Following the failed merger of the Williams Companies Inc. with oil pipeline operator Energy Transfer, Cravath, Swaine & Moore is entitled to be paid a $74.8 million shifted contingency fee, according to a Delaware judge.
The Delaware Court of Chancery’s Vice Chancellor Sam Glasscock III upheld the fee under a specific provision in the merger agreement which, in the event of the failure of the merger, shifted reasonable attorney fees and expenses to the losing side. Cravath, which represented the Williams Companies Inc., was seeking to collect based on its 15% contingency pay agreement with its winning client.
The Williams Companies Inc. sued Energy Transfer for breach of the merger agreement and was awarded $410 million as a contractual breakup fee. Energy Transfer was required to pay the Williams Companies’ attorney fees along with the breakup fee.
“Because I find that Williams’ agreement with counsel to a contingent representation was itself reasonable, and that the amount incurred under their agreement is likewise reasonable, I find the contingent fee appropriate under the fee-shifting provision of the merger agreement,” Glasscock wrote.
Cravath supported its contingent fee request with a lodestar of about $47 million. “Lodestar” refers to a method of computing attorney’s fees whereby a trial court must multiply the number of hours reasonably spent by trial counsel by a reasonable hourly rate. A multiplier of 1.7 was applied to the fees to account for the contingent nature of the fees and other factors.
Naturally, Energy Transfer disagreed with the ruling in principal and specifically to the amount awarded, arguing that Cravath’s rates and hours were unreasonable when compared to legal bills from Energy Transfer’s lawyers at Vinson & Elkins.
In support of its argument, Energy Transfer cited Vinson & Elkins’ rate of about $427 per hour, which is significantly less than Cravath’s average rate of about $624 per hour.
However, Vice Chancellor Glasscock defended his decision, saying Energy Transfer did not show that Cravath’s rates were above market, and Cravath’s lawyers had to spend more hours on the case, in part because the Williams Companies had to produce roughly 10 times as many documents as Energy Transfer.
Following Cravath’s win, it is likely other M&A litigation firms will now seek contingency fees as well.