By Tom Hals
June 7 (Reuters) – A $2.03 billion judgment in a lawsuit
brought by shareholders of Southern Copper Corp should be
overturned because a key witness from deal adviser Goldman Sachs
Group Inc was excluded from the trial, lawyers
challenging the ruling argued in Delaware’s Supreme Court on
Thursday.
The judgment was awarded by Delaware Chancery Court Judge
Leo Strine in October 2011 in a case brought by investors who
accused Southern Copper of overpaying in the 2005
takeover of privately held Minera Mexico.
Goldman advised a special committee at Southern Peru Copper
Corp, the predecessor of Southern Copper, that considered the
acquisition. Both Southern Copper and Minera were controlled by
Grupo Mexico, and Strine found that the directors of Southern
Copper were coerced into vastly overpaying for Minera, which
they acquired in 2005 for $3.1 billion in stock.
The Delaware Supreme Court was also asked to overturn a $304
million fee that Strine awarded to the shareholders’ attorneys,
which by some measures is one of the biggest fees awarded by a
court in a large securities litigation case.
The one-hour hearing in Dover focused mostly on the judgment
rather than the fee. Most of the argument centered on Strine’s
refusal to adjust the schedule to allow a Goldman Sachs banker,
who is no longer at the bank, to testify at the trial.
The Goldman Sachs witness was expected to explain to the
court how the Southern Copper special committee valued its own
stock and that of Minera Mexico.
Goldman Sachs declined to comment.
Bruce Angiolillo, an attorney for the Grupo Mexico unit that
appealed Strine’s ruling, zeroed in on the drawn-out nature of
the case, which was filed in 2004 before the deal was closed
but only came to trial in 2011. He asked why after so much time
had passed that the Chancery Court could not tweak the schedule
to hear from a key witness.
“Fundamentally, if you wait seven years to taste the bread,
don’t blame the ingredients. And if you’re going to do that, you
have to let the baker come in to court and explain the recipe,”
said Angiolillo, of law firm Simpson Thacher.
“That’s why this should be reversed.”
Shareholder lawyer Robert Brown, of Prickett, Jones &
Elliott of Wilmington, Delaware, argued that the defendants in
the lower court said in post-trial briefs that the record
regarding Goldman Sachs was complete, mooting the need for the
witness’s testimony.
The lawsuit was brought as a derivative action, meaning
shareholders step into the shoes of the company and the judgment
benefits Southern Copper. Shareholders benefit only indirectly.
The case focused attention on Strine, who handed down the
judgment just months after becoming the court’s first new chief
judge in 14 years.
Strine made headlines earlier this year for his criticisms
of Goldman Sachs’ conflicts of interest in a shareholder lawsuit
involving the sale of El Paso, a pipeline operator.
Southern Copper also asked the high court to trim the legal
fee, which totaled $35,000 per hour of work on the case. An
attorney who argued to overturn the fee said the next-highest
rate awarded by Delaware’s Court of Chancery worked out to less
than $5,000 per hour.
He said a more appropriate fee would be in the tens of
millions of dollars.
The fee will be split by the Prickett Jones firm and Kessler
Topaz Meltzer & Check of Radnor, Pennsylvania.
Brown argued that the fee, which was awarded as 15 percent
of the judgment, would act to incentivize plaintiffs’ attorneys
to pursue the biggest award possible, rather than accepting a
cheaper settlement, which guaranteed they would be paid.
Thursday’s oral arguments were monitored via Courtroom View
Network’s Internet broadcast.
The Delaware Supreme Court normally rules on cases within 90
days.
