A recent Law 360 story by Jeff Montgomery, “Five Firms Win Record $266.7M Fee From $1B Dell Settlement”, reports that the Delaware Chancery Court gave the nod to a record $266.7 million fee award for stockholder class attorneys among five firms who secured a $1 billion settlement, one of the largest ever in any state-level court, for a suit that challenged Dell Technologies Inc.'s $23.9 billion stock swap in 2018. Vice Chancellor J. Travis Laster's 92-page opinion awarded the fees to Labaton Sucharow LLP, Quinn Emanuel Urquhart & Sullivan LLP, Andrews & Springer LLC, Robbins Geller Rudman & Dowd LLP, and Friedman Oster & Tejtel PLLC.
The vice chancellor approved the overall settlement on April 19, saying class attorneys had undertaken a "huge effort," but reserved judgment on the 28.5% fee while considering objections that it took a disproportionate bite out of the per-share payment to stockholders. Vice Chancellor Laster pruned the request from $285 million to $266.7 million, noting that eight investment funds had recommended a lower fee, citing concerns about "windfall" profits in the case of large awards.
"The funds have a strong economic motivation for seeking a lower fee award. They collectively own shares comprising 26.1% of the class. Although they did not propose an alternative amount, if the court were to follow the federal trend and award a 10% fee, the objectors would receive another $49 million," the vice chancellor wrote. Five law professors separately suggested in a friend of the court brief that a 15% fee would be appropriate, which would have added $35.78 million to the objectors' recovery.
"In this case, plaintiff's counsel brought a real case, invested over $4 million of real money, and obtained a real and unprecedented result. Rather than requesting an unprecedented fee award, plaintiff's counsel asked for 28.5% of the common fund," consistent with past court practices and precedent, Vice Chancellor Laster wrote in the opinion. Included in the fee award is a proposed $50,000 incentive fee for the plaintiff. The award in Dell was eclipsed only by the $285 million fee approved for attorneys in the derivative Americas Mining case in 2012, set by then Chancellor Leo G. Strine Jr.
The deal heads off a trial on claims targeting Dell's effort to exchange Class V stock — created to finance much of Dell's $67 billion acquisition of EMC Technologies in 2016 — for shares of Dell common stock. The Class V shares generally traded at only 60% or 65% of the price of VMWare, a business in which EMC owned an 81.9% equity stake when Dell acquired EMC. Public shareholders, the class has argued, were short-changed by $10.7 billion when, in December 2018, Dell Technologies paid $14 billion in cash and issued 149,387,617 shares of its Class C common stock for the Class V shares.
During a settlement hearing last week, attorneys for the class told the vice chancellor that they 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. The requested fee, they said, had already been adjusted downward by 5% from a typical eve-of-trial award of 30% or more. In addition to towering over any state award, the $1 billion payout would rank as the 17th largest class settlement of all time, according to Institutional Shareholder Services Inc.
Among the objectors was Pentwater Capital Management LP, which held 1.8% of the Dell Class V stock at the center of the stockholder action. Pentwater described the fee as "far in excess of what is appropriate in these circumstances" and "fundamentally unfair" to the class represented.
The objectors, the vice chancellor observed "argue that the $1 billion common fund is not so impressive because plaintiff's counsel had a high likelihood of prevailing at trial," and asserted that the combination of the court's "entire fairness test and flaws in the deal meant that liability, while contested was never in doubt. "No one who is actually familiar with litigation in this court could think that," the vice chancellor wrote.
Defendants regularly win under the entire fairness test, the vice chancellor noted, and "plaintiff's counsel did not have a laydown hand on liability. They had a strong case that the fiduciary defendants did not follow a fair process, but fair price was debatable, and damages were a Wildcard." Had Dell shown that the price was sufficiently fair, the class would lose, the decision found.
"Plaintiff's counsel deserves to be well compensated for identifying real cases, investing real money in those cases, and obtaining real results. But the law should not reward plaintiff's counsel for filing weak cases and obtaining insubstantial results," the vice chancellor wrote. Litigation continued until 19 days before trial, with the class pre-trial brief weighing in at 134 pages.
"Plaintiff's counsel thus went beyond a mid-stage adjudication that should yield a fee of 15–25%" after multiple depositions and some level of motion practice, the vice chancellor wrote, referring to the court's practice of taking the stage of litigation and effort heavily into account when awarding fees.
Fee decisions generally take into account the complexity of a case, the experience and ability of the lawyers, time and effort invested, stage of litigation and contingency terms that subject counsel to a risk of no payment at all, according to the court. Not requested were attorney expenses, which amounted to more than $4 million. In part, class attorneys had to make a decision regarding the appearance of a request for deduction of expenses, the vice chancellor wrote, in a case where "the common fund is so large that the out-of-pocket costs become a rounding error."