Mootness Fees-Standing to Intervene

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7^th Circuit Court of Appeals

Case Name: Jorge Alcarez v. Akorn, Inc.

Case No.: 18-2220

Officials: Easterbrook and Wood, Circuit Judges.

Focus: Mootness Fees-Standing to Intervene

Six suits, filed under the federal securities laws, present questions about “mootness fees” in federal litigation. Akorn, Inc., asked its investors to approve a merger (valued at more than $4 billion) with Fresenius Kabi AG. Plaintiffs assert that the proxy statement (82 pages long, with 144 pages of exhibits) should have contained additional details, whose absence violated §14(a) of the Securities Exchange Act of 1934, 15 U.S.C. §78n(a). Within weeks Akorn amended its proxy statement to add some disclosures, though it insisted that none of these additions was required by law.

Despite the amendment and dismissal of the suits, the plaintiffs’ attorneys received $322,500 in mootness fees, which prompted Akorn shareholder Theodore Frank to file a motion to intervene. Frank argued that the fees were an unjust enrichment for the attorneys, as the lawsuits had not benefited the shareholders but merely incurred costs for Akorn. He also sought to stop the attorneys from filing similar future suits, which he described as abusive “strike suits.”

The district court’s handling of the dismissals and mootness fees was criticized for circumventing judicial oversight and effectively rewarding unmeritorious litigation, echoing concerns expressed in previous cases like In re Walgreen Co. Stockholder Litigation. Following the appeals, which were partially put on hold, the district judge revisited the three remaining cases, concluding the complaints were frivolous and ordering the return of the mootness fees to Akorn.

The Appeals Court found that Frank had standing to intervene based on a minimal financial loss caused by the mootness fees, affirming the principle that even a small pecuniary loss can confer standing. The Court emphasized that Frank should have been allowed to intervene and participate as a party in the lawsuits. As a result, the district court’s denial of Frank’s motion to intervene was vacated, and the cases were remanded with instructions to treat him as an intervenor. The appeals by other plaintiffs, Shaun House and Demetrios Pullos, were dismissed due to a lack of jurisdiction, as they failed to demonstrate how the district court’s rulings adversely affected them.

Vacated and remanded

Decided 04/15/24

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