Opinion
Master File No. 00 Civ. 6689 (SAS)
September 26, 2003
Jeffrey A. Klafter, Esq., Klafter Olsen, LLP, White Plains, New York, For Lead Plaintiffs
Lawrence Portnoy, Esq., Helen Harris, Esq., Davis Polk Wardwell, New York, New York, for Underwriter and Related Defendants
Steven R. Schindler, Esq., Schindler Cohen Hochman, New York, New York, for Individual Defendants
Douglas A. Cole, Esq., Stem Cole, Milford, New Jersey, for Objectors
Gerald H. Silk, Esq., Victoria Wilheim, Esq., Bernstein Litowitz Berger, Grossman LLP, New York, New York, for Objectors
Nicholas M. Fausto, Esq., Merchantville, New Jersey, for Objectors
OPINION AND ORDER
Lead Plaintiffs, on behalf of themselves and each of the other Class Members, now seek Court approval of their Settlement with: (1) Donaldson, Lufkin Jenrette Securities Corporation, Prudential Securities Incorporated, Johnson Rice Company, L.L.C., Donaldson Lufkin Jenrette International, and Donaldson Lufkin Jenrette, Inc. (the "Underwriter and Related Defendants"); and (2) Burt H. Keenan, John L. Sulley, Robert E. Jones, Ian Stewart, Jerry W. Jarrell and Herbert L. Oakes, Jr. (the "Individual Defendants"). Lead Plaintiffs also seek Court approval of the Plan of Allocation as contained in the Notice of Settlement of Class Action, Application for Attorneys' Fees and Expenses and Settlement Hearing (the "Notice"), which was mailed to over 30,000 potential Class members. Finally, Lead Counsel, the firm of Bernstein Litowitz Berger Grossman LLP ("Bernstein Litowitz") seeks an award of attorneys' fees and expenses for their efforts and the efforts of co-counsel in successfully prosecuting these consolidated cases.
The Class consists of all persons or entities who between February 14, 2000 and September 8, 2000, inclusive ("Class Period"): (1) purchased Independent Energy Holdings PLC American Depository Shares ("Depository Shares") through Independent Energy Holdings PLC's secondary offering of Depository Shares (the "Secondary Offering") pursuant to the registration statement: and prospectus filed with the Securities and Exchange Commission. ("SEC") on Form F-3, which was declared effective on or about March 28, 2000 (collectively, the "Registration Statement and Prospectus"); (2) otherwise purchased those Depository Shares; (3) if residing in the United States or its territories at the time of purchase, purchased Independent Energy Holdings PLC ordinary shares traded on the London Stock Exchange ("Ordinary Shares"); (4) or any combination thereof. Excluded from the Class are Independent Energy and its officers and directors, the Underwriter and Related Defendants and their subsidiaries and affiliates, and the Individual Defendants and members of their immediate family.
In addition to Bernstein Litowitz, the following law firms also participated in this litigation and are seeking their respective fees and expenses: Berman DeValerio Pease Tabacco Burt Pucillo ("Berman DeValerio"); The Law Offices of Bernard M. Gross, P.C. ("Gross P.C."); Cauley Geller Bowman Rudman ("Cauley Geller"): Paskowitz Associates ("Paskowitz"); Mager White Goldstein, LLP ("Mager White"); and Schiffrin Barroway ("Schiffrin") (collectively "Plaintiffs' Counsel").
I. BACKGROUND
The facts underlying this litigation, a description of the alleged misstatements and omissions, and the claims brought by plaintiffs are all set forth in detail in In re Independent Energy Holdings PLC Sec. Litig., 154 P. Supp.2d 741 (S.D.N.Y. 2001), familiarity with which is assumed. The following is a brief summary of those facts particularly relevant to the instant matters.
On September 8, 2000, Independent Energy Holdings PLC (vv Independent Energy"), one of the fastest growing marketers of electricity in the United Kingdom ("U.K."), went into receivership. See Affidavit of Jeffrey A. Klafter, counsel to Lead Plaintiffs, in Support of Approval of Proposed Class Action Settlement, Plan of Allocation, and Lead Counsel's Application for Attorney's Fees and Reimbursement of Expenses ("Klafter Aff.") at ¶¶ 10, 26. That same day, trading in Independent Energy's Depository Shares and Ordinary Shares was halted. See id. 1 26. The instant action was commenced the following day, on September 9, 2000, and was soon thereafter consolidated by Court Order with other related actions filed here and in the Eastern District of New York. See id. 11 27, 28.
On March 20, 2001, Lead Plaintiffs filed a Second Amended Complaint (the "Complaint") asserting claims under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"). See id. ¶ 29. Both sets of defendants moved to dismiss the Complaint. See In re Independent Energy, 154 F. Supp.2d at 747. In an Opinion and Order dated July 26, 2001, this Court denied defendants' motions to dismiss in substantial part. Lead Plaintiffs then filed a motion for class certification on September 28, 2001. See Klafter Aff. ¶ 34. The Underwriter and Related Defendants vigorously opposed this motion. However, in an Opinion and Order dated May 28, 2002, the above identified class was certified. See In re Independent Energy Holdings PLC Sec. Litig., 210 F.R.D. 476, 486 (S.D.N.Y. 2002).
Plaintiffs' claims under Sections 11 and 12(a)(2) of the Securities Act and Section 10(b) and Rule 10b-5 of the Exchange Act were not dismissed. See id. at 753-62, 762-69. Dismissed with leave to amend were plaintiffs' control person claims under Section 15 of the Securities Act and Section 20(a) of the Exchange Act. See id. at 773.
Extensive and difficult discovery ensued. Much of the evidence needed by Lead Plaintiffs to prove their claims rested outside the subpoena power of this Court. See Klafter Aff. ¶ 94. For example, document discovery was very difficult as Independent Energy was a U.K. company in receivership. Initially, Independent Energy's receivers told Lead Counsel that they could not produce any of the Company's documents. See Transcript of Oral Argument held on September 3, 2003 ("Tr.") at 7. In addition, document requests are severely limited in the U.K. as there is no pre-trial discovery. See Klafter Aff. ¶ 50. According to English law, a party can only request a document if it knows it exists and can describe it in its request. See Tr. at 8. Accordingly, Lead Counsel did not obtain Independent Energy's documents until late in the case. See id. English law also prohibits the taking of discovery depositions. See id. To frustrate the discovery process even further, Independent Energy's former employees were subject to confidentiality agreements, agreements which are strictly enforced in the U.K. Furthermore, the Office of Gas Electricity Markets ("OFGEM"), the energy regulator in the U.K. and a central witness in this litigation, was prohibited, on pain of criminal penalty, from disclosing information concerning Independent Energy, a regulated company. See Klafter Aff. ¶ 51.
It was only after the liquidators were appointed to replace the receivers that Lead Counsel re-commenced settlement negotiations. See Klafter Aff. ¶ 52. On September 18, 2002, the terms of a settlement agreement with Independent Energy were memorialized. See id. ¶ 58. Under the terms of the settlement, Independent Energy's liquidators agreed to produce those documents that were in their possession, custody or control. See id. After this Court preliminarily approved the settlement, extensive document production ensued consisting of more than 65,000 pages of documents. See id. ¶ 59.
Despite these obstacles, Lead Counsel achieved a settlement while in the midst of opposing summary judgment motions filed by the Underwriter and Related Defendants and Individual Defendants Keenan and Oakes on January 31, 2003. See id. ¶ 78. The parties submitted to mediation led by Gary McGowan, a mediator experienced in resolving complex securities class actions. See id. ¶ 79. The initial mediation, which occurred on February 5 and 6, 2003, resulted in a settlement agreement in principle with the Individual Defendants. See id. ¶ 87. The terms of the final settlement agreement were memorialized in a Memorandum of Understanding which was executed on March 3, 2003. See id. § 88. Settlement with the Underwriter and Related Defendants took a bit longer and the resulting Memorandum of Understanding was executed on April 3, 2003. See id. ¶ 89. The Stipulation of Settlement was executed on May 14, 2003. See id. ¶ 90. On June 12, 2003, an Order was entered preliminarily approving the settlement and plan of allocation and providing for notice to potential class members. See id. A hearing date was set for September 3, 2003. At the hearing, oral argument was heard from Lead Counsel and counsel for two objectors to the attorneys' fees application, Ron A. Kline and Charles Klein.
Lead Counsel's opposition briefs were due March 17, 2003. See id. ¶ 79.
The Individual Defendants withdrew their motion for summary judgment in a letter dated March 10, 2003.
The Underwriter and Related Defendants withdrew their motion for summary judgment in a letter dated April 9, 2003.
II. THE SETTLEMENT
The Settlement, totaling $48 million in cash, consists of a $38.5 million contribution from the Underwriter and Related Defendants; a $7.5 million contribution from Independent Energy's insurance carrier; and a $2 million personal contribution from the Individual Defendants. In total, the Settlement represents a recovery of approximately thirty percent of the total amount of damages recoverable in this case. See Tr. at 3. Lead Counsel argues in favor of the Settlement describing it as "an excellent result for the Class." Lead Plaintiff's Memorandum of Law in Support of Settlements at 3. The claims administrator retained by Lead Counsel received no objections to the Settlement, see Affidavit of Shandarese Garr, Vice President of Securities Operations of The Garden City Group, Inc. ("Garr Aff."), Ex. 1 to the Compendium of Affidavits, ¶ 9, nor did anyone object to the Settlement at the hearing held on September 3, 2003. See Tr. at 5.
The principal contribution from the Individual Defendants was from Keenan who resides in the United States. See Tr. at 9-10; see also Klafter Aff. ¶ 107.
It is well established that the primary responsibility of a court in approving a class action settlement is to ensure that such settlement is fair, adequate and reasonable. See In re Blech Sec. Litig., No. 94 Civ. 7696, 95 Civ. 6422, 2000 WL 661680, at *3 (S.D.N.Y. May 19, 2000). The Second Circuit has established the following factors as relevant in evaluating class action settlements:
(1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974), abrogated on other grounds by Goldberger v. Integrated Resources, Inc., 209 F.3d 43 (2d Cir. 2000). Here, application of the Grinnell factors weighs decidedly in favor of the Settlement.
As to the first factor, if not for the Settlement, this case would have necessitated the completion of expert discovery, briefing of summary judgment motions, preparation of a Joint Pretrial Order, extensive in limine motions, and the inevitable post-trial motions and appeal. The trial would have been long and costly as it would have involved numerous fact witnesses, market and damage experts, an expert on U.K. regulatory matters, and hundreds of documents. Lead Plaintiffs would have been forced to incur extraordinary expense in having to pay for witnesses outside this Court's subpoena power to travel to the United States to testify. This factor weighs heavily in favor of the Settlement.
With regard to the second Grinnell factor, over 30,000 notices were mailed out and no objections to the Settlement were received. See Garr Aff. 1 8, 9. As to the third factor, the relatively advanced stage of this litigation provided Lead Counsel with more than enough information to assess the strengths and weaknesses of their case and whether the Settlement is fair, reasonable and adequate.
With regard to the fourth and fifth factors, Lead Plaintiffs faced significant risks in proving the elements of their claims, especially scienter, and in establishing causation and damages. Scienter would have been particularly difficult to prove as to the Underwriter and Related Defendants who consistently claimed that they relied upon the good faith representations made by management. Furthermore, proof of damages in securities cases is always difficult and invariably requires expert testimony which may, or may not be, accepted by a jury. The sixth Grinnell factor — the risk of maintaining the class action throughout the trial — is neutral given that it was highly unlikely that the previously certified class would subsequently be decertified.
The seventh factor — the ability of the defendants to withstand a greater judgment — cuts in two ways. During the mediation, the Individual Defendants submitted evidence indicating that they could not satisfy a significant judgment. The fact that Lead Counsel obtained $2 million from the Individual Defendants is therefore quite remarkable. The Underwriter and Related Defendants could have likely paid a judgment greater than the Settlement amount. However, the reasonableness of the amount they did pay, $38.5 million, must be evaluated in light of both the best possible recovery and the attendant risks of litigation, the eighth and ninth Grinnell factors.
The Settlement represents approximately 30% of the maximum recovery at trial. However, this assumes that Lead Plaintiffs would fully prevail on both liability and damages. Few cases tried before a jury result in a verdict awarding the full amount of damages claimed. Lead Counsel made the reasoned decision to compromise their claims for cash in hand now rather than wait for some hypothetically larger amount years into the future. Given the attendant costs of this trial, and the defenses that would have been asserted as to both liability and damages, Lead Counsel's decision to settle this class action for a third of its maximum value was eminently reasonable. Finally, the fact that the Settlement was reached after exhaustive arm's-length negotiations, with the assistance of a private mediator experienced in complex litigation, is further proof that it is fair and reasonable. See In re Sumitomo Copper Litig., 189 F.R.D. 274, 280-81 (S.D.N.Y. 1999) ("[A] presumption of fairness, adequacy and reasonableness may attach to a class settlement reached in arms-length negotiations between experienced, capable counsel after meaningful discovery.") (internal quotation marks and citation omitted). For all of these reasons, this Court approves the $48 million Settlement obtained by Lead Counsel on behalf of the Class.
III. THE PLAN OF ALLOCATION
The Plan of Allocation proposed by Lead Plaintiffs is set forth in the Notice mailed to potential class members. The Plan of Allocation is complex as it divides the settlement funds between class members who bought on the Secondary Offering and those who bought in the open market. Class Representatives Floyd F. LeBleu and J.B. Prudhomme, II served as representatives of open market purchasers while Robert Maison represented those who purchased through the Secondary Offering. See Affidavits of Floyd D. LeBleu, J.B. Prudhomme, II, and Robert C. Maison in Support of Approval of Proposed Settlement of Class Action, Plan of Allocation, and Lead Counsel's Application for Attorneys' Fees, Exs. 2A, 2B and 2C to the Compendium of Affidavits, ¶¶ 8. The Class Representatives, who were represented by counsel during negotiations, weighed the relative damages suffered by purchasers on the Secondary Offering and purchasers on the open market and considered the different burdens of proof for the two groups. See id. After doing so, the Class Representatives reached agreement as to how the settlement funds should be allocated. See id. No objections to the Plan of Allocation have been received by Lead Counsel. See Klafter Aff. ¶ 111.
LeBleu and Prudhomme were represented by Bernstein Litowitz while Maison was represented by Deborah Gross of Gross, P.C.
In approving a plan of allocation, a court's primary responsibility is to ensure that the distribution of funds is fair and reasonable. See Maley v. Del Global Techs. Corp., 186 F. Supp.2d 358, 367 (S.D.N.Y. 2002). "An allocation formula need only have a reasonable, rational basis, particularly if recommended by `experienced and competent' class counsel." In re American Bank Note Holographics, Inc. Sec. Litig., 127 F. Supp.2d 418, 429-30 (S.D.N.Y. 2001) (citation omitted). Here, the Plan of Allocation is the result of lengthy negotiations conducted by sophisticated class representatives. In addition, Lead Counsel have given their approval, stating that the Plan of Allocation is "fair and reasonable." Klafter Aff. ¶ 114. Finally, the lack of any objections suggest that approval of the Plan of Allocation is warranted. See In re American Bank Note, 127 F. Supp.2d at 430. For all of these reasons, the Plan of Allocation is approved.
IV. ATTORNEYS' FEES AND EXPENSES
A. General Principles
The "equitable" or "common fund" doctrine governing an award of attorneys' fees was established more than a century ago in Internal Imp. Fund Trustees v. Greenough, 105 U.S. 527, 532-33 (1881).
The equitable fund doctrine provides that a court may award fees to attorneys who have created a common fund or conferred some other, substantial benefit on a class of plaintiffs. In part, the rationale of fee awards in these cases is found in the equitable principle that "persons who obtain the benefit of a lawsuit without contributing to its cost are unjustly enriched at the successful litigant's expense." Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980); see Amalgamated Clothing Textile Workers Union v. Wal-Mart Stores, Inc., 54 F.3d 69, 71 (2d Cir. 1995). Awarding counsel fees in such cases also serves the salutary purpose of encouraging counsel to pursue meritorious claims on behalf of a class of individuals who could not afford to litigate their individual claims. See Van Gemert v. Boeing Co., 573 F.2d 733, 737 (2d Cir. 1978), rev'd en banc, 590 F.2d 433 (2d Cir. 1978), aff'd, Boeing Co. v. Van Gemert, 444 U.S. 472 (1980). . . .Steiner v. Williams, Nos. 99 Civ. 10186, 99 Civ. 1479, 2001 WL 604035, at *1 (S.D.N.Y. May 31, 2001) (parallel citations omitted).
While an award of attorneys' fees is justified by the equitable fund doctrine, the amount of "fees awarded in common fund cases [must] not exceed what is `reasonable' under the circumstances." Goldberger, 209 F.3d at 47. As clarified by the Second Circuit, both the lodestar and percentage of fund methods are available in calculating fee awards in class action settlements. See id. at 50. However, no matter which method is used,
"What constitutes a reasonable fee is properly committed to the sound discretion of the district court . . . and will not be overturned absent an abuse of discretion, such as a mistake of law or a clearly erroneous factual finding." Goldberger, 209 F.3d at 47 (internal citation omitted).
The lodestar method multiplies "`the number of hours expended by each attorney involved in each type of work on the case by the hourly rate normally charged for similar work by attorneys of like skill in th area. . . .'" Savoie v. Merchants Bank, 166 F.3d 456, 460 (2d Cir. 1999) (quoting City of Detroit v. Grinnell Corp., 560 F.2d 1093, 1098 (2d Cir. 1977)).
The percentage of fund method is a simpler calculation of the fee award "as some percentage of the fund created for the benefit of the class." Savoie, 166 F.3d at 460 (citing Blum v. Stenson, 465 U.S. 886, 900 n. 16 (1984)).
Despite the availability of both methods, "the trend of the district courts in this Circuit is to use the percentage of the fund approach to calculate attorneys' fees." In re American Bank Note, 127 F. Supp.2d at 431.
district courts should continue to be guided by the traditional criteria in determining a reasonable common fund fee, including: "(1) the time and labor expended by counsel; (2) the magnitude and complexities of the litigation; (3) the risk of the litigation . . .; (4) the quality of representation; (5) the requested fee in relation to the settlement; and (6) public policy considerations."Id. (quoting In re Union Carbide Corp. Consumer Prod. Bus. Sec. Litig., 724 F. Supp. 160, 163 (S.D.N.Y. 1989)). And while the Goldberger court recognized the ever increasing use of benchmarks within the 25% range, it cautioned that the use of such benchmarks "could easily lead to routine windfalls where the recovered fund runs into the multi-millions." Id. at 52. The court then noted that in cases with recoveries of between $50 and $75 million, courts have traditionally awarded fees in the range of 11% to 19%. See id. (citations omitted).
The wisdom of applying a percentage less than 25% in large settlements is evident from the following hypotheticals. Assume lead counsel in a particular case achieve a $1 billion settlement: after expending $25 million in fees calculated at their relevant hourly rates. Using 25% as a benchmark would result in a $250 million fee award and a multiplier of 10. Surely this would result in the type of "unwarranted windfall" discouraged in Golberger. See id. at 49. Assume a second scenario where lead counsel accrue $2 million in fees to obtain a settlement of $5 million. The resulting fee award, at 25% of the settlement: fund, would be $1.25 million with a negative multiplier. Perhaps in this example, a fee award exceeding 25% would be warranted. What these hypotheticals show is that the percentage used in calculating any given fee award must follow a sliding-scale and must bear an inverse relationship to the amount of the settlement. Otherwise, those law firms who obtain huge settlements, whether by happenstance or skill, will be over-compensated to the detriment of the class members they represent.
"The multiplier takes into account the realities of a legal practice by rewarding counsel for those successful cases in which the probability of success was slight and yet the time invested in the case was substantial. . . . As the chance of success on the merits or by settlement increases, the justification for using a risk multiplier decreases." In re "Agent Orange" Prod. Liab. Litig., 818 F.2d 226, 236 (2d Cm. 1987) (citations omitted).
Thus, a lead counsel's lodestar figure (and resulting hourly rate) should be used as a cross-check on the reasonableness of the fees determined under the percentage of fund method. See id. at 50 ("[W]e encourage the practice of requiring documentation of hours as a `cross check' on the reasonableness of the requested percentage. . . . [W]here used as a mere cross-check, the hours documented by counsel need not be exhaustively scrutinized by the district court."). In the first hypothetical, a $250 million fee award resulted in a multiplier of 10. Assuming the partners at that firm charged $500 per hour, a multiplier of 10 would result in compensation of $5,000 per hour for those partners. It could hardly be expected that class members would voluntarily agree to that rate of compensation at the outset of the case. In addition, no court would approve such an hourly rate in fixing an attorney's fee award. Yet a multiplier of 2 would result in a fee award of $50 million, which would represent only 5% of the total settlement. Thus, both the chosen percentage and the multiplier must be proportionate to the size of the settlement. For settlements in the range of $50 million, 15% to 20% of the total settlement seems reasonable as long as the resulting multiplier is also reasonable.
B. The Amount Requested and the Objections Thereto
Lead Counsel, on their own behalf and on behalf of the other Plaintiffs' Counsel, request an award equal to 25% of the $48,000,000 in Settlement funds after deducting expenses of $1,488,300, which amounts to $11,627,925 in fees. Thus, Lead Counsel request a total award of $13,116,225 in fees and expenses. Lead Counsel argue that such an award is justified based upon the Goldberger factors.
Lead Counsel point out that the $11,627,925 in requested fees is approximately 24.22% of the total Settlement funds. See Tr. at 6-7. However, the total award requested of $13,116,225, consisting of $11,627,925 in fees plus $1,488,300 in expenses, is approximately 27.33% of the total Settlement funds.
Lead Counsel also point out that the requested fee of $11,627,925 is equivalent to 1.94 times the lodestar figure of $6, 002,118.50. Lead Counsel cite several post-Goldberger district court cases where the fees awarded represented multipliers of two or greater. See Fee Mem. at 25-26. At the hearing, Lead Counsel also noted that the Notice sent out to potential class members stated that Plaintiffs' Counsel would be seeking an award of 25% of the Settlement funds and reimbursement of expenses not to exceed $1,600,000, amounts greater than those actually sought herein. See Tr. at 6.
This lodestar figure is comprised of the following: $4,611,907 from Bernstein Litowitz; $155,587.50 from Berman DeValerio; $168,455 from Cauley Geller; $169,082.50 from Gross P.C.; $266,930 from Mager White; $474,542.50 from Paskowitz; and $155,614 from Schiffrin. See Klafter Aff., Ex. T.
See, e.g., In re Lloyd's American Trust Fund Litig., No. 96 Civ. 1262, 2002 WL 31663577, at *26-27 (S.D.N.Y. Nov. 26, 2002) (awarding 28% of total settlement in excess of $20,000,000 representing a multiplier of 2.09); Maley, 186 F. Supp.2d at 368-69 (awarding 33 1/3% of $11,500,000 settlement resulting in a multiplier of 4.65). However, in Maley, 82% of the fees were paid in common stock, warrants and notes and only 18%, or $666,000, in cash, thus subjecting the fee award to significant risk. See id. at 367-68, 369. Furthermore, the string cite of twelve cases awarding fees in the 33 1/3% range found in In re Lloyd's contains only two post-Goldberger cases and one of them is Maley, which is, for reasons just stated, distinguishable. The other case, Newman v. Caribiner, No. 99 Civ. 2271 (S.D.N.Y. Oct. 19, 2001) (Lynch, J.),. is an unreported award of 33 1/3% of a $15 million settlement.
Two class members objected to the fees requested: Charles Klein, represented by Douglas Cole, and Ronald A. Kline, represented by Nicholas Fausto. Cole conceded that Lead Counsel did a significant amount of work in this case but argued in favor of using 20% instead of 25%, exclusive of costs. See Tr. at 22. In short, Cole discounted the risk taken by Lead Counsel, noting that 93% of all securities actions settle. See id. at 33. Cole also pointed out that if the resulting multiplier of 1.94 were accepted by the Court, Jeffrey Klafter (the Lead Plaintiffs' lawyer) would, in effect, be compensated at a rate of $1,300 per hour. See id. at 31. Fausto joined in the arguments made by Cole and also pointed out the various multipliers in some of the cases cited by Lead Counsel. See id. at 35-36 (noting a 1.4 multiplier in Adair v. Bristol Tech. Sys., Inc., No. 97 Civ. 5874, 1999 WL 1037878 (S.D.N.Y. Nov. 16, 1999); a negative multiplier in In re Blech Sec. Litig., No. 94 Civ. 7696, 2000 WL 661680 (S.D.N.Y. May 19, 2000); a 1.67 multiplier in In re Medical X-Ray Film Antitrust Litig., No. CV-93-5904, 1998 WL 661515 (E.D.N.Y. Aug. 7, 1998);. and a 1.6 multiplier in Varljen v. H.J. Meyers Co., Inc., No. 97 Civ. 6742, 2000 WL 1683656 (S.D.N.Y. Nov. 8, 2000)). Fausto also noted the list of law firms included as Plaintiffs' Counsel who were willing and competent to undertake this litigation. See id. at 36. Pausto concluded that a multiplier of 1.5 would substantially encourage this type of litigation and, at the same time, sufficiently compensate counsel for their efforts. See id. at 37.
C. Determining What Is Reasonable
Lead Counsel cites a number of cases with fee awards ranging from 25% to 33 1/3%. See Fee Mem. at 9-10. There are, however, a number of cases within this Circuit with fee awards ranging from 12% to 20%. Notably, the Second Circuit approved of a 4% fee award in Goldberger. See 209 F.3d at 45. Case citations are of limited usefulness as a "fee award should be assessed based on scrutiny of the unique circumstances of each case." Goldberger, 209 F.3d at 53.
See, e.g., In re Twinlab Corp. Sec. Litig., 187 F. Supp.2d 80, 88 (E.D.N.Y. 2002) (12% of $26,500,000); In re Dreyfus Aggressive Growth Mut. Fund Litig., No. 98 Civ. 4318, 2001 WL 709262, at *7 (S.D.N.Y. June 22, 2001) (15% of $18,500,000); In re Fine Host Corp. Sec. Litig., No. MDL 1241, 2000 WL 33116538, at: *6 (D. Ct. Nov. 8, 2000) (17.5% of $17,750,000); Varljen v. H.J. Meyers Co., Inc., No. 97 Civ. 6742, 2000 WL 1683656, at * (S.D.N.Y. Nov. 8, 2000) (20% of $5,000,000); In re Health Mgmt. Sec. Litig., 113 F. Supp.2d 613, 614 (S.D.N.Y. 2000) (20% of $4,500,000). See also In re Arakis Energy Corp. Sec. Litig., No. 95 CV 3431, 2001 WL 1590512, at *9 (E.D.N.Y. Oct. 31, 2001) ("[T]he trend within this circuit after Goldberger has been to award attorney's fees in amounts considerably less than 30% of common funds in securities class actions, even where there is a substantial contingency risk.") (citing cases).
At the hearing, Lead Counsel stressed the difficulties they had in obtaining discovery from abroad and the risks they undertook in bringing this action because, inter alia, Independent Energy was already in receivership by the time the action was filed. See Tr. at 7-8. These factors, along with others, arguably made the risk of non-payment significant from the outset of this litigation. These factors must be balanced, however, against the "overarching concern for moderation" expressed in Goldberger. 209 F.3d at 53.
While Lead Counsel was unaware of the existence of an insurance policy at the outset of this litigation, see Klafter Aff. ¶ 106, the underwriters were viewed as a "deep pocket" at the outset of the case. See Tr. at 10. Furthermore, the Goldberger court recognized that contingency risk is often inflated, citing one study that found "no appreciable risk of non-recovery in securities class actions, because virtually all cases are settled." Goldberger, 209 F.3d at 52 (internal quotation marks and citation omitted, emphasis in original). See also In re Dreyfus, 2001 WL 709262, at *4 ("What empirical data [that] does exist indicates that all but a small percentage of class actions settle, thereby guaranteeing counsel payment of fees and minimizing the risks associated with contingency fee litigations."). Here, however, Lead Counsel faced significant risk from the outset, the defendant being a foreign company in receivership. These factors distinguish this case from the typical securities class actions referred to in Goldberger must be taken into account in setting the appropriate fee.
The risks inherent when a defendant declares bankruptcy were addressed in In re Fine Host. There, the court noted that Fine Host's bankruptcy created many complex issues and threatened the plaintiffs' chances for a successful recovery. See In re Fine Host, 2000 WL 33116538 at *5. In addition, as was the case here, "plaintiffs' claims were met with difficult defenses, presented vigorously by able and experienced defense counsel." Id. Despite the difficulties of the issues litigated, the highly contested nature of the litigation, and the substantial benefits conferred upon the class, the court concluded that an award of 17.5% was appropriate. See id.
The complexities involved with foreign discovery were acknowledged in In re Arakis Energy, where the court noted some of the very same difficulties encountered by Lead Counsel in this case.
This case has also proven to be extremely complex, as evidenced by the need for counsel to conduct extensive discovery, including international discovery, in Canada, the Middle East, Sudan and the Channel Islands. The research performed in the preparation and service of letters rogatory necessary in order to conduct discovery of witnesses and obtain documents . . . and the litigation relating to those letters rogatory were time consuming and difficult. Similarly, there were numerous issues involved in plaintiffs' counsel's preparation to prove the defendants' scienter as to the alleged violations of securities laws, a key element in plaintiffs' case should the case have gone to trial. Finally, negotiation of the settlement was also a complicated process, requiring an analysis of the distribution of the funds to various categories of class members.In re Arakis Energy, 2001 WL 1590512, at *11. Despite the existence of complex foreign discovery issues, the court reduced the requested fee of 33 1/3% to 25% of the total settlement of $24,000,000, the same percentage requested here. However, in doing so, the court noted that 25% was "in fact toward the high end of the range of recent awards." 2001 WL 1590512, at *14 (citing cases). More importantly, the court noted that a 25% fee represented a multiplier of 1.2 of the claimed lodestar figure. See id. at: *15. The court specifically found that a multiplier of 1.2 would not "deviate materially from post-Goldberger decisions of courts within the Second Circuit as to whether or not to apply a multiplier to a given lodestar." Id. (citing cases).
The "lodestar check" recommended by the Goldberger court is particularly significant in this case. Here, the requested fee of 25% results in a multiplier of approximately 1.94 of Plaintiffs' Counsel's combined lodestar figure of $6,002,118.50. The question is whether a fee award of almost twice the lodestar amount is reasonable.
The lion's share of the combined lodestar figure is attributable to Bernstein Litowitz acting as Lead Counsel, which accounts for $4,611,907 of the $6,002,118.50. See Klafter Aff., Ex. T. Of this amount, partners worked 1,947.5 hours, amounting to $1,230,396.25, while associates worked 6,545.75 hours, amounting to $2,512,006.25. See id., Ex. R. Of the partners, Jeffrey Klafter billed the most hours, 1,674.25, at the second to highest rate of $650/hour. See id. The associates billed at rates ranging from $300/hour to $425/hour. See id. The percentage of partner hours to associate hours is approximately 29.75%.
Max Berger billed 45.75 hours at $695/hour.
While these rates are high compared to those of the other Plaintiffs' Counsel, they are not extraordinary for a topflight New York City law firm. On the other hand, there was obviously no shortage of competent counsel prepared to represent plaintiffs in these litigations. In that sense, a significant risk multiplier is not required to induce counsel to bring this type of action. In addition, the partner/associate ratio at Bernstein Litowitz (29.75%) is somewhat high. See id. at 87 (finding counsel's lodestar to be excessive "because counsel calculated the lodestar using partner billing rates for a large percentage of the time worked on the case, regardless of whether an associate or paralegal could have performed the work at a fraction of the price"). See In re Dreyfus, 2001 WL 709262, at *7 ("[A]t most [large New York City] firms partners play a largely supervisory role, while the basic work on the case is performed by more junior staff who bill at lower rates.").
Partner/associate percentages at other Plaintiffs' Counsel law firms were even more disproportionate — partners at Mager White charged almost eight times the number of hours charged by associates while the Paskowitz partners charged over six times the number of associate hours.
Furthermore, the public policy concerns that often militate in favor of a significant risk multiplier in complex securities class actions are not present here. In other cases, multipliers of two or more were justified because "[a] large segment of the public might be denied a remedy for violations of the securities laws if contingent fees awarded by the courts did not fairly compensate counsel for the services provided and the risks undertaken." In re Union Carbide, 724 F. Supp. at 169. But this case involves neither ordinary public investors nor market-wide malfeasance. In short, though this case was brought under the securities laws, it better resembles a run-of-the-mill commercial litigation. Accordingly, no public policy favors a large risk multiplier.
For these reasons, an attorneys' fee award of 20% net of expenses adequately compensates counsel for their efforts, the quality of their representation, and the risks and complexities of this litigation. In addition, because counsel are entitled to reasonable litigation expenses and because those expenses have been clarified by the September 10, 2003, letter submitted by Jeffrey Klafter, counsel will be reimbursed $1,488,300 for their out-of-pocket costs. See Mitland Raleigh-Durham v. Myers, 840 F. Supp. 235, 239 (S.D.N.Y. 1993) ("Attorneys may be compensated for reasonable out-of-pocket expenses incurred and customarily charged to their clients. . . ."). Accordingly, the total amount awarded is $10,790,640, which represents 22.48% of the total settlement funds. This total includes attorneys's fees of $9,302,340 (20% of $46,511,700) and reimbursed expenses of $1,488,300.
This represents a multiplier of approximately 1.55. This is more than generous given that this Court declined to reduce the rates charged by Lead Counsel. With a multiplier of 1.55, Klafter's rate in effect becomes $1,007.50/hour which, is hefty compensation by any standard.