In re Santander Consumer USA Hldgs. Inc. S’holders’ Litig., C.A. No. 2022-0689-LWW (Del. Ch. Mar. 31, 2025)
This class action challenged the fairness of a buyout. The case settled on the eve of trial after years of litigation that was led by a prominent investment management firm, which held a large stake in the acquired company and served as the representative for the plaintiff class. The Court approved both the settlement, which secured $162.5 million for the plaintiff stockholder class, and a fee award to the plaintiffs’ counsel out of that amount. The Court declined, however, to award a $1.625 million incentive fee to the plaintiff class representative, ruling instead that a $500,000 award was appropriate.
At the outset, the Court noted that a plaintiff class representative takes on risks and burdens not shared with other class members. The Court also explained that incentive awards encourage plaintiffs to serve as class representatives, and to compensate them for “shouldering the extra burden in class action litigation.” The Court pointed out that incentive awards have drawbacks as well. For example, they may result in a conflict between the interests of the class and those of the plaintiff class representative. The Court then emphasized that substantial incentive fee awards are rare and awarded only in exceptional cases.
Here, the investment management firm’s exceptional efforts, which included 1,630 hours of work, justified an exceptional award of $500,000. The firm supplied its financial and valuation expertise to the case. Class counsel confirmed that the plaintiff’s assistance made their job easier and improved the outcome for the class. The Court noted, however, that the award sought ($1.625 million) was 62.5% greater than the largest incentive award ever granted in Delaware. The Court reasoned that in the case that resulted in the largest incentive award, the lead plaintiff suffered reputational and financial harm as a result of the representation, which was not the case here. Accordingly, reviewing incentive fees previously awarded in comparable cases, the Court awarded $500,000 to be paid from class counsel’s fee award.
