Crandon Capital Partners v. Shelk

• Decision Date: 26 March 2008
• Docket Number: A123576.,0011-11695.,0011-11691.,A123575 (Control).
• Citation: 219 Or. App. 16,181 P.3d 773
• Parties: CRANDON CAPITAL PARTNERS, derivatively on behalf of Willamette Industries, a nominal defendant, Plaintiff-Appellant, v. Stuart J. SHELK, Jr.; Paul N. Mccracken; Michael G. Thorne; Gerard K. Drummond; Kenneth W. Hergenhan; Robert M. Smelick; Benjamin R. Whiteley; Winslow H. Buxton; G. Joseph Prendergast; William Swindells; and Duane C. McDougall, Defendants, and Willamette Industries, Inc., Nominal Defendant-Respondent. Rae Ann Brown, derivatively on behalf of Willamette Industries, a nominal defendant, Plaintiff-Appellant, v. Willamette Industries, Inc., Nominal Defendant-Respondent, and William Swindells; Duane C. McDougall; Gerard K. Drummond; Paul N. McCracken; Stuart J. Shelk, Jr.; Michael G. Thorne; Kenneth W. Hergenhan; Robert M. Smelick; Benjamin R. Whiteley; Winslow H. Buxton; And G. Joseph Prendergast, Defendants.
• Court: Oregon Court of Appeals

181 P.3d 773

219 Or. App. 16

CRANDON CAPITAL PARTNERS, derivatively on behalf of Willamette Industries, a nominal defendant, Plaintiff-Appellant, v. Stuart J. SHELK, Jr.; Paul N. Mccracken; Michael G. Thorne; Gerard K. Drummond; Kenneth W. Hergenhan; Robert M. Smelick; Benjamin R. Whiteley; Winslow H. Buxton; G. Joseph Prendergast; William Swindells; and Duane C. McDougall, Defendants, and Willamette Industries, Inc., Nominal Defendant-Respondent.

Rae Ann Brown, derivatively on behalf of Willamette Industries, a nominal defendant, Plaintiff-Appellant, v. Willamette Industries, Inc., Nominal Defendant-Respondent, and William Swindells; Duane C. McDougall; Gerard K. Drummond; Paul N. McCracken; Stuart J. Shelk, Jr.; Michael G. Thorne; Kenneth W. Hergenhan; Robert M. Smelick; Benjamin R. Whiteley; Winslow H. Buxton; And G. Joseph Prendergast, Defendants.

0011-11691.

A123575 (Control).

0011-11695.

A123576.

Court of Appeals of Oregon.

Submitted on Remand June 6, 2007.

Decided March 26, 2008.

Gary M. Berne, Scott A. Shorr, Portland, and Stoll Stoll Berne Lokting & Shlachter P.C., and Justine Fischer and Law Offices of Justine Fischer, and Edwin A. Harnden and Barran Liebman LLP for appellants.

Bruce L. Campbell, Portland, John F. Neupert, P.C., and Miller Nash LLP for respondent.

Before HASELTON, Presiding Judge, and ARMSTRONG and ROSENBLUM, Judges.

HASELTON, P.J.

This shareholder derivative action is before us on remand from the Oregon Supreme Court. See Crandon Capital Partners v. Shelk, 202 Or.App. 537, 123 P.3d 385 (2005) (Crandon I); Crandon Capital Partners v. Shelk, 342 Or. 555, 157 P.3d 176 (2007) (Crandon II). Plaintiffs appeal the trial court's judgment denying attorney fees. In our first opinion, we held that the underlying dispute had become moot before the trial court addressed the asserted entitlement to fees, and that, therefore, the court lacked jurisdiction to enter such an award. The Supreme Court reversed that decision and remanded to us to address the merits of the parties' remaining contentions. For the reasons that follow, we reverse and remand.

Our previous opinion described the factual background for this dispute in some detail. We recite from it for convenience:

"This litigation arose from the proposed, and eventually completed, acquisition of Willamette Industries, Inc. (Willamette) by Weyerhaeuser Co. (Weyerhaeuser). Plaintiffs, Crandon Capital Partners (Crandon) and Rae Ann Brown (Brown), owned shares of Willamette.

"In November 2000, Weyerhaeuser offered to purchase all of Willamette's outstanding shares for $48 per share. That $48 offer was greater than the value of the stock at that time. Willamette rejected Weyerhaeuser's offer outright. On November 14, 2000, several days after Willamette's rejection, plaintiffs Crandon and Brown simultaneously filed derivative lawsuits on behalf of Willamette against the corporation and its directors.[¹] Those two suits, which were filed in Multnomah County Circuit Court, were consolidated on December 20, 2000.

"In their first consolidated complaint, plaintiffs alleged claims for breach of fiduciary duty, abuse of control, and waste, all arising from Willamette's rejection of Weyerhaeuser's offer. Plaintiffs alleged that Willamette's directors refused to consider Weyerhaeuser's offer in good faith and that the directors used unlawful entrenchment measures (a series of `golden parachutes' and `poison pills' [described more fully below]) to deter Weyerhaeuser's potential acquisition. Plaintiffs' prayer for relief sought an injunction eliminating the alleged entrenchment measures, attorney fees, and damages.

"During the pendency of the litigation, Weyerhaeuser continued in its attempt to purchase Willamette. However, on December 10, 2001, Willamette announced that it was beginning its own negotiations with Georgia Pacific Corp. (GP) to purchase GP's building products division. Weyerhaeuser made it clear that the proposed deal with GP would render Willamette undesirable and that, if the transaction were completed, Weyerhaeuser would discontinue its efforts to acquire Willamette.

"Crandon and Brown regarded the potential GP transaction as a further entrenchment measure (a `suicide pill') designed to thwart Weyerhaeuser's advances. Consequently, on December 18, 2001, plaintiffs filed a second amended complaint, which styled the proposed GP transaction as an unlawful entrenchment measure; plaintiffs again sought an injunction, attorney fees, and damages.

"On January 4, 2002, Willamette stockholder Wyser-Pratt Management Co. (Wyser-Pratt) filed a derivative complaint in Multnomah County Circuit Court. Like plaintiffs' second amended complaint, the Wyser-Pratt complaint was filed in response to the proposed GP transaction and also sought injunctive relief precluding such a transaction.

"Willamette moved to consolidate the Wyser-Pratt action with the previously filed Crandon and Brown actions. Wyser-Pratt moved for expedited discovery and a preliminary injunction to stop the GP acquisition. On January 16, 2002, the trial court heard arguments on both Willamette's motion to consolidate and Wyser-Pratt's motion for expedited discovery. Although attorneys for Crandon and Brown were present at the hearing, only attorneys for Wyser-Pratt presented argument. After ruling that the three actions would be consolidated, the court commented:

"`[I]t seems to me, from the plaintiffs' allegations, [that the GP acquisition is] something that would in fact — affirmative steps, maybe not completed yet, but affirmative steps that would prevent the takeover and entrench the board.'

"After the court made those comments, but before the court rendered any ruling, Willamette's attorneys stipulated that Willamette would allow at least 48 hours between the time it announced an agreement with GP and the time it finalized that transaction. The 48-hour waiting period would allow plaintiffs and the court to review the final terms of any acquisition agreement.

"On January 21, 2002, Willamette accepted Weyerhaeuser's offer and agreed to sell at a price of $55.50. Thereafter, the tender price was paid out to the shareholders. Plaintiffs never sought to restrict or enjoin the distribution of any part of those funds as a possible source of the payment of attorney fees.

"On March 21, 2002, two months after Willamette accepted Weyerhaeuser's offer, plaintiffs filed a motion for an award of attorney fees. The gravamen of that motion was that plaintiffs were entitled to attorney fees because plaintiffs' efforts had `force[d] defendants to comply with their fiduciary obligations to the Company and its shareholders and respond to Weyerhaeuser's offers in good faith.' Plaintiffs contended further:

"`Now, after 15 months of litigation, defendants have finally caved in, removed their improper defensive measures, agreed to a merger between Willamette and Weyerhaeuser, and abandoned a proposed acquisition by Willamette of the liability-ridden building products division of [GP]. By acquiescing to demands made by plaintiffs, defendants have conceded to plaintiffs' primary claims. Continued litigation of plaintiffs' claims is not necessary as plaintiffs have obtained the substantive relief they sought.'"

Crandon I, 202 Or.App. at 540-43, 123 P.3d 385 (footnotes omitted; some bracketed material in original).

At this point, it is necessary for us to diverge from the facts recounted in our earlier opinion to provide additional detail that is relevant to the issues before us on remand. In early March 2002, before plaintiffs filed their motion for an award of attorney fees, Willamette had filed a motion to dismiss plaintiffs' second amended complaint. After plaintiffs filed their motion for attorney fees on March 21, and while Willamette's motion to dismiss the complaint was still pending, Willamette filed a response to plaintiffs' motion for fees, raising myriad objections.

The trial court denied plaintiffs' motion for attorney fees, determining that, under Mulier v. Johnson, 332 Or. 344, 29 P.3d 1104 (2001), plaintiffs' second amended complaint did not adequately allege a basis of entitlement to attorney fees, as prescribed in ORCP 68 C(2)(a). The court did not, however, rule on Willamette's pending motions to dismiss plaintiffs' second amended complaint.

Plaintiffs then moved, inter alia, for leave to file a supplemental complaint, pursuant to ORCP 23 E, to allege their entitlement to attorney fees. The trial court granted that motion over Willamette's objection. The court then granted Willamette's motion to dismiss plaintiffs' second amended complaint (because the substantive claims were moot), except "as to the claim for attorney fees under a catalyst theory." Plaintiffs subsequently filed what they styled as a "Third Amended Consolidated Complaint for Attorney Fees," in which the sole "claim for relief" was a claim for attorney fees under the theory that their conduct in filing the shareholder derivative actions had resulted in a benefit to Willamette and its shareholders by causing the Willamette board to abandon the GP deal, remove its entrenchment measures, and agree to sell the company to Weyerhaeuser at a favorable price. Plaintiffs later filed another statement of attorney fees.

Willamette responded by filing a motion for summary judgment against plaintiffs' third amended complaint, arguing that, under ORS 20.077, plaintiffs could not recover attorney fees because they had not prevailed on any claim for which attorney fees could be awarded. Alternatively, Willamette moved for partial summary judgment, arguing that plaintiffs were not entitled to recover attorney fees incurred after January 21, 2002, the date of the merger. Willamette also filed legal and factual objections to plaintiffs' statement of attorney fees.

After extensive briefing, the trial court denied Willamette's motion for summary judgment on the basis of ORS 20.077 but granted its motion for partial...