IN THE SUPREME COURT OF THE STATE OF DELAWARE
IN RE DELL TECHNOLOGIES § No. 349, 2023 INC. CLASS V § STOCKHOLDERS § Court Below: Court of Chancery LITIGATION § of the State of Delaware § § C.A. No. 2018-0816
Submitted: May 15, 2024 Decided: August 14, 2024
Before SEITZ, Chief Justice; VALIHURA, TRAYNOR, LEGROW, and GRIFFITHS, Justices; constituting the Court en Banc.
Upon appeal from the Court of Chancery. AFFIRMED.
Stephen B. Brauerman, Esquire (argued), Sarah T. Andrade, Esquire, BAYARD, P.A., Wilmington, Delaware for Objector Below, Appellant Pentwater Capital Management LP.
Ned Weinberger, Esquire (argued), Mark Richardson, Esquire, Brendan W. Sullivan, Esquire, LABATON SUCHAROW LLP, Wilmington, Delaware; Domenico Minerva, Esquire, Joseph Cotilletta, Esquire, LABATON SUCHAROW LLP, New York, New York; David M. Cooper, Esquire, Silpa Maruri, Esquire, George T. Phillips, Esquire, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York; William R. Sears, Esquire, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Los Angeles, California for Co-Lead Counsel for Appellee.
Peter B. Andrews, Esquire, Craig J. Springer, Esquire, David M. Sborz, Esquire, Jackson E. Warren, Esquire, ANDREWS & SPRINGER LLC, Wilmington, Delaware; Chad Johnson, Esquire, Noam Mandel, Esquire, Desiree Cummings, Esquire, Robert Gerson, Esquire, Jonathan Zweig, Esquire, ROBBINS GELLER RUDMAN & DOWD LLP, New York, New York; Jeremy S. Friedman, Esquire, David F.E. Tejtel, Esquire, Christopher M. Windover, Esquire, Lindsay La Marca, Esquire, FRIEDMAN OSTER & TEJTEL PLLC, Bedford Hills, New York for Additional Counsel for Appellee.
Anthony A. Rickey, Esquire, MARGRAVE LAW LLC, Wilmington, Delaware for Amici Curiae, Law Professors, in support of Appellant. Joel Friedlander, Esquire, Jeffery M. Gorris, Esquire, FRIEDLANDER & GORRIS, P.A., Wilmington, Delaware for Amici Curiae, Professors Lynn A. Baker, Brian T. Fitzpatrick and Charles Silver, in support of Appellee.
2 SEITZ, Chief Justice:
This is an appeal from a final judgment of the Court of Chancery awarding
counsel fees and expenses and an incentive award of 26.67% of a $1 billion
settlement, or $266.7 million. The settlement and fee award followed years of
contentious litigation challenging Dell Technologies’ redemption of Class V stock
for what the plaintiff claimed was an unfair price.
Pentwater Capital Management LP and other class members objected to the
amount of the fee award. In a thoughtful opinion, the Court of Chancery declined
to apply a declining percentage to the fee award. It also found that the $1 billion
settlement was a significant achievement, and no other factors warranted reducing
the percentage of fees awarded from the recovery. After our careful review, we find
that the Court of Chancery did not exceed its discretion in setting the fee percentage
and affirm its judgment.
I.
A.
We recite the facts from the settlement record and the Court of Chancery’s
decision awarding attorneys’ fees.1 In 2013, Michael Dell and Silver Lake Group
LLC took Dell, Inc. private through a leveraged buyout. Mr. Dell and Silver Lake
1 In re Dell Techs. Inc. Class V S’holders Litig., 300 A.3d 679 (Del. Ch. 2023), as revised (Aug. 21, 2023) [Dell II].
3 controlled the successor company, Dell Technologies, Inc. After the take-private
transaction closed, Dell Technologies set its sights on EMC Corporation, a publicly
traded data-storage firm which held an 81.9% equity stake in VMWare, also publicly
traded. Dell and Silver Lake would have preferred to purchase EMC on an all-cash
basis, but Dell Technologies was already highly leveraged after the take-private
transaction. Dell Technologies ended up acquiring EMC with a combination of cash
and newly authorized Class V Dell Technologies stock. Shares of Class V stock
traded publicly. After the acquisition, it was thought that the Class V shares would
track at little to no discount to the trading price of VMWare’s common stock.
Dell Technologies and EMC completed the $67 billion transaction. Each
share of EMC common stock converted into the right to receive $24.05 in cash and
0.11146 of a Class V share. Post-acquisition, the Class V shares traded at a 30 –50%
discount to VMware’s publicly traded stock. According to the Court of Chancery,
the Class V shares traded at a discount because, in part, Dell Technologies held an
option to force a conversion of the Class V shares into Class C shares through an
opaque formula that could be applied subjectively.2
Dell Technologies saw an opportunity to capture the value of the Class V
stock discount by consolidating its VMWare ownership. It had three apparent
options: (i) a transaction with VMWare; (ii) a negotiated redemption of the shares
2 Id. at 688.
4 of Class V stock; or (iii) a forced conversion of the shares. Dell Technologies
retained The Goldman Sachs Group, Inc. to advise them on the consolidation.
According to the plaintiff, Goldman advised Dell Technologies that the Class V
market discount could be widened further by creating market uncertainty about
whether the company would force a conversion of the Class V stock. When the
financial press reported that Dell Technologies was considering an IPO of its Class
C stock, the plaintiff alleged, the Class V stock discount increased to over 45%.
After the financial press reported on the possible Class C stock IPO, the Dell
Technologies board formed a special committee to negotiate the redemption of the
Class V stock.3 The committee lacked the power to block either a public listing of
the Class C stock or a forced conversion.
As negotiations ensued, Dell Technologies and its advisors were alleged to
have pressured the committee by making clear that they would consider alternatives
to a negotiated redemption. The committee and Dell Technologies eventually
arrived at a deal that valued the Class V stock at $109 per share – a 32.7% discount
to VMWare’s trading price. Stockholders objected and Dell abandoned the
committee process. Instead, it entered into non-disclosure agreements and
3 David Dorman, William Green, and Ellen Kullman were the initial special committee members. Kullman was also a Goldman Sachs director. See In re Dell Techs. Inc. Class V S’holders Litig., 2020 WL 3096748, at *4 (Del. Ch. June 11, 2020) [Dell I]. Early on, Kullman identified the conflict with Dell’s advisor and recused herself. See id. at *7, *13.
5 negotiated separately with six investment funds who held a large block of Class V
stock.
Eventually, Dell Technologies arrived at an agreement with the funds. In
exchange for their Class V stock, Dell Technologies agreed to offer the funds the
option to receive (i) shares of newly issued Class C common stock valued at $120
per share; or (ii) $120 per share in cash, with the aggregate amount of cash capped
at $14 billion. The deal valued the Class V stock at $23.9 billion. Dell informed the
committee of the negotiated redemption’s terms. The committee approved the same
terms for the remaining Class V stockholders after meeting for an hour. Sixty-one
percent of the unaffiliated Class V stockholders voted to approve the redemption.
B.
Former Class V stockholders filed putative class actions, which were
consolidated by the Court of Chancery. The lead plaintiff, Steamfitters Local 449
Pension Plan, filed a Verified Amended Consolidated Stockholder Class Action
Complaint on behalf of the plaintiff and all similarly situated former holders of Class
V stock. The complaint brought direct claims for breach of fiduciary duty against
Mr. Dell, Silver Lake, and other Dell Technologies directors and sought damages
for the unfair redemption of Class V stock.
The complaint alleged that the director defendants breached their fiduciary
duties by approving the redemption, coercing the Class V stockholders to vote in
6 favor of the redemption, and for making materially false and/or misleading proxy
statements. Further, the plaintiff claimed that Mr. Dell and Silver Lake, as Dell
Technologies’ controlling stockholders, breached their fiduciary duties by causing
the company to enter an unfair redemption and by consummating the redemption at
the negotiated price.
The defendants moved to dismiss the complaint. They argued that the
transaction was approved by a well-functioning independent committee of directors
and the affirmative vote of fully informed and uncoerced minority stockholders.
They contended that, under Kahn v. M & F Worldwide Corp., the transaction should
be subject to the deferential business judgment rule standard of review.4 The court
denied the motion. It held that the plaintiff had sufficiently alleged that the two-
member special committee was not wholly independent, making entire fairness the
operative standard of review.5
The plaintiff later amended its complaint twice, adding various Silver Lake
affiliates as defendants. The amended complaint alleged that, throughout the
redemption, Mr. Dell, Silver Lake, and Silver Lake affiliates were the controlling
stockholder group of Dell Technologies. The plaintiff also added Goldman Sachs
4 88 A.3d 635, 639 (Del. 2014) [MFW], overruled on other grounds by Flood v. Synutra, Int’l, Inc., 195 A.3d 754 (Del. 2018). 5 Dell I, 2020 WL 3096748.
7 as a defendant, alleging that they knowingly aided and abetted the fiduciary breaches
of the control group and the director defendants.
For the next two and a half years, the plaintiff pursued the case through
discovery. The parties stipulated to class certification, which was approved by the
court. They completed both fact and expert discovery. After expert discovery
closed, the parties at first unsuccessfully mediated the dispute. The court set a trial
date. As trial approached, the parties filed a pre-trial order. The trial would involve
testimony from fourteen fact witnesses and three expert witnesses. The parties listed
2,887 joint trial exhibits.6 After the parties filed their pre-trial briefs, the mediator
asked the parties to consider a mediator’s proposal. The mediator proposed a
settlement of $1 billion in cash, which both sides accepted, subject to court approval.
The Class V stockholders were notified of the proposed settlement. No one objected.
Class counsel sought 28.5% of the $1 billion settlement as a fee and expenses,
translating into a $285 million fee award – the second largest attorneys’ fee ever
awarded by the Court of Chancery.7 Pentwater Capital Management L.P. filed an
6 App. to Appellant’s Opening Br. at A328, Dell II [hereinafter “A__”]. 7 A296.
8 objection.8 Seven other investment funds joined the fee objection. All told, the
objectors owned about 24% of the class.9
Pentwater argued that awarding a percentage of the settlement sought without
considering the size of the settlement was unfair to the class. They contended that,
in this case, the proposed fee was disproportionate to the value of the settlement.
The objectors urged the court to apply a declining percentage to the fee award, which
is similar to the approach used by federal courts in large federal securities law
settlements. The declining percentage method reduces the percentage of the fee
awarded to counsel as the size of the recovery increases. According to Pentwater,
fee awards “are meant to reasonably incentivize the attorneys taking these cases,”
and, in its view, “the amount of work, time, and effort spent on a case does not grow
proportionately with the transaction size.”10 In other words, “it is not a hundred
times more difficult (or riskier) to litigate and try a $10 billion case than it is to
litigate and try a $100 million case.”11 They argued that the Delaware Supreme
Court and Court of Chancery have applied the declining percentage method in other
cases.12
8 A367–84. 9 A367. 10 A372. 11 Id. 12 Id. (citing Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012)).
9 Finally, they contended that the benefit achieved by counsel in this case did
not merit such a substantial fee. Although the $1 billion figure is large, Pentwater
claimed that the recovery was only a small fraction of what could have been achieved
if counsel had tried the case to judgment. Before the settlement hearing, the court
asked the objectors to provide, among other things, information about their annual
management fees and performance fees.13 The court also solicited the views of the
academic community. Five law professors filed an amicus brief in support of the
objectors’ position.14
C.
In a carefully considered opinion, the Court of Chancery awarded counsel
26.67% of the settlement, or $266.7 million.15 At the outset, the court observed that
the Supreme Court’s seminal decision in Sugarland Industries, Inc. v. Thomas
governs fee awards in representative actions.16 As the Vice Chancellor noted, when
the court considers a fee application, the court should review: (1) the results
achieved; (2) the time and effort of counsel; (3) the relative complexities of the
litigation; (4) any contingency factor; and (5) the standing and ability of counsel
13 A450–52. 14 A478–98. 15 Dell II, 300 A.3d at 735. The court also included expenses and an incentive fee for the plaintiff. For ease of reference, we will simply refer to the total amount as the fee award. Pentwater did not object to the expense amount or the incentive fee. 16 Id. at 692 (citing Sugarland Indus., Inc. v. Thomas, 420 A.2d 142, 149–50 (Del. 1980)).
10 involved.17 The court also observed that the results achieved is the primary factor
for consideration. The hours worked, according to the court, should be used “as a
cross-check to guard against windfall awards, particularly in therapeutic benefit
cases.”18
1.
As expected, much of the court’s decision focused on the results achieved.19
The court first pointed out that the benefit accruing to the class was extraordinary:
$1 billion.20 Next, it examined what percentage of that amount should be awarded
to counsel because of their work. The court looked to this Court’s precedent and
precedent of the Court of Chancery to set litigation-stage percentages. Taking the
lead from Americas Mining, it observed that, when the benefit is quantifiable and
the litigation settles in the late stage of the litigation but before trial, the resulting fee
award is usually 25–30% of the settlement.21 According to the court, other
Sugarland factors can cause the court to adjust the base percentage.22 There were
also no causation issues as the plaintiff’s counsel was the sole cause of the benefit.
17 Id. (quoting Ams. Mining, 51 A.3d at 1254). 18 Id. (quoting Olson v. EV3, Inc., 2011 WL 704409, at *8 (Del. Ch. Feb. 21, 2011)). 19 Id. at 692–726. 20 Id. at 693. 21 Id. at 699. 22 Id. at 692; see also 726–28 (discussing the other Sugarland factors).
11 The court reasoned that the plaintiff completed all pre-trial activities, but not
the trial itself or post-trial work. Under what it termed the “stage-of-case” method,
the plaintiff’s counsel was presumptively entitled to a baseline award of 26.67% –
one third through the late-stage range percentage.23 In lowering the presumptive
amount from 28.5% to 26.67%, the court reasoned that 28.5% for this stage of the
case settlement would impact the relative award available for taking a case through
trial. It would also interfere with the balance of incentives in the fee award process.24
Next, the court considered the objectors’ request to lower the percentage based
on the size of the award. The objectors proposed that the court adopt the declining-
percentage method. They argued that larger settlements should result in smaller
percentage fees to prevent windfalls to counsel at the expense of the class.25 The
declining percentage approach is used often in federal securities law cases, where
settlements of $1 billion or more typically see fee awards around 10 –12% regardless
of the stage of proceedings.
The court declined to adopt a declining percentage approach because it did
not align with Delaware precedent. According to the court, “[u]nder Americas
Mining and Sugarland, a court does not make a downward adjustment to the
23 Id. at 699–700. 24 Id. 25 Id. at 700–01.
12 indicative percentage based on the size of the fund.”26 The court disagreed with the
objectors that, in Goodrich v. E.F. Hutton Grp., Inc., the Supreme Court endorsed
the federal declining percentage approach.27 And in Americas Mining, the court
observed, this Court rejected a mandatory declining-percentage approach, and
instead endorsed the multi-factor Sugarland test. As the court held, the declining-
percentage approach was a covert return to the lodestar method, which this Court
considered and rejected in Sugarland.28
The court then examined various Court of Chancery decisions relied on by the
objectors and concluded that none stood for use of the percentage reduction in
megafund cases. Instead, the court held, the cases were all “straightforward”
applications of Sugarland.29 When it reviewed the Court of Chancery’s decision in
Americas Mining, the court observed that, even though the court awarded 15% of
the judgment, it did not base the percentage solely on the size of the award.30
Next, the court compared Delaware as a forum for corporate litigation with
federal securities litigation, where the declining percentage method has been
26 Id. at 703–04. 27 Id. 28 Id. at 687. 29 Id. at 703. 30 Id. (“The objectors regard this as an endorsement of the declining-percentage approach, but it actually reflects the Chancellor’s consideration of all of the Sugarland factors, including the plaintiff’s delay in prosecuting the case. Elsewhere in the transcript, the Chancellor criticized the concept of a reduction in mega-fund cases.”).
13 employed.31 According to the court, federal cases, governed by Rule 10b-5 and other
federal statutes, often involve higher volumes and larger recoveries, and focus
primarily on monetary damages. In contrast, Delaware M&A litigation centers on
fiduciary duties and corporate governance, with settlements that might not always
involve substantial financial awards.
The court reviewed a variety of differences between the two systems that
could justify a different treatment for fee awards.32 In the end, the court determined
that the reasons that could justify a megafund reduction did not apply to this case.33
The court held that “[t]he risk of a non-recovery in this case (at trial or on appeal)
was significant, and the risk intensified as trial approached. The recovery of $1
billion does not seem to have been the product of deal size.”34 The court concluded
that “[t]he rationales for using the declining-percentage method in federal securities
litigation have not been shown to apply to Chancery M&A litigation” and “do not
apply to this case.”35 The court did not adjust the percentage based on the size of
the settlement.36
31 Id. at 704. 32 Id. at 704–15. 33 Id. at 715. 34 Id. 35 Id. 36 Id.
14 The court next examined market practice in privately negotiated contingency
fee arrangements.37 According to one study, the majority of private fee agreements
used fixed or increasing percentage arrangements, rather than a declining percentage
approach.38 The study found that clients in pharmaceutical antitrust and patent
litigation frequently accept fixed percentages around one-third of the recovery,
consistent with the fee structures seen in high-stakes litigation.39 According to the
court, clients either paid a fixed percentage or an increasing percentage as the stage
of litigation progressed.40 The plaintiff’s counsel also provided the court with
information about their fee agreements.41 Most agreements did not use a declining
percentage approach.42 The court held that market practice did not justify a departure
from Americas Mining by adopting a declining percentage approach.43
Further, the court criticized the objectors for advocating for a reduced fee
percentage when, as fund managers, they agreed that they do not use similar
37 Id. at 715–16 (citing Brian T. Fitzpatrick, A Fiduciary Judge’s Guide to Awarding Fees in Class Actions, 89 Fordham L. Rev. 1141 (2021) [hereinafter “Judge’s Guide”]). 38 Id. (citing Judge’s Guide, at 1170). 39 Id. at 716 (citing Judge’s Guide, at 1161). 40 Id. The court cited another study which found similar results. Id. at 717 (citing David L. Schwartz, The Rise of Contingent Fee Representation in Patent Litigation, 64 Ala. L. Rev. 335 (2012)). 41 Id. at 717–18. 42 Id. 43 Id.
15 arrangements in their risk-based business.44 According to the court, even though the
fee agreements are not negotiated in class action litigation, [t]he lack of negotiation
is not a distinction” and “[t]he absence of an ex ante agreement is what forces the
court to consider other sources of market evidence . . . .”45 The court held that the
objectors chose to “free ride” and “[t]he settlement was a windfall for the objectors
because they did nothing to create it.”46 The court expressed its antipathy for the
objectors’ position by stating that the objectors’ position “masks self-interest with
an appeal to equity” and that “envy is not a sound basis for reducing a fee award.”47
The court also refused to credit the objectors’ argument that the settlement did
not confer a substantial benefit on the class even though it was the second largest
recovery ever achieved in Delaware.48 The objectors argued that the plaintiff’s
counsel sought damages of $10.7 billion. By settling for only 9.3% of the maximum
recovery, they argued, counsel settled for too little.49 The court disagreed, finding
that the recovery here was four times larger than the next largest class recovery. And
44 Id. at 718–20. 45 Id. at 719. 46 Id. at 720. 47 Id. (citing In re Clear Channel Outdoor Holdings Inc., Deriv. Litig., 2013 WL 5563370 (Del. Ch. Sept. 9, 2013), tr. at *19; In re S. Peru S’holder Litig., 2011 WL 7121732 (Del. Ch. Dec. 19, 2011), tr. at *82). 48 Id. at 725. 49 Id. at 721.
16 the court observed that, when adjusted for risk, the common fund was an exceptional
result for the class.50
The court examined other settlement data, comparing the settlement against
the maximum damages of each sample case and the percentage of equity value of
the respective deal.51 Of the cases reviewed, the data showed a median settlement
of 16.5% of maximum damages and 2.95% for equity value of the deal.52 Despite
appearing less impressive as a percentage of maximum damages (9.34%), the court
found that the settlement ranks highly when considering the equity value of the
transaction (4.18%).53 Thus, the court held, “[p]laintiff’s counsel achieved an
unprecedented result and deserve the full percentage that the stage-of-case method
supports.”54
In sum, the court determined that Americas Mining favored a “stage of case”
approach and not a declining percentage approach, and that none of the evidence
presented by the objectors or amici should lead the court to apply a declining
percentage approach in this case.
50 Id. at 723. 51 Id. at 724–25. 52 Id. 53 Id. at 725. 54 Id. at 725–26.
17 2.
The court concluded its decision by reviewing the remaining Sugarland
factors. It found that none warranted a reduction in the percentage award.55
According to the court, the plaintiff’s counsel worked on a fully contingent basis,56
expended 53,000 hours litigating the case,57 faced nearly 100 attorneys from
prestigious firms,58 addressed complex legal and factual issues,59 and were of good
standing in the legal community.60 Finally, the court rejected the objectors’
argument that counsel should have structured the settlement to pay the attorneys’
fees award separately.61 The court found that the weight of authority supports
awarding fees from the common fund in the class setting.62
D.
On appeal, Pentwater claims that the court erred in three ways. First,
Pentwater argues that the court should not have awarded attorneys’ fees based on a
percentage of the settlement fund without considering the size of the fund. Pentwater
55 Id. at 726–28. 56 Id. at 726–27. 57 Id. 58 Id. at 727. 59 Id. at 728. 60 Id. 61 Id. 62 Id. at 730.
18 argues that the Court of Chancery ignored our Americas Mining decision by
employing a “stage-of-case” analysis without considering the actual result in a
megafund case – the court affirmed a 15% award for a case that, unlike here, was
decided after trial. Pentwater asks this Court to adopt the federal declining
percentage method for megafund cases as a way to prevent windfalls to counsel.
Next, Pentwater argues that the court misapplied the first two Sugarland
factors – the results achieved and the time and effort of counsel. For the former,
Pentwater repeats its argument that the recovery was a small fraction of what could
have been obtained after trial. They contend that the court should have considered
how the result achieved compared to what counsel could otherwise have obtained
after trial. Regarding the time and effort factor, Pentwater faults the court for not
giving greater weight to a cross-check of the fee award’s implied hourly rate of
$5,000 per hour. Pentwater argues that the fee is seven times counsel’s customary
rate, resulting in an award at the high end of fee awards in the Court of Chancery.
Finally, Pentwater contends that the court erred when it considered
Pentwater’s compensation structure in the fee inquiry. It argues that the objectors
and their private arrangements are irrelevant to the fee inquiry. Pentwater also
claims that intrusive discovery aimed at objectors will discourage good faith
objections to fee awards.
19 We review the reasonableness of the percentage awarded from a common
fund to class counsel by the Court of Chancery to decide whether the court exceeded
its discretion.63 Errors of law are reviewed de novo.64
II.
In Delaware, litigants typically pay their own attorneys’ fees.65 There are
exceptions to the rule – bad faith assertion of claims, statutory and contractual fee
shifting, and in equity.66 In equity, under the “common fund” exception, if a party
creates a common fund for the benefit of others, attorneys’ fees can be paid from the
common fund.67 The common fund exception is “founded on the equitable principle
that those who have profited from litigation should share its costs.”68 Spreading the
costs over all common fund beneficiaries eliminates the free-rider problem – reaping
the gains without sharing the expenses that created the common fund.69
63 Id. at 694–95 (citing Ams. Mining, 51 A.3d at 1260). 64 Dover Historical Soc’y, Inc. v. City of Dover Planning Comm’n, 902 A.2d 1084, 1089 (Del. 2006) (“Where it is in issue, we review the [trial court’s] formulation of the appropriate legal standard de novo.”); see also Gannett Co. v. Bd. of Managers of the Del. Criminal Just. Info. Sys., 840 A.2d 1232, 1240 n.25 (Del. 2003). 65 Maurer v. Int’l Re-Ins. Corp., 95 A.2d 827, 830 (Del. 1953). 66 Goodrich v. E.F. Hutton Grp., Inc., 681 A.2d 1039, 1044 (Del. 1996). 67 Id. 68 Id. (citing Maurer, 95 A.2d at 830). 69 Id. (citing Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980)). Under the Delaware Lawyers’ Rules of Professional Conduct, the fee must be reasonable. See Del. Lawyers’ R. Prof’l Conduct 1.5(a).
20 When a judgment or settlement creates a common fund, counsel may apply
to the court for an award of attorneys’ fees and expenses from the fund.70 As
fiduciaries for the class and under professional conduct rules, counsel’s fee request
must be reasonable.71 Even with equitable and professional constraints, an inherent
conflict still arises between the class members and their attorneys.72 The more the
attorneys receive, the less goes to the class. As such, the reviewing court – here the
Court of Chancery – has an essential role to play to evaluate a fee application and to
set a fair and reasonable fee.73 The court’s task is not cursory.74 As we have said,
“a request for an award of attorney’s fees from a common fund must be subjected to
the same heightened judicial scrutiny that applies to the approval of class action
settlements[,]” and “the Court of Chancery must make an independent determination
of reasonableness on behalf of the common fund’s beneficiaries, before making or
approving an attorneys’ fee award.”75
70 Goodrich, 681 A.2d at 1045. 71 Id. 72 Id. at 1045 (citing Rawlings v. Prudential–Bache Props., Inc., 9 F.3d 513, 516 (6th Cir. 1993); Third Circuit Task Force, Court Awarded Attorney Fees, 108 F.R.D. 237, 255 (1985)). 73 Sugarland, 420 A.2d at 153 (Del. 1980). 74 Goodrich, 681 A.2d at 1045–46 (citing Nottingham Partners v. Dana, 564 A.2d 1089, 1102 (Del. 1989)). 75 Id. Although a fee award request requires intensive review, it is common, in the interests of efficiency, for the Court of Chancery to address fee awards in transcript rulings.
21 In Sugarland v. Thomas, this Court affirmed the Court of Chancery’s decision
that the counsel in a derivative case were “entitled to a fair percentage of the benefit
inuring to Sugarland and its stockholders.”76 We looked to five factors that are now
the yardstick to measure whether a fee award is “reasonable”: (1) the results
achieved; (2) the time and effort of counsel; (3) the relative complexities of the
litigation; (4) any contingency factor; and (5) the standing and ability of counsel
involved.77 The first factor – the results achieved – is paramount. The court must
also consider the degree of the “cause and effect” between what counsel
accomplished through the litigation and the ultimate result.78
We also rejected the federal lodestar approach. This approach takes the time
expended by counsel and multiplies it by an approved hourly rate. The result can be
adjusted based on case-specific factors.79 We concluded that adopting the loadstar
approach would require the Court of Chancery to engage in “elaborate analyses”
when the existing practice was sufficient.80 In other words, instead of adopting a
76 Sugarland, 420 A.2d at 150 (Del. 1980). 77 Id. at 149. 78 Id. at 150–51 (discussing that counsel is entitled to only 5% of the benefit achieved because the final sale price was influenced by factors beyond the initial bids and not caused by the petitioners’ actions). 79 Id. at 150 (citing Lindy Bros. Builders of Phila. v. Am. Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973)). 80 Id.
22 formulaic approach to fee requests, we committed the fee award to the discretion of
the Court of Chancery.
In Goodrich v. E.F. Hutton Grp., Inc., we reiterated that the Delaware courts
would not follow the federal lodestar method.81 Instead, we reaffirmed that
Sugarland’s multi-factor approach is the appropriate inquiry for an equitable award
of attorneys’ fees from a common fund.82 At the same time, we also noted that the
Court of Chancery correctly “acknowledged the merit of the emerging judicial
consensus that the percentage of recovery awarded should ‘decrease as the size of
the fund increases.’”83 We concluded, however, that:
[t]he adoption of a mandatory methodology or particular mathematical model for determining attorney’s fees in common fund cases would be the antithesis of the equitable principles from which the concept of such awards originated. . . . New mechanical guidelines are neither appropriate nor needed for the Court of Chancery.84 81 681 A.2d 1039 (Del. 1996). 82 Id. at 1049 (rejecting a federal rule that awarded attorneys’ fees as a percentage in relation to the maximum common fund available, without regard to what benefits were realized by class members). 83 Id. at 1048 (citing report of the Third Circuit Task Force, Court Awarded Attorney Fees, 108 F.R.D. at 256). See Seinfeld v Coker, 847 A.2d 330, 335–36 (Del. Ch. 2000) (“The Delaware courts have often considered methods employed by other courts. For example, the Goodrich Court discussed the percentage of the fund method, noting that the Court of Chancery rightly ‘acknowledged the merit of the emerging judicial consensus that the percentage of recovery awarded should ‘decrease as the size of the fund increases.’’ But that Court also stressed that ‘[t]his case establishes, once again, that the Court of Chancery’s existing multiple factor approach to determining attorney’s fee awards remains adequate for purposes of applying the equitable common fund doctrine.’” (citations omitted)). 84 Goodrich, 681 A.2d at 1050 (citing Trustees v. Greenough, 105 U.S. 527 (1881); Cent. R.R. & Banking Co. v. Pettus, 113 U.S. 116 (1885); Sugarland, 420 A.2d at 150; Tandycrafts, Inc. v. Initio Partners, 562 A.2d 1162 (Del. 1989); Maurer, 95 A.2d 827).
23 The Goodrich decision involved a settlement of up to $3.3 million and an
attorneys’ fee award of up to $515,000, depending on the amount paid to the
claimants. In Americas Mining Corp. v. Theriault, we addressed for the first time
what our Court described as a “megafund” case.85 The derivative plaintiff claimed
that Americas Mining Corporation, a subsidiary of Southern Copper Corporation’s
controlling shareholder and its affiliate directors breached their fiduciary duty of
loyalty to Southern Copper and its minority stockholders by causing Southern
Copper to acquire the controller’s 99.15% interest in a Mexican mining company at
an unfair price. After a trial applying entire fairness review, the Court of Chancery
entered judgment for the minority shareholder. It awarded more than $2 billion in
damages.86 The damage award was the largest recovery in the history of the Court
of Chancery. The plaintiff’s counsel requested 22.5% of the recovery for attorneys’
fees and expenses. The court awarded a fee of 15% of the $2.03 billion judgment,
or $304,742,604.45. Like the judgment, it was the largest fee award by the court.
On appeal, after affirming the damage award, we addressed the defendants’
objections to the attorneys’ fee award. The defendants argued, among other things,
85 51 A.3d at 1260. The question presented was “how to properly determine a reasonable percentage for a fee award in a megafund case.” Id. 86 Id. at 1252. The controller still retained 81% of the interest in the subsidiary it would pay the judgment to and would therefore, given the derivative nature of the action, indirectly benefit by their pro rata share of the judgment amount. Id. at 1263. Here, the Court of Chancery used this point as support for why the $1 billion settlement in the present case was so impressive. Dell II, 300 A.3d at 721.
24 that the Court of Chancery erred by not adopting a per se rule that the percentage of
attorneys’ fees awarded from the fund should decline as the fund amount increases.87
We started the analysis by reiterating Sugarland’s central holdings. We reinforced
the notion that “this Court rejected any mechanical approach to determining
common fund fee awards.”88 And, like the Goodrich decision, “we explicitly
disapproved the Third Circuit’s ‘lodestar method.’”89
Further, in discussing Sugarland and Goodrich, we held that the Supreme
Court “did not adopt an inflexible percentage of the fund approach.”90 Instead, we
reaffirmed that the court should consider the five Sugarland factors when making an
equitable award of attorneys’ fees.91 We also noted that, when applying the
Sugarland factors, “Delaware courts have assigned the greatest weight to the benefit
achieved in litigation.”92 When assessing this factor, we affirmed the Court of
Chancery’s determination that the plaintiffs’ attorneys “were entitled to a fair
percentage of the benefit” achieved for the company and its stockholders in the
derivative litigation.93
87 Ams. Mining, 51 A.3d at 1258. 88 Id. at 1254. 89 Id. 90 Id. (quoting Sugarland, 420 A.2d at 149–50). 91 Ams. Mining, 51 A.3d at 1261. 92 Id. at 1254. 93 Id. at 1258 (emphasis omitted).
25 Next, the Court reviewed how the Court of Chancery applied each of the
Sugarland factors. In setting the percentage of fee award from the judgment, we
observed that, in Delaware, 33% is the upper range for attorneys’ fees.94 When a
case settles early, the Court of Chancery tends to award 10–15% of the monetary
benefit conferred. If, however, a case settles after meaningful litigation, the range is
typically 15–25%.95 We also noted at the time that, in the federal setting, once a
recovery exceeds $500 million, the median attorneys’ fees fall to 11% from the
typical range of 22–30% in routine actions.96
The defendants in Americas Mining argued that, after Goodrich, we required
the Court of Chancery to employ a declining percentage to the fee award request in
a megafund case. We disagreed, and rejected “[a] mechanical, per se application of
the ‘megafund rule,’” which would be out of step with the trend in federal court
decisions.97 We followed the federal trend and stated that a declining percentage
could be applied in a megafund case as a matter of discretion:
In Goodrich, we discussed the declining percentage of the fund concept, noting that the Court of Chancery rightly “acknowledged the merit of the emerging judicial consensus that the percentage of recovery 94 Id. at 1259. 95 Id. at 1260. 96 Id. (citing Dr. Renzo Comolli et al., Recent Trends in Securities Class Action Litigation: 2012 Mid-Year Review, NERA Econ. Consulting, July 2012, at p.31). 97 Id. (quoting In re Enron Corp. Sec., Deriv. & ERISA Litig., 586 F. Supp. 2d 732, 753–54 (S.D. Tex. 2008)); see also In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 302–03 (3d Cir. 2005) (“[T]here is no rule that a district court must apply a declining percentage reduction in every settlement involving a sizable fund.”).
26 awarded should ‘decrease as the size of the [common] fund increases.’” We also emphasized, however, that the multiple factor Sugarland approach to determining attorneys’ fee awards remained adequate for purposes of applying the equitable common fund doctrine. Therefore, the use of a declining percentage, in applying the Sugarland factors in common fund cases, is a matter of discretion and is not required per se.98
In Americas Mining, we also noted that “the record does not support the
Defendants’ argument that the Court of Chancery failed to apply a ‘declining
percentage.’”99 Instead, we concluded that: “the Court of Chancery reduced the
award . . . based, at least in part, on its consideration of the Defendants’ argument
that the percentage should be smaller in light of the size of the judgment.”100 In other
words, “the record reflect[ed] that the Court of Chancery did reduce the percentage
it awarded due to the large amount of the judgment. The Defendants are really
arguing that the Fee Award percentage did not ‘decline’ enough.”101
Thus, in Americas Mining, we “decline[d] to impose either a cap or the
mandatory use of any particular range of percentages for determining attorneys’ fees
in megafund cases” and “reaffirm[ed] that our holding in Sugarland sets forth the
98 Ams. Mining, 51 A.3d at 1258. 99 Id. 100 Id. at 1258–59. 101 Id. As noted earlier, the Court of Chancery in Americas Mining ruled: “Now, I gave a percentage of only 15 percent rather than 20 percent, 22 1/2 percent, or even 33 percent because the amount that’s requested is large. I did take that into account. Maybe I am embracing what is a declining thing. I’ve tried to take into account all the factors, the delay, what was at stake, and what was reasonable. And I gave defendants credit for their arguments by going down to 15 percent.” Id. (quoting trial court ruling).
27 proper factors for determining attorneys’ fee awards in all common fund cases.”102
After Americas Mining, the Court of Chancery has the discretion to apply a declining
percentage based on the size of the award. We also approved its use in the only
megafund fee award challenged in this Court.
III.
The Court of Chancery refused to apply a declining percentage to the fee
awarded in this case. According to the court, applying a declining percentage “runs
counter to Americas Mining and the incentive structure that the Delaware Supreme
Court created.”103 It also held that, after Americas Mining, “a court can reduce an
excessive fee, but that analysis happens using the Sugarland factors” and not by
applying a declining percentage to the fee award.104
Pentwater argues that, after Americas Mining, the Court of Chancery should
have applied a declining percentage in this case.105 In Americas Mining, the Court
of Chancery recognized that it was, at least in part, applying a declining percentage
in a megafund case when it arrived at a 15% fee.106 On appeal, our Court also
102 Ams. Mining, 51 A.3d at 1261. 103 Dell II, 300 A.3d at 687. 104 Id. 105 Appellant’s Second Corrected Opening Br. at 23, Dell II [hereinafter “Opening Br.”]. 106 51 A.3d at 1259, 1262.
28 recognized that the Court of Chancery had done so and affirmed the court when it
reduced the percentage based, at least in part, on the size of the recovery.107
But Pentwater fails to confront another essential holding of Americas Mining
that the Court of Chancery relied on in this case. Consistent with the cases preceding
it, in Americas Mining we refused to adopt rigid rules in fee award cases.108 We
agree with the Court of Chancery in the present case that, after Americas Mining, the
Sugarland factors control a megafund fee award, rather than any per se rule, whether
declining percentage or any other rule. After Americas Mining, we follow the
consensus in the federal courts that it is within the discretion of the court to reduce
a fee percentage to account for the size of the award.109 On appeal, this Court will
not usually disturb the Court of Chancery’s ruling if the court adequately explains
107 See Ams. Mining, 51 A.3d at 1262. 108 51 A.3d at 1261 (“As we stated in Goodrich, ‘[n]ew mechanical guidelines are neither appropriate nor needed for the Court of Chancery.’” (quoting Goodrich, 681 A.2d at 1049)). 109 Ams. Mining, 51 A.3d at 1261 (“The Third Circuit reasoned that it has ‘generally cautioned against overly formulaic approaches in assessing and determining the amounts and reasonableness of attorneys’ fees,’ and that ‘the declining percentage concept does not trump the fact-intensive [In re] Prudential [Ins. Co. Am. Sales Litigation, 148 F.3d 283 (3d Cir. 1998)]/Gunter [v. Ridgewood Energy Corp., 223 F.3d 190 (3d Cir. 2000) ] [factors,]’ which are similar to this Court’s Sugarland factors.” (citing In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 302–03 (3d Cir. 2005))). The Prudential/Gunter factors include: “(1) the size of the fund created and the number of persons benefitted; (2) the presence or absence of substantial objections by members of the class to the settlement terms and/or fees requested by counsel; (3) the skill and efficiency of the attorneys involved; (4) the complexity and duration of the litigation; (5) the risk of nonpayment; (6) the amount of time devoted to the case by plaintiffs’ counsel; and (7) the awards in similar cases.” Gunter, 223 F.3d at 195 n.1.
29 its reasons and properly exercises its discretion when it applies the Sugarland
factors.
We note that it is not inconsistent with the incentive structure in Americas
Mining for the court to decrease the percentage of fees in a megafund case. As
explained earlier, in Americas Mining, the Court of Chancery awarded 15% of the
recovery following trial rather than a higher percentage based, at least in part, on the
size of the recovery.110 Given the equitable principles underpinning fee awards in
common fund cases, and this Court’s concern for excessive compensation or
windfalls, it is entirely appropriate, and indeed essential, for the court to consider the
size of the award in a megafund case when deciding the fee percentage.111 An award
can be so large that typical yardsticks, like stage of the case percentages, must yield
to the greater policy concern of preventing windfalls to counsel.112
110 Ams. Mining, 51 A.3d at 158–59 (“In exercising its discretion and explaining the basis for the Fee Award, the Court of Chancery reduced the award from the 22.5% requested by the Plaintiff to 15% based, at least in part, on its consideration of the Defendants’ argument that the percentage should be smaller in light of the size of the judgment . . . .”). 111 See, e.g., Sugarland, 420 A.2d at 150–51 (discussing the risk of windfall when granting a fee award); Goodrich, 681 A.2d at 1046 (“The equitable nature of awarding attorney’s fees from a common fund requires a court to exercise broad discretion by applying a reasonableness standard.”); see also Dann v. Chrysler Corp., 215 A.2d 709, 716 (Del. Ch. 1965), aff’d, 223 A.2d 384 (Del. 1966). 112 This Court and the Court of Chancery have had limited opportunities to consider the declining percentage approach. As the court here pointed out, only two judgments or settlements have ever exceeded $500 million – Ams. Mining and the present one – and only a handful of settlements have exceeded $100 million. See Dell II, 300 A.3d at 711–13 (listing only two settlements post-Trulia, including the present one, that exceed $100 million). In Americas Mining, the only such fee award considered on appeal, this Court approved the use of the declining percentage given the size of the recovery.
30 Windfalls are a particular concern in megafund cases. As lawyers and judges,
we understand that representative litigation performs a valuable service to
stockholders who individually might not have the resources or the will to pursue
fiduciaries for breach of their duties. The potential for large fees incentivizes
counsel to accept challenging cases. They assume the risk of recovering nothing in
the end. In Delaware, we are used to big numbers.
But it is also legitimate to ask, outside our somewhat insular legal universe,
whether the public would ever believe that lawyers must be awarded many hundreds
of millions of dollars in any given case to motivate them to pursue representative
litigation or to discourage counsel from settling cases for less than they are worth.
At some point, the percentage of fees awarded in a megafund case exceed their value
as an incentive to take representative cases and turn into a windfall. The Court of
Chancery in Seinfeld v. Coker aptly described the competing policy concerns the
court must balance when it arrives at a reasonable percentage in any case:
This Court has proceeded in the past on the unstated premise that awarding large fees will necessarily produce the incentives of encouraging meritorious suits and encouraging efficient litigation. But a point exists at which these incentives are produced, and anything above that point is a windfall. In other words, if a fee of $500,000 produces these incentives in a particular case, awarding $1 million is a windfall, serving no other purpose than to siphon money away from stockholders and into the hands of their agents. Thus, it is important that we attempt, in a self-conscious and transparent manner, to estimate the point at which proper incentives are produced in a particular case. If one can at least approximate this point, one can in theory award fees in an amount that produces appropriate incentives without a significant 31 risk of producing socially unwholesome windfalls. That point likely will be different in every case, based in large part on the difference in risks among and within cases. As a result, this process is necessarily fact-specific and case-specific.113
Here, the Court of Chancery awarded 26.67% of the common fund.114 The
court acknowledged that, under Americas Mining, it had the discretion to reduce the
percentage.115 But it also found that “none of the reasons for a mega-fund reduction
apply to this case.”116 According to the court, “[t]he risk of a non-recovery in this
case (at trial or on appeal) was significant, and the risk intensified as trial
approached.”117 The court also decided that “the recovery of $1 billion does not
seem to have been the product of deal size.”118 There was no windfall to plaintiff’s
counsel, the court held, given the all the circumstances of the case.119 We agree with
the court’s observations that it was a highly contentious litigation, spanning two and
a half years, with nearly 100 lawyers entering appearance for the defense.120 The
113 847 A.2d 330, 334 (Del. Ch. 2000) (footnotes omitted). 114 Dell II, 300 A.3d at 730. 115 Id. at 701. 116 Id. at 715. 117 Id. 118 Id. 119 Id. (“Reducing the requested award is not necessary from a compensatory perspective, because the implied rate of approximately $5,000 per hour is lower than rates this court has approved for smaller recoveries. . . . The multiple to lodestar of 7x in this case would not raise a federal eyebrow.”). 120 Id. at 727 (“[P]laintiff’s counsel propounded sixty-six document requests, 710 interrogatories, and 179 requests for admission to the defendants. Plaintiff’s counsel also served forty-one non- party subpoenas. Through these efforts, plaintiff’s counsel developed an extensive record that 32 underlying transaction was complex, and counsel achieved an excellent settlement
for the class on the eve of trial.121
The Court of Chancery supported the reasons for its fee award percentage,
including the reasons for no downward adjustment to the fee percentage. We review
its determination to decide whether it exceeded its discretion. We conclude in this
case that the court acted within its discretion in awarding 26.67% of the common
fund.
Pentwater also argues on appeal that the Court of Chancery misapplied two of
the Sugarland factors.122 Under the first Sugarland factor, the results achieved,
Pentwater claims that the benefit was limited because the settlement was only a tenth
of what plaintiff’s counsel sought before trial.123 This argument, however, would
have been better lodged by way of an objection to the adequacy of the settlement
and not to the fee award. The class – which included sophisticated major Dell
included nearly 2.9 million pages of documents from over forty parties and non-parties. Plaintiff’s counsel took thirty-two fact depositions, four of which lasted two days. Plaintiff’s counsel also responded to the defendants’ expansive discovery demands.). 121 Id. at 728 (“Plaintiff’s counsel had to work with their expert to develop novel valuation approaches for a transaction involving a one-of-a-kind tracking stock (DVMT), another complex security (VMware common stock), and a privately held company (Dell). Plaintiff’s counsel also had to analyze complicated tax issues, alternative transactions like a forced conversion, and novel questions about market expectations and minority discounts.”). 122 Opening Br. at 17, 21. Pentwater did not challenge the other Sugarland factors. 123 Id. at 20–21.
33 Technologies’ stockholders – received notice, and no one objected to the adequacy
of the settlement. The court, experienced with entire fairness review litigation,
determined that the common fund reflected an “exceptional result” of approximately
5% of equity value and that “the settlement consideration of $1 billion represents a
substantial fraction of the likely recoverable damages.”124 According to the court,
when compared to the risk-adjusted value of the case, the settlement was adequate.
The court did not exceed its discretion by holding that the benefit was significant
under the first Sugarland factor.
Pentwater also claims that “when assessing the ‘benefit achieved’ the value of
the settlement to the class members should be considered on a net basis.”125
Pentwater argues that, for a gross basis settlement, defendants rarely have a reason
to dispute the plaintiff’s fee application. Their exposure is capped at the gross
settlement amount.126 As a result, it argues, attorneys’ fees are not subject to
adversarial testing because the court typically has a limited record to evaluate the
Sugarland factors.
In Goodrich, however, we recognized that “‘there is often no one to argue for
the interests of the class,’ because class members with small claims often do not file
124 Dell II, 300 A.3d at 723 (quoting Dkt. 536 at 41). 125 Opening Br. at 17 (citing A380). 126 Opening Br. at 18.
34 objections to proposed settlements and fee applications.”127 As a result, the Court of
Chancery has an independent obligation to evaluate fee applications – a task subject
to “heightened judicial scrutiny.”128 The rigorous review takes place irrespective of
whether any stockholder class member has asked to be heard, as Pentwater has done
here. While a court may benefit from adversarial briefing on a fee application, such
briefing is not required for the Court of Chancery to faithfully carry out its duty to
class members to ensure a fair settlement.
The Court of Chancery observed that the court and this Court describe fee
awards as a “percentage of a gross common fund.”129 And a “common fund with a
fee paid separately is mathematically equivalent to a larger common fund with a
lower percentage fee coming out of the gross amount.”130 We agree with the Court
of Chancery that, in Delaware, attorneys’ fees are typically awarded as a percentage
127 Goodrich, 681 A.2d at 1045 (citing Rawlings v. Prudential-Bache Props., Inc., 9 F.3d 513, 516 (6th Cir. 1993)). 128 Id. at 1045–46. 129 Dell II, 300 A.3d at 728. 130 Id at 729. In the Court of Chancery, the objectors relied on a decision where the fee was negotiated separately from the settlement amount. See In re Jefferies Grp., Inc. S’holders Litig., 2015 WL 3540662, at *4 (Del. Ch. June 5, 2015). That decision ultimately considered whether to approve the fee based on its percentage of the gross value. Id. (“Taking into account each of the Sugarland factors, and placing the greatest weight on the settlement fund that was created as a result of the settlement, in my judgment the appropriate award for this case is $21.5 million, inclusive of expenses. This equates to approximately 23.5% of the gross value (approximately $91.5 million) of the settlement.”).
35 of the gross benefit. Delaware law does not require that the fees be calculated on a
net basis.
Under the second Sugarland factor, the time and effort of counsel, Pentwater
contends that the Court of Chancery did not properly cross-check the time and effort
of counsel against the size of the award.131 According to Pentwater, the implied rate
of counsels’ time is at the high end of Delaware fee awards, meaning it signals a
windfall to counsel. The court determined, however, that “the implied rate of
approximately $5,000 per hour is lower than rates this court has approved for smaller
recoveries” and “[t]he multiple to lodestar of 7x . . . would not raise a federal
eyebrow.”132 While the amount is at the high end, it is not so unusual that we are
required to undo the court’s thorough consideration of all the Sugarland factors.
Finally, the Court of Chancery found that there was a “particular irony in who
is arguing for [the declining percentage] method” when “as fund managers, the
objectors do not use similar arrangements.”133 According to the court, “[t]he
objectors do, however, engage in litigation, yet they declined to do so in this case.”134
131 Opening Br. at 21. 132 Dell II, 300 A.3d at 715 & n.26 (citing federal cases greatly exceeding a 7x multiplier). 133 Id. at 718. 134 Id.
36 In the court’s words, their objections “come with ill grace.”135 Pentwater contends
that its business practices are irrelevant to the Court of Chancery’s task of closely
scrutinizing fee awards based on the Sugarland factors.136 To allow otherwise,
Pentwater asserts, penalizes objectors for lodging objections and discourages
objections in future cases by sophisticated parties.
We have already decided that the Court of Chancery more than adequately
justified its fee award. Thus, the court’s decision to inquire into a class member’s
business practices, does not affect our decision to affirm the court’s judgment. We
do, however, question the utility of singling out objectors for their business practices.
The objectors suffered the same type of financial injury as other members of the
class. Upon receiving notice, Pentwater and the other objectors were told that they
could lodge objections. They did not make unreasonable or frivolous arguments.
And although it might sound quaint, lawyers are not in the same position as
investment bankers and fund managers when it comes to class action settlements –
they are fiduciaries for the class.137 In our view, the court should not deter
135 Id. 136 Opening Br. at 30. 137 In re M & F Worldwide Corp. S’holders Litig., 799 A.2d 1164, 1174 n.34 (Del. Ch. 2002) (“By asserting a representative role on behalf of a proposed class, representative plaintiffs and their counsel voluntarily accept a fiduciary obligation towards members of the putative class.” (citing Fed. Jud. Ctr., Manual for Complex Litigation § 30 at 31–32 (3d ed.1995)); Del. Lawyers’ R. Prof’l Conduct 1.5(a) (“A lawyer shall not make an agreement for, charge, or collect an unreasonable fee . . . .”).
37 meritorious objections from stockholders who have been harmed by subjecting their
business practices to scrutiny as part of fee award proceedings.138 Their non-
frivolous objections, when appropriate, act as another check on the reasonableness
of the fees sought by counsel from a common fund.
IV.
The judgment of the Court of Chancery is affirmed.
138 Goodrich, 681 A.2d at 1045 (“This divergence of interests requires a court to continue its ‘third- party’ role in reviewing common fund fee applications. ‘[T]here is often no one to argue for the interests of the class,’ because class members with small claims often do not file objections to proposed settlements and fee applications.” (quoting Rawlings v. Prudential–Bache Props., Inc., 9 F.3d 513, 516 (6th Cir. 1993))).