Dell’s $1 Billion Settlement Yields $266.7 Million for Attorneys

The shareholder attorneys who negotiated a $1 billion settlement with Dell Technologies Inc. over a controversial 2018 stock conversion will take home more than a quarter of that enormous total.

Vice Chancellor J. Travis Laster awarded $266.7 million Monday to lawyers leading the litigation, which targeted Dell founder Michael Dell and other members of the tech company’s controlling bloc of investors at the time, including affiliates of private equity giant Silver Lake Group LLC.

The class action settlement, announced in November, is the largest ever in Delaware’s Chancery Court. The payout in legal fees is the second-largest, according to the 92-page court ruling. The attorneys had requested $285 million, an amount that would have equaled the largest.

Although the fee is huge, it’s in line with precedents reflecting Delaware’s policy of rewarding entrepreneurial attorneys for keeping major corporations honest by taking risks on complex cases and litigating them until they have enough leverage to get “real results,” the judge said.

Such lawyers “perform a valuable service by pursuing litigation in a world where stockholders are rationally apathetic,” he wrote. “Plaintiff’s counsel brought a real case, invested over $4 million of real money, and obtained a real and unprecedented result.”

Windfall Litigation Profits?

The lawsuit, filed in 2018, took aim at a $23.9 billion transaction earlier the same year that consolidated Dell’s control of VMWare Inc. by converting one class of shares into another and capping the number that could be redeemed for cash.

The suit by a group of shareholders accused Dell and Silver Lake of coercing investors into approving the deal by dangling the constant threat of a forcible conversion to make a negotiated deal seem like the better of two bad options.

Laster let those claims move forward in 2020, saying those alleged threats could have undermined the protections for minority investors—a special transaction committee and a shareholder vote—that the company put in place.

In his ruling Monday, the judge rejected a challenge to the fee award by eight investment funds that are collectively entitled to more than a quarter of the settlement fund. They had argued that he should award only about $100 million, which would have given the funds another $45 million or so.

They cited a federal policy of handing out a smaller percentage of legal fees in cases involving huge settlements to guard against windfall profits for lawyers who do roughly the same amount of work whether a settlement is worth $500 million or $1 billion.

‘Challenging and Complex’

Laster declined their invitation to adopt the federal rule, saying it would be incompatible with a seminal ruling by the state’s top court. “Delaware law deals with the problem of overcompensation differently,” he wrote, citing a multi-factor test judges in the state use to ensure legal fees are fair.

The factors include the case’s complexity, the experience and ability of the attorneys, the time and effort they spent, the stage of the litigation they fought to, and the extent to which any contingency arrangement left them at risk of no payment at all, the judge noted.

None of them “warrant an upward or downward adjustment,” Laster found. The case was “challenging and complex,” it didn’t settle until 19 days before trial, and “plaintiff’s counsel litigated on a fully contingent basis,” he wrote. “If they lost, they would get nothing.”

Labaton Sucharow LLP and Quinn Emanuel Urquhart & Sullivan LLP were lead counsel for the shareholders, who were also represented by Andrews & Springer LLC, Robbins Geller Rudman & Dowd LLP, and Friedman Oster & Tejtel PLLC.

Michael Dell and certain other board members were represented by Richards, Layton & Finger PA and Alston & Bird LLP. Silver Lake was represented by Young Conaway Stargatt & Taylor LLP and Simpson Thacher & Bartlett LLP. The special transaction committee was represented by Abrams & Bayliss LLP and Latham & Watkins LLP.

The case is In re Dell Techs. Inc. Class V S’holders Litig., Del. Ch., No. 2018-0816, 7/31/23.