In re Dell Techs. Class V Stockholders Litig.

• Docket Number: 2018-0816-JTL
• Decision Date: 31 July 2023
• Parties: IN RE DELL TECHNOLOGIES INC. CLASS V STOCKHOLDERS LITIGATION
• Court: Court of Chancery of Delaware

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IN RE DELL TECHNOLOGIES INC. CLASS V STOCKHOLDERS LITIGATION

No. 2018-0816-JTL

Court of Chancery of Delaware

July 31, 2023

Submitted: April 19, 2023

Ned Weinberger, Mark Richardson, Brendan W. Sullivan, Casimir O. Szustak, LABATON SUCHAROW LLP, Wilmington, Delaware; Dominic Minerva, Joseph Cotilletta, Nathaniel Blakney, LABATON SUCHAROW LLP, New York, New York; David M. Cooper, Silpa Maruri, Dominic J. Pody, George T. Phillips, Christine J. Chen, QUINN EMANUEL URQUHART &SULLIVAN, LLP, New York, New York; William C. Price, William R. Sears, QUINN EMANUEL URQUHART &SULLIVAN, LLP, Los Angeles, California; Co-Lead Counsel for the Plaintiff Class.

Peter B. Andrews, Craig J. Springer, Christopher P. Quinn, David M. Sborz, Jackson E. Warren, ANDREWS &SPRINGER LLC, Wilmington, Delaware; Chad Johnson, Noam Mandel, Desiree Cummings, Robert Gerson, Jonathan Zweig, ROBINS GELLER RUDMAN &DOWD LLP, New York, New York; Jeremy S. Friedman, David F.E. Tejtel, Christopher M. Windover, Lindsay La Marco, FRIEDMAN OSTER &TEJTEL PLLC, Bedford Hills, New York; Additional Counsel for the Plaintiff Class.

John D. Hendershot, Susan M. Hannigan Cohen, Kyle H. Lachmund, Angela Lam, RICHARDS, LAYTON &FINGER, P.A., Wilmington, Delaware; John L. Latham, Cara M. Peterman, ALSTON &BIRD LLP, Atlanta, Georgia; Gidon M. Caine, ALSTON &BIRD LLP, Palo Alto, California; Charles W. Cox, ALSTON &BIRD LLP, Los Angeles, California; Counsel for Defendants Michael Dell, Egon Durban, and Simon Patterson.

Martin S. Lessner, Elena C. Norman, James M. Yoch, Jr., Lauren Dunkle Fortunato, Kevin P. Rickert, YOUNG CONAWAY STARGATT &TAYLOR, LLP, Wilmington, Delaware; James G. Kreissman, Stephen P. Blake, David Elbaum, SIMPSON THACHER &BARTLETT LLP, New York, New York; Counsel for Defendant Silver Lake Group LLC.

Michael A. Barlow, April M. Kirby, ABRAMS &BAYLISS LLP, Wilmington, Delaware; Michele D. Johnson, Kristin N. Murphy, Ryan A. Walsh, LATHAM &WATKINS LLP, Costa Mesa, California; Counsel for Defendants William Green and David Dorman.

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Edward B. Micheletti, Arthur R. Bookout, Jessica R. Kunz, Peyton V. Carper, SKADDEN, ARPS, SLATE, MEAGHER &FLOM LLP, Wilmington, Delaware; Counsel for Defendant Goldman Sachs &Co., LLC.

Stephen B. Brauerman, Sarah T. Andrade, BAYARD, P.A., Wilmington, Delaware; Counsel for Objector Pentwater Capital Management L.P.

Anthony A. Rickey, MARGRAVE LAW LLC, Wilmington, Delaware; Counsel for Law Professors Participating as Amici Curiae.

OPINION ON FEE AWARD AND INCENTIVE AWARD

LASTER, V.C.

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The plaintiff settled this class action on the eve of trial in exchange for the defendants' agreement to pay $1 billion in cash. The "b" is not a typo. It is the largest cash recovery ever obtained by a representative plaintiff in this court.

Plaintiff's counsel seek an all-in award of attorneys' fees and expenses equal to 28.5% of the common fund. They ask for permission to pay an incentive award of $50,000 to the plaintiff. The defendants agreed not to oppose those requests.

A 28.5% award falls within the guideline range of percentages for a late-stage settlement under the framework that the Delaware Supreme Court endorsed in Americas Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012). The Americas Mining decision instructs that when a plaintiff has obtained a quantifiable result, the court should derive an indicative fee award as a percentage of the result. To determine the percentage, the court considers the stage of the case when the result was obtained. A court awards a higher percentage when plaintiff's counsel has pushed deeper into the case, which rewards plaintiff's counsel for taking more risk in pursuit of the best outcome. The stage-of-case approach helps counteract the natural human tendency toward risk aversion and gives plaintiff's counsel an incentive to eschew an early, lower-valued settlement.

Providing that incentive is important. Delaware's experience during the M&A litigation epidemic demonstrated that entrepreneurial counsel can profit by filing weak cases on an industrial scale, putting in minimal work, and settling by offering defendants a global release in return for no-cost or low-cost relief plus an agreement not to oppose an attorneys' fee award. That business model worked for everyone directly involved: Entrepreneurial counsel got paid, defense counsel got paid, and the defendants got a

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release. It only harmed absent class members (who got bupkus), the courts (who had to process the non-litigation litigation), and society as a whole (because real claims were not litigated, and transactional standards deteriorated when the cases always settled anyway). By awarding fees in those cases, the court may well have contributed to the harm that they caused.

The stage-of-case method helped fix that. Viewed in context, Americas Mining was an early salvo in Delaware's multi-pronged response to the M&A litigation epidemic, which included changes to the substantive law in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (subsequent history omitted), C&J Energy Services, Inc. v. City of Miami General Employees, 107 A.3d 1049 (Del. 2014), and Corwin v. KKR Financial Holdings, LLC, 125 A.3d 304 (Del. 2014), plus a tightening of the standards for disclosure-only settlements in In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016). The Chancellor recently took another salutary step along the same path in Anderson v. Magellan Health, Inc., __ A.3d __, 2023 WL 4364524 (Del. Ch. July 6, 2023).

Delaware's response recognizes that our entity law depends on private litigation for enforcement. Entrepreneurial plaintiff's counsel therefore perform a valuable service by pursuing litigation in a world where stockholders are rationally apathetic. Plaintiff's counsel deserves to be well compensated for identifying real cases, investing real money in those cases, and obtaining real results. But the law should not reward plaintiff's counsel for filing weak cases and obtaining insubstantial results.

In this case, plaintiff's counsel brought a real case, invested over $4 million of real money, and obtained a real and unprecedented result. Rather than requesting an

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unprecedented fee award, plaintiff's counsel asked for 28.5% of the common fund, consistent with Americas Mining.

But 28.5% of $1 billion is $285 million. That is a big fee, and it would match the largest fee that this court has ever awarded: the $285 million fee award that the Delaware Supreme Court affirmed in Americas Mining.

A group of eight investment funds thinks that $285 million is too much. They argue that the court should reduce the percentage of the benefit awarded as the size of the common fund increases. The declining-percentage method seeks to mitigate a perceived problem of windfall profits. It assumes that it takes a relatively constant amount of work to litigate a case, so awarding the same percentage for a larger benefit risks overcompensation. Scholars have shown that the federal courts use a declining-percentage method in securities law cases and that for settlements of $1 billion or more, the prevailing trend is to award a fee of approximately 10-12%.

The funds have a strong economic motivation for seeking a lower fee award. They collectively own shares comprising 26.1% of the class. Although they did not propose an alternative amount, if the court were to follow the federal trend and award a 10% fee, the objectors would receive another $49 million.

After the court asked whether there was any academic learning on the decliningpercentage method, five law professors appeared as amici curiae. They make the same arguments as the objectors, but they propose a 15% fee. If the court were to adopt that figure, the objectors would receive another $35.78 million.

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The declining percentage method runs counter to Americas Mining and the incentive structure that the Delaware Supreme Court created. In practice, the declining-percentage method represents a covert return to the lodestar method, but one that works in the opposite direction. Under the lodestar method, the court starts from a fee based on time billed at customary hourly rates, then applies a multiplier to increase the award to a level that the judge feels appropriately compensates counsel for risk. Under the declining-percentage version, the court starts with a percentage-based fee, then reduces the award to a level where the judge feels that the multiplier does not excessively compensate counsel for risk.

In Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980), the Delaware Supreme Court rejected the lodestar method in favor of the percentage-of-benefit method. In Americas Mining, the Delaware Supreme Court underscored that choice by adopting the stage-of-case method. It would not make sense to return covertly to the lodestar method.

Delaware law deals with the problem of overcompensation differently. In Sugarland, the Delaware Supreme Court identified a list of factors for a court to consider when determining a reasonable award. The inquiry starts with a percentage of the benefit conferred with the percentage selected from ranges that correspond to the stage of the case. But the inquiry does not end there. The court also considers the extent to which counsel litigated on contingency, the time and effort counsel invested, the relative complexity of the litigation, and the standing and ability of counsel. The court can rely on those other factors to adjust the indicative fee upward or downward. The Delaware Supreme Court made clear in Americas Mining that a court can reduce an excessive fee, but that analysis

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happens using the Sugarland factors. It does not happen because of a declining-percentage methodology.

This decision hews to Americas Mining and Sugarland. After considering precedents involving late-stage, pre-trial settlements, this decision starts with an indicative fee equal to...