A recent Law 360 by Jeff Montgomery, “Chancery Oks $1B Dell Class Suit Deal; $285M Fee Pending,” reports that a record $1 billion settlement of a stockholder class suit that challenged a $23.9 billion Dell Technologies Inc. stock swap in 2018 won Delaware Court of Chancery approval, while a proposed $285 million class attorney fee got sidelined for further consideration. Vice Chancellor J. Travis Laster described the deal — announced in November and the largest on record for the court — as the result of "a huge effort" on the part of class attorneys who battled through nearly 4½ years of litigation and racked up more than 53,000 attorney hours to reach the hearing.
Waiting at the hearing, however, were arguments by a large shareholder and a friend-of-the-court brief filed by law professors urging the court under some proposals to slash the fee by $100 million or more. Pentwater Capital Management LP, which holds 1.6% of the shares at issue, argued that the 28.5% fee award would be excessive and urged the court to adopt a sliding, or diminishing, rate for mega-settlements. A group of law professors also backed a declining scale, saying a $150 million fee would be defensible while keeping $135 million for stockholders. "I do think the objectors have raised important points that I'm going to think about," the vice chancellor said after a 2½-hour hearing.
The class suit accused Dell and controlling investors Silver Lake Group and its affiliates of shortchanging regular shareholders by some $10.7 billion in a deal that converted Class V stock — created to finance much of Dell's $67 billion acquisition of EMC Technologies in 2016 — to common shares.
When the challenged conversion closed on December 28, 2018, VMware stock closed at $158.38 per share, and DVMT, or Class V, stockholders received just $104.27 per share because Dell's Class C stock had been overvalued. "The simple fact is, defendants would not settle for a billion dollars unless there was a real, credible risk of much higher damages at trial," said David Cooper of Quinn Emanuel Urquhart & Sullivan LLP, counsel to the class, while explaining the decision to settle rather than pursue a much larger share of the stockholders' short-changing.
"There were an enormous number of obstacles, and this was very far from a typical case," Cooper said. "In determining whether $1 billion is fair value for the class, whether it reflects positively on the performance of counsel, it simply did not make sense to look at $10.7 billion while ignoring risk" that there would be nothing recovered, as happens in many deal challenges.
Stephen B. Brauerman of Bayard PA, counsel to Pentwater, said it would be "credibility killing" to call the settlement unimpressive, but told the court there are concerns that the deal did not fully compensate the stockholder class for the potential $10.7 billion in damages. "All were requesting the court to consider in its exercise of discretion" the potential for "adversely impacting the class, impacting substantially their recovery," Brauerman said.
Ned Weinberger of Labaton Sucharow LLP, also counsel to the class, told the vice chancellor that stockholder attorneys logged more than 53,000 hours on the case, with nearly $4.3 million in expenses, with the fee and expense award reflecting an implied hourly rate of about $5,268 per hour. If the court is entertaining a size adjustment, Weinberger said, "we have already done it for you. All of the precedents support a fee award on the eve of trial of 30% or more. We sought only 28.5%," or a 5% reduction.
Anthony A. Rickey of Margrave Law LLC, counsel to the law professor group, advocated in part bringing Chancery Court litigation fees more in line with relatively lower payouts for large cases in U.S. District Court securities actions. Rickey said a 15% fee would be more appropriate, providing a still large $150 million fee while earmarking another $135 million for shareholders. "There is a considerable amount of decreased risk after motions to dismiss," Rickey said, "even in Chancery practice."
Vice Chancellor Laster said federal securities cases seldom go to trial and often settle after motions to dismiss. "Why isn't that a fair distinction?" the vide chancellor said. "It makes sense" in federal court, when there is similar work in each case "and people are benefiting from the size of the issuer rather than actual value added" in litigation. In contrast, the vice chancellor said, the Dell counsel "had to litigate against the army of the excellent until they got to the verge of trial, where they had to settle."