Background
Keith Jones brought a putative class action challenging Article SEVENTH, Section 7(f) of SBC Medical Group Holdings, Inc.’s certificate of incorporation. He sought a declaration that the provision violated 8 Del. C. § 141(k) and was voidable and invalid.
After suit was filed, SBC amended and restated its certificate of incorporation to eliminate the challenged provision. The parties then stipulated to dismiss the action as moot, with prejudice as to Jones and without prejudice as to absent putative class members. SBC also agreed voluntarily to pay plaintiff’s counsel a $50,000 mootness fee, including a proposed $500 service award to Jones.
The Court’s Holding
Vice Chancellor Fioravanti granted the stipulated dismissal, but modified it to make clear that the court was not authorizing payment of any portion of the mootness fee to Jones.
Rule 23(g)(4) permits class counsel to pay a reasonable award to a representative party out of an attorney-fee award. Those conditions were absent: no class had been certified, plaintiff’s counsel had not been appointed class counsel, Jones had not been certified as a representative party, and the court was not awarding attorney’s fees. Jones therefore was not eligible for a service award under Rule 23.
Key Takeaways
- A charter amendment eliminating the challenged provision mooted the putative class action.
- The court permitted dismissal but did not approve the parties’ proposed payment to the named plaintiff.
- Rule 23 service awards require the rule’s class-certification and fee-award prerequisites.
Why It Matters
The decision distinguishes a company’s voluntary mootness-fee payment from a court-approved attorney-fee award. Parties resolving pre-certification Delaware class litigation cannot rely on Rule 23(g)(4) to channel part of a negotiated mootness payment to the named plaintiff as a service award.