IN RE DELL TECHNOLOGIES INC. CLASS V STOCKHOLDERS LITIGATION
No. 349, 2023
IN THE SUPREME COURT OF THE STATE OF DELAWARE
August 14, 2024
Before SEITZ, Chief Justice; VALIHURA, TRAYNOR, LEGROW, and GRIFFITHS, Justices; constituting the Court en Banc.
Upon appeal from the Court of Chancery. AFFIRMED.
Stephen B. Brauerman, Esquire (argued), Sarah T. Andrade, Esquire, BAYARD, P.A., Wilmington, Delaware for Objector Below, Appellant Pentwater Capital Management LP.
Ned Weinberger, Esquire (argued), Mark Richardson, Esquire, Brendan W. Sullivan, Esquire, LABATON SUCHAROW LLP, Wilmington, Delaware; Domenico Minerva, Esquire, Joseph Cotilletta, Esquire, LABATON SUCHAROW LLP, New York, New York; David M. Cooper, Esquire, Silpa Maruri, Esquire, George T. Phillips, Esquire, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York; William R. Sears, Esquire, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Los Angeles, California for Co-Lead Counsel for Appellee.
Peter B. Andrews, Esquire, Craig J. Springer, Esquire, David M. Sborz, Esquire, Jackson E. Warren, Esquire, ANDREWS & SPRINGER LLC, Wilmington, Delaware; Chad Johnson, Esquire, Noam Mandel, Esquire, Desiree Cummings, Esquire, Robert Gerson, Esquire, Jonathan Zweig, Esquire, ROBBINS GELLER RUDMAN & DOWD LLP, New York, New York; Jeremy S. Friedman, Esquire, David F.E. Tejtel, Esquire, Christopher M. Windover, Esquire, Lindsay La Marca, Esquire, FRIEDMAN OSTER & TEJTEL PLLC, Bedford Hills, New York for Additional Counsel for Appellee.
Anthony A. Rickey, Esquire, MARGRAVE LAW LLC, Wilmington, Delaware for Amici Curiae, Law Professors, in support of Appellant.
Joel Friedlander, Esquire, Jeffery M. Gorris, Esquire, FRIEDLANDER & GORRIS, P.A., Wilmington, Delawarе for Amici Curiae, Professors Lynn A. Baker, Brian T. Fitzpatrick and Charles Silver, in support of Appellee.
SEITZ, Chief Justice:
This is an appeal from a final judgment of the Court of Chancery awarding counsel fees and expenses and an incentive award of 26.67% of a $1 billion settlement, or $266.7 million. The settlement and fee award followed years of contentious litigation challenging Dell Technologies’ redemption of Class V stock for what the plaintiff claimed was an unfair price.
Pentwater Capital Management LP and other class members objected to the amount of the fee award. In a thoughtful opinion, the Court of Chancery declined to apply a declining percentage to the fee award. It also found that the $1 billion settlement was a significant achievement, and no other factors warranted reducing the percentage of fees awarded from the recovery. After our careful review, we find that the Court of Chancery did not exceed
I.
A.
We recite the facts from the settlement record and the Court of Chancery‘s decision awarding attorneys’ fees.1 In 2013, Michael Dell and Silver Lake Group LLC took Dell, Inc. private through a leveraged buyout. Mr. Dell and Silver Lake controlled the successor company, Dell Technologies, Inc. After the take-private transaction closed, Dell Technologies set its sights on EMC Corporation, a publicly traded data-storage firm which held an 81.9% equity stake in VMWare, also publicly traded. Dell and Silver Lake would have preferred to purchase EMC on an all-cash basis, but Dell Technologies was already highly leveraged after the take-private transaction. Dell Technologies ended up acquiring EMC with a combination of cash and newly authorized Class V Dell Technologies stock. Shares of Class V stock traded publicly. After the acquisition, it was thought that the Class V shares would track at little to no discount to the trading price of VMWare‘s common stock.
Dell Technologies and EMC completed the $67 billion transaction. Each share of EMC common stock converted into the right to receive $24.05 in cash and 0.11146 of a Class V share. Post-acquisition, the Class V shares traded at a 30-50% discount to VMware‘s publicly traded stock. According to the Court of Chancery, the Class V shares traded at a discount because, in part, Dell Technologies held an option to force a conversion of the Class V shares into Class C shares through an opaque formula that could be applied subjectively.2
Dell Technologies saw an opportunity to capture the value of the Class V stock discount by consolidating its VMWare ownership. It had three apparent options: (i) a transaction with VMWare; (ii) a negotiated redemption of the shares of Class V stock; or (iii) a forced conversion of the shares. Dell Technologies retained The Goldman Sachs Group, Inc. to advise them on the consolidation. According to the plaintiff, Goldman advised Dell Technologies that the Class V market discount could be widened further by creating market uncertainty about whether the company would forсe a conversion of the Class V stock. When the financial press reported that Dell Technologies was considering an IPO of its Class C stock, the plaintiff alleged, the Class V stock discount increased to over 45%.
After the financial press reported on the possible Class C stock IPO, the Dell Technologies board formed a special committee to negotiate the redemption of the Class V stock.3 The committee lacked the power to block either a public listing of the Class C stock or a forced conversion.
As negotiations ensued, Dell Technologies and its advisors were alleged to have pressured the committee by making clear that they would consider alternatives to a negotiated redemption. The committee and Dell Technologies eventually arrived at a deal that valued the Class V stock at $109
Eventually, Dell Technologies arrived at an agreement with the funds. In exchange for their Class V stock, Dell Technologies agreed to offer the funds the option to receive (i) shares of newly issued Class C common stock valued at $120 per share; or (ii) $120 per share in cash, with the aggregate amount of cash capped at $14 billion. The deal valued the Class V stock at $23.9 billion. Dell informed the committee of the negotiated redemption‘s terms. The committee approved the same terms for the remaining Class V stockholders after meeting for an hour. Sixty-one percent of the unaffiliated Class V stockholders voted to approve the redemption.
B.
Former Class V stockholders filed putative class actions, which were consolidated by the Court of Chancery. The lead plaintiff, Steamfitters Local 449 Pension Plan, filed a Verified Amended Consolidated Stockholder Class Action Complaint on behalf of the plaintiff and all similarly situatеd former holders of Class V stock. The complaint brought direct claims for breach of fiduciary duty against Mr. Dell, Silver Lake, and other Dell Technologies directors and sought damages for the unfair redemption of Class V stock.
The complaint alleged that the director defendants breached their fiduciary duties by approving the redemption, coercing the Class V stockholders to vote in favor of the redemption, and for making materially false and/or misleading proxy statements. Further, the plaintiff claimed that Mr. Dell and Silver Lake, as Dell Technologies’ controlling stockholders, breached their fiduciary duties by causing the company to enter an unfair redemption and by consummating the redemption at the negotiated price.
The defendants moved to dismiss the complaint. They argued that the transaction was approved by a well-functioning independent committee of directors and the affirmative vote of fully informed and uncoerced minority stockholders. They contended that, under Kahn v. M & F Worldwide Corp., 88 A.3d 635, 639 (Del. 2014) [MFW], overruled on other grounds by Flood v. Synutra, Int‘l, Inc., 195 A.3d 754 (Del. 2018), the transaction should be subject to the deferential business judgment rule standard of review.4 The court denied the motion. It held that the plaintiff had sufficiently alleged that the two-member special committee was not wholly independent, making entire fairness the operative standard of review.5
The plaintiff later amended its complaint twice, adding various Silver Lake affiliates as defendants. The amended complaint alleged that, throughout the redemption, Mr. Dell, Silver Lake, and Silver Lake affiliates were the controlling stockholder group of Dell Technologies. The plaintiff also added Goldman Sachs as a defendant, alleging that they knowingly aided and abetted the fiduciary breaches of the control group and the director defendants.
For the next two and a half years, the plaintiff pursued the case through discovery. The parties stipulated to class certification, which was approved by the court. They completed both fact and expert discovery. After expert discovery closed, the parties at first unsuccessfully mediated thе dispute. The court set a trial date. As trial
Class counsel sought 28.5% of the $1 billion settlement as a fee and expenses, translating into a $285 million fee award - the second largest attorneys’ fee ever awarded by the Court of Chancery.7 Pentwater Capital Management L.P. filed an objection.8 Seven other investment funds joined the fee objection. All told, the objectors owned about 24% of the class.9
Pentwater argued that awarding a percentage of the settlement sought without considering the size of the settlement was unfair to the class. They contеnded that, in this case, the proposed fee was disproportionate to the value of the settlement. The objectors urged the court to apply a declining percentage to the fee award, which is similar to the approach used by federal courts in large federal securities law settlements. The declining percentage method reduces the percentage of the fee awarded to counsel as the size of the recovery increases. According to Pentwater, fee awards “are meant to reasonably incentivize the attorneys taking these cases,” and, in its view, “the amount of work, time, and effort spent on a case does not grow proportionately with the transaction size.”10 In other words, “it is not a hundred times more difficult (or riskier) to litigate and try a $10 billion case than it is to litigate and try a $100 million case.”11 They argued that the Delaware Supreme Court and Court of Chancery have applied the declining percentage method in other cases.12
Finally, they contended that thе benefit achieved by counsel in this case did not merit such a substantial fee. Although the $1 billion figure is large, Pentwater claimed that the recovery was only a small fraction of what could have been achieved if counsel had tried the case to judgment. Before the settlement hearing, the court asked the objectors to provide, among other things, information about their annual management fees and performance fees.13 The court also solicited the views of the academic community. Five law professors filed an amicus brief in support of the objectors’ position.14
C.
In a carefully considered opinion, the Court of Chancery awarded counsel 26.67% of the settlement, or $266.7 million.15 At the outset, the court observed that the Supreme Court‘s seminal decision
1.
As expected, much of the court‘s decision focused on the results achieved.19 The court first pointed out that the benefit accruing to the class was extraordinary: $1 billion.20 Next, it examined what percentage of that amount should be awarded to counsel because of their work. The court looked to this Court‘s precedent and precedent of the Court of Chancery to set litigation-stage percentages. Taking the lead from Americas Mining, it observed that, when the benefit is quantifiable and the litigation settles in the late stage of the litigation but before trial, the resulting fee award is usually 25-30% of the settlement.21 According to the court, other Sugarland factors can cause the court to adjust the base percentage.22 There were also no causation issues as the plaintiff‘s counsel was the sole cause of the benefit.
The court reasonеd that the plaintiff completed all pre-trial activities, but not the trial itself or post-trial work. Under what it termed the “stage-of-case” method, the plaintiff‘s counsel was presumptively entitled to a baseline award of 26.67% - one third through the late-stage range percentage.23 In lowering the presumptive amount from 28.5% to 26.67%, the court reasoned that 28.5% for this stage of the case settlement would impact the relative award available for taking a case through trial. It would also interfere with the balance of incentives in the fee award process.24
Next, the court considered the objectors’ request to lower the percentage based on the size of the award. The objectors proposed that the court adopt the declining-percentage method. They argued that larger settlements should result in smaller percentage fees to prevent windfalls to counsel at the expense of the class.25 The declining percentage approach is used often in federal securities law сases, where settlements of $1 billion or more typically see fee awards around 10-12% regardless of the stage of proceedings.
The court declined to adopt a declining percentage approach because it did not align with Delaware precedent. According to the court, “[u]nder Americas Mining and Sugarland, a court does not make a downward adjustment to the indicative
The court then examined various Court of Chancery decisions relied on by the objectors and concluded that none stood for use of the percentage reduction in megafund cases. Instead, the court held, the cases were all “straightforward” applications of Sugarland.29 When it reviewed the Court of Chancery‘s decision in Americas Mining, the court observed that, even though the court awarded 15% of the judgment, it did not base the percentage solely on the size of the award.30
Next, the court compared Delaware as a forum for corporate litigation with federal securities litigation, where the declining percentage method has been employed.31 According to the court, federal cases, governed by Rule 10b-5 and other federal statutes, often involve higher volumes and larger recoveries, and focus primarily on monetary damages. In contrast, Delaware M&A litigation centers on fiduciary duties and corporate governance, with settlements that might not always involve substantial financial awards.
The court reviewed a variety of differences between the two systems that could justify a different treatment for fee awards.32 In the end, the court determined that the reasons that could justify a megafund reduction did not apply to this case.33 The court held that “[t]he risk of a non-recovery in this case (at trial or on appeal) was significant, and the risk intensified as trial approached. The recovery of $1 billion does not seem to have been the product of deal size.”34 The court concluded that “[t]he rationales for using the declining-percentage method in federal securities litigation have not been shown to apply to Chancery M&A litigation” and “do not apply to this case.”35 The court did not adjust the percentage based on the size of the settlement.36
The court next examined market practice in privately negotiated contingency fee arrangements.37 According to one study, the majority of private fee agreements used fixed or increasing percentage arrangements, rather than a declining percentage
Further, the court criticized the objectors for advocating for a reduced fee percentage when, as fund managers, they agreed that they do not use similar arrangements in their risk-based business.44 According to the court, even though the fee agreements are not negotiated in class action litigation, “[t]he lack of negotiation is not a distinction” and “[t]he absence of an ex ante agreement is what forces the court to consider other sources of market evidence . . . .”45 The court held that the objectors chose to “free ride” and “[t]he settlement was a windfall for the objectors because they did nothing to create it.”46 The court expressed its antipathy for the objectors’ position by stating that the objeсtors’ position “masks self-interest with an appeal to equity” and that “envy is not a sound basis for reducing a fee award.”47
The court also refused to credit the objectors’ argument that the settlement did not confer a substantial benefit on the class even though it was the second largest recovery ever achieved in Delaware.48 The objectors argued that the plaintiff‘s counsel sought damages of $10.7 billion. By settling for only 9.3% of the maximum recovery, they argued, counsel settled for too little.49 The court disagreed, finding that the recovery here was four times larger than the next largest class recovery. And the court observed that, when adjusted for risk, the common fund was an exceptional result for the class.50
The court examined other settlement data, comparing the settlement against the maximum damages of each sample case and the percentage of equity value of the respective deal.51 Of the cases reviewed, the data showed a median settlement of 16.5% of maximum damages and 2.95% for equity value of the deal.52 Despite appearing less impressive as a percentage of maximum damages (9.34%), the court
In sum, the court determined that Americas Mining favored a “stage of case” approach and not a declining percentage approach, and that none of the evidence presented by the objectors or amici should lead the court to apply a declining percentage approach in this case.
2.
The court concluded its decision by reviewing the remaining Sugarland factors. It found that none warranted a reduction in the percentage award.55 According to the court, the plaintiff‘s counsel worked on a fully contingent basis,56 expended 53,000 hours litigating the case,57 faced nearly 100 attorneys from prestigious firms,58 addressed complex legal and factual issues,59 and were of good standing in the legal community.60 Finally, the court rejected the objectors’ argument that counsel should have structured the settlement to pay the attorneys’ fees award separately.61 The court found that the weight of authority supports awarding fees from the common fund in the class setting.62
D.
On appeal, Pentwater claims that the court erred in three ways. First, Pentwater argues that the court should not have awarded attorneys’ fees based on a percentage of the settlement fund without considering the size of the fund. Pentwater argues that the Court of Chancery ignored our Americas Mining decision by employing a “stage-of-case” analysis without considering the actual result in a megafund case - the court affirmed a 15% award for a case that, unlike here, was decided after trial. Pentwater asks this Court to adopt the federal declining percentage method for megafund cases as a way to prevent windfalls to counsel.
Next, Pentwater argues that the court misapplied the first two Sugarland factors - the results achieved and the time and effort of counsel. For the former, Pentwater repeats its argument that the recovery was a small fraction of what could have been obtained after trial. They contend that the court should have considered how the result achieved compared to what counsel could otherwise have obtained after trial. Regarding the time and effort factor, Pentwater faults the court for not giving greater weight to a cross-check of the fee award‘s implied hourly rate of $5,000 per hour. Pentwater argues that the fee is seven times counsel‘s customary rate, resulting in an award at the high end of fee awards in the Court of Chancery.
Finally, Pentwater contends that the court erred when it considered Pentwater‘s compensation structure in the fee inquiry. It argues that the objectors and their private arrangements are irrelevant
We review the reasonableness of the percentage awarded from a common fund to class counsel by the Court of Chancery to decide whether the court exceeded its discretion.63 Errors of law are reviewed de novo.64
II.
In Delaware, litigants typically pay their own attorneys’ fees.65 There are exceptions to the rule - bad faith assertion of claims, statutory and contractual fee shifting, and in equity.66 In equity, under the “common fund” exception, if a party creates a common fund for the benefit of others, attorneys’ fees can be paid from the common fund.67 The common fund exception is “founded on the equitable principle that those who have profited from litigation should share its costs.”68 Spreading the costs over all common fund beneficiaries eliminates the free-rider problem - reaping the gains without sharing the expenses that created the common fund.69
When a judgment or settlement creates a common fund, counsel may apply to the court for an award of attorneys’ fees and expenses from the fund.70 As fiduciaries for the class and under professional conduct rules, counsel‘s fee request must be reasonable.71 Even with equitable and professional constraints, an inherent conflict still arises between the class members and their attorneys.72 The more the attorneys receive, the less goes to the class. As such, the reviewing court - here the Court of Chancery - has an essential role to play to evaluate a fee application and to set a fair and reasonable fee.73 The court‘s task is not cursory.74 As we have said, “a request for an award of attorney‘s fees from a common fund must be subjected to the same heightened judicial scrutiny that applies to the approval of class action settlements[,]” and “the Court of Chancery must make an independent determination of reasonableness on behalf of the common fund‘s beneficiaries, before making or approving an attorneys’ fee award.”75
We also rejected the federal lodestar approach. This approach takes the time expended by counsel and multiplies it by an approved hourly rate. The result can be adjusted based on case-specific factors.79 We concluded that adopting the loadstar approach would require the Court of Chancery to engage in “elaborate analyses” when the existing practice was sufficient.80 In other words, instead of adopting a formulaic approach to fee requests, we committed the fee award to the discretion of the Court of Chancery.
In Goodrich v. E.F. Hutton Grp., Inc., we reiterated that the Delaware courts would not follow the federal lodestar method.81 Instead, we reaffirmed that Sugarland‘s multi-factor approach is the appropriate inquiry for an equitable award of attorneys’ fees from a common fund.82 At the same time, we also noted that the Court of Chancery correctly “acknowledged the merit of the emerging judicial consensus that the percentage of recovery awarded should ‘decrease as the size of the fund increases.‘”83 We concluded, however, that:
[t]he adoption of a mandatory methodology or particular mathematical model for determining attorney‘s fees in common fund cases would be the antithesis of the equitable principles from which the concept of such awards originated. . . . New mechanical guidelines are neither appropriate nor needed for the Court of Chancery.84
On appeal, after affirming the damage award, we addressed the defendants’ objections to the attorneys’ fee award. The defendants argued, among other things, that the Court of Chancery erred by not adopting a per se rule that the percentage of attorneys’ fees awarded from the fund should decline as the fund amount increasеs.87 We started the analysis by reiterating Sugarland‘s central holdings. We reinforced the notion that “this Court rejected any mechanical approach to determining common fund fee awards.”88 And, like the Goodrich decision, “we explicitly disapproved the Third Circuit‘s ‘lodestar method.‘”89
Further, in discussing Sugarland and Goodrich, we held that the Supreme Court “did not adopt an inflexible percentage of the fund approach.”90 Instead, we reaffirmed that the court should consider the five Sugarland factors when making an equitable award of attorneys’ fees.91 We also noted that, when applying the Sugarland factors, “Delaware courts have assigned the greatest weight to the benefit achieved in litigation.”92 When assessing this factor, we affirmed the Court of Chancery‘s determination that the plaintiffs’ attorneys “were entitled to a fair percentage of the benefit” achieved for the company and its stockholders in the derivative litigation.93
Next, the Court reviewed how the Court of Chancery applied each of the Sugarland factors. In setting the percentage of fee
The defendants in Americas Mining argued that, after Goodrich, we required the Court of Chancery to employ a declining percentage to the fee award request in a megafund case. We disagreed, and rejected “[a] mechanical, per se application of the ‘megafund rule,‘” which would be out of step with the trend in federal court decisions.97 We followed the federal trend and stated that a declining percentage could be applied in a megafund case as a matter of discretion:
In Goodrich, we discussed the declining percentage of the fund concept, noting that the Court of Chancery rightly “acknowledged the merit of the emerging judicial consensus that the percentage of recovery awarded should ‘decrease as the size of the [common] fund increases.‘” We also emphasized, however, that the multiple factor Sugarland approach to determining attorneys’ fee awards remained adequate for purposes of applying the equitable common fund doctrine. Therefore, the use of a declining percentage, in applying the Sugarland factors in common fund cases, is a matter of discretion and is not required per se.98
In Americas Mining, we also noted that “the record does not support the Defendants’ argument that the Court of Chancery failed to apply a ‘declining percentage.‘”99 Instead, we concluded that: “the Court of Chancery reduced the award . . . based, at least in part, on its consideration of the Defendants’ argument that the percentage should be smaller in light of the size of the judgment.”100 In other words, “the record reflect[ed] that the Court of Chancery did reduce the percentage it awarded due to the large amount of the judgment. The Defendants are really arguing that the Fee Award percentage did not ‘decline’ enough.”101
Thus, in Americas Mining, we “decline[d] to impose either a cap or the mandatоry use of any particular range of percentages for determining attorneys’ fees in
III.
A.
The Court of Chancery refused to apply a declining percentage to the fee awarded in this case. According to the court, applying a declining percentage “runs counter to Americas Mining and the incentive structure that the Delaware Supreme Court created.”103 It also held that, after Americas Mining, “a court can reduce an excessive fee, but that analysis happens using the Sugarland factors” and not by applying a declining percentage to the fee award.104
Pentwater argues that, after Americas Mining, the Court of Chancery should have applied a declining percentage in this case.105 In Americas Mining, the Court of Chancery recognized that it was, at least in part, applying a declining percеntage in a megafund case when it arrived at a 15% fee.106 On appeal, our Court also recognized that the Court of Chancery had done so and affirmed the court when it reduced the percentage based, at least in part, on the size of the recovery.107
But Pentwater fails to confront another essential holding of Americas Mining that the Court of Chancery relied on in this case. Consistent with the cases preceding it, in Americas Mining we refused to adopt rigid rules in fee award cases.108 We agree with the Court of Chancery in the present case that, after Americas Mining, the Sugarland factors control a megafund fee award, rather than any per se rule, whether declining percentage or any other rule. After Americas Mining, we follow the consensus in the federal courts that it is within the discretion of the court to reduce a fee percentage to account for the size of the award.109 On appeal, this Court will not usually disturb the Court of Chancery‘s ruling if the court adequately
We note that it is not inconsistent with the incentive structure in Americas Mining for the court tо decrease the percentage of fees in a megafund case. As explained earlier, in Americas Mining, the Court of Chancery awarded 15% of the recovery following trial rather than a higher percentage based, at least in part, on the size of the recovery.110 Given the equitable principles underpinning fee awards in common fund cases, and this Court‘s concern for excessive compensation or windfalls, it is entirely appropriate, and indeed essential, for the court to consider the size of the award in a megafund case when deciding the fee percentage.111 An award can be so large that typical yardsticks, like stage of the case percentages, must yield to the greater policy concern of preventing windfalls to counsel.112
Windfalls are a particular concern in megafund cases. As lawyers and judges, we understand that representative litigation performs a valuable service to stockholders who individually might not have the resources or the will to pursue fiduciaries for breach of their duties. The potential for large fees incentivizes counsel to accept challenging cases. They assume the risk of recovering nothing in the end. In Delaware, we are used to big numbers.
But it is also legitimate to ask, outside our somewhat insular legal universe, whether the public would ever believe that lawyers must be awarded many hundreds of millions of dollars in any given case to motivate them to pursue representative litigation or to discourage counsel from settling cases for less than they are worth. At some point, the percentage of fees awarded in a megafund case exceed their value as an incentive to take representative cases and turn into a windfall. The Court of Chancery in Seinfeld v. Coker aptly described the competing policy concerns the court must balance when it arrives at a reasonable percentage in any case:
This Court has proceeded in the past on the unstated premise that awarding large fees will necessarily produce the incentives of encouraging meritorious suits and encouraging efficient litigation. But a point exists at which these incentives are produced, and anything above that point is a windfall. In other words, if a fee of $500,000 produces these incentives in a particular case, awarding $1 million is a windfall, serving no other purpose than to siphon money away
from stockholders and into the hands of their agents. Thus, it is important that we attempt, in a self-conscious and transparent manner, to estimate the point at which proper incentives are produced in a particular case. If one can at least approximate this point, one can in theory award fees in an amount that produces appropriate incentives without a significant risk of producing socially unwholesome windfalls. That point likely will be different in every case, based in large part on the difference in risks among and within cases. As a result, this process is necessarily fact-specific and case-specific.113
Here, the Court of Chancery awarded 26.67% of the common fund.114 The court acknowledged that, under Americas Mining, it had the discretion to reduce the percentage.115 But it also found that “none of the reasons for a mega-fund reduction apply to this case.”116 According to the court, “[t]he risk of a non-recovery in this case (at trial or on appeal) was significant, and the risk intensified as trial approached.”117 The court also decided that “the recovery of $1 billion does not seem to have been the product of deal size.”118 There was no windfall to plaintiff‘s counsel, the court held, given the all the circumstances of the case.119 We agree with the court‘s observations that it was a highly contentious litigation, spanning two and a half years, with nearly 100 lawyers entering appearance for the defense.120 The underlying transaction was complex, and counsel achieved an excellent settlement for the class on the eve of trial.121
The Court of Chancery supported the reasons for its fee award percentage, including the reasons for no downward adjustment to the fee percentage. We review its determination to decide whether it excеeded its discretion. We conclude in this case that the court acted within its discretion in awarding 26.67% of the common fund.
B.
Pentwater also argues on appeal that the Court of Chancery misapplied two
Pentwater also claims that “when assessing the ‘benefit achieved’ the value of the settlement to the class members should be considered on a net basis.”125 Pentwater argues that, for a gross basis settlement, defendants rarely have a reason to dispute the plaintiff‘s fee application. Their exposure is capped at the gross settlement amount.126 As a result, it argues, attorneys’ fees are not subject to adversarial testing because the court typically has a limited record to evaluate the Sugarland factors.
In Goodrich, however, we recognized that “‘there is often no one to argue for the interests of the class,’ because class members with small claims often do not file objections to proposed settlements and fee applications.”127 As a result, the Court of Chancery has an independent obligation to evaluate fee appliсations - a task subject to “heightened judicial scrutiny.”128 The rigorous review takes place irrespective of whether any stockholder class member has asked to be heard, as Pentwater has done here. While a court may benefit from adversarial briefing on a fee application, such briefing is not required for the Court of Chancery to faithfully carry out its duty to class members to ensure a fair settlement.
The Court of Chancery observed that the court and this Court describe fee awards as a “percentage of a gross common fund.”129 And a “common fund with a fee paid separately is mathematically equivalent to a larger common fund with a lower percentage fee coming out of the gross amount.”130 We agree with the Court
Under the second Sugarland factor, the time and effort of counsel, Pentwater contends that the Court of Chancery did not properly cross-check the time and effort of counsel against the size of the award.131 According to Pentwater, the implied rate of counsels’ time is at the high end of Delaware fee awards, meaning it signals a windfall to counsel. The court determined, however, that “the implied rate of approximately $5,000 per hour is lower than rates this court has approved for smaller recoveries” and “[t]he multiple to lodestar of 7x . . . would not raise a federal eyebrow.”132 While the amount is at the high end, it is not so unusual that we are required to undo the court‘s thorough consideration of all the Sugarland factors.
C.
Finally, the Court of Chancery found that there was a “particular irony in who is arguing for [the declining percentage] method” when “as fund managers, the objectors do not use similar arrangements.”133 According to the court, “[t]he objectors do, however, engage in litigation, yet they declined to do so in this case.”134 In the court‘s words, their objections “come with ill grace.”135 Pentwater contends that its business practices are irrelevant to the Cоurt of Chancery‘s task of closely scrutinizing fee awards based on the Sugarland factors.136 To allow otherwise, Pentwater asserts, penalizes objectors for lodging objections and discourages objections in future cases by sophisticated parties.
We have already decided that the Court of Chancery more than adequately justified its fee award. Thus, the court‘s decision to inquire into a class member‘s business practices, does not affect our decision to affirm the court‘s judgment. We do, however, question the utility of singling out objectors for their business practices. The objectors suffered the same type of financial injury as other members of the class. Upon receiving notice, Pentwater and the other objectors were told that they could lodge objections. They did not make unreasonable or frivolous arguments. And 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.137 In our view, the court should not deter meritorious objections from stockholders who have been harmed by subjecting their business practices to scrutiny as part of fee award proceedings.138
IV.
The judgment of the Court of Chancery is affirmed.