“Awarding increasing percentages as counsel pushes deeper into a case ensures that counsel’s incentives remain aligned with the case…. Awarding a percentage that increases as the case progresses counteracts a natural human tendency toward risk aversion. For plaintiffs’ counsel, risk aversion manifests itself as a natural tendency to favor an earlier bird-in-the-hand settlement that will ensure a fee, rather than pressing on for a potentially larger recovery for the class at the cost of greater investment and with the risk of no recovery.

“This case involved a late-stage settlement …. nineteen calendar days before trial was scheduled to begin….  Plaintiff’s counsel thus went beyond a mid-stage adjudication that should yield a fee of 15-25% (multiple depositions and some level of motion practice) but stopped short of a full adjudication that would warrant an award of 33%. Plaintiff’s counsel did not actually try the case, invest in post-trial briefing, or prepare for and make a post-trial argument. Most significantly, plaintiff’s counsel did not accept the risk of an adverse post-trial outcome, and they did not confront the difficulty of defending a monetary judgment on appeal…. Here, plaintiff’s counsel made it through approximately one-third of the late-stage tasks. That points to a baseline percentage of 26.67%, one-third of the way between 25% and 30%.”

“The objectors and the professors have demonstrated that federal courts use a declining-percentage method for securities class actions. A 2022 report by Nera Consulting that studied federal securities cases from 2012 to 2021 found that the median percentage award gradually declines from 33.5% to 25.8% as the common fund increases from $5 million or less to $500 million. The median percentage then drops to 17.7% for common funds between $500 million and $1 billion. Finally, the median percentage drops to 10.5% for common funds exceeding $1 billion. The ten largest federal securities settlements of all time—all common funds of $1 billion or more—generated an average award of 9.4%.  Likewise, an academic study published in 2010 found that ‘fee percentage is strongly and inversely associated with settlement size . . .; when a settlement size of $100 million was reached . . . fee percentages plunged well below 20 percent.’ Brian T. Fitzpatrick, An Empirical Study of Class Action Settlements and Their Fee Awards, 7 J. Empirical Legal Stud. 811, 814 (2010). For settlements between $500 million and $1 billion, the median was 12.9%, and for settlements over $1 billion, the median was 9.5%.”

Professor Fitzpatrick argues that judges should “attempt to replicate the terms on which a sophisticated client would retain counsel, and he evaluates how sophisticated clients structure contingent fees in the real world. He finds that sophisticated clients consistently opt for a percentage-of-the-benefit model, either with fixed percentages or escalating percentages as litigation matures. Professor Fitzpatrick believes that judges likewise should use that method. That is what the Americas Mining stage-of-case method does.  Professor Fitzpatrick has little good to say about the declining-percentage method. He notes that this approach is unheard of in the marketplace. Thus, if judges want to do what rational absent class members would want to do, then they should not do this. He also offers reasons why clients would not want to bargain for a decreasing percentage, notwithstanding the possibility of economies of scale. The reasons include (i) the transaction costs associated with negotiating away from a one-third, fixed-percentage arrangement, (ii) strategic uncertainties if parties have asymmetric information about the merits of the case, and (iii) the need for increased monitoring for premature settlements. Increased monitoring is necessary because the declining-percentage method fails to provide counsel with a predictable incentive to press forward with the case. Instead, a client (or the court) must assess the legitimacy of the hours that the attorneys have invested to test for overcompensation. He concludes with the observation that while incorporating the benefits of economies of scale might be desirable, bringing marginal price down to marginal cost is not free. Professor Fitzpatrick makes a strong argument against using the declining-percentage method in federal securities cases, notwithstanding the data that the professors have presented. But assuming the declining-percentage method is a reasonable approach for federal securities litigation, it still may not be a reasonable approach for Chancery M&A litigation. For starters, the federal courts seem to be using the declining-percentage method as a backdoor – and backward looking – lodestar method. Under the traditional lodestar method, a court begins with counsel’s lodestar and applies a risk multiplier to increase the fee to account for risk. Under the declining-benefit method, the court starts with a percentage of benefit conferred, then decreases the fee until the risk multiplier seems appropriate for the risk. In Sugarland, the Delaware Supreme Court rejected the lodestar approach. This court should not be deploying the declining-percentage methodology to undermine that decision.”

While “candor demands conceding the existence of a number of surface-level similarities between federal securities cases and Chancery M&A litigation… there are significant differences.”  After a scholarly discussion of the differences, both generally and in the context of this specific litigation, the Court concluded that: “The rationales for using the declining-percentage method in federal securities litigation have not been shown to apply to Chancery M&A litigation. In particular, they do not apply to this case. The court will not make a downward adjustment based on the size of the common fund.”


In re Dell Technologies Class V Stockholders Litigation, No.2018-0816, 2023 WL 4864861, 2023 Del.Ch.LEXIS 218 (Del. Ch. July 31, 2023).