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$1 Billion Cash Settlement in Delaware Securities Case

January 31, 2023
Business Litigation Reports

A Quinn Emanuel team secured a $1 billion cash settlement (which currently remains subject to judicial approval) on behalf of a class of former Class V common stockholders of Dell Technologies, in a breach-of-fiduciary-duty action against Dell’s controlling stockholders Michael Dell and Silver Lake Partners, members of Dell’s board of directors, and Dell’s financial advisor Goldman Sachs. 

The case concerns Dell’s 2018 redemption of its Class V common stock in a transaction that paid minority stockholders billions of dollars less than the fair value of their Class V shares.  Class V stock was a “tracking stock,” a unique security designed to track, on a one-to-one basis, the public trading price of another company’s stock, VMware.  Dell issued Class V stock to pay for its acquisition of VMware; because Dell could give VMware’s former owners only so much cash, Dell financed most of the acquisition with Class V tracking stock.  But despite Class V’s purported design, it traded at a steep and persistent 30-40% discount to VMware from its issuance in 2016 through its redemption in 2018. 

To Dell, that discrepancy represented an opportunity to increase its economic interest in VMware cheaply by buying Class V shares at a discount – all while expropriating value from its own minority stockholders.  At first, Dell repurchased billions-of-dollars’ worth of Class V shares, increasing its interest in VMware steadily.  But to capture the entire, multi-billion-dollar value that the discount between Class V and VMware represented, Dell had to eliminate the tracking stock. 

In 2018, Dell devised a transaction to buy up all the remaining Class V shares at a value that still reflected – and therefore allowed Dell to capture – a significant discount to the value of the VMware shares they were designed to track.  Dell then crammed that unfair transaction through a special committee rife with conflicts of interests, and an uninformed vote of minority stockholders, by coercively threatening them all with worse alternatives if they did not acquiesce to an unfair deal. 

Once the transaction closed in late-2018, in stepped Quinn Emanuel, along with its co-lead class counsel Labaton Sucharow and additional counsel Robbins Geller, Friedman Oster & Tejtel, and Andrews & Springer, to challenge the deal.  In doing so, Quinn Emanuel and its co-counsel repeatedly made history.  In June 2020, Quinn Emanuel defeated the defendants’ motions to dismiss by overcoming Delaware’s demanding MFW standard, which allows controlling stockholders to evade liability if they condition transactions from the start on approval by an independent special committee and an uncoerced, fully informed minority-stockholder vote.  Few plaintiffs have made it past that stage.  From there, Quinn Emanuel aggressively led the charge through fact and expert discovery, uncovering damning evidence against the defendants that it unveiled in a Daubert motion undercutting the heart of the defendants’ expert case, and a robust, 100-page pretrial brief that persuasively articulated the class’s theories of the case. 

Ultimately, the defendants and their counsel – which included Wachtell, Williams & Connolly, Skadden, Simpson Thacher, Latham & Watkins, and Alston & Bird – decided on the eve of trial that it was time to settle.  And settle they did, agreeing to pay the class $1 billion in cash.  According to Institutional Shareholder Services, that $1 billion cash settlement is the largest stockholder settlement in Delaware or any state court’s history by nearly $700 million, and the 17th-largest such settlement in U.S. history.  The American Lawyer named Quinn Emanuel and its co-counsel “Litigators of the Week” for this historic victory, with commentators stressing the settlement’s strong deterrent effect on corporate malfeasance.  As one law professor explained, “[t]he eyes of the corporate world cannot avoid taking notice of this result.”