Securities Regulation Daily Wrap Up, CORPORATE GOVERNANCE—Are DE lawyers overpaid? New paper suggests headline-grabbing fee awards are outliers, (Nov 10, 2025)

By Anne Sherry, J.D.

Two Stanford Law academics analyzed ten years of Delaware attorney fee awards and found that outsized fees occur in just 1 percent of cases.

A paper published recently on SSRN disputes the claim that attorney fee awards in the Delaware Court of Chancery have gotten out of hand. Critics of the state’s corporate regime have cited huge awards like the $345 million approved in Tornetta v. Musk as showing the state has lost its way, feeding DExit and prompting legislative review. But Stanford Law academics Gilda Sophie Prestipino and Michael Klausner retort that the objections are based on minimal data and fail to recognize that occasional outlier awards are the natural result of a fee award structure that is properly designed to align plaintiffs’ lawyers’ incentives with shareholders’ interests.

Prestipino and Klausner observe that the fee debate is more acute given that Texas, an increasingly popular corporate alternative to Delaware, caps attorney fees in class actions to four times the lodestar. Delaware has repeatedly rejected a lodestar-based approach and instead bases fees on a percentage of the benefit procured. The Delaware legislature has directed the Council of the Corporation Law Section of the Delaware State Bar Association to complete a report of recommendations for legislative action on the fee issue by the end of this calendar year.

In May 2025, Stanford’s Joseph Grundfest and Gal Dor published a paper finding that 21 Delaware fee awards involved lodestar multipliers of seven or more. (A later update puts the number at 20.) The paper also found that more than half of these “septuples” were awarded by two Chancery judges. Delaware attorney Joel Fleming quickly responded that Grundfest and Dor’s “analysis is so flawed as to be useless,” and he and Grundfest debated the issue the following month on the Shareholder Primacy podcast.

Like Fleming, Prestipino and Klausner push back against Grundfest and Dor’s paper. For one thing, they observe that there is nothing meaningful about the 7x lodestar concept that renders that multiple an appropriate benchmark for excessive awards. But the new paper also looks at ten years of data to conclude that such septuples represent only 1 percent of settled cases. Grundfest and Dor went as far back as 2004.

“In sum, the data show that Delaware fee awards are generally not a high multiple of lodestar, that cases with high lodestar multiples are a very small minority of cases, and where lodestar multiples are high, they are a predictable product of a salutary approach that awards fees based primarily on an increasing percentage of the recovery as a case proceeds before settling,” Prestipino and Klausner write.

That last point centers on Prestipino and Klausner’s argument that the occasional outlier fee award is an inevitable result of a system that focuses on ex-ante incentives. From an ex-post perspective, these attorneys may appear to have been overpaid. But capping fees or reducing the percentage of the benefit from which fees are calculated “would reduce incentives ex ante and harm shareholders precisely in those cases where they have the most to lose—those with large potential recoveries and those in which reasonable settlements are not available early in the litigation process.”

Prestipino and Klausner also touch on mootness cases, which they say are resolved quickly and result in a substantial benefit. With less time spent on the case, the lodestars are low, so the multiples are high. These awards, which are generally negotiated between the parties with no court involvement, “are to be expected and are not a basis for concern.”

In this respect, Prestipino and Klausner provide examples of how capping fee awards at a multiple of lodestar, like Texas has done for class actions, could harm shareholders. The authors hypothesize two straightforward duty-of-loyalty cases, one with shareholder losses of $20 million and the other with losses of $1 billion. It may not take much longer to litigate the $1 billion case, but a multiple-of-lodestar cap would provide the lawyer with no incentive to obtain a larger recovery for shareholders. In a real example, shareholders in Americas Mining recovered $2 billion, and their attorneys were awarded 90 times lodestar. Prestipino and Klausner posit that the case would have settled for a much smaller amount if the fee award had been capped at four times lodestar.

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