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."

A recent Law 360 story by Lauraann Wood, “Class Benefits Becoming Larger Factor for Fees, Experts Say”, reports that class action fee awards are experiencing a shift in which counsel's compensation is becoming more about the benefits secured for class members than simply the amount of money involved in a settlement, according to a panel of experts who discussed the topic Thursday.

While the extent to which class benefit considerations factor into a class action fee award depends largely on the judge handling the case, there's no denying that settlement negotiations are focused more on securing as much benefits as possible while moving away from discussing fees before much of anything else, according to the participants of a virtual program hosted by the National Association of Legal Fee Analysis.

"I really believe that where we're headed now is looking at what benefits are actually being received by the class members, and that's the hallmark, the touchstone, of what kind of fee you can expect to receive," said panelist Sol Weiss of Anapol Weiss.  The panel was moderated by University of Georgia School of Law professor Elizabeth Burch, and featured Weiss, Jay Edelson of Edelson PC, and Rachel Soffin of Milberg Coleman Bryson Phillips Grossman PLLC.

The shift in class action fee consideration feels like "a huge moment of reform" that is forcing attorneys to take on "a more modern view" in this area of litigation, Edelson said.  It feels that way particularly since in past decades, such as the 1980s and 1990s, the general view was that class actions merely aimed to "bop the defendant on the nose" and deter them from certain conduct, and then "where the money goes isn't as important," he said.  "I think there's been a gradual shift ... to understanding that we have duties to clients and the duty means we've got to get them compensation," he said.

Soffin agreed that class benefits should be a major focus in settlement negotiations, adding that she has noticed the focus shift on the defense side of negotiations as well.  "I think everyone that I have worked with [has] become more savvy about the relief that we have negotiated actually translating to the class, and people actually being able to make claims," she said.

But Soffin pushed back against the idea that there should be a one-size-fits-all approach to awarding fees for class action settlements, saying it's important to "look at everything as a whole," including the amount of litigation and research involved.  For example, the idea of basing fee calculations on the class benefits actually received instead those made available could lead to counsel receiving a smaller award over factors they can't control, she said.

If helping class members is the goal but the people advocating for them hear that they can only receive compensation for a fifth of the hours they put into a case simply because a pandemic was happening and people couldn't file a claim on their computers in time, for example, then "you're going to have a lot of lawyers, good lawyers, who will no longer be advocating on behalf of classes," Soffin said.

Thursday's discussion flowed partly from the Ninth Circuit's decision earlier this month in Lowery v. Rhapsody International, in which the court unwound a $1.7 million fee award for plaintiffs' attorneys in a royalties class action against Napster that garnered just $53,000 for songwriters.  Weiss said he's concerned about how that ruling will be used in future fee disputes.  The court's decision "is the poster child for what the defense bar is going to use to try to denigrate the good work that plaintiffs' lawyers do in many class cases," he said.

NALFA and NALFA member and attorney fee expert John D. O'Connor of O'Connor & Associates in San Francisco were quoted in Portland Business Journal.  The news article, by Elizabeth Hayes, “Former Portland Insurer’s Law Firm Asks for $184M in Legal Fees” reports on Quinn Emanuel’s attorney fee request in the health insurers Obamacare reimbursement case.  Below is a copy of the article:

Health Republic went out of business after it took a $20 million hit when the government didn't pay it in full under the risk corridors program.  In February 2016, when Lake Oswego-based Health Republic Insurance was winding down its operations, it made an audacious move.  The small Consumer Operated and Oriented Plan, which had just 15,000 customers, took on the federal government.

Health Republic filed the first of what would become multiple lawsuits brought by insurers across the U.S. over the federal “risk corridors” program.  The cases sought to require the government’s to make good on its promise to compensate health plans that lost money on Affordable Care Act plans.

The shortchanging cost Health Republic $20 million and dealt a fatal blow to the company and dozens of other insurers.  Portland-based Moda Health took an even bigger hit than Health Republic, at $250 million, and followed Health Republic’s lawsuit with one of its own. Moda's suit worked its way to the U.S. Supreme Court, which in April ruled that the government owed U.S. insurers $12 billion.

Now Health Republic’s law firm, Chicago-based Quinn Emanuel Urquhart & Sullivan LLP, is seeking $184 million in attorney fees for the 183 clients it represented in the two class action suits it filed.  Both are related to the risk corridors but didn’t go to the Supreme Court.  The firm argues, however, that it filed a first-of-its-kind lawsuit. It “did not remain idle" while the other, non-class action cases, moved forward, but submitted multiple amicus briefs focusing on the “negative economic and societal impact that would result if the government failed to honor its commitments.”  Justice Sonia Sotomayor used that reasoning in her majority opinion, saying “the government should honor its obligations.

Quinn Emanuel, which specializes in complex litigation, represented Health Republic and the other insurers in the class actions on a contingency basis, meaning it would receive a fee only if they win the cases.  Quinn Emanuel’s “stellar performance” resulted not only nearly $4 billion for its insurer clients, but 100 percent industrywide recovery, the firm argues in its 40-page motion for attorney’s fees filed last week in the U.S. Court of Federal Claims.

It is asking for 5 percent of the judgments in its two class actions, which it argues would be “one of the lowest percentage rates ever awarded to class counsel, even in cases with multi-billion-dollar recoveries, such as this.”

If approved, the amount would still be one of the largest fee requests for a single law firm in U.S history, according to the National Association of Legal Fee Analysis.  There have been much larger fee awards, including those in the Enron lawsuit, but they are generally split between multiple firms.  John O’Connor, a San Francisco attorney and attorney fee expert, said it’s hard to say if the court will approve Quinn Emanuel’s request.  The percentage is low, but the total amount would represent an unusually high multiple of the firm’s average hourly rate of around $1,000.

The firm put in about 10,000 hours, translating to an hourly average rate of $18,500, if the award is granted.  “You can’t say it’s totally ridiculous,” O’Connor said. “Nor can you say it’s a slam dunk that they should get it. The thing they have going for them is it’s such a small slice of the pie.”  Quinn Emanuel emphasizes in its brief that it and Health Republic took on a “substantial risk” in suing the government.  Stephen Swedlow, a Quinn Emanuel partner, did not respond to a request for comment.

In an ironic twist given the eventual outcome, Moda CEO Robert Gootee apparently agreed.  When former Health Republic CEO Dawn Bonder told Gootee she was going to file the lawsuit, he responded that she was “making a ‘bold’ choice and that he would not even consider doing so on behalf of Moda, as he thought the lawsuit had no chance of success,” according to Quinn Emanuel’s recent brief.

Moda spokesman Jonathan Nicholas declined to comment on the conversation.  “Moda did not have any contingency fee arrangement with our law firm,” he said. “Robert insisted from the very outset that a core, fundamental right was at issue here, and he determined that our company would go all in — and all alone – in an effort to see that our judicial system, at its highest level, could indeed right a wrong!”