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Category: Historic / Landmark Case

$90M in Fees in Kraft-Heinz Shareholder Class Settlement

September 20, 2023

A recent Law 360 story by Ryan Harroff, “Kraft-Heinz Shareholder Class Counsel Gets $90M in Fees”, reports that an Illinois federal judge awarded $90 million in fees to class counsel for the Kraft Heinz Co. investors who accused the company and a Brazilian private equity firm of hiding the snack food maker's cost-cutting measures after a merger to cover up a $15.4 billion goodwill impairment.

U.S. District Judge Jorge L. Alonso said in his order that the investor class' counsel from Kessler Topaz Meltzer & Check LLP, Bernstein Litowitz Berger & Grossmann LLP and other firms worked with "skill, perseverance, and diligent advocacy" to secure the $450 million total settlement that their clients agreed to with Kraft Heinz and 3G Capital Partners, the private equity firm that guided the 2015 merger between H.J. Heinz Co. and Kraft Foods Group Inc.  According to Judge Alonso's order, class counsel will also receive $2.6 million to cover litigation expenses on top of its 20% cut of the settlement fund.

The settlement is believed to be one of the largest pretrial securities deals in history and is the largest deal of its kind in the Seventh Circuit. Judge Alonso gave his preliminary approval to the agreement in May and issued final approval in a minute order Sept. 12.

Investors first filed suit in 2019, alleging Kraft Heinz engaged in shady accounting practices and cost-saving strategies that harmed its own supply chain, lost it customers and made potential new investors too nervous to buy in to the company, all while publicly stating it was saving money because of "synergies" from the 2015 merger.

3G Capital — which according to the suit owned 24% of Kraft Heinz and installed seven of its own partners as the new company's senior executives or board members — had directed Kraft Heinz's actions and overseen its belt-tightening moves, the investors had said.  Those cost-cutting measures lost shareholders a net $12.6 billion after the resulting supply chain and customer issues caused the company to write down the value of its own brands by $15.4 billion, they alleged.

Attorneys for the shareholders had asked the court in August for the $90 million they have now been awarded, estimating that their firms had collectively spent over 112,000 hours working on behalf of their clients to get the settlement on the books.  Judge Alonso also noted the substantial time investment in his order granting their request.

Data and Economics Justify Record $267M Fee Award

August 7, 2023

A recent Law 360 story by Jeff Montgomery, “Chancery’s Fee Ruling In Dell Is On The Money, Experts Say”, reports that the $266.7 million fee award Delaware's Chancery Court granted shareholder attorneys in the $1 billion Dell settlement represents a win for those seeking incentives for class counsel doggedness and a setback for corporate and institutional investors hoping to prune attorney fees after mega awards, experts told Law360.

In a 92-page decision, Vice Chancellor J. Travis Laster approved one of the largest fee awards of its type in Chancery Court history even though it was trimmed from the original request of $285 million.  His decision held to the Chancery Court's history of notching up fees for the plaintiffs' side when it's successful after pushing deep into the litigation and piling up risk.  The defense bar has routinely pushed the other way, arguing for adoption of approaches taken in federal securities actions that grant declining fee percentages as total awards grow.

Vice Chancellor Laster's opinion relied heavily on the Delaware Supreme Court's 2012 decision upholding a $304 million legal fee from a $2 billion Chancery award in Americas Mining Corp. v. Theriault, a case that went to trial.  The opinion "doubled down on that Americas Mining decision" and examined it extensively in the order, said Brian T. Fitzpatrick, the Milton R. Underwood chair in Free Enterprise at Vanderbilt Law School.  "And it doubles down on the notion that judges in Delaware are going to do what is best for class members," Fitzpatrick said.

In Americas Mining, stockholders sought damages after a 2004 deal that saw the company and its parent, Southern Copper Corp., agree to an overpriced, $3 billion acquisition of a Mexican mining company owned by Southern Copper's controller.  Then-Chancellor Leo E. Strine Jr. found in 2011 that the plaintiffs "indisputably prosecuted this action through trial and secured an immense economic benefit" for Southern Copper, while working on an entirely contingent basis for six years, facing "major league, first-rate legal talent" and grappling with complex financial and valuation issues.

In his decision this week after the Dell settlement, Vice Chancellor Laster said that the best scheme for compensating class attorneys working on a contingent fee remains the current standard, first paying out-of-pocket costs, then providing a fee based on a percentage of the net award and how far the case had progressed.  "This case involved true contingency risk. Plaintiff's counsel did not enter the case with a ready-made exit or obvious settlement opportunity.  There was a serious possibility that plaintiff's counsel would lose and receive nothing," the vice chancellor wrote.  That risk, the vice chancellor said, "supports a results-based award using the Americas Mining percentages.  No downward reduction is warranted under this factor."

At issue was Dell Technologies decision to issue a "tracking" stock after it went private in order to finance its acquisition of EMC Technologies.  The "Class V" shares were meant to follow the value of VMware Inc., in which Dell acquired a majority as a result of the EMC deal. In practice, the Class V shares traded at a steep discount, with shareholders alleging in Chancery that the 2018 swap short-changed them by about $34 per share.  The Dell settlement recovered 9.34% of the estimated potential $10.7 billion in damages that attorneys for the stockholders identified, the vice chancellor found, making it the 11th largest among cases studied as a percentage of maximum damages.

Minor Myers, a University of Connecticut School of Law professor, said the settlement was "garden variety" in every respect but its size and the opposition from some of Dell's big private investment funds.  "Presumably that's why these objecting funds are paying attention (most don't)," Myers said in an email to Law360.  "The fee request in this case was, if anything, modest in percentage terms, but of course it's gotten a lot of attention because it's a big number in the aggregate.

Myers said the opinion is in "the best tradition of Delaware's extraordinary sensitivity to incentives in confronting settlements in stockholder litigation.  When people do bad things out in the world, we rely, for better or worse, on plaintiffs' attorneys to do something about it.  They're the ones who generate results in class actions, on behalf of people who aren't usually paying attention."

Definitely paying attention were some private fund investors in Dell, who argued that the court would make a wrong turn if the award went forward as proposed.  "The enormity of plaintiff's counsel's $285 million fee application, both in absolute terms and as a proportion of the settlement fund, risks creating a dangerous precedent for Delaware courts," Pentwater Capital Management LP, holder of 1.6% of the Dell Class V tracking stock at issue in the case, said in a brief.  Pentwater was joined in its objection by other fund investors representing 24.6% of the stock. Vice Chancellor Laster acknowledged their arguments in his decision, but also pointed out their potential multimillion-dollar gain should the court prune the fee award and leave more in the settlement pool.

Jacqueline S. Vinaccia, a California attorney and member of the National Association of Legal Fee Analysis, said in a telephone interview that Vice Chancellor Laster supported his decision with an "incredibly detailed" analysis that addressed each of the objectors' points.  "All of the theories and different approaches to attorney fees that I have seen seem to have been referred to and analyzed in this case.  It's a really extensive and well-thought-out and supported opinion, which we don't often see in fee cases.  But then again, this is a billion-dollar settlement with a 26 and ⅔ percent fee award."  A group of law professors also backed a declining scale, saying a $150 million fee would be defensible while keeping $135 million more for stockholders.

Anthony A. Rickey of Margrave Law LLC, counsel to the five law professors who filed a friend of the court brief opposing the settlement and suggesting 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 in court papers, "even in Chancery practice."

In Dell, Vice Chancellor Laster rejected motions to toss the case in June 2020, but the battle and risks continued for another three-plus years before the settlement.  "Even where a plaintiffs' attorney has been dealt an especially strong hand, sometimes the cards aren't worth a dime if you don't lay them down on the settlement table," said Myers, the Connecticut professor.  "This opinion ensures that the incentives will be well-calibrated in the future to push attorneys to take good settlements but still make it worth it to decline bad settlements and push forward with the case."

Lawrence A. Hamermesh, professor emeritus at Widener University Delaware Law School, said the court was wrestling with the question of "What's a good approximation of what people bargaining at arm's length would do if one of them had a claim, went to a lawyer and said, 'I want you to prosecute this for us. I don't want to put up the money. You're going to take all the risk.'"  The issue becomes one of deciding when the recoveries are large, as in Dell, and whether throttling back on fees as the total rises discourages class attorneys from risking dismissal if they push past a $500 million offer and go for $1 billion.

"The government cannot do everything, and sometimes the government doesn't do anything.  If we didn't have private attorneys looking out for us, there would be more corporate misconduct in the world," Vanderbilt's Fitzpatrick said.  "This is not icing on the cake.  Private enforcement is the cake," Fitzpatrick said.  "And we need to make sure those lawyers have the right incentive.  Cutting their fee because they get more for you is not the right incentive."

$27M in Fees in Record $122.5M Viacom-CBS Merger Settlement

August 4, 2023

A recent Law 360 story by Jeff Montgomery, “$122.5M Viacom-CBS Merger Suit Deal, $27M Fee OK’d in Del.”, reports that Delaware's Court of Chancery approved one of the largest stockholder class settlements for a fiduciary duty breach in state court history, a $122.5 million deal with Paramount Global that ends a challenge to the fairness of CBS' $30 billion merger with Viacom in 2019.  Vice Chancellor Sam Glasscock III approved without objections the settlement terms, which will cover distributions to stockholders after a $26,922,500 attorney fee and $2,167,079 expense award

The approval settles more than 3½ years of litigation over the tie-up, which created Paramount Global, though what the suit argued was conflicted share exchange terms that counsel for the Viacom stockholders said "significantly overpriced CBS" relative to Viacom.  Gregory V. Varallo of Bernstein Litowitz Berger & Grossmann LLP, counsel to the class, told Vice Chancellor Glasscock that the case had to survive disputes both with Viacom's controllers and independent committee members as well as the impact of litigation by CBS stockholders who, despite Viacom's position, alleged that they were the ones shortchanged.

"This settlement is a robust one, I think it's not overstated to say," Varallo said. He added later that the settlement was the result of a mediator recommendation that was offered after more than a full year of mediation.  Awaiting approval is a proposed $167.5 million settlement and $45 million in fees sought by attorneys for former CBS Corp. stockholders to end both derivative and class litigation over their alleged damages in the same merger. A hearing on that settlement is slated for Sept. 6 in the same court.

Co-lead counsel Kessler Topaz Meltzer & Check LLP, Prickett Jones & Elliott PA and Grant & Eisenhofer PA are asking for $2.5 million in litigation expenses and a fee award of up to 27.5% of the $167.5 million CBS settlement amount minus those expenses, or roughly $45.37 million, according to a stipulation docketed on May 26.

The proposed Viacom class action was filed in late 2019, with a Viacom investor accusing media mogul Shari Redstone, daughter of National Amusements Inc. founder Sumner Redstone, and Viacom officers of breaching their fiduciary duty by pushing a "long-anticipated yet much-maligned" $30 billion merger with CBS, asserting the tie-up is "patently unfair" to Viacom shareholders.

Vice Chancellor Glasscock described the fee as illustrating "why we have to make contingent fee awards in settlements of this type that are large enough — although still wholesome in comparison to the whole — so the system will work" while relying on "entrepreneurial" counsel.  The 27,000 hours of contingent fee work by class attorneys "is an investment without a guarantee," the vice chancellor said.  "The $2.1 million in expenses is an investment without a guarantee."

Earlier in the case, Varallo said the litigation would have been judged based on the plaintiff-friendly "entire fairness" judgment standard, triggered by the appearance of a controller on both sides of a transaction, rather than business judgment deference.  In the Viacom-CBS deal, Shari Redstone was described as being on a mission to push through a deal combining the media giants, with Robert M. Bakish, her choice for CEO, slated to helm the combined company, Varallo said.

A special Viacom committee set up to review the merger caved to Redstone's governance demands to install loyalists at the helm of the new company instead of securing more economic considerations for Viacom shareholders, the suit asserts.  Varallo said the stockholders had arguments that the merger undervalued Viacom by $165 million under one measure, and by as much as $917 million under another, but still risked no recovery at all if the court found that the claim fell within a range of possible fairness conclusions.

The vice chancellor observed that "among the best corporate counsel in the country were involved here on both sides. There's no question this matter got the litigation attention it deserved. I don't find the 22% recovery here, given the contingent nature of the action and the result achieved, anything other than justified."

Record $267M Attorney Fee Award in $1B Dell Settlement

August 2, 2023

A recent Law 360 story by Jeff Montgomery, “Five Firms Win Record $266.7M Fee From $1B Dell Settlement”, reports that the Delaware Chancery Court gave the nod to a record $266.7 million fee award for stockholder class attorneys among five firms who secured a $1 billion settlement, one of the largest ever in any state-level court, for a suit that challenged Dell Technologies Inc.'s $23.9 billion stock swap in 2018.  Vice Chancellor J. Travis Laster's 92-page opinion awarded the fees to Labaton Sucharow LLP, Quinn Emanuel Urquhart & Sullivan LLP, Andrews & Springer LLC, Robbins Geller Rudman & Dowd LLP, and Friedman Oster & Tejtel PLLC.

The vice chancellor approved the overall settlement on April 19, saying class attorneys had undertaken a "huge effort," but reserved judgment on the 28.5% fee while considering objections that it took a disproportionate bite out of the per-share payment to stockholders.  Vice Chancellor Laster pruned the request from $285 million to $266.7 million, noting that eight investment funds had recommended a lower fee, citing concerns about "windfall" profits in the case of large awards.

"The funds have a strong economic motivation for seeking a lower fee award.  They collectively own shares comprising 26.1% of the class.  Although they did not propose an alternative amount, if the court were to follow the federal trend and award a 10% fee, the objectors would receive another $49 million," the vice chancellor wrote.  Five law professors separately suggested in a friend of the court brief that a 15% fee would be appropriate, which would have added $35.78 million to the objectors' recovery.

"In this case, plaintiff's counsel brought a real case, invested over $4 million of real money, and obtained a real and unprecedented result. Rather than requesting an unprecedented fee award, plaintiff's counsel asked for 28.5% of the common fund," consistent with past court practices and precedent, Vice Chancellor Laster wrote in the opinion.  Included in the fee award is a proposed $50,000 incentive fee for the plaintiff.  The award in Dell was eclipsed only by the $285 million fee approved for attorneys in the derivative Americas Mining case in 2012, set by then Chancellor Leo G. Strine Jr.

The deal heads off a trial on claims targeting Dell's effort to exchange Class V stock — created to finance much of Dell's $67 billion acquisition of EMC Technologies in 2016 — for shares of Dell common stock.  The Class V shares generally traded at only 60% or 65% of the price of VMWare, a business in which EMC owned an 81.9% equity stake when Dell acquired EMC.  Public shareholders, the class has argued, were short-changed by $10.7 billion when, in December 2018, Dell Technologies paid $14 billion in cash and issued 149,387,617 shares of its Class C common stock for the Class V shares.

During a settlement hearing last week, attorneys for the class told the vice chancellor that they 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.  The requested fee, they said, had already been adjusted downward by 5% from a typical eve-of-trial award of 30% or more.  In addition to towering over any state award, the $1 billion payout would rank as the 17th largest class settlement of all time, according to Institutional Shareholder Services Inc.

Among the objectors was Pentwater Capital Management LP, which held 1.8% of the Dell Class V stock at the center of the stockholder action.  Pentwater described the fee as "far in excess of what is appropriate in these circumstances" and "fundamentally unfair" to the class represented.

The objectors, the vice chancellor observed "argue that the $1 billion common fund is not so impressive because plaintiff's counsel had a high likelihood of prevailing at trial," and asserted that the combination of the court's "entire fairness test and flaws in the deal meant that liability, while contested was never in doubt.  "No one who is actually familiar with litigation in this court could think that," the vice chancellor wrote.

Defendants regularly win under the entire fairness test, the vice chancellor noted, and "plaintiff's counsel did not have a laydown hand on liability.  They had a strong case that the fiduciary defendants did not follow a fair process, but fair price was debatable, and damages were a Wildcard."  Had Dell shown that the price was sufficiently fair, the class would lose, the decision found.

"Plaintiff's counsel deserves to be well compensated for identifying real cases, investing real money in those cases, and obtaining real results.  But the law should not reward plaintiff's counsel for filing weak cases and obtaining insubstantial results," the vice chancellor wrote.  Litigation continued until 19 days before trial, with the class pre-trial brief weighing in at 134 pages.

"Plaintiff's counsel thus went beyond a mid-stage adjudication that should yield a fee of 15–25%" after multiple depositions and some level of motion practice, the vice chancellor wrote, referring to the court's practice of taking the stage of litigation and effort heavily into account when awarding fees.

Fee decisions generally take into account the complexity of a case, the experience and ability of the lawyers, time and effort invested, stage of litigation and contingency terms that subject counsel to a risk of no payment at all, according to the court.  Not requested were attorney expenses, which amounted to more than $4 million.  In part, class attorneys had to make a decision regarding the appearance of a request for deduction of expenses, the vice chancellor wrote, in a case where "the common fund is so large that the out-of-pocket costs become a rounding error."

Class Counsel Tout Claims Rate in $185M Fee Request

July 19, 2023

A recent Law 360 story by Lauren Berg, “Facebook Users Laud 6% Claims Rate in $725M Privacy Deal”, reports that a class of more than 200 million Facebook users asked a California federal judge to grant final approval to their landmark $725 million deal resolving privacy claims against Meta Platforms Inc. over the Cambridge Analytica data harvesting scandal, touting the nearly 6% claims rate as "well above claims rates approved in other large settlements."

In a 35-page motion, the preliminarily certified class said that after attorney fees, costs and service awards are subtracted from the $725 million settlement fund, "allocation points" will be used to divide the remaining money among authorized claimants, allowing class members to recover an average of about $35 per person.

Under this allocation plan, for every calendar month at any time during the class period — running from May 24, 2007, through Dec. 22, 2022 — that the authorized claimant was a Facebook user with an activated account, one "allocation point" will be assigned, the motion says.  The net settlement fund is then allocated to each claimant pro rata based on each claimant's share of allocation points.

In addition to those monetary benefits, Facebook must also provide discovery and declarations attesting that the data sharing practices at issue have either stopped or are monitored under a 2019 consent decree between the social media platform and the Federal Trade Commission, according to the motion.

The users said the "extensive and successful" notice program — which included individual in-app notices to 685 million Facebook accounts, digital advertisements, a settlement website and public notices in USA Today and People magazine — has led to the submission of more than 15.8 million claims as of July 10.  The settlement administrator did clear out 960,313 as duplicative claims and will assess the remaining 14.9 million to make sure they are valid, the motion says.

"Based on an estimated class of 250 million, the claims rate is already almost 6% — a rate that is well above claims rates approved in other large settlements," the users said, noting that this is the largest-ever data privacy class action settlement.  After the parties unveiled the details of the proposed deal in February, U.S. District Judge Vince Chhabria ruled that Facebook and Gibson Dunn must pay $925,000 to the users, citing the defense's "unusually egregious and persistent" misconduct delaying discovery and gaslighting of opponents in seeking to extract a lower-priced settlement.

After Judge Chhabria in March tentatively signed off on the proposed settlement, class counsel in June requested $181.25 million in fees and $4.1 million in costs, representing 25% of the total settlement.  The attorneys said the amount represents a 1.99 lodestar multiplier for roughly 150,000 hours of attorney work done over the past five years.  The motion for attorney fees noted that nearly every aspect of the case demanded "an extraordinary investment of resources" and class counsel faced "aggressive opposition," making progress "exceedingly difficult."