Last Friday, Delaware lawyer Francis G.X. Pileggi wrote about Vice Chancellor J. Travis Laster's recent decision to award more than $72 million in attorneys fees in costs in connection with the settlement of a derivative action challenging the divestiture Vivendi S.A.'s controlling equity position in Activision Blizzard, Inc. In Re Activision Blizzard, Inc. Stockholder Litigation, Cons. C.A. No. 8885-VCL (Del. Ch. May 20, 2015). In exchange for a global release of all claims relating to the transaction, the defendants agreed to (i) pay $275 million to Activision, (ii) reduce a cap on the voting power wielded by Activision‟s two senior officers from 24.5% to 19.9%, and (iii) expand Activision‟s board of directors to include two independent individuals unaffiliated with the two senior officers.
The award of fees and costs in Activision represents about 26% of the defendants' cash payment to the company. In the opinion, Vice Chancellor Laster quotes Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980) concerning the typical percentage awards:
When a case settles early, the Court of Chancery tends to award 10-15% of the monetary benefit conferred. When a case settles after the plaintiffs have engaged in meaningful litigation efforts, typically including multiple depositions and some level of motion practice, fee awards in the Court of Chancery range from 15-25% of the monetary benefits conferred. . . . Higher percentages are warranted when cases progress to a post-trial adjudication. Id. at 1259-60 (footnotes omitted).
Delaware case law supports a wide range of reasonable percentages for attorneys' fees, but 33% is the very top of the range of percentages.” Id. (internal quotation marks omitted).
Id. at 1259-60 (footnotes and internal quotation marks omitted).
This set me to thinking again about the economics of litigation from the perspective of a plaintiff's lawyer. To make a profit, the amount that an attorney invests in a case must be less than the court determined percentage multiplied by the value of the benefit conferred by the litigation.
Let us assume that an attorney settles a case at a very early stage after investing $50,000, the court will award 10% of the benefit conferred (B). For the attorney to make a profit, $50,0000 < (.10)(B). In this case, B must be greater than $500,000. If we assume that the case proceeds through discovery and is settled after one or two motions, the attorney's investment will be greater. Let's assume that the attorney has in this case invested $200,000 and that the court awards 20% of the benefit conferred. Now, the benefit conferred must be more than $1 million. This may or may not be possible. If the benefit conferred does not increase, the increase in the percentage alone will not yield a profit for the lawyer. Rather, the lawyer would have spent $200,000 only to receive an award of $100,000. Finally, if we assume that the attorney will invest $500,000 in taking a case to trial and that the court will award 33%, the benefit conferred must be greater than $1,515,152. These scenarios are summarized by the following table:
| Amount Invested | Percentage Awarded | Benefit Conferred (B) |
| $50,000 | 10% | $500,000 |
| $200,000 | 20% | $1,000,000 |
| $500,000 | 33% | $1,515,152 |
The real world is, of course, much more complicated than these simplistic hypotheticals. For example, there will be uncertainty (risk) about the exact percentage, if any, that a court will award as well as uncertainty concerning how the court will value the benefit conferred. There will also be risk that the case will not settle, or if taken through trial, yield a win.
