Adam Pritchard is a law professor at the University of Michigan who is acting as a paid expert for one of the parties objecting to the fee award in Tornetta v. Musk. See Affidavit of Adam Pritchard, Tornetta v. Musk, 2018-0408-KSJM (Del. Ch. May 31, 2024) (Trans. ID 73297831) ¶1. (Disclosure: My firm had the privilege of providing pro bono representation to Professor Charles Elson who submitted amicus briefs in support of Tornetta in that matter).

As the Delaware Supreme Court considers that appeal, Pritchard  has released an article, Is Delaware Different? Stockholder Lawyering In the Court of Chancery, authored with two academic colleagues (Jessica Erickson and Stephen Choi). Their article concludes that “plaintiffs’ attorneys in Delaware are overcompensated—on average—for the risk of not getting paid for their work.”

Pritchard and his co-authors begin by assembling “data from every derivative suit and class action involving a public corporation filed in the Delaware Court of Chancery between 2017 and 2022.” From that sample, they calculate that “54% of the cases resulted in a fee-paying outcome for the plaintiffs’ attorney.” And from this, they “compute an overall implied multiplier of 1/0.54 or 1.87,” suggesting that “if plaintiffs’ attorneys can expect to receive fees in 54% of their Delaware cases, the attorneys need a multiplier of 1.87 to compensate for the risk of no fees.”

Pritchard and his colleagues then calculate that, in cases in their sample where the Court of Chancery awarded a fee, the mean “actual” multiplier was 2.59. Because 2.59 is larger than 1.87, they conclude that plaintiffs’ lawyers are “overcompensated … for the risk” they are taking and that “[t]his excess return comes out of stockholders’ pockets[.]”

That analysis, published in abbreviated form here, has been widely covered and promoted by those who seek to unshackle controlling stockholders (primarily, tech founders like Musk as well as private equity sponsors) from their obligations to minority investors by further reducing the extent and effectiveness of private enforcement of Delaware’s robust fiduciary-duty regime.

As one colleague in the stockholder bar noted, however, the article demonstrates a dramatic lack of “understanding [of] basic concepts underlying the contingency firms’ business models” and “many of their assumptions would quickly deteriorate if they spent five minutes speaking to someone who actually does this for a living.”

Every single step of Stockholder Lawyering’s analysis is mistaken.

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