Law Firms

Cravath is entitled to nearly $75M as a contingency fee in failed-merger litigation, judge rules

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A Delaware judge has ruled that Cravath, Swaine & Moore is entitled to a $74.8 million shifted contingency fee in a lawsuit for damages following a failed merger.

Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery upheld the fee under a provision in the merger agreement that shifted reasonable attorney fees and expenses to the losing side in damages litigation if the merger failed. Cravath was seeking to collect based on its 15% contingency pay agreement with its winning client, the Williams Companies Inc. and Reuters have coverage of Glasscock’s Aug. 25 decision.

According to Reuters, the Williams Companies Inc. was awarded $410 million last year in the suit seekinga contractual breakup fee for breach of the merger agreement by oil pipeline operator Energy Transfer. Glasscock’s ruling requires Energy Transfer to pay the Williams Companies’ attorney fees in addition to the breakup fee.

“Because I find that Williams’ agreement with counsel to a contingent representation was itself reasonable, and that the amount incurred under their agreement is likewise reasonable, I find the contingent fee appropriate under the fee-sifting provision of the merger agreement,” Glasscock wrote.

Cravath had supported its contingent fee request with a lodestar of about $47 million, representing the fees that would have been assessed based on hours reasonably expended. A multiplier of 1.7 was applied to the fees to account for the contingent nature of the fees and other factors.

Energy Transfer had objected to Cravath’s rates and hours by comparing them to legal bills by Energy Transfer’s lawyers at Vinson & Elkins.

But Glasscock said Cravath had to spend more hours on the case, partly because the Williams Companies had to produce about 10 times as many documents as Energy Transfer.

Energy Transfer had also complained that Cravath’s average rate of about $624 per hour was far higher than Vinson & Elkins’ rate of about $472. But Energy Transfer did not show that Cravath’s rates were above market, Glasscock said.

Glasscock also awarded compound interest to the damages award and ruled that the interest should not be tolled for a period when trial was postponed.

Reuters wondered whether other mergers-and-acquisitions litigation firms will also seek contingency fees following Cravath’s big win. The article also noted that Cravath “apparently regards itself as an innovator on contingency fee deals. Its reply brief highlighted the firm’s ‘extensive experience with similar arrangements.’”

“I’d sure love to know what those cases were,” wrote Reuters columnist Alison Frankel, “but the names are redacted from Cravath’s brief.”

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