Interest fee

Cravath wins $75 million in contingency fees in busted merger case

Signage is seen outside the building where the law firm Cravath, Swaine & Moore LLP is located in Manhattan, New York, U.S., August 17, 2020. REUTERS/Andrew Kelly

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(Reuters) – Who says contingency fees only apply to plaintiffs’ companies?

Certainly not Cravath, Swaine & Moore. On Thursday, the company won a Delaware Chancery court ruling that Cravath is entitled to a hefty $74.8 million award for securing a $410 million severance package for The Williams Cos. Inc after Energy Transfer LP abandoned its $33 billion merger. And because the merger agreement between Williams and ETE included a fee transfer provision, Vice Chancellor Samuel Glasscock ruled that ETE is responsible for awarding the $75 million fee to Cravath.

Cravath’s lodestar billings for representing Williams in Delaware Chancery Court over the past five years were approximately $47 million, according to the firm’s fee application. ETE’s attorneys at Vinson & Elkins argued that even lodestar’s fees were unreasonable, in light of its own more modest $25 million legal bills to ETE. (Cravath’s weighted hourly rate in the Williams case was $624. V&E’s was $473.) ETE proposed that Cravath deserved only $28 million in fees.

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Glasscock said Cravath’s $47 million common thread was not unreasonable, given that Williams’ burden of proof was much higher than ETE’s in the severance charge litigation. And – more importantly – the Vice-Chancellor also deemed Cravath’s 15% contingency fee deal with Williams to be reasonable.

Cravath and Williams made the deal in 2017, after Williams lost its bid to force ETE to complete the $33 billion merger. At this point, the dispute turned into a battle over the appropriate termination fee. (Williams previously dismissed an ETE counterclaim for $1.48 billion severance costs.) Williams’ new legal counsel, former federal magistrate judge Lane Wilson, has offered a contingency fee agreement with Cravath in order to align the interests of the company and its exterior. Advice.

ETE apparently attempted to cast a cloud over the circumstances of this 2017 agreement. Unfortunately, ETE’s brief opposing Cravath’s contingency fee was filed under seal and a public version is not available on file. ETE attorneys Michael Holmes and Craig Zieminski of V&E did not respond to my email, which included a request for an opposing brief. But Cravath’s response brief in support of his contingency fee claim recounts – and refutes – ETE’s speculation that Cravath accepted his client’s fee proposal “to save face with Williams” after failing to force ETE to close the deal. Cravath’s response brief cited depositions in which the Williams GC and Cravath’s partner, Antony Ryan, testified that Cravath agreed to the deal because the company decided it made economic sense to take on a risk. additional. (Alas, the depositions, like ETE’s brief, are under seal.)

Cravath’s risk clearly paid off in Thursday’s decision: The company’s $75 million contingency fee is nearly $30 million more than its $47 million lodestar billing.

Ryan said in an email that the company was pleased with the decision by Glasscock, which also awarded Williams compound interest dating back to 2016 on the $410 million breach payment. “The interest and expense awards complete Williams by putting it in the position it would have been in had ETE paid the termination fee in June 2016, as the parties agreed to,” Ryan said.

Glasscock said its decision on fees was dictated by the merger agreement signed by Williams and ETE in 2015. The agreement included a fee transfer provision that required ETE to pay reasonable legal fees to Williams if Williams were successful in get severance pay. The only restriction, according to the contract, was that the Delaware courts find the fee request to be reasonable.

The contractual provision on the transfer of fees did not specifically address the possibility of a contingent fee. And at the time Williams and ETE signed the agreement, Delaware courts had yet to determine whether contingency fees were permitted under fee transfer contracts. But Glasscock said a long-standing Delaware precedent had already established, at the time of the 2015 agreement, that contingency fees can be deemed reasonable under Delaware rules. Thus, Williams and ETE, the judge said, knew that contingency fees were not automatically prohibited when they agreed to the 2015 fee transfer provision.

As it happens, Delaware courts have since ruled specifically that contingency fees are permitted under the fee transfer provisions. In 2021, as I reported at the time, Chancellor Kathaleen McCormick ruled that Shire US Holdings Inc owed more than $20 million to Keker, Van Nest & Peters under the contingency fee agreement. de Keker with former shareholders of a biopharmaceutical company that successfully sued Shire for failing to pay a $45 million post-merger distribution. The Delaware Supreme Court upheld the Chancellor’s decision in a one-sentence order in November 2021.

ETE’s attorneys at Vinson & Elkins attempted to distinguish Cravath’s contingency fee agreement with Williams from Keker’s agreement in the Shire case. According to Glasscock, ETE underscored McCormick’s position that Keker’s contingency fees served public policy interests because the firm’s clients might not have been able to fund their litigation against Shire. ETE, Glasscock said, argued that Williams and Cravath had no public policy rationale for their deal, since Williams never suggested he couldn’t pay Cravath without offloading the risk to the law firm. .

Glasscock said it was not a “basis of principle” to draw lines between the Cravath and Keker fee deals. “In Shire, the plaintiff made a business judgment to move to a contingency fee because it could not otherwise fund the litigation,” he wrote. “Here, Williams’ general counsel also made business judgment to move to a contingency fee to ‘align Cravath and Williams. [as] partners in this litigation.

Will other M&A litigation firms follow Keker and Cravath’s lead now that it’s clear they can collect large contingency fees from opponents under contractual fee transfer provisions? I’m sure Cravath’s $30 million windfall will at least make other M&A agencies think twice about sharing the risk with their clients.

One final note: Cravath apparently considers itself an innovator when it comes to contingency fee agreements. His response brief highlighted the company’s “extensive experience with similar arrangements”, and Cravath partner Ryan apparently testified in his (sealed) deposition on other cases Cravath has litigated on an emergency base. I would love to know what those cases were, but the names are removed from Cravath’s record.

Read more:

Energy Transfer must pay Williams $410m for scrapping $33bn merger

Chancery Court says Shire owes Keker $20m contingency fee – though deal not reached with Shire

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Alison Frankel

Thomson Reuters

Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A graduate of Dartmouth University, she worked as a journalist in New York covering the legal industry and law for more than three decades. Before joining Reuters, she was an editor and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.