The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.
Plaintiff Alan G. Stevens, a shareholder of Cascal N.V., initiated this suit alleging that defendant Sembcorp Utilities Pte Ltd. omitted material information from its tender offer to purchase all outstanding Cascal stock. Now pending before the Court is Stevens's motion for attorneys' fees and costs, and a cross-motion of Sembcorp seeking the same. For the reasons set forth below, both motions are denied.
On May 21, 2010, Sembcorp commenced a tender offer for all outstanding Cascal common stock at $6.75 per share. (Decl. of Mark S. Reich dated Nov. 19, 2010 ("Reich Decl.") ¶ 5.) The offer was initially set to expire June 21. (Id. ¶ 12.)
Stevens filed this action two weeks later alleging that Sembcorp's offering documents were materially misleading in violation of Section 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(e). Stevens's chief complaint was that the projections of Cascal's future financial performance in those documents were misleading because they omitted material information. (Compl. ¶¶ 48-52.)
On June 17, Stevens sought a temporary restraining order ("TRO") to prevent the expiration of the tender offer. (Reich Decl. ¶ 8.) In opposing this relief, Sembcorp submitted a report that contained more detailed financial projections than those included in the tender offer.*fn1
(Id. ¶ 9.) At a June 18 hearing on the TRO, Sembcorp stated that it intended to file this report with the Securities and Exchange Commission as a supplement to its original tender offer. (Hearing Tr. at 44-46, June 18, 2010.) It further informed the Court of its intention to extend the tender offer beyond June 21 for reasons unrelated to this litigation. (Id.) Sembcorp's plans, Stevens conceded, mooted the principal claims set forth in his original complaint. (See id. at 46-47; Pl.'s Mot. to Dismiss with Prejudice at 1.)
On June 21, Sembcorp made the promised SEC filings. (Sembcorp Utilities Pte Ltd. Schedule TO-T dated June 21, 2010, attached as Ex. B to the Decl. of Anthony M. Candido dated June 23, 2010.) By that time of that filing, more than 86 percent of the shares of Cascal had been tendered to Sembcorp. (Id.) When the offer finally expired on July 8, Sembcorp had obtained more than 92 percent of Cascal's shares. (Reich Decl. ¶ 13.) Sembcorp acquired the remaining Cascal shares via a subsequent tender offer and a squeeze-out merger. (Id.)
On July 20, Stevens filed an amended complaint alleging that Sembcorp had omitted from the tender offer material information concerning Sembcorp's multiyear efforts to purchase Cascal. These omissions allegedly gave Cascal shareholders "a false impression that the terms of the Tender Offer [were] developed pursuant to a robust and fair process." (Am. Compl.¶ 113; see id. ¶¶ 88-112.) After Sembcorp moved to dismiss the amended complaint, Stevens voluntarily sought dismissal with prejudice. Stevens's motion was granted and Sembcorp's motion was dismissed as moot. (Order dated Sept. 23, 2010.) The pending cross-motions for attorneys' fees followed.
A. The common-fund rule does not permit Stevens to recover his attorneys' fees from Sembcorp Stevens claims that he is entitled to have Sembcorp pay his attorneys' fees because this lawsuit spurred the release of financial projections and other information that enabled Cascal's shareholders to better assess the adequacy of Sembcorp's tender offer.
The "long-standing 'American Rule'" is that "'the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys' fee from the loser.'" Christensen v. Kiewit-Murdock Inv. Corp., 815 F.2d 206, 210 (2d Cir. 1987) (quoting Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247 (1975)). To avoid the prohibition on fee shifting, Stevens invokes the "common-benefit rule." Rooted in equity, this rule permits a party "to obtain reimbursement of attorneys' fees 'in cases where the litigation has conferred a substantial benefit on the members of an ascertainable class' and where it is possible to spread the costs proportionately among the members of the class." Amalgamated Clothing & Textile Workers Union v. Wal-Mart Stores, Inc., 54 F.3d 69, 71 (2d Cir. 1995) (emphasis added) (quoting Mills v. Electric Auto-Lite Co., 396 U.S. 375, 393-94 (1970)). This common-benefit rule most often applies "in shareholder derivative actions to award fees indirectly against other shareholders benefiting from the law suit by taxing the nominal corporate defendant." Christensen, 815 F.2d at 211. In that scenario, a fee award against the corporate treasury is ratably borne by the corporation's shareholders. The common-benefit rule "does not apply, however, when fees are sought from the assets of the losing party, and the fee award would not . . . be assessed against persons who have derived benefit from the lawsuit." Savoie v. Merchants Bank, 84 F.3d 52, 56 (2d Cir. 1996).
It is uncontested that Sembcorp received no benefit from this suit. (See Pl.'s Reply in Supp. of Attorneys' Fees ("Pl.'s Reply") at 2, 8.) Stevens, however, submits that the additional disclosures this lawsuit prompted constituted "a 'substantial benefit' to Cascal's shareholders" for the purposes of the common-benefit rule. (Pl.'s Mem. in Supp. of Attorneys' Fees at 8.) Even assuming this is correct, Stevens is not entitled to collect his fees from Sembcorp. Forcing Sembcorp to pay fees would not spread the costs of the litigation to the supposed beneficiaries of this suit-Cascal's shareholders. They have received cash for their shares from Sembcorp and have left the scene. Taxing Sembcorp just "saddle[s] the unsuccessful party with the expenses," which is not the purpose of the common-benefit rule. Mills, 396 U.S. at 396.
Christensen, as does the instant case, involved the attorneys' fees liability of a corporation that had completed a successful cash tender offer. The Christensen plaintiffs, preferred shareholders of a subsidiary of Kiewit Corp., sought attorneys' fees from Keiwit Corp. because their suit allegedly had prompted Kiewit Corp. to cash them out of their shares. The United States Court of Appeals for the Second Circuit held that the common-benefit rule did not permit a fee award because the plaintiffs' sought "fees and costs from Kiewit Corp., not from . . . those persons who purportedly have benefited from [the plaintiffs'] law suit," i.e. the preferred shareholders who profited from Kiewit's tender offer. 815 F.2d at 212. The court concluded that "an award of attorneys' fees and costs against Kiewit Corp. would not 'pass-through' to any of the stockholders purportedly benefiting from [the plaintiffs'] law suit. ...