OPINION
Dear Friends,
Folks, the $267 Million in Whopper Fees, blatantly backed by Delaware Chancery Court Vice Chancellor Travis Laster, who calls Delaware “different”, backing outrageous theft of nearly 27% in fees in the $1 Billion Dell case in Delaware.
This is almost certainly from the old Chancery playbook: Enrich your friends. That’s how I see it, folks. Even Alison Frankel of Reuters, writes in the story below, “the median fee award is 10.5% in federal court securities class actions,” not the nearly 27% in Laster’s “different” Delaware, which is like stealing from litigants, in my view.
The corruption and Good Old Boys Network cronyism is being thrown in everyone’s face by Laster, showing poor leadership. Delaware’s Chancery Court thinks it’s above all. Until our governor or legislators call them out on this, this awful corruption and greed won’t stop in America’s First State.
So much feedback has already rolled in, I wanted to again share this Reuters story below, highlighting the millions and gross percentages. Keep your feedback coming folks! It is always appreciated.
Respectfully Yours, JUDSON Bennett-Coastal Network
Whopper $267 million fee award in $1 billion Dell case shows why Delaware is different
(Reuters) – If you were a plaintiffs’ lawyer who obtained a billion-dollar settlement in a securities class action in federal court, you’d be lucky to be awarded $150 million in fees. It’s more likely that your fees from the megafund recovery would be between $100 million and $120 million, or 10% to 12%.
That number reflects a distinct trend in securities class actions in federal court: As shareholders’ recovery goes up, the percentage of the recovery fund that is awarded to their lawyers goes down. When the settlement is for less than $500 million, plaintiffs’ fees typically range between 25% to 33%. That number drops to less than 18% for settlements between $500 million and $1 billion. Above $1 billion, the median fee award is 10.5% in federal court securities class actions.
But the plaintiffs’ firms that obtained a billion-dollar settlement last November with Dell (DELL.N) and its controlling shareholders were not litigating in federal court. Their breach of duty case over a controversial stock swap was in Delaware Chancery Court.
And in a 92-page opinion on Monday, Vice Chancellor Travis Laster reminded all involved that Delaware is different.
The vice chancellor awarded the plaintiffs firms that litigated the Dell case to the eve of trial – Labaton Sucharow; Quinn Emanuel Urquhart & Sullivan; Andrews & Springer; Robbins Geller Rudman & Dowd; and Friedman Oster & Tejtel – 26.67% of the class recovery. That wasn’t quite the 28% requested by shareholder lawyers, but it still works out to a cool $266.7 million – seven times their lodestar billings of about $39.5 million and the second-highest fee ever granted in Delaware Chancery Court.
The $266.7 million Dell award is topped only by a $285 million fee affirmed by the Delaware Supreme Court in 2012’s Americas Mining Corporation v. Theriault — and shareholders’ recovery in that case was more than $2 billion.
That was not the outcome sought by several investment funds, led by Pentwater Capital Management, that objected to plaintiffs’ counsel’s fee request. The funds, which collectively own shares totaling more than a quarter of the class that settled with Dell, called for Laster to apply the “declining percentage” principle that predominates in federal securities cases. The funds did not specify what an appropriate percentage would be but cited the 10.5% median award for billion-dollar settlements in federal court.
Five eminent securities law professors also weighed in with an amicus brief explaining why the declining-percentage approach is both economically rational and an appropriate reflection of the lower risk to plaintiffs’ lawyers who litigate the biggest cases. The professors and their counsel, Anthony Rickey of Margrave Law, said a 15% award to the Dell shareholder lawyers would be more suitable than a 28% award. (Oddly, Laster speculated that the law professor had been “recruited” by Pentwater and the other objectors, even though he docketed a letter in April asking about legal scholarship on declining percentage fees. “If the professors were recruited by anyone, it was by the vice chancellor,” said Joseph Grundfest of Stanford Law School, who was one of the amici.)
Laster’s discursive decision explores a lot of interesting terrain, including a discussion about fees for investment fund managers who, Laster noted, are not expected to accept a lower percentage of profits when they have an exceptionally good year. The vice chancellor also examined hundreds of contingency fee agreements submitted at his direction by plaintiffs’ firms in the Dell case. Those agreements, he said, “fully support” a 26.7% award.
But mostly, Laster emphasized that Delaware precedent — and the unique challenges of litigating breach-of-duty claims in Delaware courts — justifies higher fees for plaintiffs’ lawyers who don’t settle early. In federal securities class actions, Laster said, the risk for plaintiffs’ lawyers drops drastically if the case survives defense dismissal motions. And the biggest securities fraud cases, he said, often follow criminal or regulatory investigations that make it easier for plaintiffs’ lawyers to assess their odds of success.
That’s generally not true for M&A breach-of-duty cases, Laster said. Shareholder claims are more likely to require independent investigation and to be litigated well beyond dismissal motions. Even winning at trial is no guarantee of success, the vice chancellor said, since Delaware’s Supreme Court has in the last several years overturned at least four post-trial money judgments for shareholders.
The Delaware Supreme Court, Laster said, acknowledged in the Americas Mining decision that fee awards should reflect the extent of plaintiffs’ progress in the litigation. A 33% award, the Supreme Court said, is reserved for cases litigated through trial and appeals. Fees in cases that settle early, the court said, are generally in the 10-15% range. Settlements that follow significant motions practice and depositions usually result in fees that range between 15-25%.
Laster used those guidelines, which he called the “stage-of-case” approach, to settle on a 26.67% award for the Dell shareholder lawyers, who settled a few weeks before trial. That figure, he said, left room for courts to award higher percentages to lawyers who take on the extra risk of litigating through trials and appeals.
Five eminent securities law professors also weighed in with an amicus brief explaining why the declining-percentage approach is both economically rational and an appropriate reflection of the lower risk to plaintiffs’ lawyers who litigate the biggest cases. The professors and their counsel, Anthony Rickey of Margrave Law, said a 15% award to the Dell shareholder lawyers would be more suitable than a 28% award. (Oddly, Laster speculated that the law professor had been “recruited” by Pentwater and the other objectors, even though he docketed a letter in April asking about legal scholarship on declining percentage fees. “If the professors were recruited by anyone, it was by the vice chancellor,” said Joseph Grundfest of Stanford Law School, who was one of the amici.)
Laster’s discursive decision explores a lot of interesting terrain, including a discussion about fees for investment fund managers who, Laster noted, are not expected to accept a lower percentage of profits when they have an exceptionally good year. The vice chancellor also examined hundreds of contingency fee agreements submitted at his direction by plaintiffs’ firms in the Dell case. Those agreements, he said, “fully support” a 26.7% award.
Shareholder lawyers from Labaton, Quinn, Robbins Geller and the other two firms did not respond to my query on Laster’s ruling.
Pentwater, which is represented by Stephen Brauerman of Bayard, said in an email statement that it intends to appeal Laster’s ruling to the Delaware Supreme Court.
The decision, “places Delaware in conflict with federal courts,” Pentwater said. “The Court of Chancery decided to take $266 million away from victims and give it to [plaintiffs’] attorneys. We believe that this was wrong.”
Stanford’s Grundfest pointed out that in the Americas Mining case that Laster cited throughout his Dell decision, the Delaware Supreme Court approved a fee award of just 15% of the class recovery — and shareholders in that case litigated through trial and appeal.
A dissenting justice in that decision, Grundfest said, criticized Chancery Court for basing the fee award on “its own world views on incentives, bankers’ compensation and envy.”
Laster, Grundfest said, may well see those same words in the objectors’ appeal in Dell.