Dell Technologies Inc. (DELL) shares are trading higher premarket Thursday after a significant legal victory. The Delaware Supreme Court has ruled that five law firms are entitled to receive $267 million in legal fees for securing a $1 billion settlement for Dell Technologies shareholders. This decision carries weight as it could potentially impact Tesla’s efforts to contest similar fees in ongoing cases.
The lawsuit against Dell stemmed from allegations that shareholders were disadvantaged in the $23.9 billion 2018 transaction that marked Dell’s return to the public market. The settlement, reached in November 2022, averted a trial scheduled for the following month. Notably, the fee awarded in the Dell case ranks as the second largest in Delaware and would be the fifth largest in federal securities litigation, according to data from Stanford Law School.
Initially, a group of large investors, led by Pentwater Capital Management, challenged the fee, advocating for a reduction based on a model where attorney fees decrease as settlement sizes increase. They argued that in the 10 largest federal securities cases, fees averaged under 10% of recoveries, while the Dell case amounted to 27%.
However, Chief Justice Collins Seitz upheld the fee, emphasizing the complexity of the case and the considerable effort involved. He stated that the litigation was “highly contentious, spanning two and a half years, with nearly 100 lawyers entering appearances for the defense.” He further highlighted that the “underlying transaction was complex, and counsel achieved an excellent settlement for the class on the eve of trial.”
The implications of this ruling extend to Tesla’s ongoing legal battles. Currently, a Delaware trial court is considering two substantial legal fee requests in cases involving Tesla, Inc. (TSLA). These cases include a $230 million fee request in a director pay case and a staggering $7 billion request for a case concerning CEO Elon Musk’s pay. While Tesla argues against these fees, the Dell decision suggests a trend of higher legal fees in complex cases.
In comparison to the Dell case, where the hourly rate for attorneys was $5,000, the Tesla cases involve significantly higher hourly rates. The director pay case features a rate of $10,690 per hour, while the CEO pay case sees a staggering $280,000 per hour. Justice Seitz expressed concerns that large fee awards could lead to windfalls for lawyers, emphasizing the need for careful consideration of such requests.
Investors seeking exposure to Dell Technologies stock can explore options like the Affinity World Leaders Equity ETF (WLDR) and Simplify Exchange Traded Funds Simplify Next Intangible Value Index ETF (NXTV).
