A recent Law.com story by Dan Roe, “Twitter Fee Lawsuit Brings Wachtell’s Billing Practices to Light”, reports that, in addition to charging hourly fees on par with top Wall Street law firms, Wachtell, Lipton, Rosen & Katz routinely charges success fees that rival the fees of investment banks in merger and acquisition transactions, according to an email Wachtell partner William Savitt sent to Twitter’s in-house counsel on the eve of Elon Musk’s takeover of the company.
The firm also adds success fees between two and two-and-a-half times the firm’s hourly fees in “premium billing matters that involve substantial litigation,” according to the email. Wachtell’s billing structure diverges from Big Law’s traditional hourly structure by billing clients in the manner of investment banks, negotiating success fees by a percentage of deal value or bankers’ fees.
Last week, Musk sued Wachtell in California Superior Court on counts of unjust enrichment and breach of fiduciary duty, alleging Wachtell took advantage of Twitter’s “lame duck” in-house counsel ahead of the company’s sale to Musk and pushed through a success fee that represented the bulk of Wachtell’s $90 million fee for four months of work.
The lawsuit, filed by Reid Collins & Tsai, referenced Twitter’s master retention agreement, signed by Savitt, which made no mention of a contingent or success fee. (The document also states the retention agreement supplements any fee arrangement entered into between Twitter and outside counsel. No such documents appeared in the complaint.)
In an emailed statement, Wachtell said the firm was “extremely proud” of its work representing Twitter, which “generated billions of dollars in shareholder value by compelling Elon Musk to abide by his contractual obligation to buy Twitter for $54.20 per share,” the firm said. “The fee for our work was entirely appropriate and expressly approved by Twitter’s board of directors, which was independently advised. The suit against us is meritless, and we will respond to it in due course.” Simpson Thacher & Bartlett advised Twitter’s board in the deal.
Last October, when Twitter’s in-house counsel asked Savitt to justify the $90 million fee—which included $26 million in work billed hourly—by outlining comparable arrangements, such that Twitter’s board could approve the fee before the sale, Savitt outlined two methods.
In the first, “Engagement fees as a percentage of banker fees,” Wachtell stated it was frequently paid 60% to 80% of the fees paid to investment advisers. In seven examples, the firm described instances of being paid between 67% and “over 100%” of the fees charged by investment banks.
The second billing method referenced litigation-intensive engagements, citing examples of the firm charging up to three times its “run-rate” (its hourly rate plus costs and other disbursements) and stating it frequently invoices two to two and a half times its hourly rate.
Wachtell has guarded its billing arrangements and declined to comment for previous American Lawyer articles discussing them. Yet, in 2015, The American Lawyer obtained a standard fee arrangement Wachtell sent to client CVR Energy in January 2012. In it, Wachtell stated its “extraordinary expertise and sophistication” didn’t lend itself to hourly fees, with the firm preferring to “base our fees not on time but on the intensity of the firm’s efforts, the responsibility assumed, the complexity of the matter and the result achieved.”
In the CVR Energy engagement letter, the firm said it typically charged 1% or more of the total value of M&A and takeover deals worth less than $250 million and charged 0.1% of matters worth more than $25 billion. Compared with billing based on total deal value, Wachtell’s apparent preference toward billing a portion of banker fees in deals or multiplying hourly fees in litigation-heavy matters appears more lucrative.
Had Wachtell billed 0.1% of the $44 billion Twitter sale, it would have made $44 million. Instead, the firm offered Twitter the opportunity to base its fees on those charged by the investment banks on the deal. Three weeks before partner Benjamin Roth pitched Wachtell’s services to Twitter’s in-house counsel, news outlets reported Goldman Sachs and JPMorgan Chase & Co. were poised to earn a combined $133 million in fees if the deal went through.
Alternatively, a litigation multiplier of 2.5 would place Wachtell’s success fee near $90 million if the addition of the firm’s October hourly fees, which weren’t discussed in the lawsuit, brought the total hourly bill to $36 million. Twitter also waived its standard 15% discount for outside counsel, according to the complaint. Additionally, Musk took issue with several Wachtell partners leaving time entry descriptions blank. Wachtell’s highest-billing partners, according to billing records surfaced in the complaint, include Savitt at $1,850 an hour and Leo Strine, of counsel and the former chief justice of the Delaware Supreme Court, at $2,000.
Strine was central to Roth’s email pitch to Twitter Chief Legal Officer Vijaya Gadde, general counsel Sean Edgett and Chief Financial Officer Ned Segal in early June 2022. “I’ve been following with interest the news about your pending transaction with Elon Musk,” Roth wrote, saying later in the same email, “Leo Strine is now with our firm and sits about 25 feet down the hall from me.”
Roth also emphasized litigation co-chair Savitt’s experience litigating in Delaware and Savitt’s representation of Roth and the firm in a malpractice lawsuit filed by Carl Icahn over the CVR deal. In 2013, Icahn sued Wachtell for not disclosing to CVR executives that the company’s investment banks would earn more money if the company accepted an existing bid (rather than the banks being incentivized to drive bids up). The lawsuit also said Wachtell broke from its own engagement letter and billed based on the success fees of the banks instead of using total deal value, with CVR’s counsel stating, “Wachtell is perversely incentivized to negotiate engagement letters that benefit the investment bankers, not the client.”