August 29, 2022
A recent Law 360 story by Jeff Montgomery, “Chancery Oks $75M Cravath Fee in Williams Merger Dispute” reports that Cravath Swaine & Moore LLP nailed a nearly $75 million fee after a Delaware vice chancellor upheld its 15% contingent pay agreement with The Williams Cos. during much of a long battle with Energy Transfer LP and its affiliates over a $410 million deal-termination damage claim.
Vice Chancellor Sam Glasscock III also upheld a provision of the agreement that shifted Cravath's fees to Energy Transfer — the losing side of a $410 million battle with Williams over a termination fee triggered when Williams abandoned an earlier deal with one of its affiliates to pursue an eventually doomed, $38 billion Energy Transfer merger.
Energy Transfer, already required to pay Williams' $410 million break fee, fought the reasonableness of Cravath's fee, the 15% contingent arrangement as well as the court's decision to allow quarterly compounding interest for the fee, including a multiyear span while the case was stayed. According to the decision and a transcript of earlier arguments on the dispute, Cravath's average or "lodestar" rate was $47.1 million for the same hours, compared with $74.8 million under the contingent fee arrangement.
"It is worth pointing out that these sophisticated parties surely were aware that post-merger-agreement litigation, seeking a break fee, could likely include representation on a contingent basis." the vice chancellor wrote in a decision that upheld the Williams side on all points. Energy Transfer "had every opportunity, therefore, to contract against use of a contingent fee to determine the amount of fees shifted, if they so desired. This they failed to do," the vice chancellor wrote.
"The merger agreement contains no limitation on what kinds of attorneys' fees and expenses may be shifted to the losing party, other than a requirement, which is already implied under Delaware law, that the shifted fees and expenses must be 'reasonable,'" the vice chancellor wrote. Williams had argued that a new general counsel secured the contingent agreement with Cravath in mid-2017, after Delaware's Supreme Court let stand the vice chancellor's finding that failure of a required tax-treatment for the $1.38 billion merger allowed Energy Transfer to walk away.
Energy Transfer argued that interest should have been suspended during a two-year period between 2019 and 2021 when a Williams' discovery vendor's error brought litigation to a halt. They also argued that litigation time over the interest rate and fees should likewise not count.
The decision also provided for interest at 3.5%, compounded quarterly, with the court observing other decisions that found compound interest "the standard form of interest in the financial market." In all, according to a court brief filed, Cravath earned $4,358,372.70 prior to the start of the contingent fee terms, $4 million under a contractual fixed fee and $74,846,161 under the contingent fee.