A recent NLJ story, “Two Firms Seek up to $6.5M for Work on Settlement Yielding Shareholders No Monetary Benefit” reports that two plaintiffs’ law firms plan to ask the Delaware Court of Chancery for as much as $6.5 million in attorney fees for legal work related to shareholder lawsuit settlements with Alberto Culver Co. that didn’t increase the shareholders take in a pending merger deal.  In its petition for attorney fees and expenses, law firms Bernstein Litowitz Berger & Grossman and Grant & Eisenhofer, tell the court that “plaintiffs have reviewed over 135,000 pages of documents and have taken six depositions.”

Shareholder lawsuits are typically taken on a contingent fee basis, but the Alberto Culver case was resolved with unusual deal concessions, not monetary damages.  The concessions were designed to make it easier for a competing company to make a higher offer.  It turned out that there was no competing offer and Alberto Culver shareholders agreed to an acquisition by Unilever at $37.50 or about $3.7 billion in cash.

The deal term changes are “hypothetical benefits for which shareholders are being asked to pay $6.5 million,” said Michael Perino, a law professor at St. John’s University in New York who has studied fee awards in securities cases, but isn’t involved in this case.  “There’s a significant question about what value the plaintiffs attorneys actually provided for shareholders,” Perino said.  The chancery court’s 2010 ruling in In re Revlon Inc. Shareholders Litigation signals the court’s interest in carefully scrutinizing settlements when there’s no monetary deal for shareholders but the plaintiffs’ attorneys collect fees, said Francis G.X. Pileggi, a litigation partner at Fox Rothschild.

“There are sound policy reasons for this Court to police against shirking by representative counsel,” noted the Revlon ruling, authored by Vice Chancellor Travis Laster.  “Traditional plaintiffs’ law firms who bring class and derivative lawsuits on behalf of shareholders without meaningful economic stakes can best be viewed as entrepreneurial litigators who manage a portfolio of cases to maximize their returns through attorneys’ fees.”