In re Dell Technologies Inc. Class V Stockholders Litigation

Supreme Court of the State of Delaware · 2024 · Corporations

CorporationsAttorneys' feesCommon fundClass actionsDelaware fiduciary litigationcommon fundattorneys' feesSugarland

Facts

Former Class V stockholders challenged Dell Technologies' redemption of Class V stock as unfair and litigated the case through more than two years of discovery, expert work, mediation, and pretrial proceedings. On the eve of trial, the parties accepted a mediator's proposal for a $1 billion cash settlement for the class. Class counsel sought 28.5% of the settlement as fees and expenses, and Pentwater objected, arguing that a megafund fee should be reduced using a declining-percentage approach and that the recovery did not justify such a large fee. The Court of Chancery instead awarded 26.67% of the fund and declined to reduce the percentage based solely on the size of the settlement.

Issue

In a Delaware common-fund class action producing a $1 billion settlement, must the Court of Chancery reduce the fee percentage because the case is a megafund case? Also, did the court misapply the Sugarland factors by treating the settlement benefit as substantial, using the gross fund rather than a net fund, and declining to give dispositive weight to the implied hourly rate?

Rule

Delaware common-fund fee awards are governed by the Sugarland factors: results achieved, time and effort of counsel, relative complexity, contingency risk, and counsel's standing and ability, with results achieved as the paramount factor and causation also relevant. In megafund cases, the Court of Chancery may, but is not required to, apply a declining percentage based on the size of the fund; no mechanical cap, mandatory percentage reduction, or rigid formula governs. Delaware also permits fees to be awarded as a percentage of the gross common fund, and the court independently must scrutinize the fee request for reasonableness.

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

In Delaware fiduciary litigation arising from a merger involving a Minneapolis software company, class counsel litigated for two years, completed discovery, retained experts, filed pretrial briefs, and settled on the eve of trial for $800 million in cash. An objecting stockholder from Ohio argues that because the settlement is a megafund, the Court of Chancery must reduce any fee award to a single-digit percentage.

How should the court rule on the objection?

Explanation. The majority held that Delaware does not impose a mechanical cap, mandatory percentage reduction, or rigid megafund formula. Even in a megafund case, the controlling inquiry remains the Sugarland factors, with a declining percentage available only as a discretionary anti-windfall consideration. Thus, the court may consider fund size, but it is not required to slash the fee to a single-digit percentage. (Derived from In re Dell Technologies Inc. Class V Stockholders Litigation (n.d.).)