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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."

Law 360 Covers NALFA Program

June 30, 2023

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.

The Nation's Top Attorney Fee Experts of 2023

June 13, 2023

NALFA, a non-profit group, is building a worldwide network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on reasonable attorney fees and ethical billing practices. We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe. Our attorney fee experts also include court adjuncts such as bankruptcy fee examiners, special masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts. Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove outside attorney fees and expenses in court or arbitration. The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us. Here are the nation's top attorney fee experts of 2023:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA

"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY

"Experienced on Analyzing Fees, Billing Entries for Fee Awards "
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA

"Excellent at Communicating Her Fee Analysis to Juries, Triers of Facts, and Clients"
Jacqueline S. Vinaccia
Vanst Law LLP
San Diego, CA

"Real World Billing Review Combined With Over 40 Years of Trial Experience"
Fred M. Blum
Edlin Gallagher Huie + Blum
San Francisco, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
Los Angeles, CA

"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK

"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN

Washington, DC Remains Nation’s Highest Billing Rate City

January 30, 2023

The old adage in real estate that it's all about location, location, location may also apply to hourly rates in litigation.  NALFA released the results from its annual hourly rate survey of civil litigation in the U.S.  The results, published in the 2022 Litigation Hourly Rate Survey & Report, contains billing rate data on the factors that correlate to hourly rates in litigation: geography, years of litigation experience, position or title, complexity of case, and law firm size.

This empirical survey and report provides macro and micro data of defense and plaintiffs' rates in regular and complex litigation, at various litigation experience levels, from large law firms to solo shops, and in the nation's largest markets.  This is the nation's largest and most comprehensive survey or study of hourly billing rates in civil litigation.  Over 16,600 qualified litigators, both defense and plaintiffs' counsel, from across the U.S. participated in this hourly rate survey.

For the third year in a row, the nation's top litigation billing rate city is Washington, DC.  When we aggregate all the responses from Washington, DC, 23 percent of the responses fall within Tier 4 rates ($901-Over $1100), the highest percentage of the 24 cities in the billing rate survey.  Only 10 percent of DC litigators fall within Tier 1 rates (Less Than $200-$400), the lowest percentage of cities and slightly over two-thirds of all DC litigation rates fall within Tier 2 rates ($401-$650) and Tier 3 rates ($651-$900).

Litigation Billing Rate Data Has Chi-Squared Distribution

January 25, 2023

NALFA recently released the results from its 2022 Litigation Hourly Rate Survey.  The results, published in The 2022 Litigation Hourly Rate Survey & Report, contains billing rate data on the factors that correlate to hourly rates in litigation: geography, years of litigation experience, position or title, complexity of case, and litigation practice size.

This empirical survey and report provides micro and macro data of current hourly rate ranges for both defense and plaintiffs’ litigators, at various experience levels, from large law firms to solo shops, in regular and complex litigation, and in the nation’s largest markets.  This data-intensive survey contains hundreds of data sets and thousands of data points covering all relevant billing rate categories and variables.  Over 16,600 qualified litigators participated in this survey.  This is the nation’s largest and most comprehensive survey or study of hourly billing rates in litigation.

For the third year in a row, at the macro level, we find a chi-squared distribution for litigation billing rates.  When we plot all responses (plaintiffs' and defense) in both regular and complex litigation on a graph (x,y axis), we have a general shape distribution model known as chi-squared distribution.  That is, the distribution is not the standard or normal (classic bell-shaped curve) distribution.  In data science, chi-squared is a gamma type distribution.  Our model here starts from a low point ($200-$250), climbs to the highest point ($451-$500), before the midpoint ($601-$650), then declines gradually and finishes with a long tail with an uptick at the very end (Over $1100). 

"You can see that the climb upwards is steeper than the gradual decline downwards," said Terry Jesse, Executive Director of NALFA.  "Just knowing, at the macro level, that litigation rates fall within the chi-squared distribution is a major development in hourly rate economics," Jesse added.  In the graph below, the y axis is the percentage of responses and the x axis is our 20-point hourly rate scale (Less than $200 to Over $1100).