Second Circuit affirms decision to deny plaintiff’s request for attorney fees.
On August 20, Willkie obtained a decisive victory for the Board of Directors of Citigroup Inc. when the United States Court of Appeals for the Second Circuit affirmed by summary order the trial court’s decision to deny the shareholder plaintiffs’ quest for a $6 million attorney fee award in connection with their “say-on-pay” executive compensation challenge.
Less than two days after Citigroup’s shareholders voted against the company’s 2011 executive compensation proposal in an advisory Dodd-Frank “say-on-pay” vote, plaintiffs filed a shareholder derivative action against the Board of Directors of Citigroup, accusing the Board of breaching their fiduciary duties by authorizing allegedly “lavish” pay increases for five executives, including Chief Executive Officer Vikram Pandit and Chief Operating Officer John Havens, in violation of the company’s pay-for-performance executive compensation policy. Defendants moved to dismiss the case on various grounds, including that plaintiffs lacked derivative standing to sue on the company’s behalf because they had failed to make a pre-suit demand or adequately plead that such a demand would have been futile. Mr. Pandit and Mr. Havens later resigned from the company, forfeiting certain long-term retention awards as a result. Instead of opposing the motion to dismiss, plaintiffs voluntarily dismissed the action, arguing that their lawsuit caused the company to force Mr. Pandit and Mr. Havens to resign, that the long-term retention awards they forfeited rendered plaintiffs’ excessive compensation claims “moot,” and that the company had received a benefit worth $43 million as a result. Plaintiffs claimed that they were therefore entitled to $6 million in attorneys’ fees under the so-called “common benefit doctrine,” an equitable exception to the American rule that litigants should bear their own costs. As reported in the Am Law Litigation Daily and New York Law Journal, Judge J. Paul Oetken rejected plaintiffs’ fee bid, ruling that plaintiffs’ claim had not been mooted and that any causal relationship between plaintiffs’ lawsuit and the events that later transpired was “farfetched,” and denied plaintiffs’ request to take discovery into the reasons why Mr. Pandit and Mr. Havens resigned.
On appeal, plaintiffs challenged Judge Oetken’s ruling, arguing that causation was a question of fact which could only be resolved after discovery and an evidentiary hearing. According to plaintiffs, Judge Oetken had committed reversible error in denying their request to probe the circumstances surrounding the departure of the two executives so that plaintiffs could establish the requisite connection between cause and effect.
Only one day after hearing oral argument, the Second Circuit summarily affirmed Judge Oetken’s decision for “the reasons set forth in the district court’s well-reasoned opinion,” ruling that discovery issues and attorney fee awards are matters best left to the trial court’s discretion.
The case was handled by partners Mary Eaton and Sameer Advani, and associates Zheyao Li, Dane Lund and Lars Hulsebus.