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."

A recent Bloomberg Law by Roy Strom, “Quinn Emanuel Justifies Hugh Fee With $384,000-Per-Hour Return,” reports that Quinn Emanuel has new ammunition in its fight for a $185 million fee award, saying in a filing this week that every hour its lawyers worked on the case generated about $384,000 in returns.  That figure, according to a Harvard Law professor the firm hired to analyze (pdf) the fee award, shows the firm’s work in the Obamacare case was perhaps the most efficient ever performed by attorneys in a large class-action.  Lawyers in 13 similarly sized class action cases generated about $10,000 in returns per hour on average, professor William Rubenstein said.

Does that figure show Quinn Emanuel lawyers were, as Rubenstein argued, “epically productive?”  Or does it prove they’re getting a windfall?  That’s the question the judge overseeing the fee award legal fight, Kathryn Davis, will have to consider.  

The fee fight comes after Quinn Emanuel won nearly $4 billion for health insurers who were stiffed by Congress when it decided not to pay them for selling new, risky policies mandated by Obamacare.  Quinn Emanuel filed the first case taking on the US government, but a separate challenge wound its way all to the Supreme Court, resulting in $12 billion in total payouts.

The firm’s clients won every dollar they sought.  But Quinn Emanuel’s lawyers worked relatively few hours on the case—9,630 hours, to be exact.  It’s the equivalent of fewer than five Big Law attorneys working for one year, hardly a massive undertaking.  In the 13 large class-actions Rubenstein compared to the case, no law firm had worked less than 37,000 hours.

Because Quinn Emanuel’s lawyers worked so few hours to generate such a huge reward, the case has teed up thorny questions about how lawyers’ work should be valued.  Do attorneys just sell their time? Or should courts reward the result lawyers achieve?

In the Quinn Emanuel case, technical considerations have also been in play.  The firm initially received 5% of the $3.7 billion award they won—roughly $185 million.  That’s the figure Quinn Emanuel told clients they’d ask a judge to pay them.  It’s worth noting that a 5% fee on a contingency case is significantly lower than the 33% or 40% lawyers often charge.  But that fee got tossed when some of the health insurers appealed to the Federal Circuit.  They argued Quinn Emanuel should be paid around $9 million.  The appeals court noted Quinn Emanuel told clients its award figure would be subject to a “lodestar crosscheck.”  The Federal Circuit said that hadn’t been done and sent the case back to Judge Davis to consider that analysis.

This is how Quinn Emanuel described a lodestar crosscheck to its clients: “a limitation on class counsel fees based on the number of hours actually worked on the case.”  The lodestar method applies a multiplier to the attorneys’ hourly bill as a reward for success.  It’s usually about 1.5 to 3 times the total bill in successful cases.  If Quinn Emanuel was charging its standard hourly rates, it says its lawyers would have been paid about $9.7 million for their work on the case.  That means the firm is seeking a multiplier of around 19. (Rubenstein says the lodestar is closer to 10 when applying the firm’s newer, higher hourly rates.)

Just like the $384,000 in value-generated-per-hour, a lodestar multiplier of 19 is a serious outlier.  All of this makes the judge’s task a difficult one.  Davis must decide whether to reward the firm for its most-efficient result, or compensate it for the relatively little time case took.

How We Got Here

These outlandish fee award figures made me wonder: What happened to create such a unique case?  Rubenstein’s $384,000 figure doesn’t just tell us something about the lawyers and the result they achieved.  It hints at an underlying fact pattern that must be devastating.  The idea of the “most efficient” litigation in class-action history roughly translates to “the least effort to convince a judge of the most damages.”  What happened that required such little legal work to produce such a huge reward?

The answer can only be described as an unusual and epic failure by Congress.  As the US government careened toward a shutdown in late 2014, Congress cobbled together a massive funding bill to avert disaster.  It included, of all things, a provision that limited the government from appropriating funds to pay subsidies promised to health insurers who participated in an Obamacare program known as “risk corridors.”

The program encouraged insurers to provide new health insurance plans to riskier patients by sharing profits and receiving subsidies from the government. In the end, the government racked up a bill of more than $12 billion.  Sen. Marco Rubio (R-FL) took credit for the provision, though other Republicans argued they were just as responsible, slamming what he called a “bailout” for insurers.

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 Jack Karp, “Quinn Emanuel, Insurers Spar in $185M Fee Fight,” reports that Quinn Emanuel Urquhart & Sullivan LLP balked at what it called insurers' "incendiary" request for an accounting and discovery related to $185 million in attorney fees stemming from a $3.7 billion award secured in litigation over the Affordable Care Act.  The case law Kaiser Foundation Health Plan Inc. and UnitedHealthcare Insurance Co. cited to justify their requests for an accounting related to the $185 million and discovery regarding judgment preservation insurance taken out by the firm is irrelevant, Quinn Emanuel told the U.S. Court of Federal Claims in a join status report concerning the briefing schedule for its renewed fee application.

The insurers' request "once again relies on aspersions rather than any on-point precedent," the firm said.  "Throwing around the idea of ethical violations having nothing to do with class counsel's representation of the class against the government may be incendiary, but it is not a basis to delay resolution of the renewed fee application."  Quinn Emanuel asked the court to consider just its renewed fee application.  If the court allows the objectors to file any motions, the briefs on those motions should be filed simultaneously "in order to prevent undue delay in resolving this seven-year-old case," the firm said.

"Given the age of this case, class counsel respectfully submits there is no reason to drag this process out unnecessarily, and class counsel still does not understand the antagonism the United/Kaiser objectors are bringing to a process involving fees for claims that class counsel originated, pursued to a 100% result for United and Kaiser, and has continued to pursue doggedly for all remaining class members through the present," it said.  The two insurers were equally heated in their own portion of the joint status report.

Quinn Emanuel's proposal that the court order simultaneous briefing on the objectors' motion for discovery and accounting and Quinn Emanuel's motion for fees is inappropriate and would deprive the insurers of the information they need to file their opposition to the fees, they said in response.  "In effect, by insisting on simultaneous briefing, Quinn Emanuel seeks to moot the objectors' motion for discovery," they said.  The class has a right and the court has a duty to know if the accounting they request would demonstrate any ethical violations, the insurers added.

"Quinn Emanuel calls this argument 'incendiary' but does not deny that it is refusing to provide an accounting contrary to its obligations under Rules of Professional Conduct," they said.  In January, the Federal Circuit wiped out the $185 million in attorney fees awarded to Quinn Emanuel by the federal claims court following heated oral arguments in which an attorney for the firm was scolded for being "aggressive."

Quinn Emanuel and a group of health care plan insurers it represents had urged the Federal Circuit to affirm the fee award, insisting the firm had used a novel claim and achieved a 100% recovery for the class in litigation over so-called risk corridor payments under the ACA.  But Kaiser, UnitedHealthcare and others argued that class counsel was entitled to just $8.8 million after a lodestar cross-check.

Quinn Emanuel had originally promised in a supplemental class notice to limit its fee request based on the hours it worked on the litigation — the lodestar cross-check — and said its fee could be "substantially less than 5%" of the recovery, according to the Federal Circuit's January ruling.  But a Court of Federal Claims judge granted Quinn Emanuel's request for $185 million, or 5% of the total $3.7 billion settlement, finding that a lodestar cross-check was unnecessary.  That conclusion "was legal error," the Federal Circuit ruled.

"We are proud of our work in this case and of the unprecedented $3.7 billion award we obtained for qualified health plan providers, including Shepherd Mullin's clients," Quinn Emanuel partner Adam Wolfson told Law360 in a statement.  "When Quinn Emanuel won this case, we made certain the class administrator paid out 95% of the risk corridors claims to the plaintiffs as soon as possible.  We believe that the fee agreement the class members agreed to when we began our work on the case should stand," he said.  "Should the court come to a different conclusion, we will pay back any ordered amounts to the class administrator, who will then distribute those funds to the entire class."

A recent Bloomberg Law story by John Woolley, “Record $508 Million Job Bias Settlement Gets No Fee Enhancement,” reports that a 45-year-old sex discrimination case against a federal agency finally concluded after a judge declined to enhance compensation for the plaintiffs’ attorneys above the level to which the parties previously agreed.

The “in all respects extraordinary” lawsuit, per Judge Amit P. Mehta’s past opinions, was filed on Nov. 25, 1977 against the US Information Agency and became the “largest Title VII sex discrimination class action settlement in United States history.” It involved more than 1,000 women allegedly passed over for hiring or promotions at the agency.  The last several years of the case have involved negotiations between the plaintiffs’ counsel and the US State Department, which absorbed relevant components of the now-defunct defendant.

The decision not to multiply the lodestar fees amount agreed to by the parties “should not be taken to diminish the resounding success Plaintiffs’ counsel achieved,” Mehta wrote on Mar. 31 for the US District Court for the District of Columbia. “That praise may be cold comfort.  But this court can do no more.”

• The plaintiffs asked the court to determine a “superior attorney performance” multiplier and apply it to the $19 million base lodestar agreed upon by the parties, which the court declined to do because of insufficient evidence
• Attorney’s fees have been the last remaining issue in the case since the last of the $508 million settlement fund was distributed to class members in 2018
• The court previously rejected a pay enhancement request two years ago, when plaintiffs sought a $34 million payment on top of the over $26 million paid over the course of the case

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