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E-MailStephen J. Choi is the Bernard Petrie Professor of Law and Business and Director of the Pollack Center at New York University School of Law, Jessica M. Erickson is the George E. Allen Chair in Law and Director of the Richmond Law & Business Forum at the University of Richmond School of Law, and A.C. Pritchard is the Frances and George Skestos Professor of Law at the University of Michigan Law School. This post is based on their recent paper, and is part of the Delaware law series; links to other posts in the series are available here.
Attorneys’ fees drive Delaware’s system of stockholder litigation. Delaware courts use fee awards to manage the incentives of its private enforcement regime. In recent years, however, several eye-catching awards—such as the $266.7 million fee in Dell Technologies and the $345 million fee in Tornetta v. Musk—have sparked renewed scrutiny, raising concerns from Delaware legislators that Delaware’s fee awards do not align with shareholder interests.
In our new article, Is Delaware Different? Stockholder Lawyering in the Court of Chancery, we ask: Are Delaware’s fee awards different—and if so, why?
We assemble a comprehensive dataset that includes all derivative and class actions involving public companies filed in the Delaware Court of Chancery between 2017 and 2022. We coded outcomes, recovery types, fees, lodestars, and granular characteristics of the allegations and procedural posture. We compare these Delaware cases to a large dataset of federal securities class actions that we collected covering more than 2,400 cases.
One finding stands out: a “Delaware premium.” Delaware awards significantly higher fees—especially higher multipliers—than comparable federal cases, even though the underlying litigation risk looks quite similar. We also find no evidence that Delaware’s fee awards systematically account for the risks attorneys bear or the results they achieve.
Delaware and Federal Cases Share Similar Litigation Profiles
Delaware courts have long resisted comparisons to federal securities class actions. When justifying high fee awards, the Court of Chancery has emphasized several features that purportedly distinguish Delaware stockholder cases, including the ability to identify high-quality cases, higher dismissal rates, and lower settlement prospects.
Our data suggest otherwise.
1. The same lawyers file cases in Delaware and federal court.
Of the 61 plaintiffs’ firms that are regular players in Delaware (five or more cases), 34 also appear among the most active firms in federal securities class actions. And among the top 25 Delaware firms by estimated revenue, nearly half also rank among the top revenue-generating firms in federal securities litigation.
These overlapping business models mean that plaintiffs’ firms can allocate resources across both forums depending on expected returns.
2. Outcomes and settlement dynamics are similar.
Although federal cases have a slightly higher settlement rate, Delaware lawyers receive a settlement or mootness outcome in 58.5% of cases, compared to 40.5% in federal court. Delaware courts also dismiss stockholder cases less frequently than federal courts (19% in Delaware vs. 35.4% in federal court).
3. Both systems display a “lottery-like” distribution of recoveries.
Contrary to the suggestion that federal cases exhibit a unique “winner-take-all” pattern, we find similarly skewed distributions in Delaware. In both regimes, the top decile of settlements generates disproportionately large recoveries and fee awards.
But Delaware Awards Higher Fees—Especially Through Higher Multipliers
A core finding of our study is the substantial gap in fee awards between Delaware stockholder litigation and federal securities class actions.
1. Delaware fee percentages are slightly lower—but effective compensation is much higher.
Although Delaware’s average fee percentage (23.7%) is below the federal average (28.7%), this metric obscures the true economic difference. Plaintiffs’ lawyers in Delaware receive an average of $1,692 per hour, nearly double the $935 per hour awarded in federal court.
2. The multiplier gap is large, statistically significant, and pervasive.
Multipliers measure the return on a law firm’s investment by comparing the fee award to the lodestar. They should be central to how firms (and litigation funders) evaluate cases.
Across all stockholder cases with monetary recoveries:
- The mean Delaware multiplier is 2.61
- The mean federal multiplier is 1.44
- The difference is significant at the 1% level
Furthermore, this gap widens sharply in the largest cases. In the highest-settlement decile. Delaware multipliers average 6.5, while federal multipliers average slightly above 2. This difference is not driven solely by outliers such as Tornetta. Delaware awards “mega-multipliers” (> 4) in 14.4% of cases—compared to just 2.6% in federal court.
These numbers suggest that Delaware’s fee jurisprudence systematically awards attorneys a higher return on their investment relative to federal securities cases.
Delaware’s Fee Awards Do Not Reflect Differences in Risk
To justify these higher returns, Delaware courts have insisted that its stockholder litigation is riskier than federal securities litigation. Our empirical tests find no meaningful support for this claim.
1. Plaintiffs’ attorneys can identify high-value Delaware cases at filing.
Using detailed complaint-level coding and regression analysis, we find that several case characteristics strongly predict both the probability and the magnitude of monetary recovery in Delaware stockholder litigation:
- Presence of an institutional plaintiff
- Use of a Section 220 demand
- Allegations involving controller freeze-outs
- Other controller or insider conflicts
- Oversight and Caremark-style allegations
These characteristics are observable ex ante, meaning plaintiffs’ firms can target and screen attractive cases before investing heavily.
2. Fee awards do not correlate with case-specific risk.
Using regressions that control for case characteristics, we find:
- No systematic relation between fee levels and the case characteristics listed above.
- Cases with characteristics associated with higher expected recovery—and therefore lower risk—do not receive lower multipliers.
- Conversely, cases with riskier profiles do not reliably receive higher awards.
3. Excess Multipliers
We examine the probability at the time of filing that the suit will result in an outcome that leads to fees being paid to the plaintiffs’ attorney (a “fee-paying outcome”). Fee-paying outcomes include settlements, plaintiff victory at trial, and mootness outcomes that result in fees. We use this model to compute an “implied multiplier” necessary to compensate plaintiffs’ attorneys for the probability of walking away with nothing. For example, if the probability of fees is 50%, then the implied multiplier for that case is 2. For our sample of Delaware cases, the incidence of a fee-paying outcome is 0.54, giving an implied multiplier of 1.87.
We then calculate an “excess multiplier” equal to the actual multiplier minus the implied multiplier. For our overall sample, the mean actual multiplier is 2.59, giving an excess multiplier of 0.72. Across our sample of cases, plaintiffs’ attorneys are receiving a 72% return on their lodestar that is not necessarily based on risk.
To examine how the probability of a fee-paying outcome varies with specific case characteristics, we estimate a model for the probability of a fee-paying outcome with case characteristic variables as independent variables. We obtain a case-level implied multiplier from the model and use this to calculate a case-level excess multiplier. From this, we estimate that conflict cases, for example, have a mean 1.11 excess multiplier above what is necessary to compensate for the risk of a non-fee-paying outcome.
Variation by Judge and Law Firm Suggests Discretion, Not Risk, Is Driving Awards
One of the most striking patterns we observe is significant variation in the case-level excess multiplier across judges and across the repeat-player law firms that earn the highest aggregate fees in our sample—even after accounting for case characteristics, lodestar, and recovery amounts.
1. Judges differ in their awards.
Some judges consistently award higher excess multipliers than others. Although we control for a variety of case characteristics, because the Court of Chancery did not start to randomly assign cases until very recently, it is possible that these higher awards are explained by differences in case assignments. The variation in these awards raises a concern, however, that higher fees reflect differences in judicial philosophies with regard to fees.
2. Repeat players receive higher rewards.
Controlling for lodestar, recovery amount, and case type, the repeat-player law firms receive significantly higher excess multipliers, overcompensating for risk.
A Path Forward: Toward Greater Analytical Rigor and Transparency
Delaware may indeed be different—but the beneficiaries of that difference are often the lawyers, not the stockholders the system is meant to protect. We suggest three reforms that could make Delaware’s fee-award process more consistent and better align plaintiffs’ lawyers’ incentives with shareholder interests:
1. Greater transparency and data collection.
Delaware judges currently operate without systematic fee award data. A centralized database of fee awards and case characteristics—updated in real time—would facilitate more consistent benchmarking. We have outlined this proposal in greater detail in a prior blog post.
2. True lodestar cross-checks.
Although Delaware’s doctrine allows courts to consider lodestars, in practice the cross-check rarely constrains large awards. A more structured cross-check—similar to that used in federal court—would reduce extreme multipliers.
3. Presumptive multiplier caps.
Texas caps multipliers in class actions at four. Delaware could adopt a similar approach, allowing judges to override caps only with a clear justification grounded in risk and performance. To maintain incentives, courts would need to award higher marginal multipliers to reward performance above replacement value. But tailoring multipliers to performance is not inconsistent with a top-end cap.
These reforms would preserve judicial discretion while reducing the risk of windfalls and restoring confidence in the fee-award system.
