A recent Law 360 story by Rose Krebs, “Class Attorneys Defend $285M Fee Bid in Dell Stock Deal,” reports that class attorneys are defending their bid for a $285 million fee award as the Delaware Chancery Court gets ready to consider a proposed $1 billion settlement to end a stockholder suit challenging a $23.9 billion conversion of Dell stock, arguing the "record-breaking" deal warrants a big payout.  In a filing, attorneys with Labaton Sucharow LLP, Quinn Emanuel Urquhart & Sullivan LLP, Andrews & Springer LLC, Robbins Geller Rudman & Dowd LLP and Friedman Oster & Tejtel PLLC took issue with an objection lodged by Pentwater Capital Management LP and other Dell Technologies Inc. institutional investors who oppose the fee request.

"Plaintiff's counsel invested years of professional time and millions of dollars out-of-pocket to deliver this record-breaking result for the class," the filing asserts.  "Plaintiff's counsel did so on a fully contingency[sic] basis, with no guarantees, and without the comfort of knowing — as objectors do today — that plaintiff's counsel would (or even could) achieve this successful outcome."

In the filing, the class attorneys argue that they "achieved this outcome in the face of extraordinary risk, on the eve of trial, and against highly determined defendants with endless resources and a history, well known to this court, of dogged litigation."  The fee and expense award sought "is eminently fair, reasonable, and well-supported by governing precedent and prevailing market practices," they contend.

Earlier this month, and in another filing, Pentwater argued that an award equal to 28.5% of the $1 billion settlement would be unfair to the class.  Citing several studies, it argued last week that "empirical research uniformly confirms that in federal class actions, as settlement amounts rise, fee percentages fall."  "Contrary to concerns about the decreasing percentage model, scholarship indicates that lowering fee percentages does not reward lawyers marginally less compensation for the same work," it said.

Vice Chancellor J. Travis Laster earlier this month asked for additional briefing from Pentwater, saying it would be helpful to know what "law professors say in favor of or against the declining percentage method."  Pentwater had asked the court to "carefully examine" the fee application, given "the sheer enormity of the fees sought."

Last week, Vice Chancellor Laster allowed a group of professors to submit a brief as amici curiae.  In the brief, five professors who said they "publish extensively on representative stockholder litigation" argued that a fee award equal to 15% of the settlement amount is warranted, rather than the 28.5% class attorneys seek.  A $150 million award would "adequately" compensate counsel, they said.  But in a filing, the lead plaintiff Steamfitters Local 449 Pension Plan's counsel argued that the court "should reject objectors' groundless arguments" and also toss aside the professors' argument.

Pentwater and the other objectors "do not address the court's many decisions adopting similar or larger fee percentages, the reasonableness of plaintiff's counsel's implied hourly rate, or the risk plaintiff's counsel incurred expending tens of thousands of hours and millions of dollars prosecuting this enormously complex case," the filing asserts.  Those objecting to the fee request also didn't "identify anything plaintiff's counsel could have done to litigate this case more effectively or efficiently," the filing said.

"Instead, objectors demand a lower fee percentage because of the settlement's sheer value," it said.  "Delaware courts have expressly rejected this approach, and for good reason: It fails to account for the greater risk in larger cases not settled early in litigation, and to properly reward outstanding results in the face of that risk; it creates perverse incentives for plaintiffs' counsel; and it defies the market among sophisticated parties negotiating fee arrangements, which seldom use a declining fee percentage (and more often have an increasing one)."  Nothing in the professors' brief "warrants reducing" the requested fee award, and the professors and objectors omitted "scholarship questioning the practice of discounting fee awards in mega-fund settlements," the class attorneys said.

A recent Law 360 story by Piper Hudspeth Blackburn, “Judge Wants Sabre to Pay Fees in Airline’s $1 Antitrust Win,” reports that a federal magistrate judge has recommended that airline booking giant Sabre should cover the costs of attorney fees for US Airways, which pursued antitrust claims that ultimately resulted in a mere $1 jury award after more than a decade of litigation.  In a report, U.S. Magistrate Judge James L. Cott determined that the airline is entitled to fees because of the "plain language" of federal antitrust law despite the nominal damages award. Judge Cott also noted that the amount could be reduced after looking at billing records.

Because a jury returned a verdict for US Airways on its monopolization claim under Section 2 of the Sherman Act, "a plain reading" of Section 4 of the Clayton Act allows US Airways to recover the cost of the suit, "including a reasonable attorney's fee," the report stated.  In 2022, a Manhattan federal jury found, after a three-week trial, that Sabre willfully maintained monopoly power through exclusionary conduct. It was a redo of a 2016 trial that had awarded US Airways $15 million in damages before the Second Circuit scrapped the verdict on technical legal grounds.

Sabre has argued that U.S. Supreme Court precedent shows that when a party recovers only nominal damages, the only reasonable fee is "usually no fee at all."  However, US Airways insists that the damages it received shouldn't affect its ability to recover costs and attorney fees.  According to Judge Cott, Sabre's argument fails because the precedent the booking company pointed towards, Farrar v. Hobby, doesn't apply to this case but rather to the reasonableness of fee awards in civil rights cases. Farrar holds that the reasonableness of a fee award is indicated by the size of damages awarded.

"Farrar concerned the entitlement to fees under § 1988 of the U.S. Code, not the Clayton Act or any other mandatory fee statute, and there is no suggestion in the opinion itself that its holding extended beyond § 1988," the report stated.  Judge Cott pointed toward a Second Circuit decision on "an identical issue" to this one, United States Football League v. National Football League, instead.  In that case, the court had to determine whether a plaintiff is entitled to reasonable attorney fees "after decade-long antitrust litigation resulting in a $1 jury verdict only on Sherman Act Section 2 grounds."

Not only did the court decide that the plaintiff could recover attorney fees, it "further explained that civil rights cases are inapposite as they concern discretionary awards of fees, while Section 4 mandates them," the report continued.  Judge Cott also rejected Sabre's argument that in the event it must pay attorney fees, the amount should be reduced by 99% because US Airways only "obtain[ed] .0000003% of its alleged damages ... and no injunctive relief."

While no legal rule requires that fees be proportional to the requested amount and the recovered damages, Judge Cott, wrote that the court can reduce the requested fees after analyzing billing records.  While "a downward adjustment is undoubtedly warranted" in this case, Judge Cott noted that the court couldn't determine the amount without first calculating the lodestar.

"The court's eventual reduction will be guided by comparable cases in this circuit, which do not necessarily dictate the extreme slashing that Sabre seeks," the report stated.  The litigation began in 2011, when US Airways sued Sabre, alleging that the company had monopolized the market for systems that connect airlines to travel agents and violated federal antitrust laws.

A recent Law 360 story by Rose Krebs, “Law Professor Say $150M Fee is Fair in Dell Suit Deal,” reports that a group of law professors says the Delaware Chancery Court should award less than the $285 million fee sought for stockholder attorneys who secured a $1 billion class settlement after challenging a $23.9 billion conversion of Dell Technologies stock, saying a $150 million award would "adequately" compensate counsel.  In a brief submitted to the court, five professors assert that using a "declining-percentage" fee award structure — by which the percentage of fees awarded are reduced the larger the settlement size — in this case would be prudent.

"Even under the declining-fee approach, these mega-settlements are extremely profitable, demonstrating the winner-take-all reality of shareholder litigation," the brief said.  The professors, who said they "publish extensively on representative stockholder litigation," argue that a fee award equal to 15% of the settlement amount is warranted, rather than the 28.5% class attorneys seek.

"Plaintiffs pursue large settlements because they tend to have the highest multiplier to lodestar — in other words, they're more profitable than the alternatives," the professors said.  "Thus, class counsel have adequate incentive to take risk, even on a declining-percentage fee basis.  Overcompensating class attorneys simply diminishes class recovery."  The professors said they "respectfully suggest that a declining-percentage fee award adequately compensates Plaintiff's counsel while preserving funds for the class."  A 15% award would preserve an additional $135 million for the class, while still compensating counsel at a reasonable rate for time spent working on the case, the professors said.

Earlier this month, Vice Chancellor J. Travis Laster said in a letter to Pentwater Capital Management LP and other Dell institutional investors who oppose the fee request that the Chancery Court was considering a 20% floor for an award, to be adjusted if warranted.  The vice chancellor asked for additional briefing from Pentwater, and also said it would be helpful to know what "law professors say in favor of or against the declining percentage method."

In a filing, Pentwater, citing several studies, argued that "empirical research uniformly confirms that in federal class actions, as settlement amounts rise, fee percentages fall."  "Contrary to concerns about the decreasing percentage model, scholarship indicates that lowering fee percentages does not reward lawyers marginally less compensation for the same work," Pentwater said.  Pentwater contends that the 28.5 percent award being sought "is unfair to the class."

On Tuesday, Vice Chancellor Laster allowed the professors to submit a brief as amici curiae.  In their brief, the professors also said that "a declining-fee approach may not always be best."  They gave as an example cases that sophisticated institutional investors "negotiate for a 'baseline' recovery (i.e., a settlement amount that a typical plaintiffs' firm could likely achieve given the facts known at the start of the litigation) with a relatively low fee percentage for achieving this baseline and a larger percentage for achieving a greater recovery."

"This approach, however, would require the investor to determine this baseline amount when selecting lead counsel and incorporate it into the retainer agreement," the brief said.  "There is no indication of such an ex ante agreement in this case, and it would be difficult to judicially replicate the incentives of such an agreement after the fact."

The professors added that "absent such an agreement, the declining-percentage award matches risk and return, adequately compensates contingency counsel, and preserves settlement value for the class."  They also suggested the court "should consider requesting other information before setting a fee, including any ex ante agreements Plaintiff's counsel has reached with clients and fee-sharing arrangements with any other counsel."

In an order, Vice Chancellor Laster DIRECTED each firm representing the investor plaintiffs to submit information by detailing several issues such as: how many ex ante agreements they have negotiated in the past five years, what percentage of their representations have such agreements, the nature of any such past agreements, and if any fees awarded in the Dell case will be shared with other counsel that hasn't entered an appearance in the case.

A recent Metropolitan News story, “FTC’s ‘Holder Rule’ Doesn’t Bar Attorney Fee Award” reports that the Federal Trade Commission’s “Holder Rule”—under which an assignee of a consumer credit contract cannot be held liable for a breach by the seller for more than what the purchaser has paid—does not preclude the award of attorney fees in excess of that amount under California’s “lemon law,” the California Supreme Court held.

Justice Goodwin H. Liu authored the opinion which affirms a Jan. 29, 2021 decision by Div. Five of this district’s Court of Appeal. Div. Five, in an opinion by Presiding Justice Laurence D. Rubin, upheld a $169,602 award of attorney fees against TD Auto Finance, LLC, declaring that “the Holder Rule does not limit the attorney fees that a plaintiff may recover from a creditor-assignee.”  Yesterday’s opinion resolves a conflict among the courts of appeal.

Under a provision of the Code of Federal Regulations, a consumer credit contract must include this notice: “Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder.”

The contract that Tania Pulliam signed when she purchased a used Nissan from HNL Automotive Inc. in Beverly Hills contained that language.  Dissatisfied with the vehicle she purchased, Pulliam sued HNL and the assignee of the contract, TD Auto Finance, under the Song-Beverly Consumer Warranty Act (the “lemon law”) and was awarded $21,957.25 in damages.  TD insisted that the award against it of attorney fees, under the act’s fee-shifting provision, was improper because Pulliam was entitled to nothing in excess of what she had paid under the credit contract.

Disagreeing, Liu wrote: “We conclude that the Holder Rule does not limit the award of attorney’s fees where, as here, a buyer seeks fees from a holder under a state prevailing party statute.  The Holder Rule’s limitation extends only to ‘recovery hereunder.’  This caps fees only where a debtor asserts a claim for fees against a seller and the claim is extended to lie against a holder by virtue of the Holder Rule.  Where state law provides for recovery of fees from a holder, the Rule’s history and purpose as well as the Federal Trade Commission’s repeated commentary make clear that nothing in the Rule limits the application of that law.”

Before the FTC enacted its rule in 1975, Liu recited, a consumer was liable to the holder in due course of a note even for goods that were not delivered.  The rule places the holder in the shoes of the seller, subjecting it to all claims against, and defenses available to, the seller, limiting damages against the seller, and consequently against the assignee, he explained.  In formulating the rule, Liu said, “the FTC had damages in mind when limiting recovery under the Rule, and there is no indication that attorney’s fees were intended to be included within its scope.”

Attorney fees, in California, where awardable, are costs, not an element of damages, he noted.  The FTC, itself, has issued an advisory opinion declaring, “the Holder Rule does not limit recovery of attorneys’ fees and costs when state law authorizes awards against a holder,” Liu said.  The justice pointed out: “Were attorney’s fees part of the Holder Rule’s limit on recovery, the effective result for many, if not most, consumers would be the same as their options were under the holder in due course rule that the FTC sought to supplant.”

A recent Law 360 story by Christopher Crosby, “Authorities May Feel The Sting From Loser Pays Ruling” reports that the U.K. Supreme Court opened the door to public authorities being forced to pay defendants' costs from failed enforcement actions, but attorneys say it is too soon to know whether that risk will deter agencies from bringing cutting-edge cases.  Britain's highest court has ruled that the Competition and Markets Authority might have to cover the legal costs of drugmaker Pfizer and a distributor, Flynn Pharma, after the watchdog's market abuse case against the two companies fell short.

Britain's highest court ruled, in a unanimous 55-page decision handed down, that costs could follow a failed enforcement action because there is no automatic presumption that authorities do not pay for legal fees when they lose cases.  Businesses and trade organizations have applauded the development, which they say will help defendants with small budgets recover their legal fees if they can prove that an enforcement case was groundless.

But the ruling, written by Justice Vivien Rose, does not mean that regulators will always be on the hook for costs — that issue will be determined by the trial court or tribunal on a case-by-case basis.  But the justices said the Court of Appeal was wrong to assume that costs automatically have a chilling effect on regulators in every case.  "The Court of Appeal had created an unhelpful precedent, which puts a potential appellant in the unenviable position of being forced to pay the CMA's legal costs if their appeal failed yet prevented them recovering their own legal costs if their appeal succeeded," Robert Vidal, a competition partner at Pinsent Masons LLP, said.

The competition watchdog fined the drug companies £84.2 million ($106 million at today's rates) in 2016. A three-year investigation had concluded the companies had overcharged the National Health Service for the anti-epilepsy drug phenytoin sodium.  But the Competition Appeal Tribunal found errors in the regulator's analysis in 2020 and ordered it to reassess the fairness of the prices.  Those findings were upheld by the Court of Appeal.  The tribunal then ordered the CMA to pay part of Flynn and Pfizer's multimillion-pound costs after concluding that the default position in cases involving regulators was that the loser bears the burden of costs.

Although the losing side in litigation usually pays the winner's costs, the Court of Appeal disagreed with the tribunal.  The appellate court ruled in 2019 that the "starting position" is that public agencies should not be made to pay for trying to do their job — even if they are unsuccessful in court.  Overturning the lower court's findings, the justices said the Court of Appeal was wrong to overturn the Competition Markets Authority's costs ruling and instructed that there would be no order about costs.

The appellate court had looked at a line of cases beginning with Bradford Metropolitan District Council v. Booth in 2000 and found that the starting assumption for courts was that all public bodies are protected from costs when they lose a case.  Justice Rose said that, even though those cases created a strong preference against deterring regulators, it cannot be assumed that every case involving every regulator carries that risk.

In the case of the CMA, the watchdog can offset its litigation costs against the penalties it imposes, the Supreme Court said.  The competition authority incurred £2 million in legal costs during the last year, which it covered with £56.7 million in penalties handed out, justices noted.  Justice Rose said the "way that the functions of the CMA are funded dispels any plausible concern that its conduct will be influenced by the risk of adverse costs orders."

Robert Vidal said that the CMA "already has all the financial and legal resources of the state behind it, so it was difficult to understand why the Court of Appeal felt it needed to provide the CMA with an additional advantage on exposure to legal costs."  Stijn Huijts, a former CMA director and partner at Geradin Partners, said that it was a "bridge too far" for justices to accept that a public body like the CMA should be shielded from adverse cost awards.

"It's important to recognize that this doesn't mean all costs of litigants like Pfizer will fall to the CMA from now on," Huijts said.  "Nevertheless, the CMA will be in a position where it will need to challenge costs claimed in individual cases and, in most cases that it loses, it will at least need to pay part of the litigants' costs from public money."  Sophie Lawrance, a Bristows partner who acted for two pharmaceutical groups in the CMA case, said the issue was of particular concern to companies active in the pharmaceutical industry, which may have been discouraged against appealing future infringement decisions by the watchdog.

In the last year the CMA has fined several drugmakers in complex medication-pricing cases, finding in February that the cost for anti-nausea medication and thyroid medication was excessive.  In one case, Advanz Pharma Corp. and two private equity firms, Hg and Cinven, have asked the Competition Appeal Tribunal to annul a £100 million ($126 million) fine over Liothyronine tablets, which are used to treat thyroid hormone deficiency.

Drugmaker Allergan and four other pharmaceutical companies are also appealing against a record £260 million fine from the competition watchdog for allegedly abusing their market dominance over an adrenal drug.  Lawrence said that the Supreme Court's decision "ensures that meritorious appeals — which can result in crucial guidance for the sector as a whole — are not deterred."

The Supreme Court Justices highlighted the fact that costs have not prevented the CMA from investigating large companies such as Google and Apple.  The regulator is looking into whether their duopoly on the "mobile ecosystem" threatens competition for digital services, setting up potential enforcement actions.  "Whether this will have a chilling effect on the CMA will in reality probably depend on how it fares in a number of high-profile cases making their way through the courts now, and in investigations against digital giants like Apple and Google," Huijts said.  "Win most of those, and this chapter will be easily forgotten. Lose the majority, and the watchdog may grow more timid."

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