Delaware Court Upholds $267M Legal Fee in Dell Shareholder Case

In a significant ruling, the Delaware Supreme Court has upheld a $267 million legal fee award for five law firms that secured a $1 billion settlement for Dell Technologies shareholders. This decision, made on August 14, 2024, reaffirms Delaware's distinctive approach to legal fees in corporate litigation.

The fee, representing 27% of the settlement, is one of the largest ever granted in U.S. shareholder litigation. It stems from a case involving Dell Technologies' controversial $23.9 billion transaction in 2018, which marked the company's return to public trading after a period of private ownership.

Delaware's legal system, known for its specialized judges and expertise in corporate law, has long been a preferred venue for U.S. companies. In fact, over 60% of Fortune 500 companies are legally domiciled in Delaware, a trend that began with the establishment of the Court of Chancery in 1792. This court's approach to legal fees has been a point of contention, as it tends to prioritize incentivizing thorough litigation over quick settlements.

The Delaware Supreme Court's decision contrasts with the federal court system's approach to legal fees. In federal securities cases, the percentage awarded as attorney fees typically decreases as settlement sizes increase. For instance, in the ten largest federal securities cases, lawyers collected an average of less than 10% of the recoveries as fees.

"As settlements of federal securities litigation grow in size, the percentage awarded in attorney's fees generally declines."

This ruling comes as Delaware courts are considering other high-profile fee requests, notably in cases involving Tesla Inc. One case concerns claims of overpaid directors, with lawyers seeking $230 million in fees. Another, involving CEO Elon Musk's unprecedented $56 billion pay package, has attorneys requesting an unusual fee of 29 million Tesla shares, valued at approximately $7.8 billion as of July 2024.

The Dell case settlement, announced in November 2022, averted a trial scheduled for the following month. The five law firms involved, including Labaton Keller Sucharow and Quinn Emanuel Urquhart & Sullivan, argued that the fee was in line with Delaware legal precedent.

This decision underscores the ongoing debate about appropriate legal fees in shareholder litigation. While the "American Rule" typically requires each party to pay its own attorney fees, contingency fees in class action lawsuits can range from 15% to 40% of the settlement. The Delaware courts' approach aims to provide strong incentives for plaintiffs' lawyers to litigate cases thoroughly, potentially leading to larger fees, especially in cases that settle close to trial.

As the legal community awaits decisions on the Tesla cases, this ruling reaffirms Delaware's unique position in corporate law and its approach to balancing shareholder interests with incentives for effective legal representation.