1980) (per curiam), for the proposition that: "the action need not be the sole cause. Where there is more than one cause, the plaintiff is a prevailing party if the action was a material factor in bringing about the defendant's action."

 It is not necessary that the benefit to a corporation from a derivative suit be pecuniary to justify an award of attorneys' fees. In Mills v. Electric Auto-Lite Co., 396 U.S. 375, 395, 90 S. Ct. 616, 24 L. Ed. 2d 593 (1970), the Supreme Court stated at page 608, 24 L. Ed. 2d:

 
However, an increasing number of lower courts have acknowledged that a corporation may receive a "substantial benefit" from a derivative suit, justifying an award of counsel fees, regardless of whether the benefit is pecuniary in nature [footnote omitted]. A leading case is Bosch v. Meeker Cooperative Light & Power Assn., 257 Minn. 362, 101 NW2d 423 (1960), in which a stockholder was reimbursed for his expenses in obtaining a judicial declaration that the election of certain of the corporation's directors was invalid. The Supreme Court of Minnesota stated: "Where an action by a stockholder results in a substantial benefit to a corporation he should recover his costs and expenses . . . . [A] substantial benefit must be something more than technical in its consequence and be one that accomplishes a result which corrects or prevents an abuse which would be prejudicial to the rights and interests of the corporation or affect the enjoyment or protection of an essential right to the stockholder's interest."

 The Court went on to state at 24 L. Ed. 2d at 609:

 
But regardless of the relief granted, private stockholders' actions of this sort "involve corporate therapeutics" [footnote omitted] and furnish a benefit to all shareholders by providing an important means of enforcement of the proxy statute. [footnote omitted] To award attorneys' fees in such a suit to a plaintiff who has succeeded in establishing a cause of action is not to saddle the unsuccessful party with the expenses but to impose ...

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