CHICAGO (CN) — Attorneys in a shareholder action against Walgreens have no business asking for $370,000 in fees when they won "nothing of value" for class members and the litigation only served to enrich class counsel, the Seventh Circuit ruled.
In 2012, Walgreens acquired a 45 percent stake in Swiss pharmacy Alliance Boots GmbH, with an option to acquire the rest of Alliance's equity, which Walgreen exercised in 2014.
It then filed a proxy statement seeking shareholder approval to reorganize the combined company, with Walgreens becoming a wholly owned subsidiary of a new Delaware Corporation called Walgreens Boots Alliance.
A shareholder class action swiftly followed seeking additional disclosures to shareholders, and the parties agreed to settle the suit less than a month into litigation.
The settlement required Walgreens to issue several disclosures to shareholders, and the pharmacy agreed not to oppose a $370,000 attorney's fees request.
A federal judge granted the entire fee request, but the Seventh Circuit reversed Wednesday, citing the paltry benefit of the settlement to class members.
"The disclosures agreed to in the settlement represented only a trivial addition to the extensive disclosures already made in the proxy statement: fewer than 800 new words - resulting in less than a 1 percent increase - spread over six disclosures," U.S. Circuit Judge Richard Posner said, writing for the three-judge panel.
The most significant new disclosure regarded the proposed nomination of Barry Rosenstein to the board of directors, a man involved in a hedge fund that had a 1.5 percent interest in Walgreens stock.
Posner called this disclosure "worthless" because it revealed nothing about Rosenstein's nomination except the timing of pre-nomination consultations.
"The value of the disclosures in this case appears to have been nil. The $370,000 paid class counsel - pennies to Walgreens, amounting to 0.039 cents per share at the time of the merger - bought nothing of value for the shareholders, though it spared the new company having to defend itself against a meritless suit to void the shareholder vote," Posner said.
The panel found it "inconceivable" that the new disclosures increased support for the reorganization, especially when it was approved by an overwhelming margin of 97 percent in favor.
"The district judge was handicapped by lack of guidance for judging the significance of the disclosures to which the parties had agreed in order to settle the class action at nominal cost to the defendant (because class counsel's fees were small potatoes to the giant new company and the disclosures irrelevant to the shareholders and thus incapable of preventing the reorganization) and sweet fees for class counsel, who devoted less than a month to the litigation, a month's activity that produced no value," Posner said.
He further noted that no class members have challenged the reorganization that created Walgreens Boots Alliance.
"The only concrete interest suggested by this litigation is an interest in attorneys' fees, which of course accrue solely to class counsel and not to any class members," the 12-page opinion continues.
Posner urged the lower court on remand to consider appointing new class counsel since current counsel "can't be trusted to represent the interests of the class."
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