The opinion of the court was delivered by: Denise Cote, District Judge:
This action, which arises from a dispute concerning a corporation's payment of a so-called "finder's fee" to its lead outside director for his role in facilitating a merger, is before this Court on remand from the United States Court of Appeals for the Second Circuit. By Opinion and Order of October 20, 2010 (the "2010 Opinion"), following a bench trial on October 12-13, 2010, this Court denied the claims of plaintiff Tyco International, Ltd. ("Tyco") for restitution, breach of fiduciary duty, conversion, unjust enrichment, constructive trust, and inducing breach of fiduciary duty. Tyco Int'l Ltd. v. Walsh, 751 F. Supp. 2d 606 (S.D.N.Y. 2010). On January 11, 2012, the Second Circuit reversed and remanded for further proceedings. Tyco Int'l Ltd. v. Walsh, 455 F. App'x 55 (2d Cir. 2012).
By motion of March 26, 2012 (the "March 26 Motion"), Tyco seeks judgment on consequential damages in the amount of $495,901.00, interest in the amount of $1,958,082.19, and attorneys' fees and costs in the amount of $2,003,497.12. For the reasons stated below, Tyco's March 26 Motion is granted in part.
The facts of this case are fully described in the 2010 Opinion, Tyco Int'l, 751 F. Supp. 2d at 608-18, familiarity with which is presumed. The facts relevant to the issues remanded are summarized here.
I. The Acquisition of CIT and the Walsh Payment Plaintiff Tyco is a Bermuda corporation engaged in
manufacturing and services. Defendant Walsh served on Tyco's Board of Directors (the "Board") from 1992 to 2002, and was appointed Lead Director in January 2001.
After Walsh became aware that Tyco was interested in acquiring a financial services company in late 2000, Walsh suggested that Tyco consider acquiring CIT Group, Inc. ("CIT"). Walsh then arranged for a meeting between Tyco's then-CEO L. Dennis Kozlowski ("Kozlowski") and CIT's former Chief Executive Albert Gamper, Jr. ("Gamper"), whom Walsh knew. After this meeting, Walsh and Kozlowski discussed the possibility that Walsh would be paid a "finder's fee" for his services if Tyco succeeded in acquiring CIT.
Walsh did not discuss his expectation of a fee during discussions of the CIT transaction with Tyco's other directors. At a March 12, 2001 meeting in Bermuda, the Board unanimously approved the merger. During this meeting, Kozlowski did not inform the Board that any compensation was owed or would be paid to Walsh. Walsh was not present at the meeting.
On March 29, 2001, Walsh, in his capacity as a director of Tyco, signed a registration statement on Form S-4 that Tyco filed with the Securities and Exchange Commission ("SEC"). This registration statement incorporated by reference the Agreement and Plan of Merger for Tyco's acquisition of CIT, in which Tyco represented that, with the exception of the investment bankers Lehman Brothers and Goldman, Sachs & Co., "there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of [Tyco] who might be entitled to any fee or commission from [Tyco] . . . in connection with the transactions contemplated by this Agreement."
During June and July 2001, after the closing of the CIT transaction, Walsh and Kozlowski further discussed Walsh's finder's fee. In July, Kozlowski advised Walsh not to discuss the fee with anyone other than himself and Tyco's then-Chief Financial Officer, Mark Swartz ("Swartz"). Eventually Walsh and Kozlowski agreed that $10 million would be paid to Walsh directly and $10 million would be paid to a charity of Walsh's choosing. Walsh designated the Community Foundation of New Jersey as the charity (the "Community Foundation"), and later advised the Community Foundation on its investment and distribution of the payment. Walsh did not inform the Board of the fee during its discussions of the CIT transaction at a Board meeting in October 2001.
On December 21, 2001, Walsh filled out a Directors' and Officers' Questionnaire ("D & O Questionnaire") in which he disclosed his receipt of the $10 million fee and Tyco's contribution of $10 million to the Community Foundation at his request. Walsh's disclosure of the $20 million payment in the D & O Questionnaire led, eventually, to the disclosure of the payment to the Board and to the public. The Board first discussed the payment at a January 16, 2002 Board huddle. During the Board huddle, the Board asked Walsh to return the payment and told him that if he refused, he would not be renominated to the Board. Walsh refused to return the payment and walked out of the meeting.
II. Tyco's Defense of the Walsh Payment Tyco disclosed to the public the $20 million payment in a January 28, 2002 proxy statement. The proxy statement stated that Walsh "was instrumental in bringing about" the CIT acquisition, and that Tyco paid him $10 million "[f]or his services" and contributed $10 million to the Community Foundation.
Following this disclosure, the press and corporate-governance experts were severely critical of the payment to Walsh. In a number of public statements, however, Tyco defended the payment. In a January 29 article in the Wall Street Journal, for example, Tyco spokeswoman Maryanne Kane was quoted as saying that Tyco's Board had decided the Walsh payment was "appropriate based on the amount of work" that Walsh had done. Similarly, a vetted and edited January 29 Tyco statement quoted Kozlowski as saying that the payment had been "fully disclosed" in Tyco's proxy statement, that the payment was made because Walsh was "instrumental in bringing about" the acquisition of CIT, and "[t]he Board felt that [the] fee was appropriate in light of Mr. Walsh's efforts."
A number of Board members recall being unhappy with this press coverage of the Walsh payment. In a telephone conversation among former Tyco Chief Counsel Mark Belnick ("Belnick") and a number of directors, certain directors expressed "great displeasure" at Tyco's press statements. When Belnick articulated his understanding that the Board had "ratified" or "approved" the Walsh payment, however, no director corrected him. And when Belnick explained the Board's options, Richard Bodman ("Bodman"), a Tyco director, expressed his feeling that "it was a fait accompli, what else could we do."
In February, Belnick spoke on the telephone with Joshua Berman ("Berman"), another Tyco director, regarding the Walsh payment. Belnick explained that he thought the only reasonable interpretation of the January 28 proxy statement was that the Board had in fact approved the payment. Berman denied that that was what the disclosure meant, however, and stated that he was "trying to steer a middle course" in which "the Board just doesn't ratify, doesn't not ratify."
On February 11, with Tyco's approval, Walsh released a statement defending the payment to the Wall Street Journal. In a February 11 article in Barron's, Kozlowski was quoted as stating that the Walsh payment was "inappropriate," and noting, "After the situation arose, the board unanimously voted to change our bylaws so such a situation would never again arise."
That same month, Belnick requested that Tyco's outside counsel Wilmer Cutler Pickering Hale and Dorr LLP ("Wilmer Cutler") prepare a chronology describing Tyco's handling of the Walsh payment. On February 19, Meredith Cross at Wilmer Cutler sent an email to Belnick attaching the chronology and stating that the "attached chronology shows that various news sources and the SEC believe that the Tyco board approved the Walsh payment." Belnick subsequently reviewed and revised the chronology.
At a February 20 board meeting, the Board discussed a shareholder demand letter regarding the Walsh payment, referred the matter to its Corporate Governance Committee, and passed a resolution amending its Bye-Laws. The amendment disallowed directors from receiving certain kinds of fees like the Walsh payment.
During this period, Tyco received a number of letters from shareholders indicating their disapproval of the Walsh payment. In his response to one such letter, dated March 19, Swartz did not indicate that Tyco was seeking to recover the Walsh payment and ...