Ultimately, 27.5% Common Fund Fee Recovery Affirmed, But … With Caveats.
Chief Judge Easterbrook, one of the “Chicago School” jurists, authored an interesting decision on August 14, 2013 in Silverman v. Motorola Solutions, Inc., 2013 WL 4082893 (3d Cir. Aug. 14, 2013). We will be curious who thinks this cuts one way or the other – or maybe, naught! You be the judge.
In this one, a federal securities case apparently settled over acrimonious litigation between plaintiffs represented by contingency securities counsel (including counsel representing institutional investor class members) and well-heeled defendants--Motorola and likely indemnified/well-represented co-defendant officers, directors, affiliates, etc. The settlement was $200 million (a common fund), with a district judge approving class counsel’s proposal that the attorneys receive 27.5% of the fund. Two class members objected.
One objector’s appeal was dismissed. After all, he filed a belated objection and did not file a claim to his share of recovery, meaning he did not have any interest in the outcome. (We are sure this will draw some criticisms from various sectors.)
The other objector, not suffering from the apparent infirmities of the first one, did not win on appeal, with the Seventh Circuit affirming based on the deferential abuse of discretion standard applicable to the fee award. However, here are the interesting observations from the unanimous decision:
1. It would have been better had class counsel been subject to a beforehand auction process, which did not happen, but market competition by auction should be encouraged;
2. Empirical data showed that the mean award from settlements in the $100-250 million range in class action settlements is 12% and the median is 10.2%, with the common fund percentage awarded to counsel declining as the size of the fund increases;
3. Lack of competition by a firm willing to take on a big corporation, turning up some unanticipated facts during discovery and resulting in a summary judgment denial, commanded a higher than average fee recovery (“lack of competition not only implies a higher fee but also suggests that most members of the securities bar saw this litigation as too risky for their practices”);
4. Negotiated fee agreements regularly provide for a fee recovery that increases at a decreasing rate;
5. Much of the expense in litigation is devoted to determining liability, which does not depend on the amount of damages—which again supports a decreasing contingency fee arrangement on increased damage tiers;
6. A district judge, as fiduciary for the class, sometimes must consider issues that the class representatives and their lawyers “prefer to pass”; and
7. This case did not involve the “prefer to pass” situation because no institutional investors—having their own in-house counsel with separate fiduciary duties to protect their beneficiaries—protested the fee request or recovery, which means the fee award gets affirmed.
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