Delaware’s top court has granted $267 million in fees to attorneys representing stockholders who won a $1 billion settlement in a lawsuit pertaining to a Dell Technologies acquisition.
TakeAway Points:
- The Delaware Supreme Court authorised $267 million in attorney fees in a $1 billion Dell settlement, highlighting the necessity of providing incentives for difficult cases.
- The decision could have an impact on corporate governance and legal procedures in the future, especially in Delaware, the home state of many significant American corporations.
- The ruling is made in relation to Elon Musk’s cancelled $56 billion compensation package, while another court is deliberating over a possible multibillion-dollar verdict.
Delaware court grants approval for legal fees
The ruling, delivered on Wednesday, has been closely watched by legal observers for its implications on corporate law in Delaware, where many large U.S. companies are domiciled. The case revolved around a 2019 deal in which Michael Dell and private equity firm Silver Lake Partners acquired shares of a Dell Technologies affiliate they did not own, engineering a reverse merger that listed the broader Dell group at a $100 billion enterprise valuation.
Shareholders accused Michael Dell, Silver Lake, and Goldman Sachs of breaching their fiduciary duties by acquiring the public shares too cheaply. The sides settled in 2022 for $1 billion in cash, one of the largest settlements in Delaware history. Lawyers for the plaintiffs, led by Labaton Sucharow and Quinn Emanuel, were granted $267 million in fees by the lower court. However, Pentwater, a hedge fund holding shares in Dell, argued that the fee was excessive and suggested a sliding percentage scale that would justify around a 15% ratio instead of the awarded 27%.
The Delaware Supreme Court upheld the lower court’s decision, stating that it had “more than adequately justified its fee award.” The court emphasized that large fees incentivize counsel to accept challenging cases, noting, “They assume the risk of recovering nothing in the end.” However, the court also acknowledged the need to balance incentives with avoiding excessive awards, stating, “At some point, the percentage of fees awarded in a megafund case exceeds their value as an incentive to take representative cases and turn them into a windfall.”
Implications for future cases
The ruling comes as another Delaware court considers a potential multibillion-dollar award to lawyers who successfully convinced the court to cancel a $56 billion pay package for Elon Musk earlier this year. Lawyers for Tesla have argued against a large plaintiffs’ fee in the Musk case, stating that the request for 29 million Tesla shares, currently worth around $6 billion, “defies established Delaware case law, mangles basic economics, and seeks to evade entirely the fairness checks this court imposes on fees.”
The lower chancery court is expected to rule later this year on both the fee and whether a recent Tesla shareholder vote to re-approve the Musk pay package impacts the earlier decision to cancel it. The Delaware Supreme Court’s decision on Wednesday also defended Pentwater’s right to protest the fee award, stating, “Although it might sound quaint, lawyers are not in the same position as investment bankers and fund managers when it comes to class action settlements — they are fiduciaries for the class.”
Legal and Corporate Governance Landscape
The Delaware courts have been encouraging plaintiffs’ lawyers to pursue meaningful cases rather than nuisance suits by offering large fees for successful outcomes. This approach aims to ensure that significant corporate governance issues are addressed, rather than allowing minor grievances to clog the legal system. The court’s decision underscores the importance of balancing the need to incentivize legal representation in complex cases with the risk of awarding excessively high fees.
The ruling also highlights the broader implications for corporate governance and legal practices in Delaware. As the state where most large U.S. companies are domiciled, Delaware’s legal decisions often set precedents that influence corporate behavior and shareholder rights across the country. The court’s emphasis on justifying fee awards and maintaining a balance between incentives and fairness will likely impact how future cases are litigated and settled.
