Court upholds blockbuster $267 million legal fee award in Dell lawsuit

Five law firms should receive $267 million in legal fees for securing a $1 billion settlement for Dell Technologies shareholders, the Delaware Supreme Court ruled Wednesday, rejecting arguments that the payment was an exception.

The settlement is one of the largest ever for US shareholder litigation.

A Delaware court is weighing two other requests for huge legal fees, both in cases involving Tesla.

The plaintiffs in the Dell case alleged that they and other shareholders were shortchanged in a controversial $23.9 billion deal in 2018 that marked Dell’s return as a publicly traded company.

The deal was announced in November 2022, avoiding a trial scheduled to begin next month.

Last year, a Chancery Court judge awarded the $267 million fee to the five law firms that brought the suit, including Labaton Keller Sucharow and Quinn Emanuel Urquhart & Sullivan, saying it was in line with Delaware legal precedent.

But a group of big investors led by Pentwater Capital Management asked Delaware’s top court to lower the fee and base it on a model used in federal courts.

As federal securities litigation settlements increase in size, the percentage awarded in attorneys’ fees generally decreases.

In the 10 largest federal securities cases, attorneys collected an average of less than 10 percent of recoveries in fees, compared with 27 percent in the Dell case, according to Pentwater.

Delaware courts have focused on providing incentives to plaintiffs’ attorneys to litigate cases rather than accepting quick settlements. This can lead to higher fees, especially in cases like Dell that settled shortly before trial.

The charge in the Dell case is the second largest in Delaware and would rank as the fifth largest in federal securities litigation, according to Stanford Law School data cited in the Pentwater filings.

Delaware is the legal home of most publicly traded companies in the US.

This partly reflects the predictability of its court system, which relies on specialist judges instead of juries in shareholder disputes, but the courts’ approach to legal fees has been a point of contention for business groups.

Tesla is fighting tax demands related to a settlement of claims that its executives were overpaid and in a case over CEO Elon Musk’s $56 billion pay package.

Lawyers in the executives’ case are seeking $230 million in fees. In the Musk pay case, lawyers are seeking an unusual fee in the form of 29 million Tesla shares — worth about $7.8 billion when Tesla’s stock hit a recent peak in July.

The judge in the Tesla cases, Chancellor Kathaleen McCormick, has not said when she will rule.

The law firms involved in the Dell case are Labaton Keller Sucharow, Quinn Emanuel Urquhart & Sullivan, Friedman Oster & Tejtel, Andrews & Springer, Robbins Geller Rudman & Dowd. The defendants were represented by nine law firms.

(Reporting by Hals in Wilmington, Delaware)