In re Dell Technologies Inc. Class V Stockholders Litigation, 2018-0816-JTL (Del Ch. decided July 31, 2023, revised Aug. 21, 2023) (Laster, V.C.)

In this memorandum opinion, the Court of Chancery awarded a $266.7 million fee award (or 26.67% of the common fund) following the largest class action settlement in Court of Chancery history.  In doing so, it rejected objections by investment funds urging the Court to reduce the percentage that class-counsel could be awarded as the size of the common fund increased. 

In 2016, Dell Technologies Inc. (“Dell”), a private company, acquired EMC Corporation (“EMC”), which owned 81.9% of the equity of VMware, Inc. (“VMware”), a public company. EMC’s stockholders received part of the merger consideration in newly-issued Dell Class V common stock, which was registered to trade publicly and designed to track the market price of VMware’s shares.  Despite predictions to the contrary, the Class V shares traded at a 30-50% discount relative to VMware’s shares, in part because Dell retained a right to forcibly convert the Class V shares to Class C shares pursuant to an “opaque and manipulable formula.”

The litigation alleged harms related to Dell Technologies Inc.’s acquisition of EMC Corporation.  The parties litigated for 2.5 years and ultimately settled after their pre-trial briefs were filed.  Pursuant to the settlement, Dell paid $1 billion in cash to a common fund, part of which would cover the fees for the plaintiffs’ attorneys.  While there were no objections to the settlement, eight investment funds comprising 24.45% of the stockholder class objected to plaintiffs’ counsel’s request for a 28.5% fee award from the common fund.  The objectors were supported by five law professors, appearing as amici curiae.

The opinion details at length the background and development of the stage-of-case method embraced by the Delaware Supreme Court in Americas Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012).  There the Delaware Supreme Court suggested benchmarks for fee awards correlating with the stage of litigation at which the case settled, such as 15%-25% at the mid-stage of litigation, and up to 33% post-trial.  With those benchmarks in mind, the Court of Chancery opined that for settlements obtained during the late stage of a case (after expert discovery but before post-trial judgment), a reasonable fee award would be between 25% and 30%.  Because the parties settled after filing their pre-trial briefs but before trial and post-trial briefing and argument, the Court reasoned that one-third of the late-stage tasks had been completed.  Accordingly, the Court calculated a 26.67% fee award (“one-third of the way between 25% and 30%”) as the appropriate baseline.

The Court then analyzed the objectors’ and amici’s argument that such awards should decrease as the size of the common fund increases.  After a thorough examination of the Delaware Supreme Court opinions, the Court concluded such an approach was inconsistent with that precedent, which rewards stockholders’ counsel for pushing deeper into the case to obtain higher awards and rejects a reliance on the analogous lodestar method for assessing reasonableness in favor of a multi-factor approach.  The Court also concluded the federal courts’ application of the declining-percentage method in securities class actions was a poor analogy given the differences in federal securities class actions and Chancery M&A litigation, which the Court expounded on at length.  And finally, the Court considered the available evidence fee arrangements resulting from arm’s length negotiations, and concluded there were no evidence that decreasing fee percentage terms have been adopted by negotiating parties in the real world.

After rejecting the declining-percentage method, the Court considered whether the 26.67% fee award, calculated using the stage-of-the-case method, should be adjusted based on the traditional Sugarland factors.  Here, the Court found that the award was reasonable due to the contingent nature of the fee agreement, the extensive time and effort plaintiff’s counsel spent litigating the case, the complexity of the litigation, and the standing and ability of plaintiffs’ counsel.

Lastly, the Court rejected the objectors’ argument that the fee should be lowered because plaintiffs’ counsel did not structure the settlement to provide for a fixed recovery to the class, with defendants’ payment of plaintiffs’ attorneys’ fee separately.  The Court noted that there is no basis for reducing a fee award because it is structured as a common fund.  Further, while there are good public policy arguments for separating out the fee award, encouraging it may cut across other policy concerns, including reducing the likelihood of settlements, so the Court declined to fault plaintiffs’ counsel for the settlement’s structure.

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