J.C. Penney Co. v. Ozenne
Dallas Court of Appeals, No. 05-13-01601-CV (December 19, 2014)
Justices Francis, Myers (Opinion), and Thomas
Ozenne, a J.C. Penney stockholder, filed suit derivatively on behalf of the corporation against its officers and directors, alleging that Penney’s officers received excessive compensation. After litigating for only about seven months, the parties reached a settlement. Penney received no money in the deal, but the Board agreed to corporate-governance changes for the next four years that included a modification of the vesting of officers’ long-term incentive compensation awards. Plaintiff presented evidence that if this modification had been in effect for the preceding four years, the company would have saved over $15 million per year. The parties agreed to an indeterminate fee award, capped at $5 million, that would “compensate Plaintiff’s Counsel for the results achieved in the Action and the risks of undertaking the prosecution of the Action on a contingent basis.” When the trial court awarded Plaintiff’s counsel $3.1 million in fees, the Defendants appealed, arguing that the award—which was 5.5 times the lodestar amount—was excessive. The Dallas Court of Appeals first ruled that the issue was governed by Texas law. Penney is a Delaware corporation. But the Settlement Stipulation did not designate which state’s law controlled, and the Court found the fee question to be a procedural issue excluded by statute from the “internal affairs” doctrine, which would have required applying Delaware law to substantive issues. The Court next held that (a) the formulation quoted above and adopted by the parties in their Settlement Stipulation established the standard by which the fee award was to be determined, and (b) this agreed standard did not reference, and was different from, that prescribed by the Texas statute governing fees in derivative cases, TEX. BUS. ORG. § 21.561, and Rule of Civil Procedure 42(i). More specifically, it removed any requirement that the fees have been “incurred” or that the award be measured against the lodestar. Freed from those constraints, the Court held, the $3.1 million award was not an abuse of discretion. The Court did not discuss TEX. R. CIV. P. 42(i)(2)—literally applicable only to class actions and not to derivative cases—which has been held to constrain or even prohibit a cash award of fees where, as here, the only relief obtained is “therapeutic” or non-monetary.
