In the current heated DExit debate over whether companies incorporated in Delaware should reincorporate elsewhere (usually Texas or Nevada), one factor often cited is the expense of litigating in Delaware, usually as a shorthand reference to a contention that plaintiffs’ counsel’s fee awards in Delaware’s court are out of control. This argument typically cites to a few recent cases in which the fees awarded unquestionably were large; recent academic studies have taken the argument further to contend that the fees awarded in some cases were excessive.
However, a more recent study, based on a comprehensive overview of all Delaware court fee awards in the last ten years, challenges the premise that fee awards are out of control; the study finds, rather, that fee awards generally have been within reasonable bounds, and argues that a very small number of outliers should not drive the analysis of the issues. The study concludes that Delaware’s flexible approach to fee awards provides the appropriate incentives for plaintiffs’ counsel and includes safeguards to protect against excessive fee awards. Perhaps most significant in light of the current controversy is the study’s authors’ finding that “we find no evidence that Delaware fees are systematically excessive.”
The November 5, 2025, study, written by Delaware Court of Chancery Judicial Clerk Gilda Sophie Prestipino and Stanford Law School Professor Michael Klausner, can be found here. The authors’ November 20, 2025, Harvard Law School Forum on Corporate Governance post about the article, entitled “Attorneys’ Fee Awards in Delaware: Some Much-Needed Data to Calm the Waters,” can be found here.
Background
Over recent years, Delaware’s courts have developed a framework governing fee awards for plaintiffs’ attorneys in class actions and derivative suits. The framework incorporates a multifactor analysis that takes into account the benefits conferred in the litigation, the time and effort of counsel, the relative complexity of the litigation, the risk inherent in the fee arrangement, and the standing and ability of counsel. Of these factors, the Delaware Supreme Court has said that the benefit conferred is the most important one. The Supreme Court has endorsed an approach where the fee award percentage increases for cases that settle later in the litigation process.
In recent months, high dollar value attorneys’ fee awards in certain high-profile Delaware cases have raised concerns that have stirred controversy and even triggered legislative action. The two awards most often cited are the $345 million fee award in Tornetta v. Musk (in which case the court rescinded Tesla CEO Elon Musk’s $51.4 billion pay package) and the $266 million award in the Dell Technologies settlement.
Recent academic papers (here and here) by Joseph Grundfest and Gal Dor of Stanford Law School, discussing cases in which the Delaware Chancery Court awarded attorneys’ fees with lodestar multipliers of seven or more, have further fueled the controversy. (The “lodestar” is based primarily on the time attorneys have worked on a case multiplied by an appropriate hourly rate.)
The controversy surrounding the amount of plaintiffs’ fee awards has sparked outrage. Recent public commentary has suggested that numerous companies have cited “over-inflated fee awards” as one reason they have moved out of Delaware. (It is relevant to point out here that Texas, one of the states often cited as an alternative to Delaware, has a fee limit of four times the lodestar.)
In February 2025, the Delaware legislature, sensitive to the current DExit threat, passed Senate Concurrent Resolution No. 17, adjacent to SB 21 (which was designed to address perceived concerns fueling the DExit phenomenon), requesting the Council of the Corporation Law Section of the Delaware State Bar Association to prepare a report of recommendations for legislative action regarding attorneys’ fee awards in corporate litigation cases. The initial deadline was March 31, 2025, which was extended to December 31, 2025.
The Paper’s Analysis
In their paper, the authors analyze ten years of Delaware attorneys’ fee award data relating to 193 settled cases, six cases litigated through trial, and 33 cases that were mooted and voluntarily dismissed. The data shows that in general awards are far short of the seven times lodestar multiple that has triggered discussion. The authors conclude that the median lodestar multiple for all settled cases is 1.43 and the mean multiple is 1.86 Even at the 75th percentile of all fee awards, the multiple is 2.42 times the lodestar. The author’s note that among settled case, only two of 193 resulted in fees seven times the lodestar.
The authors note further that cases with the high lodestar multiples on which critics have focused also involved very high shareholder recoveries, an observation the authors suggest should be unsurprising since fees are based primarily on a percentage of the plaintiffs’ monetary recovery or other benefit provided. One would expect, the authors note, that “some high-recovery cases result in fees that are a high value of the potential recovery,” adding that the hours a plaintiffs’ lawyer devotes to a case “are not necessarily proportionate to the recoveries.”
To get at these issues further, the authors break down the analysis, focusing on fee awards only in cases with monetary recoveries (in recognition that in cases without monetary recoveries the value of the benefit conferred could be debated). The analysis shows that generally the lodestar multiplier used in the fee award increases as the dollar value of the settlement increases. In the largest quartile of cases with monetary settlements (involving settlements between $44 million and $1 billion), the mean and median lodestar multiples were 2.74 and 2.61, respectively, and even in the 75th percentile of settlements within that bracket, the lodestar was 3.35.
The “bottom line,” the authors note is that the “high fee awards on which the critics concentrate constitute a thin tail in the distribution of settled and tried cases.” The authors acknowledge that “the visibility of the outliers makes them politically salient.” However, from a policy perspective, the authors “question whether the statistical tail should wag the dog,” adding that occasional high fees in high-recovery cases are a “natural result of a regime that provides plaintiffs’ lawyers an incentive to pursue the largest recovery they can obtain for shareholders.”
The authors reject proposals that would limit fee awards to a specified percentage or to a lodestar multiple cap. A lower percentage fee limit, even just for high recovery cases, “would tend to reduce plaintiffs’ attorneys’ incentives to obtain the best recovery for their clients” adding that in cases requiring the greatest amount of legal work, “the incentives to press forward for the best recovery for shareholder could be impaired.”
A loadstar-based cap, the authors suggest, “would be worse, both from an incentive and judicial economy perspectives.” Plaintiffs’ lawyers would have no incentive to settle cases early for high amounts, as they would have incentives to keep billing hours at the capped multiple rate. Later in the case, plaintiffs’ lawyers, rather than risking a loss, would have an incentive to accept a lower settlement as long as it yields fees at the cap. “Creating such a misalignment of lawyer and client interests is a high price to pay for reducing fees in 1% of the cases.” Legislative intervention to address outliers, the authors suggest, is unnecessary.
Discussion
In the academic corner of this debate, two of the key antagonists happen to both be law professors at Stanford Law School – that is, Professors Joseph Grundfest and Michael Klausner. I happen to be acquainted professionally with both of them, and it is my hope to continue good relations with both of them. I would not want my remarks here to impair those good relations.
All of that said, I have to imagine that the atmosphere in the Stanford Law School faculty lounge might be just a little bit frosty these days. Among other things, the paper Klausner co-authored says with respect to the papers that Grundfest co-authored on the Delaware attorneys’ fee issue that the Grundfest co-authored papers reflect analysis that is “based on minimal data and suffers from other methodological flaws.” Ouch! To be sure, in saying this, the paper Klausner co-authored is expressly citing the work of other academics critical of the papers Grundfest co-authored. But still.
I have one other preliminary observation, which that is that Professor Klausner arguably has a dog in this fight. As he himself notes in a footnote at the outset of the paper, Klausner is currently acting as co-counsel in Delaware Chancery Court cases on behalf of plaintiffs involving special purpose acquisition companies. Meaning no disrespect, but from one perspective, it could be argued that Klausner might not be a totally disinterested participant in the debate over the size of plaintiffs’ attorneys’ fees in Delaware. (I have previously written on this blog about Professor Klausner’s involvement in the Delaware SPAC-related litigation, for example, here.) I suppose it could also be questioned what difference it makes even if he is an interested commentator. He was after all forthcoming about his interest.
I will say that for all of the fee award analysis in the Klausner co-authored paper, there is still the problem of the massive fee awards in the Tesla and Dell cases. While they may be outliers, and they and other large fee award cases may represent only a very small percentage of all fee award cases, the numbers involved are so large that of course they are dominating the debate. Fee awards of, in one case, more than a third of a billion dollars, and in the other case, more than a quarter of a billion dollars, simply boggle the mind.
Professor Klausner does a brave job defending the existing system that allowed these outsized awards. I very carefully read his and his co-author’s essay about making sure the system is providing the necessary incentives for plaintiffs’ lawyers to continue to push for the very best recovery for their clients. I have two observations about this analysis; one has to do with effects and consequences, and the other has to do with incentives.
First, with respect to effects and consequences. I note that even conceding for the sake of argument everything that the authors have posited with respect to incentivizing plaintiffs’ counsel, there is still the critical issue of public perception of the courts and their processes. The fact is that the size of the largest fee awards is mind-boggling, and almost inevitably begs the question whether something has gone terribly wrong. I think there is a very real danger that the appearance of uncontrolled plaintiffs’ fee awards runs the risk of bringing disrepute upon the court. And in the midst of the current DExit debate, the Delaware courts’ repute is a matter of critical concern.
The authors may be correct that the data do not support the conclusion that fee awards in Delaware are “systematically excessive” – but it may also be true that even if the fee awards in Delaware are not systematically excessive, they are perhaps occasionally excessive, and that occasional excess is a large enough problem that it can’t be ignored. And arguably should be fixed.
And, second, with respect to the issue of plaintiffs’ counsel’s incentives, I think it would not be too cynical to say that most lawyers would be sufficiently motivated by the prospect of a nine-figure fee award, even if the award does not in the end quite come to a third or even a quarter of a billion dollars. In that regard, it should be noted that under the authors’ own analysis, the mean, median, and 75th percentile loadstar multipliers were in every category of the authors’ analysis below the four times lodestar multiplier cap that Texas has mandated. Given that, how constrained would plaintiffs’ lawyers’ incentives really be, even if the Delaware legislature were to impose some sort of cap or limit on plaintiffs’ fee awards?
It may be as the authors suggest that mere “outliers” should not drive the debate on the attorneys’ fee award issue. It may be that the tail should not wag the dog. However, there are other values at stake here other than ensuring the plaintiffs’ lawyers’ incentives. In particular, public perception of the courts and their processes matter. That would be true even if we were not in the midst of the DExit debate. But given that we are in the midst of the DExit debate, public perception arguably matters even more.
I could be wrong, of course, but I suspect that in the end, the Delaware legislature, very much alarmed by the threat to the state that the DExit phenomenon represents, will opt for some sort of top end limit or cap on plaintiffs’ fee awards.
Those readers interested in the data and analytic issues (especially with respect to methodology) will want to review the recent commentary of Anthony Rickey of Margrave Law LLC, especially at the end of the article where he discusses the Klausner co-authored analysis. Rickey questions whether, given changes in the case law in Delaware’s courts over time, the fee awards over the ten year period studied can be analyzed together or rather should be broken out to separate the effects of merger objection cases and mootness fee awards.