326 A.3d 686
Del.2024Background
- In 2013, Michael Dell and Silver Lake took Dell private, later acquiring EMC with a mix of cash and Class V tracking stock. After the acquisition, Class V stock traded at a significant discount to VMWare shares, partly due to Dell's obscure options to convert the stock.
- Dell sought to redeem the Class V stock at a price which was challenged as unfair, triggering class litigation on behalf of former Class V stockholders.
- Plaintiffs alleged breaches of fiduciary duty by Dell, Silver Lake, and directors for coercing stockholder approval, making misleading proxy statements, and setting an unfair redemption price.
- The litigation was extensive, involving multiple amendments, discovery, and pre-trial proceedings, settling for $1 billion before trial.
- Class counsel requested a 28.5% fee ($285 million); objectors (notably Pentwater Capital) argued for a declining percentage approach used in federal megafund cases.
- The Court of Chancery awarded 26.67% of the settlement as fees and declined to apply a declining percentage solely due to fund size. Pentwater appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Should fee percentage decrease in megafund cases? | Pentwater: Yes, to avoid windfalls—follow federal declining percentage method in megafund (large) settlements. | Dell: No, Delaware precedent (Sugarland) relies on multi-factor analysis with no per se declining rule. | Declining percentage is discretionary, not mandatory; Delaware courts use multi-factor approach. |
| Was the Court of Chancery's fee calculation reasonable? | Pentwater: No, fee too high compared to result achieved and hours worked; should use closer cross-check to lodestar. | Dell: Yes, fee is within late-stage case norms; $1 billion recovery is exceptional, effort and complexity support award. | Fee award was reasonable; no abuse of discretion. |
| Should the results achieved factor weigh against the fee? | Pentwater: Yes, only a fraction of maximum potential recovery was achieved. | Dell: No, $1 billion is a substantial proportion of likely recoverable damages with significant litigation risk. | Benefit was substantial; result achieved factor supports the award. |
| Was objectors’ private business practice relevant to fee inquiry? | Pentwater: No, irrelevant and discourages objections. | Dell: Yes, objectors object to fee methods they themselves use in business. | Inquiry unnecessary to outcome; courts should not chill meritorious objections based on objectors’ business models. |
Key Cases Cited
- Sugarland Indus., Inc. v. Thomas, 420 A.2d 142 (Del. 1980) (sets out the five-factor test—"Sugarland factors"—for reasonable attorneys’ fees from a common fund)
- Goodrich v. E.F. Hutton Grp., Inc., 681 A.2d 1039 (Del. 1996) (reiterates rejection of mandatory declining percentage or lodestar approach for fee awards in Delaware)
- Americas Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012) (addressed first Delaware "megafund" case, reaffirmed Sugarland, declining percentage approach is discretionary, not mandatory)