Prof. Joe Grundfest and attorney Joel Fleming on Delaware contingency fees

Welcome to shelter, Primacy from free float media, a podcast about activist investing Securities Law and all the way is the financial legal world's intersect in Collide. In real life. I'm here with Anne Lipton law professor at Tulane in New Orleans who teaches in research is Securities and business law. She holds up the legal end of our podcast and that's Mike Levin an activist investor who lives and works in Chicago. He covers the financial side of our podcast. And before we get started, I'm going to as we've been doing in the festival weeks promoting that we have an email address shareholder, Primacy at freefloat LLC. If you want to send comments, you can send them there or you can send us ideas for shows or questions we can answer. And we've been sort of working our way through that. Yes, we are. Eager to hear. Everybody's input on what we talked about, anyway, we have a very interesting show for everyone today. Most everyone knows that, you know, contingency fees for attorneys and lawsuits, you know, for decades, it's been contentious and it's particularly contentious when it comes to what. We'll say. Representative litigation which is, you know, cases where the attorneys are litigating on behalf of a large class of people like incorporate and securities litigation. So, today, we invited two attorneys who have thought and written about this subject, a professor, Joe grundfest, and Attorney Joel Fleming to discuss different viewpoints on that. Yeah, representative. Asian like a class action or derivative corporate action. The attorneys don't just represent one client. The plaintiff's attorneys are in theory, representing a group of thousands or hundreds of thousands of people like shareholders, like all the technicians shareholders, all the exactly. And but of course all the Tesla shareholders aren't there in the courtroom, only one shareholder is and there wasn't me. That was not you know and the fears that in a case like that with one Cheryl holder on that shareholder isn't really calling this shot their Jason. They're just a placeholder. And the ones who are really making, the decisions are the attorneys and the criticism goes that the attorneys who make those decisions aren't really doing. So necessarily to benefit the shareholders as a whole, maybe they're doing it just to maximize their own fees. So this is a really old critique of Representative litigation. It's attorney driven and the nominal plaintiff isn't really typical of the class as a whole. And this matters a lot for fees because normally when you have a client and an attorney, They work out. What feed the client is willing to pay exactly. But when you're talking about an attorney, who's representing a whole class of people or all the shareholders, the attorney can't bargain with all those people. The best that they can do is maybe bargain with their one plane. If who's there in the courtroom. In tornetta, the musk pay package case that one plane. A famously held only nine. Share Richard. Turn out a was a A drummer, he's a musician. He even if he was eager to negotiate, those easy to have no idea what he was doing, no idea how to go about negotiating, a Tracy. So the plaintiffs in these cases, very often, not always, but they very often, can't really police the attorney's fees, effectively the way, they couldn't a normal relationship so that task is left to the court. The court has to decide on a fee award at the end of the case. And it's important to understand who pays this fee. If the defendants end up paying a monetary damages award, like, you know, the plane or giving a billion dollars, then the fees will often be calculated as a percentage of that award. It's paid out of what would otherwise go to the class. If it's a corporate derivative action and damages are actually paid to the corporation, usually, by the directors and officers, the directors and officers are said to have injured, the corporation, and they pay damages to the corporation and the attorneys fee, might be taking out of that. Of course, directors, officers don't really pay damages, It's usually the insurance, but for theoretically, the directors in office. As they paid damages to the corporation, maybe fees are pulled out of that payment and that gets to be like the, you know, in other types of litigation, you know, like a third or whatever. There's all sorts of kind of rules of thumb, about a share of the damages gets, then paid to the attorneys compensated for working on this at risk. There's which stuff we'll talk about, right? And there's a very there's a very specific analog to the security cases here, right? And and expenses the attorneys get their expenses, right? Okay. But if what happens to the defendants don't pay damages, let's say instead of paying damages, the defendants agreed to rewrite a proxy statement or hold a new director election or rescind the 5 5 5. 5 5, Defendants who complain loudly about the size of these fear Words, which may they may end up paying or at least their insurance, right? And they complain that these eye-popping fee Awards, just attract a lot of nuisance. Negation It Strike suits by attorneys who aren't really representing the interests of class members, but on the other side you have plaintiff's attorneys. Who point out, if they lose the case, they get bupkis, they don't even get their expenses back. They've lost all their time. They've lost copying fees, filing fees, expert fees, all of that. So there are argument is that they need a high fee when they win in order to compensate for the risk of losing. And they also argue that when defendants complain about fees, it's not really that, they're upset about the fee, it's that they're trying to change the incentive structure to make it to the plate. Don't want to take these cages in the first place. They're trying to kill off the litigation entirely. So, the argument it's been going on forever. This is yeah, this is a long standing. A set of debate or long-standing debate and it's become particularly important. Now, there are two Tesla cases before the Delaware Supreme Court where the attorney fees are like exhibit the main issue. And one is a settled case, meaning it was settled between the parties and that's about director comp. And of course, we've talked about that when that's the one where I was. I'm a party to that case. Representing myself Pro Se in front of Chancellor McCormick and I objected to the settlement on the grounds of the damages, warrant allocated properly among the defendants and that the Corporal forms were ineffective, but importantly, I did not object to the fees in that there the objection to the fees was stated by Tesla, Tesla corporate objected to the fees. Range of I think somewhere near 200 million dollars at this point. The other Penny case we talked about a minute ago was tornetta, that was Elon, Musk pay package, the defendants there are going to argue in all sorts of ways that's also an appeal, the Supreme Court that must gets to keep the pay award from 2018. The court was incorrect to rescind it, but even if it all goes through Tesla is our viewing that the attorneys got too much money and that sum of money is 345 million dollars which I think would be the largest fee ever provided for in Delaware history. Right? So those, yeah. So those two cases are pending before the Delaware Supreme Court right now which makes this Issue really important. But what's also important is that when Delaware amended its law recently which we've talked about and to make it a lot harder for shareholders to bring claims over conflicted transactions, make it harder for those to be reviewed by Courts. At the same time, the Senate proposed this resolution, that would direct the corporation law section of the Delaware State Bar to come up with some kind of proposal to cat plaintiff's fee. So, right now, this is like under consideration in Delaware that essentially to come up with legislation to cap planus fees, but this was not any kind of statutory. Yeah. No, this is just a resolution. That says it's passed the Senate yet that it's a red, but they're asking. But what they wanted to do is ask the bar, because usually corporate law is made for the recent amendments were an exception, but usually the Delaware Corporation lock, the State Bar Association Corporation, Los section, proposes, new, corporate legislation. So what the site wants to do is ask them to please propose new legislation that Would cap it to ask with just do it. Well, I mean, usually the corporation law section comes up with their own stuff, right? I'm saying it is a sort of a little Hammer that's being, you know, the sort of thing. And it's playing as far so. So the point is that these are all over the place right now. Yes. And, and the argument is quite fresh, and the argument is quite relevant. Also to activists because we're starting to litigate more stuff. Yeah. Then we ever have before in particular, I'm thinking like there's litigation over advanced, notice bylaws that's been Submitted and is working its way through the courts. There's been some decisions and so forth, but those are starting to go a little Beyond merely litigation where the activist was damaged and is then asking to, you know, have their candidates put on a, on a slate where there's at least a couple of different proposed as shareholder derivative suits. Yeah. So to Make the company change their bylaws essentially to revise these advancements. So that's starting to become a little more relevant to, you know, activists like me. Go ahead. Yeah, no, exactly. And that's the kind of thing that where there would be award at the end of the plane was successful. So this is a live debate and it heated up and this is what we're doing our show about in the past couple weeks because two Stanford researchers Professor, Joseph grundfest along with research associate Galore put out these paper's Two or three, depending on how you count it comparing, Delaware fear Awards to Federal fee Awards and concluding that the Delaware awards were much larger and those papers received some significant pushback from the plane as far, including Joel Fleming of equity, litigation group. So we interviewed both of them professor grundfest and Joel Fleming to give them each a chance to talk about the papers and about fees in general. Cheryl Derby is brought to you by free flow analytics.com. The only free database of corporate directors, their influence and their performance Fiona Stocker, retirement, plan go to free float. Analytics.com and look up which of your elected directors are performing well and which aren't use your vote in the alternative democracy and get your data at free. Float analytics.com. Now, back to the show, Welcome Joe. The William, a Frankie professor emeritus of Law and business at Stanford law and officially useless with Galore. You wrote that paper or a couple papers analyzing contingency fees in Delaware. And in federal court and federal court, right? Yes, and you were comparing the two and we'll just say, briefly, you concluded that they are higher in Delaware than in federal court. And so I'll just start by saying, tell us how you went about your study. Well, it's methods and so forth. Yeah, let me back up first and let me thank you very much. All right. For the invitation to just welcome and, you know, you just a couple of things. First, Delaware by Senate current resolution 78 as asked, Bill aware bar to study attorneys fees, and that is the proximate cause of this region. They said, look, we've just been through all of these Amendments of Delaware law, there was discussion about what do we do about attorneys fees? If anything and the state send it said to the bar, go study. And as you guys may know, I, I tend to be an imperialist and I said, that's really interesting. All right, so much of the debate about attorneys fees, and Delaware and elsewhere is anecdote. I'll pick some examples of cases that support my proposition. If you should be higher, other people say, gee, I'll go out and find examples of cases where fees should be lower, and you have a battle of anecdotes That's not the optimal way for policy to proceed. So what I did is I saw this and well, there really is no open database. That looks at this and building these databases really hard. So what I decided to do, which was very serious assistance. We're going to build a database that has a unique characteristic. It's open. It's the two of you that asked both of you a question, all right. Fair enough, can you cite me? Any academic study in this field or in the field of corporate governance? in which a hand collected, database, that Scholars, and lots of time pulling together is fully publicly disclosed So that ferns and critics can look at it and say gee, you missed this case, you should add this case. This is incorrectly classified. In other words, that you just open it up and say, look here at the data. Let's talk about the day. If I missed. I'm not, I'm not, I'm not the lawyer. I think Joe, you know, that I'm the finance guy. So, and I read these papers, I struggle to read them. So I could say, I do not know, I am not aware, but as a economist and finance person who is similarly empirical would love to hear about that kind of stuff. But and I think you get, there is no. But it's not about, it's not about cases. It's about corporate governance documents, the cleaning corporate governance paper. Yeah again Frankenreiter, Kathy, Wang your own Neely Eric. Talley, they put together a database that I believe. I haven't tried because I'm not in a Paris in even the slightest bit. So I wouldn't even know how to get into the database or what to do when I got there. But I my understanding is that it has like corporate dot like you know Charters and bylaws but it doesn't sound like it's cases. It doesn't sound like it's cases that involve like judges rendering about nothing like that and it's not on the fear. No right. No fees, no. What we want to do was Advance the state of the art. And make it data-driven. And make it as transparent as possible. We now have two papers that are out there, where the database is upon, which we rely are open, all right? And anyone who wants to say you miss these cases. Great tell us about the cases we missed and we're going to add them. All right, if their cases that shouldn't be there. All right, we will drop them. All right so we made we will add them but what we don't want to do is put a finger on the scales and say gee we have a certain policy position and therefore we're going to drop this case. What happened? See, and by pulling the full database out there, other people can pay, you know, and notice in both cases, we don't take any policy positions, okay? So people are reading the date and say, oh, you know, it means this, it means that the whole bit no. We're just reporting the facts here and this is intended to inform the debate over. The request and Delaware to study fees. Yes, I got. Okay, cool. All right, and you were gonna say something? No, I was gonna ask you like so but you've Out these cases in your database. I mean, I guess we should talk about what your Top Line finding is. And then I'd love to like how the case has got. Like you said people can add them but also, you know, like how did you how did you go about finding them in the first place? But let's start with what your Top Line finding is and then go from there. Okay. Well, there are two papers. Yeah, the first one is related to a borrowed. A line from one of Chancellor lastres Canyons, it's called raising the federal eyebrow. And they are it. Basically asks the question, how frequently do federal courts have Awards with multipliers of seven or more. And the reason why I picked seven is not because I picked seven, it's because the Delaware courts picks. Okay, wait, I'm going to stop because some of our listeners are very sophisticated attorneys but I know for a fact that sometimes students listen and so to take a step back when you say multiplier, Please explain what you mean by multiplying. Absolutely happy to so multiply. For example, a law firms, a million dollars in attorneys fee time on a particular case and if they get awarded fees of 2 million dollars, all right, then the multiplier is two. if they get awarded fees of 7 million dollars, After they've spent a million attorneys time. The fee is 7 and wait, wait. And now I'm gonna pick a number that isn't random and if they get awarded or multiplier of 66, Right. Right. And then you spend a million on a case and you make 66 million in attorney's fees, which is the multiplier that the Delaware Supreme Court approved in America's Mining. And is my later Research indicates, it appears to be the highest multiplier that I have found, all right? In any Court in the United States anywhere and if I'm wrong, all right, and if somebody knows of a higher multiplier, let me know and we'll add it to the database. Okay, so okay. So right. So all right, so there's a standard billing rate for attorneys Facebook, Yardie, whatever it is and a multiplier. Like yeah, it's so they get a fee award that's essentially higher than what their ordinary billing rate would be if they were being paid for their way. But that assumes, they win the case because if they lose the case, they get Focus, right? That's it. That's it. That's a technical term right now. Yes, yeah, it arises from interesting and I think the sentiment synonym is garnished Yes babe, we're talking tables. So so you know, you wind up, getting nothing, all right. And of course, as a downside that's why it's called continued, litigation lawyers don't and there's a small number of cases where you get less than your load star, which I actually think is more insulting than getting, nothing and load star is. And just, you know, okay. Anyway, doesn't load start would mean like they're standard rate and so a multiplier of the load star is, you know, whatever they get, if they get a free award that's higher to a higher than their standard rate, to some extent to account, for the risk of non-payment, at all in a case that they lose. So what you're finding then is, well, you looked at what the Delaware loads, what their load star multipliers were as a standard and you compare it and your second paper or know you started with the with the federal loads star. That was your first paper Federal multipliers and then you compare it to what Delaware, you even simply the first paper, basically. Quotes to Delaware. All right. Last search that quote a multiplier a multiple to Lone Star of 7x would not raise a federal eyebrow. What he says. All right, and then the Delaware Supreme Court, basically quotes that and it expands by saying that while multipliers of 7 are at the high end, They quote are not so unusual that we required to undo Chancery thorough consideration of the sugar infection. So that raises an empirical question. This is a testable proposition and that is how frequently do we find multipliers of 7? so we go and we look and this is not easy work to do because the courts don't systematically do it and one of the databases that we've so that the Laster himself has six examples, All right. we find four times as many and one of the techniques that we use is we found declarations put in by plaintiff's counsel, all right, where they hired experts, Where they cited to, as many examples of cases with high load stars as they could find. And these experts because they were supporting attorneys fee. Awards, that sought hide loan Stars had every incentive. All right, to find examples of highlights. so, we went to Leading academics who had filed affidavits saying, here, other cases with high loan Stars We collected, as many, of those as we could find, we did database searches alike. All right, and we found I believe 23 examples, right? All right, and, and it turns out that if you so those examples, you know, roughly four times as many, all right, as last or had found. So we quadruple that but simply counting the number. Of. Cases of wars with multiples of seven or more. Net doesn't measure how common they are in order to do that. You have to measure the frequency. Yeah, you needed to nominate her at that point, right? So this number, all right, of 23 is what I call the numerator in church of the denominator. All right, and then there's one piece by Fitzpatrick. It appears to be the only piece in the literature that, right. Yes, right. Yeah, just give him the credit. All right. And you know, he's the only one that has estimated the total number of few Awards. All right, in federal court, in a particular year, it's back in 2006. The number of these cases is exploded. So to be conservative, I've kept his number and what we do is just multiplied over the time span over, which these 23 occur. And what we discover is, the frequency is approximately 23/100 of 1%. From 2013, so 23 basis points, 23 200 interesting. Now, would you would 2300 of 1% raise a federal Library? I don't know. I have to go. That's up to you to decide. All right? He's 23 100th of 1% unusual. You tell me I'm just now. Joel Fleming has come along in the second piece of, you know, I found three more examples. You know what? My response. That is wonderful, 23. I will say 26. All right. And then the percentage might jump to 33 basis points. The 1/3 of 1%. and then the proper question is, does one third of one percent raise a federal eyebrow would a federal judge think that that's unusual. and would, you know, Delaware Supreme Court, thinking award in federal court of that arises with the frequency of 1/3 or 1%, Right. Roughly, you need to do 300 cases. And if you do 300 cases, you get one. Sure, I leave that to you. I'm just the beam. You just you're just making up the spreadsheet. Look, how's the bean counter? And when people come to me and say, Hey Joe, you missed a bean. I'm gonna I'm gonna thank you very much but yeah, Matt, now my sense is that one of the Responses again, sort of epitomized. If you will buy Joel Fleming from the Delaware bar, but also maybe some others was that. So there were some differences among the 23 or whatever number a case is. And and you know, some of them were, you know, a judge saying, you know, here's the amount of money you should get. And some of them were other kind of situations. I don't know if you want to elaborate on on some of that some of those distinctions that were brought up. Well, I mean that was what I think some of it had to do with Federal versus state. So like so these were settlements and these were Federal and they were all class action settlements. I believe they're all class actions different types of class, actions, not limited to any particular, it was it when you say actions, you also mean Cheryl did derivative yes, but okay, but that's rare and fed very rare, very okay. Alright, nevermind. That's where class actions. They were all settlements and they were but they were not necessarily all Securities in corporate they were consumer. Am I right that they were consumer? They were antitrust, they were all, you know yes. But what's really interesting, you know, and and people tend to ignore this point. I don't want to make believe that doesn't exist. Is that Delaware Supreme Court has spoken expressly about this and he let me quote from the Supreme Court opinion in 1996. It's called Goodrich versus all right. And here, I'm quoting Federal common fund, attorneys fees. Jurisprudence is not minding upon this on the Court of Chancery or nevertheless. It's history is didactic. The purpose of the valley waiting for the Court of Chancery filled in, also goodrich's argument in this case. So Delaware Supreme Court said, look So it would precedent isn't controlling. It's didactic. It's informative. Yes, we can learn from it. All right, that's my point. Okay, so if you want to look you can argue with me. But you about that, I thought it but you got it when you with me about that you're also arguing with the Delaware Supreme know fair enough. I just want to move to the second part of your house because that's federal court and then you did. But then separately, and this is the second paper is where you did Delaware and federal court, right? Show tell us what you found with Delaware. Well, you in that situation, what we found is that there appear to be fairly significant difference is Right, in terms of the multiplier, that's the courts. Award. And, you know, if I were to just try to sum it up in one sentence, you find that multipliers of 7 and 10 are far more common in Delaware than in federal court. And you also find that the multipliers are more extreme or more outliers in Delaware. So so far greater than the 10. Yeah, so it's one statistic. There's one simple step this. All right, that even Joel Fleming doesn't. Contest. And that is the highest multiplier in Delaware is America's Mining. And that's a multiplier of 66, right? That multiplier is far far higher. Than any multiplier ever awarded in any case in federal court? And, you know, so what's interesting is, and this is, you know, part of research gets to come. It hasn't yet published is if you wanted to try to do. All right. What are similar cases in federal court? the either of, you know, what a largest Award. She award in federal court, is for a Security's case, in which case, that was, I have no idea. I am, isn't it? No, you Scholars, right? And we still just what I want to this. Let's bring data to the conversation. No great. No. I mean her, I just. Okay. What's the answer? What is the largest of it? Tell me if you heard of this company She's called in. Oh yeah, I know them. Okay, so in Ron, all right there was a total recovery of 7.2 billion dollars. All right, that's how much was recovered in the class. The lawyers got 688 million dollars. They spent 280,000 hours on this. And their multiplier was 5.2. All right, and in that case is, in that case, they were suing. So the the 7.2 billion came from 10 different defendants, there were 10 different series of liability 10, different unique defenses. And these were not easy companies to sue JP. Morgan Chase. CIBC right? This was massive. Litigation, 28000 hours are right multiplier. 5.2 Literally the reason I went into this field actually has a turns out it just when I was trying to decide what I wanted to do. But yes, go on. No, I'm going to describe America's Mining and I'm not going to say anything about what influences you draw. In America's mine, the total final recovery was 2.03 billion. But with a b b 680 million of that was interested. All right, and 1.35 billion was the actual recovery without interest. The lawyers there got 304 million dollars. But they had spent 8,597 hours. In other words, the hours in Enron, which 33 Times Higher. Right. Then the hours in America's mining. And the multiplier in America's mining was 66. As a 5.2. All right. Now, I'm just giving you the date you just two two, two two, two interesting examples and this one but this points but the point is, we have the data. Now I'm saying to other people explain what? Okay. And you're very clear because I quoted it, I accepted it that you said in one of your papers that arguments over comparability will come soon enough. But let's just look at the data now. I mean, so, but this is see now, America's mining to Enron. This is one of the data points that I would ask about which is America's mining was post-trial right now. My recollection with Enron was nothing ultimately went to trial and not civil, right? It's settled. And this is a big difference like Federal like other than like Elon Musk and Tesla and his Tesla case in the ninth circuit, I can't. And, and there was another one out of the seventh circuit, but nothing goes to trial in federal court. It always settles and it almost always. Settles certainly a very often after motion to dismiss and if not that, then after class certification but Delaware actually tries cases and my understanding is that Delaware part of their logic is we want stage of case, increases risk and that matters. So just want to try. So number one. So no one we, let me agree with everything that Anne has said, if I'm allowed to agree with him, okay? You may. Okay, buddy has allowed to have to agree with the host, she's yeah. Of course, there are some additional facts That are also entirely. You know, again as research that I've done, you know, it's published with Cornerstone demonstrates. Trials in class actions Securities, cases are very rare. It's it's like one half of one percent. All right of complaints go to and if you say what's the biggest difference between Delaware litigation in and securities litigation you've hit on it, of course. All right. Many more of these cases. Now then you get to a really interesting question. I want to put it to you professors. Why? Why is it? That we wind up having so many more trials in Delaware, right? And try to think about this as a matter of economic theory expectation, the whole way, why is it that we wind up having more trials in Delaware, right? Then we do in federal class action litigation Especially when many of the plaintiffs firms in both markets are the same Bernstein little Wicks. Right? For example, you know and and you know you many, I just should but many of the Delaware firms, also litigate and federal court, they settle all the time in federal court and they wanted to litigating and say, well my I I do not know but if I had to guess. I would say. Wildcard of Damages in federal Securities class actions in a way. That's not true in most Delaware cases and wildcard of juries in federal Securities class actions. That is definitely not a sense in Delaware. So it they feel I think they probably feel just more more confident that the outcome will be. I think they feel right. So but that but that Dynamic which you know however you want to play that dynamic means that if you're a plane aside lawyer you know you know this is going to settle if the class gets certified and you know it almost certainly will settle if if you just get past the motion to dismiss. So what's really interesting is, there's an alternative theoretical perspective that has a very different view. Okay. And that is when plaintiffs and defendants, have a common perspective and they agree on where Kings and right, then they said, then they settle The only time you go to trial is when there's a gap between the bid and the ass right now, that might I get that that I understand it. So it has to be right? I understand bit and ask I live that every day. That's why. So the only reason you go to trial is you've got a sufficient bid, ask spread. all right, that that You can't resolve by a settlement that the amount that defendant is willing to pay is so much less than the amount that the plaintiffs that they will win that. We've got to go to trial and that's to be the answer in. I mean, yeah, it may very well be right? The interesting, you may be right. And the reason is that I am right here. I mean, it is it, is that the usual story for Securities class actions, is that the reason that they are nuisance lawsuits, and whatever is because defendants can't risk the uncertainty and you're saying that actually, the uncertainty is in Delaware and that what and the certainty is in federal court. But here's the other part of the federal court thing that the data The data suggests. That their is more. I wouldn't call it uncertain. There's more Divergence of expectations which you can also Express his uncertainty. That's a completely separate. Like this is gets way off the issue of And the, the reason that I find that difficult to gauge is we have no data on Securities class actions. How, what's where's the certainty coming from? We know. Exactly like what happens at a Delaware trial. We have absolutely, no freaking idea. What happens in a Security's action and yet somehow, I mean, in trials, in federal trials. So how can we pass? How can everybody have the same? Whereas, the expectation. Let's back up. So first, we have much more data about Federal Securities. Litigation in about Delaware litigation when it comes to measuring outputs fees. All that other sort of. Yeah, but not what would happen at trial like your theory is what I'm trying. Very hard to agree with you. Let me agree with you. Okay, listen, I'm trying desperately to agree with you if you just. Okay, so what we don't know because nobody has the data, all right insufficient is what happens if everything if anything goes you know if a lot of cases went to trial and federal court. All right, we know much more. What's interesting is, what lacking a lot of data even in Delaware? Okay, we know much more about, what happens at Delaware. So the first level where we got to sort of say, well, all right as academics. How do we explain the paucity of Trials? Relative to the frequency of Trials between federal and state. Well, we know Siri says it has to be the bid ask spread. Then let's go to the next level. Why is it? That the parties can pretty much agree. All right, this is where we should settle in federal court and federal court, but we can't. All right. Agree on. How do we settle in Delaware Court? And the question I put to you and in my is why is that I'll share a possibility and just a second and after I give you I have, I don't know if they're right, but what's your thought? What? So let me ask you this. In Mike, have you heard anybody even tried to explore that question? They said, oh, there's a difference? But, wait a minute. If we're Scholars were supposed to say? Yes, there is a difference. I mean, I always assumed In Syria, but I really wasn't involved in settlement so I had no freaking idea. But but but so, my assumption would be something like again the The Jerk federal court trials. They take forever. This drags out forever. And normally, that's good for defendants. But not if they're racking up attorneys fees forever and they have to constantly put this is on certainty in their in their Securities filings. I mean, Delaware, you know that we're going to get this settled, we're going to figure it out. Just seems happens quickly, you know, let me help you out. Let me give you an old God Siri so please, let's understand there are many situations where there are multiple theories and you lack sufficient data to be able to say, one theory is right? The others wrong. Yeah. Here we are about to give you false in that category. Here's another possibility and I'm not saying I'm right in your wrong, I'm just saying here's another way to think about it. Okay, and it goes back to what? What? Doesn't work? Holds the stage of case Method. All right, we are if you settle a case or early, I'm just gonna make up the numbers. If he said, okay, early, get 10% All right, if you settle a case, you on the eve of trial he get 20%. All right, and if you said and that's, those are feet, feet percentages, percentage is right, right? So if you if you settle a case at the beginning, it's 10% in case. All right, you know, on the eve of trial it's 20%. He said okay after trial let's put appeal aside which I know what is wrong. I'm just simplifying. You get 30%. So it's 10:23. I think I said we were going with this right? What happens is what are the incentives for the lawyers? If the marginal revenue of proceeding to the next stage of litigation is systematically higher than the marginal cost. Even if the plaintiffs and the defendants would settle at the beginning, and I'll just make a number right for 100 million dollars. If it costs the plaintiff's and again I'm just making these numbers up. I know wrong I'm just doing free Illustrated if it costs the plaintiff's lawyers all right only a million dollars. Right to proceed through each stage, right? In terms of hours, in terms of that load start your turn. Alright. Yeah. If each stage calls the point of Lord or million dollars, all right? And you make an extra 10 million of each stage. And if the parties agree at the outset, the cases were hunt worth 100 million. Then the age of settlement, I'm sorry. Then this the stage method of compensation actually causes more, so you're you're saying is there's an incentive among the Plaintiff's attorneys to stretch this over to trial because they'll get paid but not to trial though. I mean, I can see that as stretching it of trial but not trial, but Listen, but if the marginal look, here's the math and Mike is going to defend me on this. I don't know about that. But let's say what the marginal benefit of going to the next that I can. That I can defend. Yes, if yes, you're yes, that's all I'm saying, right? If, you know and if you sit down and in the fascinating thing is Plaintiff and defendant can agree at the beginning of the case that if we settle it, it's a hundred million. All right? That's the expected value. That case. Right. And and the plaintiff lawyer, under the stage of casement will say, but wait a minute, if I settle it. Now I only get 10 million because it's the beginning is 10%. If I spent a million dollars to litigate to the next stage, I get 20 million, right? It's been 20% and if I go to trial, I get 30 million. And that's only because so I would like to settle with you for 100 million. Now, But I'm only getting 10 so I can't send. We have to go to trial and then we'll get the 100 million and then that winds up hurting the class because they have to pay the 30 million in the attorneys fees. So they wind up only getting 70 million at the end. Okay. But okay so you finish so it is therefore theoretically possible. All right you have to parameterize it it is theoretically possible that the payment method the stage of case method Actually causes more litigation in Delaware. And that is a burden on the courts. And that's administered of Lee inefficient, okay? But I know. But what Delaware is concerned about, and this is what they've said, is a difference of its that, if you do, like they do the stage of case method with load Stars sort of a You know, sense as a federal courts, where it's more load Stars. You know, the base is but what dirty of Courts? The vast majority reports. What do you do? Like, they do a load start cross. Check more. So I guess. Yes. But Delaware, of course, what they've been concerned about is that, if you do little star to, if you focus too much on loadstar, then what you're encouraging is a lot of billable hours that aren't really producing much benefit for the class. Well the but then you wind up. If you don't do the loadstar Crosstrek you wind up with the windfall problem, right? All right. Right that. And that's so let me sew indel to which is a recent opinion out of the Delaware Supreme Court. They quoted a Chancellor Chandler. In his opinion, in Seinfeld versus copper. Where he defines, what a windfall is. Right? So basically what he says is appointed exists at which incentives reduced and if anything above that point, the incentives necessary. All right to Create the litigation that generates the fees. In other words, if a fee of 500,000 dollars, produces these incentives and in particular case awarding, one million dollars is a windfall serving, no other purpose than to siphon money away from stockholders and into the hands of their agents. It's important that we attempt in a self-conscious and transparent manner to estimate the point and which proper incentives are produced. In a particular case, I'm not making this right incentives, you cannot apply the windfall test unless you do the load start calculation, Because the incentive to the lawyer is measured by the lodestar and also another number that the courts don't compute and that's the internal rate of return. so, you know, I'm going to be writing another paper that basically says, percentage method and loadstar Method insufficient They are interesting. Yes because because well lawyers are taking risk here and they deserve to be paid for that risk. But the courts need to think intelligently about the risk. And what I'm looking at, I'm looking at this and I'm looking at these numbers and I'm kind of going Judges are really bad as right there. That's not, they should keep that. You are lawyers aren't great at it either, but I already know. Let me just something that you've seen right about, like one other point that he makes, which is so your argument is that if it's a stage of case method, and it's a percentage of what the class gets then, that's an incentive on the plaintiff's attorneys to litigate for longer so that they can get a higher percentage of that pool. But one, that doesn't always happen. It depends right. But one of one of Joel's criticisms, is that a lot of the Delaware cases? There isn't a damage award, there are non-monetary. It has nothing to do with percentage and he thinks that those are the ones that actually have the higher load star. Oh yeah, but what happens at the end of the day, is one way or another, the judge, assigns, a monetary value to the therapeutic remedy, all right? To the disclosure or whatever, right happens. And the judge says, well, okay, you agreed to add the following directors, or make the followers. This disclosure is worth or something, okay? So the answer is, how much is that worth? All right, one way, nor they say, okay. We think it's worth 80 bazillion dollars. All right, and then we looked at the stage of the case and we're going to give you some percentage of the 80 bazillion dollars. Right, that's what goes on. And you know, part of Fleming's complaint or compete, which by the way, I actually enjoy reading his stuff right. All right. Because because one of the reasons why we have the open database and we put it out there is, we want people to say well look, I don't think they should be in out there. Fine. And oh, you missed this case. You know what my responses? Great, I'm going to change my paper and I'm going to add it improve it. I want to get it right. All right, and and he's got a lot of. He's got a lot of ad hominem stuff in there. The bother me, great. All right, if you and your business, feel you need to do the ad hominem stuff. Go ahead. It's it doesn't bother me. Have a nice day, get the data. Right. Let's have a substantive conversation. Let's let's be analytical about this. All right. And you know, look, You know, some people say, hey you've got to take into account, all the money that's invested in the cases in which we lose, you know, my response to that is yes, of course, missing from the debate, of course. Am I going to write about that in the future papers? Yes. All right. Internal rate of Courts getting wrong here. Well, they're just looking either at the percentage and doing a load start cross check or they're doing the load star and looking at a percentage cross check. No, no, no, no, no, you missing, maybe the most important number What's the internal rate of return? What's the risk of internal rate of return? How does that internal rate of return change with the state of the case with the stage of the case? You know, what is the risk? Yeah, I think. Yeah. I'm just saying that Jessica Erickson and I think it's Stephen Choi and Adam ventured have like, were they actually? I mean, that they talk well, certainly they're talking about Federal actions, but again, that the settlement is so likely after certain points that, you know, there's no reason to rack up, you know? That's basically there. That's exactly right. So again, you know, I'm gonna write a piece, all right? It's called holistic method. That basically says, you know, the courts are having a silly dispute. About do we use loadstar or do we use you know a percentage. All right. And the answer is you need to use both and I are And intense, and some more comprehensive like Financial economic model. Exactly. That deals with the risks and the investment and the cash flow. And yeah, that's that's that's where I live. Yes. And by the way, Mike, I live where you live and I live, where and lives? Yeah, okay, cool. I am an investor and a lawyer. It was all the love in the world. This debate between lodestar and percentage is, I'm sorry, it's so misses the point, it's not lodestar or percentage, its load start and percentage and internal rate of work. And and compensation for risk, right? And compensation for risk, which means the money that you lose on the cases. All right, where you get nothing. All right. And the total amount that you spend there is a scale effect, okay? So you need to do is use a phrase that the United States Supreme Court has used, but doesn't know how to apply and that's economic realism. okay, and economic realism basically says, It's not percentage or loadstar. It's both so interesting, right? How are we going to move the courts away from An arrow in from a financial analysis perspective with older respect to courts that use percentage and load start wrong, right? And how do we inform the approach and improve it and make it better for the members of the class? For the plaintiff's and also for the courts. And by the way, another forthcoming piece basically says Courts hate the lodestar method because it is computationally burdensome. And they're right, right? You gotta audit hours and you got a really? Yeah, right. I got another paper basis. Here's how you do. Load start. Simply And it's really, really simple. All right, what you do is you point them the interest rate or a special Master, right? Somebody who's got green eye shades. Notice how to do this. Hey green, I chose come out. All right, you know all right squinty glasses or something right. There are companies that are actually in the business of auditing law, firms Billings They lies and doing this. All right, this can be done by taking very little time from the judges. A judge did not go on the bench in order to order a law firms. Billing rights, we can delegate that to other people, it was all sorts of stuff that if you just pulled it together from the literature put in one place. No, many of these ideas are not novel to me. I have a novel suggestion. All right, it is to introduce a penalty function because right now if a plaintiff's lawyer over bills, right? And says I spent 50 hours on this, when they really spent five then come in, you do the audit you say, I'm gonna strike 45 hours, What's the penalty for that pipe today? Nothing. Oh, so there's no penalty. Mike, what's going to happen? I mean, it's I mean that's been, I mean, you know, there's been attorneys that have been accused of padding bills for as long as we've been attorneys. So, but but what you're saying is that in in a formal proceeding there's no there's there's no oversight of that. So if what happens is, you build 50 hours and you should have build five and they say, oh we'll strike before 45. There's no incentive. Yeah, I could see though. I could. Yeah but I could also see the, I mean those debates between a special master or a magistrate. I mean, I've been in those debates with my lawyers about whether they spent 50 or 5 on something. And it's painful I can imagine what happened when you get to like a, you don't want to have a Chancellor involved in that you don't want to just write fair enough and the novel proposal, I'm going to make, which I know is going to become commercial. All right. I expect the controversy is That courts should set penalty functions. So, in other words, if you wind up billing for 50 hours, All right, and you only should have built, let's say for 10. It's not only that you lose the 40 hours which are going to be penalized another 40 hours. I said that they'll take out some others so it's so it's an incentive to try to be to try to build only what was value edited. But then you get to a very interesting discussion about what's, you know, I'm guessing none of these. None of these layers are fixed. I mean, are making up hours that they're, you know, there's some time that's more or less valuable. Oh. I had to record. I was at my mother was a lawyer, and she's retired and and she used to call and she was not playing aside. She was a real estate attorney and she used to call creating her timesheet like the greatest works of fiction she ever produced. Oh, it's yeah. Okay. It's like the lawyer who goes to. It wasn't intentionally. It's just that it's really hard to keep track. I mean you know they have been a technology for it now but like, you know, anyway. All right. She had to do, hey we're gonna we're gonna have to, we have, we have beat this to death and we're gonna have to probably wrap this up, but I think we've covered it pretty thoroughly Joe. What we needed to what we needed to look at? So this is great. Listen, I could go through, you know, Fleming's critiques point point. No, no, no, no. We were gonna hear from him in a minute and, and he, and he is, he is all sorts of, you know, points, he makes and so forth, but we can return to this. Clearly, the Delaware, you know, legislature that, you know, it was going to be talking about this further. So let's sort of see how that develops, and we can maybe talk a little further and in the coming months Is that good? Absolutely, and again, you know, my primary interest is I've got open databases, all right? No, it's great. That's I I really respect that that is, you know, based on what I've been able to learn about this again, as the guy who's not the not the law professor here. So, um, like I do. Okay at that. Hey anyway, we got to take a break now and we'll come back and we'll talk more about Uh, you know what, what the plane of side might think of all this here at shareholder Primacy. Primacy, I'm Litton here with Mustang now, we'll hear from Jill, Fleming of equity, litigation group, welcome Joel to shareholder, Primacy. You're, you're quite welcome first. Before we get into the substance of fees, I'd be curious about your law practice. Can you summarize that for us real quick? Sure, yes. So, I'm a partnered Equity litigation group were relatively new law, firm. We formed at the beginning of 2024 was a plaintiffs. Yeah, plenty of plaintiff side shareholder. Litigation practice, we practice almost exclusively in the Delaware Court of Chancery. And so mostly it is representative stockholder. Litigation representing public investors, and Delaware Corporations will also occasionally represent activists. Last year we represented at Ted Miller the former CEO of crown castle and I remember that case that was a that was a fun proxy kind of test. I remember that. Yeah so as you say there's definitely I think some overlap in the interests of public investors and activists. Oh yeah, this is, this is this is this is exactly right on so you Put together a couple of thoughtful responses. I think you posted him on LinkedIn to yes, LinkedIn, which has become the Battleground, not judging. I'm just saying, that's a good place to find him to these two papers that Professor grundfest Ted put up. So what did you maybe? What are the headline conclusions that you away from reading them and from your response? Yeah, so I I mean the the kind of details of the critique. I looked at both sides of the equation. So Professor grundfest is comparing a set of what he calls Delaware fee Awards. Although, as I point out, a lot of them I think are not fairly described that way to Federal fee Awards. And I think what my analysis suggests is that the Delaware awards are being overcounted and the federal awards are being undercounted. So, part of that is a difference in methodology. If you look at the methodology section in the two papers, for the Delaware Awards, it was really kind of scouring the Earth. It was what you would do if you were trying to find all potential High multiplier Awards, it included doing Westlaw Lexus searches and also an importantly asking practitioners and I think there are a lot of folks out there who had an interest in trying to see Awards reduced in the defense bar and so what you see in the data set, for Delaware is, Awards. Where in order to even calculate the multiplier, there's not a published decision, there's not even a transcript from the court. You're comparing multiple filings across a docket that just led to a specific order by contrast in the federal set. Professor grundfest started with interestingly, too Delaware cases and some federal examples that they cited and then Trace those citations back and a couple of affidavit expert affidavits, put in a couple of federal cases, didn't do in a cross. The board West loss surgery and importantly didn't act asked practitioners, hey, send me all the examples you can find so on the federal side, as I point out their three or four examples just in the last couple of years that are omitted and because the sample size for both is so small, we're talking about less than 25 examples on either the federal or Delaware side a few omissions can really change the numbers. More importantly, on the Delaware side, I think the analysis just Fails to recognize some unique aspects of Delaware. One is a lot of these were not the awards at all, the the sort of headline takeaway. They were they weren't the awards in the sense that some chance a Chancellor looked at all. The evidence looked at the two sides are going. I should get this much money and someone saying you should, and, and then rendering a judgment rendering an opinion. About, here's some number at either, one end or the other someplace in the middle. Correct and awards again. Yeah, that's right and awards suggests that the court exercise judgment and made a decision. That's not what happened. These were agreed upon fees that were negotiated between the parties and the reason that matters and that makes up almost a third of the Delaware data set or agreed upon the settlement, where they settled, and they settled for some kind of relief and they settled for a fee. Correct. The court has to opine and has to approve a fee. If it's coming out of a common fund, if I'm a lawyer and I reach a settlement with a defendant where they're going to pay 10 million dollars to a class of shareholders and I want to fee from that common fund. The court has to approve it because it's asked acting as a fiduciary for the absent class members by contrast. If it's some sort of governance resolution and they what we say moved. So we're challenging a poison pill. They agree to pull the pill icing a fee directly from the company. The company can negotiate for itself can protect itself. It doesn't need the court to protect it and so we're not talking about tornadoes here. What he's doing? Well, no well I mean you still have like the derivative plaintiff client. It is talking about to turn out, but yeah, but this is what we're talking about the beginning. So this is the distinction between the awards that come out of an award to the class versus fees that are paid by the defendant because of some kind of non-monetary relief and the difference is that so you're saying a court doesn't have to approve the fee if if it's agreed upon and being paid by the defendant for non-monetary Relief, that's being settled. And if there's no release, there's a concern that if you're giving some kind of release to the defendants and shielding them from future lawsuits, that there's a concern that, oh, maybe you're trading off. I'm either the plaintiff lawyer, I'm agreeing to give a release to the fence because they're going to feed that's affecting everybody but if it's like we change the bylaw the bylaws gone no one could challenge it again. Anyway but There's really doesn't need to be a court approval is what you're saying correct and look if the company doesn't agree then we go. Then you position then there's a contested fee application and the court makes that decision but we can just negotiate and we negotiate in the shadow of existing precedence and so that's what a lot of these Delaware examples are and that's just something that doesn't exist in the federal data set like this kind of corporate governance Therapeutics mutinous relief is not something that you see in the typical kind of federal cases are usually just about money. Damages are yeah there are some that subtle for governance reforms but usually in it in there some You know, there are those proxy statement cases so I'm not sure, that's always true. Sometimes it's You know, I don't know what whether this is included, in the data set that Joe grandfathers had. But some of the times, they have, like, disclosure releases things like that, it's not, but it's a function of his starting point. His starting point was all large common fund cases. That's the other difference is these these mutinous fee cases, they're usually very quick and the fee is not It's again, it's large compared to what like firefighters and teachers get paid in an adjust Society. The awards will be much larger, but we're not talking about nine-figure Fields. We're talking about maybe a three million dollar award. That looks like a very high multiplier, but that's become because it's coming off of a very low load star base where you might maybe only have 100,000 dollars in loadstar or something. So the multiplier looks high, but that's just a function of the case moving very quickly, the federal examples are all large common fund cases if you're asking for a 50 million dollar fee in a common fund case, you're not going to cite some small quick hit. Corporate governance. There are people to case as an example and that's the only set that they were that they were looking at the bigger problem, is this study rhetorically? And you saw this, it was covered in Deal book that email that deal book in your time sent out to all it subscribers. The headline was activist judges. And so this is feeding into this rhetorical campaign by the kind of Silicon Valley Dual class Elon musk's of the world. Yeah, is that you have these just two judges and that's the phrase that the former Chancellor, the core belt Chandler used when he attacked Chancellor McCormick, and vice Chancellor Laster from the floor of the Delaware house last year just to judges are making the market worried about Delaware. And so this study is saying that just to judges Chancellor McCormick and vice Chancellor Laster were responsible for generating a lot of these fields. The problem is a lot of the feet awards that the study is subscribing to Transformer, McCormick or vice Chancellor Laster. Were these negotiated mutinous fees where they didn't make any decision at all. It wasn't decision that they made. So just even though some of its negotiated, He does some of the negotiation kind of take place with the understanding that if if they negotiate this properly, does the the idea that the that these two judges are the whole Court? I don't know, are there would possibly influence the negotiation? Isn't it isn't it? That's his argument, right? It's in the shadows. Oh what? Yeah, that one of the art that these negotiations of doing this in the shadow of what they expect a court to do, if it's contested correct. But you're negotiating, the shadow of like the existing Delaware pressing. So I think it shows the I don't think it's fair to say because both sides kind of recognize that Delaware president would guide to a particular award. I don't think you can then turn around and blame Chancellor McCormick and vice Chancellor Laster for that. So I, I think that's my real problem with studying and frankly, this is like, I'm arguing against myself interest here, I want to be able to go into a Delaware Court and say, Seven times multipliers are super common. You should do this all the time, you know? I I'm not doing that, because I think the bigger problem is, this is feeding into this sort of rhetoric of attacking the court and suggesting that these two judges who have the temerity to apply the law as written to powerful billionaires that, that somehow means that the courts out of control. Okay, I understand right. Go ahead and, you know, I, I, I so, I mean, we've covered that. You don't think that the federal actions that he's looking at are comparable to the Delaware actions. And that's because the federal actions that he's looking at are big class, common funds, and he, and he doesn't include in his sat These. You know, like the little, I don't even know. Like, you know, disclosure he's starting point wouldn't guide him there because he's starting point is what is cited when people are trying to justify large Awards in large, common, fun cases, so you wouldn't have all those small examples. The other problem he has, is that a third of the country sits in a federal circuit, that doesn't require a load, start cross check when they do fieldworks. So, the 9th circuit, which covers California or Oregon and Washington, Nevada. And the 11th circuit, which covers Florida, Alabama, Georgia, like a third of the country lives in one of those two Federal circuits and the law in both of those circuits is a district court is not required to look at load star when it does an award in a common fund case, if it just Benchmark or you get 25%. So that doesn't mean the lawyers don't always don't ever submit their load star. If I have done 10 million dollars worth of work, I'm asking for a 5 million dollar fee. I'm going to tell the court about that because it makes it easier to justify why this is inappropriate a war. But if I asking for something that's 10 times my load start, I probably don't put in any information about how much time I build on the case and I just say, say to the court. Hey, you don't Have to do a loadstar Crosstrek. There is binding, a pellet Authority that says, you don't have to look at what my load star is. So it means that for a third of the country, the cases that are most likely to have a 7x or a 10x multiplier, you're not going to see those in the data set because the lawyers aren't going to submit that information in the first place in Delaware, by contrast, you always have to put in your load starts so it's really like, not even an apples to Orange. This is comparison but apples to something else entirely. But Delaware, my understanding is the Delaware actually though it kind of has explicitly said we don't use loads Star as a way. So like similar to I guess those parts of the country isn't it? That Delaware sort of suggested it doesn't like the load star method of calculating. Yeah so the the Delaware Supreme Court Authority in their 2 cases. Sure land. And America's mining, I guess, most recently Del all says, we don't use loadstar as the starting point, but there's kind of a five Factor. For when you do a free application and one of the things that the court does is it will look to the time and effort in the case as a cross check, just to make sure that it's not a windfall award. And so, as a result, again, we're talking about extremely small sample sizes for both of these, right? Like one of the big headlines that got picked up across social media and used as an example of, oh my God, Delaware's out of control was a case where the lawyers received 66 times their load start. That's from 2012. That's the southern Peru case. So, you know, it's a big number but it happened 13 years ago and we're only talking about it now because It's talking about it, so yeah. Okay no, I actually wanted to like it asks a sort of more broad question, which is, I mean, just in terms of your practice and how you think about it. I mean like, I know you think your work is socially valuable but you're not running a charity. So when you're you know, when you're thinking about a case and how you're going to go about a case and like what kind of like how the financial resources versus the reward? I would love to know a little bit more about your process in terms of selecting cases and how to devote resources to it. Yeah. And so I think, I think that's right. I mean, I think ultimately, this is all a question of incentives, right? Like this Ulta. At the end of the day, this isn't about fairness to Plaintiff lawyers, right? Like, we all make a good living. No one's crying for plaintiff, lawyers. I think it's important, and this is not and you know this, but I don't think this is obvious to most people. There is no private enforcement of internal corporate governance, right? Like, they're the SEC is not in charge of regulating internal corporate governance State ages, don't do it. The only people who do it is the private plaintiffs. So when you shareholders or activities, it's the shareholders who then need and need representation because they can't do it themselves. That's right. But there's a collective action problem because, you know, activists face this all the time, like, why am I paying out of pocket? All these fees and everyone else's getting the benefits? So that's correct every day. Yeah. And so representative litigation kind of salt solves for that problem. So when we talk about, what should plaintiff lawyers get paid when Successful. What we're really asking is, how much enforcement do we want? How much enforcement are we going to have? And so, it's not a coincidence that the same people who are pushing to cut funding to the SEC, cut funding to the cfpb, want to cut funding, to the plaintiffs bar because we're we are effectively the regulator. So the way we think about it is, you know, your valuing a case based on a couple different things. What's my likelihood of proving live ability? What are the size of Damages? If we're successful improving liability? And then How likely are weak to collect as you point out, in directors are usually insured. So collectibility is not as much of a concern as you might see in other types of plaintiffs practice. But what that does is it steers us to cases where there are the for the most part, the largest transfers of values. So there's a lot of competition for bigger cases. There Was You Know covered today of the kind of sprawling fight in the Endeavor case which is not a class but quasi class but like I think it does a good job of steering, the enforcement mechanism and steering our enforcement efforts to for the most part larger cases and cases, where there's more egregious wrongdoing. And so I think the system for the alert in in large part is working but at least until until some of the statutory changes have. Yeah. Correct. I'm talking about just the just just the fees. The other thing to keep in mind is The, you know, it's not as though, when you see a big fee award, that's not money. That is going directly to Laura's Market. We're running a business. We have employees that were paying salaries, we are advancing case expenses which is, you know, kind of often be millions of dollars and we're paying that in after tax dollars. You don't get to take a deduction on case expanses that you're advancing until the end of the case. So you are paying that after after tax dollars, it's an expensive Endeavor, there are a lot of cases that we don't win. There are cases where you might spend a year building up a case and some other firm gets appointed to lead the case. You don't get paid in that scenario. So it's easy to focus on the big wins that ignores that really, there's sort of a whole underlying business model, and you have to look up a Returns on Australia basis. You know, think in a way, it's funny, one of the, you know, people who really took up grundfest article was Bill Gurley the venture capitalist. Um, no one that Benchmark Capital. No one is calculating what Benchmark capitals, returns are on an hourly basis, like they take risk and when they create a lot of value for their limited partners, they get paid a percentage of that. I think, you know, that this is not a novel inside of mine. This is something that's Chancellor last or talked about, in the Dell case. Like, this is how when people invest money. This is how they try to align the interests of the people managing that money with the investors is the, you know, two in 20 model. That's true. But I mean you know, just to be fair because well obviously I mean it's no secret. I'm sympathetic to the plaintiff's bar. I used to be a plaintiff's attorney. I will have to conceive that that's a little different in the sense that those are, and this is the problem. The basic problem with representative litigation those limited partners agreed to that Arrangement as a post to a class of shareholders which didn't agree. You know, they're just it's thrust upon them. That's, you know, like so that I don't know that. That's really well, it's that's fair. But there's there's Court over, there's Court oversight, of course substitute for for the fact that correct. And if you look at the fee structures, that very sophisticated investors, Negotiate when they lead class cases. It is not based on a lone star multiplier. So there was class action. Litigation last year against Santander where Elliot was the lead plaintiff. Elliott knows how to drive a hard bargain. Right. And so yeah the percentage the percentage was I think slightly lower than might otherwise have been justified by the precedent but it wasn't based on a lodestar cap. Elliott wanted the lawyer's to be negotiating to know that they were getting a percentage of the fee in the Viacom litigation the Calpers, the California public employees again, they know how to negotiate. They know how to drive a hard bargain. It was a percentage of recovery based approach. It had nothing to do with hours investors. Don't like investors like to get paid sooner if I'm an investor and I have a claim, I would rather recover sooner and have my lawyers do less work, right? I don't want to create just That's exactly why Delaware has said that like it doesn't begin with the, you know that, right? You know that load star isn't where they start because they're afraid that that are related to build probably, but I mean that's why when I do my intro, sort of like vague about this because it was worth mentioning that in the federal system. And I don't know if Delaware has been moving to a bit in the federal system. They developed this whole thing. Elaborate thing with Securities class actions, where it's supposed where institutional lead plaintiffs are favored, so that they can negotiate fees that are presumed to be of, you know, more like what private clients would negotiate for, than simple Court Awards. And the theory is that we give some deference to that over and Delaware has a version of that. So, the federal statute is very mechanical. Basically, if you have the largest loss, you're kind of Presumed to be the most adequate. Delaware has a sort of squishy multi-factor test but one of the factors on a very important one is who is the largest investor. And so, that's why you see increasingly in recent years. Very, very significant. Sophisticated institutional investors are coming in to lead class or derivative actions in Delaware and the fee structures that they're negotiating. Look a lot like the precedent that the Delaware Court has in place because I think everyone recognizes that it creates good incentives and this kind of lodestar based cap system, which is clearly where the focus on the other side are trying to steer this creates horrible incentives. Yeah, and that's what Delaware fears that. It'll create incentives to drive up the, you know, the billable hours without necessarily doing much for doing it. Yeah. And if I can say, one more thing on and send it, the folks on the other side, they're preferred framing. Is that this is an incentive about whether you would take the case in the first instance, right? And the pitch is, oh, you greedy point of lawyers. Are you really saying that you wouldn't take a case that four times, your hourly rate isn't enough incentive to take it right. Okay, that's not really. That's not really what this is about. So there are only as Again it's a very small sample size. The case is where you see the really large fees that represent these particularly High multiples. Other than the sort of fast governance cases are the cases that go to trial like tornetta that result in a big verdict. And so the really important incentive is when it comes to settlement. And so I'll preface this by saying when we do representative stockholder litigation we are fiduciaries to the class. If it's a class case, we're fiduciaries to the company. If it's a derivative case we're trying to do the right thing, but the whole predicate of this is, how are we going to set incentives for lawyers? So if we just assume the plaintiff, lawyers are greedy, be maximizing people, look at the incentive structure, it creates if I have 10 million dollars of load star in a case, and I know that I'm capped at Forex. I know. I can't make a fee of more than 40 million dollars, right? So, if a company puts let's say, 160 million dollars on a table for that, 40 million dollars would be 25%. I can feel very comfortable that a 200 million dollar. Settlement means that I am maxing out the feet. I'm not there's no scenario where I'm going to be able to get a larger fee than that, but we are talking about transactions where the damages here could be in the billions of dollars. So it creates this terrible incentive where a company can offer to settle the case for much less than what the fair value of the case might be they're going to calibrate their settlement to what the legal fees are not to shareholders, should get correct. And so they can say to the point of Learners, Are you seriously gonna try this case for 200 million dollars? We know you probably have about 10 million dollars in load star. You would be insane to try this case, you are, risking getting a zero and you're not going to make an extra dollar. Even if you hit us for 10 billion dollars in Damages, that is a large part of what this is about. This is a way to drive down settlement. Value and make it irrational for plaintiff. Lawyers to be willing to actually take the risk and roll the dice of going to trial. Ha. Well, that is That is interesting. Um, there's there's plenty more. I'm sure we could try to cover here, but I think we've and we've kind of we've done a pretty thorough job here with both Joanne with with with, with Joel. So I think I think we're going to probably leave it right there. How's that? Sound in? Okay, sounds good, Joel. It's been wonderful talking to you about this and we will continue to discuss this as well. So an I think we can ramp up. This is shareholder Primacy hosted by ending in me. Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations, and is the Michelin, fleshman professor in business law, and Entrepreneurship at Tulane law, school and Affiliated to Lanes Murphy to, at least for a couple more weeks. You can find me Mike at the activist investor.com and Annette tulane.edu. Our podcast is producing distributed by free flow media. Thanks for listening. We'll talk again soon.