Five law firms should receive $267 million in legal fees for obtaining a $1 billion settlement for shareholders of Dell Technologies (DELL.N), the Delaware Supreme Court ruled on Wednesday, rejecting arguments that the payment was a windfall.
The fee is one of the largest ever for U.S. shareholder litigation.
A Delaware trial court is weighing two other requests for huge legal fees, both in cases involving Tesla (TSLA.O).
Plaintiffs in the Dell case alleged that they and other shareholders were short-changed in a controversial $23.9 billion transaction in 2018 that marked Dell's return as a publicly traded company.
The settlement was announced in November 2022, averting a trial scheduled to begin the next month.
But a group of large investors led by Pentwater Capital Management asked Delaware's top court to reduce the fee and base it on a model used in federal courts.
As settlements of federal securities litigation grow in size, the percentage awarded in attorney's fees generally declines.
In the 10 largest federal securities cases, lawyers collected on average less than 10% of the recoveries as fees, compared with 27% in the Dell case, according to Pentwater.
Delaware courts have focused on providing incentives to plaintiffs' lawyers to litigate cases rather than accept quick settlements. That can lead to larger fees, particularly in cases like Dell that settled shortly before trial.
Chief Justice Collins Seitz said the potential for large fees gives lawyers an incentive to take tough cases, and risk getting paid nothing if they lose.
“It was a highly contentious litigation, spanning two and a half years, with nearly 100 lawyers entering appearance for the defense,” Seitz wrote. ”The underlying transaction was complex, and counsel achieved an excellent settlement for the class on the eve of trial.”
The fee in the Dell case is the second largest in Delaware and would rank fifth largest in federal securities litigation, according to data from Stanford Law School cited in Pentwater's court filings.
Delaware is the legal home to a majority of U.S. publicly traded companies.
This in part reflects the predictability of its court system, which relies on specialized judges instead of juries in shareholder litigation, but the courts' approach to legal fees has been a point of contention for business groups.
Seitz did note that “windfalls are a particular concern” in large cases in Delaware where “we are used to big numbers,” but the fees in the Dell case didn't reach that level.
Tesla is fighting fee requests related to a settlement of claims that its directors were overpaid, and in a case over CEO Elon Musk's $56 billion pay package.
Lawyers in the directors case are seeking $230 million in fees. In the Musk pay case, lawyers are seeking an unusual fee in the form of 29 million Tesla shares -- worth about $7.8 billion when Tesla shares hit a recent peak in July.
The judge in the Tesla cases, Chancellor Kathaleen McCormick, has not said when she will rule.
The shareholder law firms in the Dell case are Labaton Keller Sucharow, Quinn Emanuel Urquhart & Sullivan, Friedman Oster & Tejtel, Andrews & Springer, and Robbins Geller Rudman & Dowd. The defendants were represented by nine law firms.
