In re Appraisal of Dell Inc., C.A. No. 9322-VCL (Del. Ch. Oct. 17, 2016) (Laster, V.C.)
The Delaware Court of Chancery held in a post-trial application after an appraisal class action that plaintiff’s counsel was entitled to reimbursement of expenses and an fee award of 19% of the judgment. The Court found the amounts to be reasonable and directed that the fees and expenses be deducted from the common fund before distribution of the remaining amount pro rata to the class members.
The case stems from an appraisal action in connection with the going-private merger of Dell Inc. for $13.75 per share. The law firm Grant & Eisenhofer P.A. (“G&E”) was appointed lead counsel for the consolidated class of the thirteen appraisal petitioners, ten of whom were represented by G&E, including a group of entities associated with T. Rowe Price & Associates, Inc. (collectively “T. Rowe”). Petitioners Magnetar Capital Master Fund Ltd. (“Magnetar”) and Global Continuum Fund, Ltd. (“Global”) were among the three parties not represented by G&E.
Before the appraisal trial, the Court dismissed T. Rowe from the appraisal action, holding that it was not entitled to appraisal rights because its shares had been voted in favor of the transaction. Dell Inc. and T. Rowe ultimately reached a settlement. After a full trial, the Court held that the fair value of Dell Inc. at the time of the merger was $17.62 per share, or $3.87 per share more than the merger consideration, generating a gross common fund of $25,225,145 for the class. Thereafter G&E sought reimbursement of $4,007,462 in expenses and an award of $3,964,125 in attorney’s fees based on the contingency fee arrangement it had with T. Rowe and its other clients. Magnetar and Global challenged the reimbursement and award, arguing that their own share of the expenses and fees allocated to the class should be reduced by the expenses and fees that they spent for other attorneys to represent their individual interests. G&E argued that the expenses it incurred and the fee award should be charged pro rata against the value of all the shares entitled to appraisal.
The Court began by analyzing the expenses requested by G&E. It held that the expenses would be deducted, if reasonable, from the common fund before the attorney’s fees would be calculated based upon the reduced amount of the fund. As to the reasonableness of the expenses, the Court noted that while appraisal litigation is narrow, it involves complex valuation methodologies that require experts, causing appraisal litigation to be expensive. Considering that the majority of the expenses comprised fees paid to valuation experts, the Court held that the requested expense reimbursement was reasonable. Additionally, the Court declined to require T. Rowe to pay a portion of the expenses incurred by G&E on behalf of the class because the appraisal statute does not permit the court to allocate expenses to former stockholders who were not entitled to appraisal.
The Court then turned to the attorney’s fee award. Applying the factors identified in Sugarland Industries, Inc. v. Thomas, which factors guide the Court’s discretion in awarding attorney’s fees from a common fund, the Court determined that a fee award of $4,043,705 should be awarded out of the common fund.
Magnetar and Global made several arguments in an attempt to reduce the expense and fee awards, none of which the Court found to be persuasive. Magnetar alone held 70% of the shares remaining in the appraisal class. To distribute the common fund among the class members pro rata, Magnetar would need to be on the hook for 70% of G&E’s award. If it could offset its own attorneys’ fees and expenses against what the class owed G&E, the other class members would be disproportionately burdened with additional portions of G&E’s fees and expenses that Magnetar would avoid. If the other class members that hold 30% of the shares are required to bear more than 30% of the expenses and fees, then the common fund would not be distributed pro rata. The Court held that this would be inconsistent with the Section 262(j) of the DGCL.