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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY

IN RE FUQUA INDUSTRIES, INC. ) CONSOLIDATED SHAREHOLDER LITIGATION ) Civil Action No. 11974 _____________________________________ ) _______________________ ) SACHNOFF & WEAVER, LTD., an Illinois ) limited liability corporation, LOWELL E. ) SACHNOFF and DAVID SCHACHMAN, ) ) Plaintiffs, ) C.A. No. 2173-N ) v. ) ) BURTON R. ABRAMS, ) ) Defendant. )

MEMORANDUM OPINION Date Submitted: July 7, 2006 Date Decided: September 7, 2006

Joseph A. Rosenthal, of ROSENTHAL, MONHAIT & GODDESS, P.A., Wilmington, Delaware, Attorneys for Plaintiffs. David P. Primack, of DRINKER BIDDLE & REATH LLP, Wilmington, Delaware; OF COUNSEL: Robert P. Cummins and Thomas C. Cronin, of CUMMINS & CRONIN, LLC, Chicago, Illinois, Attorneys for Defendant.

CHANDLER, Chancellor

Plaintiff is a law firm that recently served as class counsel in a class and derivative action litigated and settled in this Court. In conjunction with the settlement, this Court approved a plaintiff's allowance of $50,000 to be paid to the representative plaintiff. The representative plaintiff now alleges there was a contract obligating the law firm to pay him for hundreds of hours of legal work he performed in connection with the case. The law firm has filed a complaint seeking a declaration that the contract is unenforceable as a matter of law. I grant plaintiff's motion for summary judgment on the grounds that the purported contract is unenforceable as a matter of law and contrary to the principles governing stockholder class and derivative litigation in Delaware. I. FACTS This case arises out of In re Fuqua Industries, Inc. Shareholder Litigation, a class and derivative action litigated in this Court between 1991 and 2006. Sachnoff & Weaver, Ltd. ("Sachnoff & Weaver") served as class counsel in In re Fuqua. The initial representative plaintiff in In re Fuqua was Virginia Abrams ("Mrs. Abrams") acting as trustee for the Virginia Abrams Trust (the "Abrams Trust"). When Mrs. Abrams passed away in 2003, her husband, Burton Abrams ("Mr. Abrams"), was appointed representative plaintiff.

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A. History of the In re Fuqua Litigation 1. The Complaint In the 1980s and 1990s, the Virginia Abrams Trust owned stock in Fuqua Industries, Inc. ("Fuqua Industries"). Mr. and Mrs. Abrams came to believe that the Fuqua Industries board of directors was undertaking certain transactions in order to entrench itself. Mr. Abrams, a retired trial attorney, sent numerous letters to the board of directors complaining of managerial misconduct.1 Mr. Abrams then began looking for counsel to represent Mrs. Abrams in a stockholder action.2 He eventually hired two lawyers at

Sachnoff & Weaver: Lowell Sachnoff and David Schachman. The first complaint was filed in Mrs. Abrams' name on February 22, 1991. The complaint asserted numerous causes of action against Fuqua Industries' board of directors. After this complaint was consolidated with two other complaints, there followed a second amended complaint on December 28, 1995. Defendants responded by filing a motion to dismiss

and on May 13, 1997, this Court dismissed all the class claims and all but one of plaintiff's derivative claims.3

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In re Fuqua Indus., Inc. S'holder Litig., 752 A.2d 126, 129 (Del. Ch. Dec. 2, 1999). Id. at 128. 3 In re Fuqua Indus., Inc. S'holder Litig., 1997 WL 257460, at *1 (Del. Ch. May 13, 1997).

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2. The Motion to Disqualify Virginia Abrams In 1998, the In re Fuqua defendants filed a motion to disqualify Mrs. Abrams from serving as representative plaintiff. Defendants objected to Mrs. Abrams serving as class representative on the grounds that she was elderly, had recently suffered health problems, and was unfamiliar with the facts underlying her claims.4 Defendants took depositions of Mrs. Abrams showing that her health and memory had deteriorated and that she "lacked a meaningful grasp of the facts and allegations of the case prosecuted in her name."5 On December 2, 1999, I issued a letter opinion denying defendants' motion to disqualify Mrs. Abrams.6 I agreed with defendants that Mrs. Abrams most likely did not have the stamina to constantly monitor her lawyers7 and that she was unfamiliar with the details of her lawsuit.8 Nevertheless, I did not dismiss her as lead plaintiff. The role played by a representative plaintiff in a stockholder derivative suit is typically quite

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In re Fuqua, 752 A.2d at 136. Id. at 129 ("During the long pendency of this litigation Mrs. Abrams fell ill. As she concedes, her memory and faculties have suffered as a result. In a 1998 deposition, it was evident that Mrs. Abrams lacked a meaningful grasp of the facts and allegations of the case prosecuted in her name . . . . She was obviously confused about basic facts regarding her lawsuit.") 6 In re Fuqua Indus., Inc. S'holder Litig., 752 A.2d 126 (Del. Ch. 1999). 7 Id. at 136. 8 Id. ("Abrams is elderly and has suffered health problems in recent years. While her lawyers sat on her claims, her health and memory have deteriorated and now she cannot remember very many things about her lawsuit.")

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limited.9 As a result, the fact that Mrs. Abrams would not be a particularly active lead plaintiff was not sufficient grounds for ordering her dismissal. I declined, however, to find that there was absolutely no competency requirement whatsoever for serving as a representative plaintiff.10 As I stated in the letter opinion, the lead plaintiff performs a necessary function: she serves as a bulwark against the risk of "attorneys bring[ing] actions through puppet plaintiffs while the real parties in interest are the attorneys themselves in search of fees . . . ."11 Based on the affidavits submitted by Mr. Abrams suggesting that Mrs. Abrams would benefit from the advice and experience provided to her by her husband,12 I concluded that Mrs. Abrams was competent to the extent that she would not be a mere "puppet plaintiff." 3. Burton Abrams Becomes Lead Plaintiff In 2003, Mrs. Abrams passed away. Her husband, as successor

trustee to the Virginia Abrams Trust, became the representative plaintiff. Mr. Abrams is a retired trial attorney who practiced in Chicago, Illinois for over sixty years.13

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Id. at 135 ("Our legal system has long recognized that lawyers take a dominant role in prosecuting litigation on behalf of clients.") 10 Id. at 133 (declining to follow preponderance of federal courts). 11 Id. 12 Id. at 134. 13 Id. at 134 n.28.

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4. The Settlement On December 19, 2005, the parties in the Fuqua litigation notified me that they had agreed on a stipulation of settlement. I scheduled a settlement hearing for March 6, 2006, and plaintiffs submitted a brief in support of the stipulated settlement on March 1, 2006. i. The Request For a Plaintiff's Award On March 2, 2006, Mr. Abrams filed a motion requesting a so-called "plaintiff's award." In Delaware, representative plaintiffs typically receive no compensation for their services other than their pro-rata share of the class recovery and their reasonable out-of-pocket costs and expenses.14 A

"plaintiff's award" is an additional sum intended to reward and incentivize extraordinary service to the class performed by the class representative. Mr. Abrams proposed that he be given a $50,000 allowance to be awarded out of Sachnoff & Weaver's legal fees. Sachnoff & Weaver filed a statement in support of this award being paid out of its legal fees. The brief highlighted Mr. Abrams' involvement in the case over its fourteen-year history15 and referred to this Court's recent opinion in Raider v. Sunderland.16 In Raider, this Court employed a four14

See Raider v. Sunderland, 2006 WL 75310, at *2 (Del. Ch. Jan. 5, 2006) (awarding a plaintiff's allowance, but noting that "Delaware Courts are reluctant to award lead plaintiffs anything other than their out-of-pocket costs and expenses . . . ."). 15 Resp. of Pls.' Counsel to Mot. for an Award to the Virginia Abrams Trust, at *2. 16 Raider, supra, 2006 WL 75310 (Del. Ch. Jan. 5, 2006).

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part test for determining whether to grant an award.17 Under Raider, an award may be appropriate where: (1) lead plaintiff makes unusually

significant efforts monitoring the litigation; (2) the efforts result in a direct benefit to the class; (3) the lead plaintiff owns so few shares that she stands to gain only a small pro-rata recovery as a member of the class; and (4) notice is provided to the class.18 Attached to Sachnoff & Weaver's statement supporting a plaintiff's award was a series of three letters between Sachnoff & Weaver and Mr. Abrams relating to the payment of legal fees to Mr. Abrams. Mr. Abrams asserts that these letters formed a contract with Sachnoff & Weaver, obligating the firm to pay Mr. Abrams for the legal work he performed in connection with In re Fuqua. The first of these letters, dated July 30, 1992, was from Burton Abrams to Lowell E. Sachnoff. In this letter, Mr. Abrams brought attention to the significant time and effort he had expended in connection with the Fuqua case.19 The letter went on to state: "the value of my efforts should be incorporated as part of your billing when fees are considered in the course of
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Id. at *2. Id. 19 Resp. of Pls.' Counsel to Mot. for an Award to the Virginia Abrams Trust, Ex. B (July 30, 1992 Abrams letter to Sachnoff, at *1 ("A few days ago, I spoke at length with David Schachman and pointed out to him and reminded him of the time and effort I expended prior to your retainer and subsequently in connection with the Fuqua case. I did this because you mentioned or inferred that there could be no participation in the fees you will claim")).

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any settlement negotiations and in the event of a successful resolution, upon presentation to the court."20 In the second letter, Mr. Sachnoff responded on July 31, 1992, stating he was "in full accord with what you say" and that "the valuable time you spent working on the case will be fully compensated."21 In the third letter, dated March 10, 1999, Mr. Sachnoff wrote to Mr. Abrams, advising him that "consistent with the law governing the payment of attorneys fees in a representative action . . . I will not object to any application [to the Court] . . . for compensation either as fees or as a consultant."22 The letter went on to advise Mr. Abrams that to bring the issue of Mr. Abrams' billing to this Court's attention "when we have no settlement of the litigation" would be "premature and seriously counterproductive."23 ii. Mr. Abrams' Three Supporting Affidavits Mr. Abrams' submitted three affidavits in support of his request for an award.24 These affidavits were dated January 19, 1999, November 22, 2005, and February 27, 2006.25 In these affidavits, Mr. Abrams made

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Id. (emphasis added). Id. Ex. B (July 31, 1992 Sachnoff letter to Abrams, at *1). 22 Id. Ex. C (Mar. 10, 1999 Sachnoff letter to Abrams, at *1 (emphasis added)). 23 Id. 24 Mar. 2, 2006 Verified Mot. for an Award to the Virginia Abrams Trust, Ex. A. 25 Id.

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representations regarding the work he performed on behalf of the class. The 2006 affidavit stated: Over the fourteen year history of the litigation, my wife and I were continuously and actively involved in monitoring the litigation through numerous contacts with co-lead counsel. I have had more than 150 contacts with co-lead counsel over the course of the litigation by telephone, correspondence and through in-person meetings. In connection with the careful and continuous monitoring of the litigation, I have requested, received and reviewed significant filings and actively assisted co-lead counsel in the preparation of Virginia Abrams for her deposition . . . . Although I have not maintained formal and detailed time sheets, a review of my records reveals hundreds of hours of effort and assistance to counsel over the fourteen-year history of this litigation.26 iii. The Settlement is Approved On March 6, 2006, I approved the settlement, pursuant to which attorneys' fees were awarded in the amount of $2,100,000 and expenses in the amount of $335,000. In addition, I authorized a plaintiff's allowance in the amount of $50,000, to be paid to Mr. Abrams out of Sachnoff & Weaver's legal fees. My approval of the plaintiff's award (paid out of Sachnoff & Weaver's fee award) was based on Mr. Abrams' affidavits and Sachnoff & Weaver's supporting brief.

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Mot. for an Award to the Virginia Abrams Trust and Supp. Memo., Ex. A (Feb. 27, 2006 Affidavit of Burton Abrams,

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