In re Dell Technologies Inc. Class V Shareholders Litigation

Supreme Court of the State of Delaware · 2024 · Corporations

Corporationsattorneys' feescommon fundclass actionsDelaware fiduciary litigationcommon fundSugarlandAmericas Mining

Facts

Former Class V stockholders challenged Dell Technologies' redemption of Class V shares, alleging an unfair redemption price and fiduciary breaches by Michael Dell, Silver Lake, directors, and Goldman Sachs. After motion practice, class certification, extensive fact and expert discovery, and pretrial briefing, the parties accepted a mediator's proposal settling the case for $1 billion in cash on the eve of trial. Class counsel sought 28.5% of the settlement as fees and expenses, and Pentwater and other objectors argued that the award should be reduced using a declining-percentage approach because the settlement was a megafund. The Court of Chancery instead awarded 26.67% of the fund, finding the settlement extraordinary and the remaining Sugarland factors supportive of that percentage.

Issue

When awarding attorneys' fees from a $1 billion common fund in Delaware class litigation, must the Court of Chancery reduce the fee percentage because the settlement is a megafund? Also, did the court misapply the Sugarland factors by treating the result as substantial, using the gross fund, and declining to reduce the award based on counsel's implied hourly rate?

Rule

In Delaware common-fund cases, attorneys' fees are determined under the multi-factor Sugarland test: results achieved, time and effort of counsel, relative complexity of the litigation, contingency risk, and counsel's standing and ability, with the result achieved as the paramount factor and causation also relevant. In megafund cases, the Court of Chancery may, in its discretion, reduce the fee percentage based on the size of the fund to avoid a windfall, but no declining-percentage rule is required per se and no mechanical methodology displaces Sugarland. Delaware typically measures fees as a percentage of the gross common fund, and the Court of Chancery must independently scrutinize fee requests for reasonableness.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

A stockholder class action in Delaware settles for $900 million in cash after class certification, expert discovery, and final pretrial briefing in Wilmington. Class counsel requests 24% of the fund. An objector from Chicago argues that once a settlement exceeds $500 million, Delaware law requires the court to use a declining-percentage formula and cap fees at 12%.

How should the court rule on the objector's legal argument?

Explanation. The majority held that Sugarland remains the governing framework in all Delaware common-fund cases, including megafund cases. Fund size may justify a discretionary downward adjustment to prevent a windfall, but no per se declining-percentage rule or cap is required. A mechanical formula cannot displace the court's equitable discretion. (Derived from In re Dell Technologies Inc. Class V Shareholders Litigation (n.d.).)