-JO Wal-Mart Stores, Inc, et al v. Visa USA, Inc., et al
Filing
1655
ORDER in case 1:96-cv-05238-JG-JO; granting (2113) Motion for Attorney Fees in case 1:05-md-01720-JG-JO. For the reasons given in the attached order, the Court grants attorneys' fees of $544.8 million and costs and expenses of $27,037,716.97. The request for incentive payments is denied without prejudice to renewal. Ordered by Judge John Gleeson on 1/10/2014. Associated Cases: 1:05-md-01720-JG-JO et al. (Aronoff, Peter)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
IN RE PAYMENT CARD INTERCHANGE
FEE AND MERCHANT DISCOUNT
ANTITRUST LITIGATION
FOR PUBLICATION
MEMORANDUM
AND
ORDER
05-MD-1720 (JG) (JO)
JOHN GLEESON, United States District Judge:
This is an antitrust class action brought by merchants against Visa, MasterCard,
and a number of banks, alleging that the defendants conspired to fix certain credit card fees and
rules. In a December 13, 2013 memorandum and order, DE 6124 (“Approval Order”), I
approved a settlement, see DE 2111. The settlement has two principal components: a fund of
about $7.25 billion (before reductions for opt-outs, which reduced the fund to about $5.7 billion),
against which merchants who did not opt out of a Rule 23(b)(3) class may make damages claims;
and injunctive relief in the form of various credit card network rules changes, which apply to all
members of a Rule 23(b)(2) class. The Approval Order deferred resolution of the Class
Plaintiffs’1 simultaneous motion for attorneys’ fees and costs, see DE 2113, which I address
now.
Although every case is unique, this case stands out in size, duration, complexity,
and in the nature of the relief afforded to both the injunctive relief and damages classes. Class
1
“Class Plaintiffs” refers to proposed class representative merchants Photos Etc. Corp.; Traditions,
Ltd.; Capital Audio Electronics, Inc.; CHS Inc.; Crystal Rock LLC; Discount Optics, Inc.; Leon’s Transmission
Service, Inc.; Parkway Corp.; and Payless ShoeSource, Inc.
Counsel2 took on serious risks in prosecuting the case. They now represent that, taking together
all of the hours that they and other plaintiffs’ counsel billed on this case, the lodestar figure for
attorneys’ fees is approximately $160 million, reflecting almost 500,000 hours of attorney and
paralegal work conducted through November 30, 2012. They request a fee of $570 million,
equal to approximately ten percent of the fund after opt-out reductions. 3
For the reasons given below, I grant attorneys’ fees in the amount of $544.8
million. I also approve Class Counsel’s request for expenses in the amount of $27,037,716.97.
The request for incentive payments to the Class Plaintiffs is denied without prejudice to renewal.
DISCUSSION
A. Attorneys’ Fees
I assume familiarity here with the facts and case history set forth in the Approval
Order.
Class action fee awards are evaluated based on the six-factor standard set forth in
Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 50 (2d Cir. 2000). Under that standard, I
must weigh “(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.
I may award attorneys’ fees using either a percentage of the fund or a lodestar
calculation. Id.; see also Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 121 (2d Cir.
2005). The trend in this Circuit, and the method I adopt here, is a percentage of the fund. The
2
“Class Counsel” refers to the three firms appointed co-lead counsel for Class Plaintiffs: Robbins
Geller Rudman & Dowd LLP; Robins, Kaplan, Miller & Ciresi L.L.P; and Berger & Montague, P.C.
3
Class Counsel initially requested $720 million, which represented 10% of the fund before
reductions for opt-outs, but in their reply they revised the request to equal 10% of the fund net of those reductions.
Though they reserve the right to seek additional fees from opt-outs on the theory that they benefited from Class
Counsel’s efforts, see, e.g., In re Diet Drugs, 582 F.3d 524, 546 (3d Cir. 2009) (approving district court’s award of
fees from opt-outs), that issue is not before me now.
2
percentage method better aligns the incentives of plaintiffs’ counsel with those of the class
members because it bases the attorneys’ fees on the results they achieve for their clients, rather
than on the number of motions they file, documents they review, or hours they work. See WalMart, 396 F.3d at 121 (“In contrast [to the percentage method], the lodestar creates an
unanticipated disincentive to early settlements, tempts lawyers to run up their hours, and compels
district courts to engage in a gimlet-eyed review of line-item fee audits.”) (internal quotation
marks, citations, and alterations omitted). The percentage method also accords with the
overwhelming prevalence of contingency fees in the market for plaintiffs’ counsel: when
potential clients and lawyers bargain freely for representation, most contracts award the lawyer a
percentage (commonly, about one third) of the client’s recovery. As Professor Charles Silver
points out, the contingency fee model covers all sorts of plaintiffs’ litigation, including cases
where sophisticated individual clients have high-stakes, complex claims worth hundreds of
millions of dollars. See Declaration of Professor Charles Silver Concerning the Reasonableness
of Class Counsel’s Request for an Award of Attorneys’ Fees 25-34 (“Silver Decl.”), DE 2113-5.
Although I cannot hope to reconstruct what a hypothetical arm’s-length negotiation of fee rates
between the class and Class Counsel might have yielded, it is essentially unheard of for
sophisticated lawyers to take on a case of this magnitude and type on any basis other than a
contingency fee, expressed as a percentage of the relief obtained.
Nonetheless, I will also use the lodestar figure as a “cross-check” to assure that
the percentage-based fee is reasonable. See Goldberger, 209 F.3d at 50 (noting that “where used
as a mere cross-check, the hours documented by counsel need not be exhaustively scrutinized by
the district court,” and instead “the reasonableness of the claimed lodestar can be tested by the
court’s familiarity with the case”).
3
Evaluation of the six Goldberger factors is not a mechanical process, and some of
them present perplexing issues in this case, as discussed below.
1.
Risk; Complexity of Litigation
The most important Goldberger factor is often the case’s risk. See, e.g.,
McDaniel v. Cnty. of Schenectady, 595 F.3d 411, 424 (2d Cir. 2010); Beckman v. KeyBank, N.A.,
293 F.R.D. 467, 479 (S.D.N.Y. 2013); In re KeySpan Corp. Sec. Litig., 01 CV 5852(ARR), 2005
WL 3093399, at *5 (E.D.N.Y. Sept. 30, 2005). This case was unusually risky for a number of
reasons:
When the litigation began in 2005, only one court had ruled on an antitrust
challenge to the manner in which interchange rates are set, and it had found in
favor of the defendant. See NaBanco Bancard Corp. (NaBANCO) v. Visa
U.S.A., Inc., 779 F.2d 592 (11th Cir. 1986).
As in the first Visa/MasterCard antitrust case I presided over, the plaintiffs did
not piggyback on previous government action – indeed, the government
piggybacked on their efforts. See Wal-Mart, 396 F.3d at 122.
Once the case was initiated, the plaintiffs’ legal theories faced many risks, as I
discussed in the Approval Order. In brief, the plaintiffs: could have lost on
antitrust standing grounds under Illinois Brick Co. v. Illinois, 431 U.S. 720,
736 (1977); had to deal with the networks’ restructuring as independent
companies, which occurred after the case had been filed; would have had to
overcome the indisputable procompetitive effects of the challenged network
rules; would have had serious obstacles in proving damages; and would have
had to win class certification and maintain that status through the end of trial.
See Approval Order 20-29.
Those risks could have meant the end of the litigation with no recovery for class members and no
fee for counsel. Counsel should be rewarded for undertaking them and for achieving substantial
value for the class. If not for the attorneys’ willingness to endure for many years the risk that
their extraordinary efforts would go uncompensated, the settlement would not exist.
In Goldberger, the Second Circuit – correctly, I believe – doubted that substantial
contingency risk inheres in every common fund case. See 209 F.3d at 52 (citing Janet Cooper
4
Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 Stan.
L.Rev. 497, 578 (1991)). When a court finds that, in fact, there was relatively little risk of
failure, the fee award should reflect that finding. But given the existential threats to this
litigation discussed in the Approval Order, I conclude that the risk in this case was enormous.
My award of attorneys’ fees must recognize that, from an ex ante perspective, counsel no doubt
had serious doubts about taking on such a risky and expensive litigation.
As for complexity, no one can reasonably dispute the fact that this case was
enormously complex, both factually and legally.
2.
Quality of Representation; Time Spent by Counsel
In light of that serious risk and the complexity of the case, the quality of
representation in this case may be measured in large part by the results that counsel achieved for
the classes. I discussed the merits and demerits of the settlement in detail in the Approval Order,
but I reiterate here that the settlement constitutes a significant step toward remedying the
merchants’ complaints about interchange rates in Visa and MasterCard credit card transactions.
Even standing alone (that is, without considering the other rules changes created or locked in by
the settlement), the merchants’ newly acquired ability to surcharge the use of credit cards at the
product level has great value. The networks and the banks fiercely resisted such a change in the
rules throughout the long and hard-fought settlement discussions. Class Plaintiffs’ expert
estimates that it could save merchants between $26.4 and $62.8 billion over the next decade.
Frankel Decl., ¶¶ 67-73, DE 2111-5. Plaintiffs’ counsel also worked toward the passage of the
Durbin Amendment, which removed discounting restrictions at the network level. And this case
also helped precipitate the networks’ consent decree with the Department of Justice after
plaintiffs’ counsel shared their work with government attorneys several years into the litigation.
5
For these and other reasons, the settlement cannot be reduced to the damages alone; it
encompasses real programmatic reforms that enable merchants to stimulate network and bank
competition on interchange rates by taking action at the point of sale. When the rules changes
are combined with the massive damages fund, the settlement must be labeled a significant
success. That assessment reinforces my judgment that plaintiffs’ counsel litigated the case with
skill and tenacity, as would be expected to achieve such a result. See Goldberger, 209 F.3d at 55
(“[T]he quality of representation is best measured by results.”).
The amount of time and energy that counsel spent on the case is clear from the
reported number of hours – nearly 500,000 – and from even a cursory review of the docket sheet.
3.
Fee in Relation to Fund; Public Policy Considerations
This brings me to the final two factors: the requested fee in relation to the size of
the settlement fund, and public policy considerations. Class Counsel have requested a fee of
$570 million, which represents about 10% of the fund (after reductions for opt-outs).4 Relying
4
Although I have little doubt that the injunctive relief in this case will eventually have great value
to the merchants, I have not relied on its value in a strict mathematical sense – that is, I will not award a percentage
of that additional value as fees. (I should note that, in contrast to the first Visa/MasterCard case, Class Counsel here
make no such request.) As the Ninth Circuit wrote in Staton v. Boeing Co.,
Precisely because the value of injunctive relief is difficult to quantify, its value
is also easily manipulable by overreaching lawyers seeking to increase the value
assigned to a common fund. We hold, therefore, that only in the unusual
instance where the value to individual class members of benefits deriving from
injunctive relief can be accurately ascertained may courts include such relief as
part of the value of a common fund for purposes of applying the percentage
method of determining fees. When this is not the case, courts should consider
the value of the injunctive relief obtained as a “relevant circumstance” in
determining what percentage of the common fund class counsel should receive
as attorneys’ fees, rather than as part of the fund itself.
327 F.3d 938, 974 (9th Cir. 2003) (internal citation and footnote omitted). The value of the rules changes
accomplished by the settlement (which may be enhanced by the recent, not-yet-approved settlement in separate
litigation against American Express, see Hilary Stout, “An Easing of Rules on Charges by Amex,” The New York
Times, December 20, 2013, at B1 (also available at http://www.nytimes.com/2013/12/20/business/an-easing-ofrules-on-charges-by-amex.html)), is too uncertain at this point to be anything other than the kind of “relevant
circumstance” described by the court in Staton.
6
on counsel’s representation of a lodestar value of about $160 million, the requested fee would
amount to a multiplier of 3.54.
Even with the aid of the Goldberger factors, I have struggled to find a strong
normative basis by which to evaluate the requested fee or to generate my own figure. The law
sets only minimal constraints on fee awards. Within the boundaries of those constraints, it offers
no concrete guideposts. And this case is so large and complex that it has few comparators to
guide my judgment. More precise guidance would be useful, not so much for the district judges
making the fee awards, who generally welcome broad discretion, but for the lawyers who do this
kind of work. Bearing the risk of failure on the merits comes with the territory, but it seems
anomalous that counsel must also bear the additional financial risk that inheres in such broad
discretion even when they succeed. In any event, I elaborate below on my thought process in
awarding fees in this case for the benefit of the parties and any reviewing courts.
As mentioned above, unlike more routine class cases – for example, wage and
hour settlements with values of about a million dollars, for which countless comparators could be
found – comparison to similar cases is difficult here given the singular size and complexity of
this case. And unlike (for example) securities cases under the PSLRA, I am afforded no
guidance by the parties’ negotiations. In PSLRA litigation, a lead plaintiff may bargain with
lead counsel over fees, though in this Circuit a district court need not defer to such a bargain
when actually making the award at the end of litigation. See In re Nortel Networks Corp. Sec.
Litig., 539 F.3d 129, 133 (2d Cir. 2008) (reserving the question of whether a negotiated fee is
presumptively reasonable, which is the rule under cases such as In re Cendant Corp. Litig., 264
F.3d 201, 282-83 (3d Cir. 2001)). It would be helpful to have a negotiated benchmark from
which to work, and in a future case, I will consider employing my authority under Rule 23(d) to
7
require such negotiation – perhaps with court-appointed counsel to represent a cross-section of
the plaintiffs for the purposes of the fee negotiation.5
In theory, even in the absence of a negotiated rate here, I could look to other,
comparable cases in which counsel and class members bargained over fees. See In re Nortel
Networks Corp. Sec. Litig., 539 F.3d at 134 (noting that fee awards should, where possible,
approximate market rates, and citing cases). But there is little information about how
sophisticated plaintiffs and lawyers behave in cases with recoveries this large, because there are
very few cases of comparable size, and none include a fee arrived at through private bargaining.
For these reasons, my starting point for assessing the requested fee in relation to
the settlement fund is large class cases with court-set fees. The closest comparator case I know
is the Visa/MasterCard settlement I presided over ten years ago. In that case, I approved a fee
award of about $220.3 million, about 6.5% of the value of the fund, for a multiplier of 3.5, see In
re Visa Check/Mastermoney Antitrust Litig., 297 F. Supp. 2d 503, 524 (E.D.N.Y. 2003), which
the Second Circuit upheld, see Wal-Mart, 396 F.3d at 121-23. The two cases are in some ways
similar: both are antitrust cases involving the two largest networks and banks, with merchants as
plaintiffs; both involve novel and complex legal questions; in their history, both encompassed
many years of litigation involving many thousands of hours of lawyering; and in their results,
both ended in huge settlement funds accompanied by programmatic reforms of (possibly) even
greater monetary value. In one meaningful respect, however, they are different: This case was
more challenging. The impediments to the tying allegation in the Wal-Mart case were not as
5
The need for representation of a cross-section of the putative class is important. In the Wal-Mart
case, class counsel had negotiated with five merchants a fee arrangement that, they claimed, would produce
attorneys’ fees far in excess of the amount awarded by the district judge. They urged the Second Circuit to hold that
the negotiated fee had been improperly ignored below. The court rejected the argument. The five merchants were
among “the nation’s largest merchants,” and the Second Circuit found no abuse of discretion in disregarding a fee
negotiated with those five merchants “when settlement payments to approximately five million merchants are at
stake.” 396 F.3d at 123.
8
ominous as the obstacles faced by the plaintiffs here, which are discussed in the Approval Order.
The more progress the merchants make – through private lawsuits, government cases, and
legislation – the more difficult it becomes to establish an antitrust violation.
Despite the absence of concrete guideposts, there are some legal principles that
help me evaluate the requested fee in relation to the fund. One is that the percentage of the fund
awarded should scale back as the size of the fund increases. I recently observed that “[t]o avoid
routine windfalls where the recovered fund runs into the multi-millions, courts typically decrease
the percentage of the fee as the size of the fund increases.” Precision Associates, Inc. v.
Panalpina World Transp. (Holding) Ltd., 08-CV-42 JG VVP, 2013 WL 4525323, at *16
(E.D.N.Y. Aug. 27, 2013) (internal quotation marks and citation omitted). That seems to be the
practice of judges nationwide. For example, a recent study found that for federal class action
settlements in the years 2006 and 2007, the percentage awarded “tended to drift lower at a fairly
slow pace until a settlement size of $100 million was reached, at which point the fee percentages
plunged well below 20 percent, and by the time $500 million was reached, they plunged well
below 15 percent, with most awards at that level under even 10 percent,” though that last
category covered only eleven settlements. Brian T. Fitzpatrick, An Empirical Study of Class
Action Settlements and Their Fee Awards, 7 J. Empirical L. Stud. 811, 838 (2010). Another
study, by Theodore Eisenberg and Geoffrey P. Miller, also showed decreasing percentages as the
size of the fund increased. See Theodore Eisenberg and Geoffrey P. Miller, Attorney Fees and
Expenses in Class Action Settlements: 1993-2008, 7 J. Empirical L. Stud. 248, 265 (2010).
As my formulation in Precision Associates makes clear, I believe the main reason
courts adopt the downward-scaling percentage method is to prevent a windfall for class counsel.
But what is a windfall? Lawyers for a class receive a windfall only if their compensation
9
exceeds the value of their services.6 Comparison to private fee arrangements shows that
sophisticated clients often require counsel to accept a smaller percentage of a recovery as the size
of the recovery increases. Thus, some scaling back seems appropriate here as well.
4.
Graduated Schedule and Fee Award
I have employed a percentage calculation, but as many large individual clients in
high-stakes patent cases or institutional investors in securities cases under the PSLRA do, I have
scaled the marginal percentage down as the amount of the recovery increased. See, e.g., In re
Interpublic Sec. Litig., 02 CIV.6527(DLC), 2004 WL 2397190, at *12 n.4 (S.D.N.Y. Oct. 26,
2004) (discussing graduated fee schedule for In re WorldCom Securities Litigation). Other
courts have adopted graduated schedules in class cases. See In re Oracle Sec. Litig., 132 F.R.D.
538 (N.D. Cal. 1990) (holding an auction for counsel in securities case, and accepting a winning
fee with a graduated, declining schedule). Obviously, the same resulting fee could be reached by
picking a single percentage (noted as the average in the table set forth below) and applying it to
the entire fund. But the graduated fee schedule has a number of advantages.
First, a graduated schedule permits a more reasoned and transparent calculation of
the lawyers’ fee based on comparison to other cases. For example, it is very common to see 33%
contingency fees in cases with funds of less than $10 million, and 30% contingency fees in cases
6
Imagine, for example, a case in which a $500 million settlement fund was achieved against
considerable ex ante odds of success (due to novel legal issues, intense opposition, difficult discovery, appeals, and
so forth), so that the settlement required not only superior legal skill but massive investment of lawyers’ time, and
the lodestar value of counsel’s time was $150 million. In that circumstance, would it be a “windfall” to award class
counsel 30% of the fund, i.e., the lodestar value? Or would a 10% award be required by the value of the fund alone?
In analogous circumstances, at least one judge did not think strict adherence to the diminishing percentage principle
was appropriate. In In re Initial Pub. Offering Sec. Litig., 671 F. Supp. 2d 467, 505 (S.D.N.Y. 2009), counsel
claimed a lodestar of $278 million; after reducing the hourly rate in order to account for factors such as the
economic downturn and the heavy use of paralegal time, reaching a figure of about $200 million, the court awarded
one third of the $510 million settlement as fees. The settlement was huge, but so was the lawyers’ effort, justifying
a high-percentage fee that, in that court’s judgment, was not a windfall.
10
with funds between $10 million and $50 million. As mentioned above, it is also common to see
a graduated schedule in cases where sophisticated clients negotiate fees in advance.
Second, a graduated schedule implicitly acknowledges and addresses a worry that
many courts, including the Goldberger court, have expressed, i.e., that “it is not ten times as
difficult to prepare, and try or settle a 10 million dollar case as it is to try a 1 million dollar case.”
Goldberger, 209 F.3d at 52 (quoting In re Union Carbide Corp. Consumer Products Bus. Sec.
Litig., 724 F. Supp. 160, 166 (S.D.N.Y. 1989)).
The following table lays out the fee schedule I have chosen to adopt.
Bracket
Fee percentage
Marginal fee
0–$10 million
33%
$3.3 million
$10 million–$50 million
30%
$12 million
$50 million–$100 million
25%
$12.5 million
$100 million–$500 million
20%
$80 million
$500 million–$1 billion
15%
$75 million
$1 billion–$2 billion
10%
$100 million
$2 billion–$4 billion
8%
$160 million
$4 billion–$5.7 billion
6%
$102 million
TOTALS
(average) 9.56%
$544.8 million
Thus, counsel are awarded 33% of the fund up to $10 million, or $3.3 million, which reflects a
common contingency fee arrangement in less complex class cases; 30% of the next $40 million
(reaching $50 million); 25% of the next $50 million (reaching $100 million); 20% of the next
11
$400 million; 15% of the following $500 million; 10% of the following $1 billion; 8% of the
following $2 billion; and 6% of the remainder, up to the final value of $5.7 billion.7 The result is
a total fee of $544.8 million, or 9.56% of the total fund.
I acknowledge an irreducible minimum of arbitrariness in the cutoff amounts and
the percentages in any such schedule, including this one, but I take some inspiration from the
empirical studies cited above.8 I have also examined the Silver Declaration, which catalogs fee
awards in many “megafund” cases with values exceeding $100 million. And I have also tried to
adhere to what I believe to be norms of the profession.
In picking these specific brackets and percentages, I am especially mindful of two
facts. First, this case settled only after many years of hard-fought litigation. Privately negotiated
fees in complex cases (including PSLRA cases) often include a higher fee for cases that proceed
past a motion to dismiss, discovery, summary judgment, or other benchmarks;9 the Goldberger
factors also dictate a smaller fee for less work. An earlier settlement reached through less work
would surely warrant a smaller fee. Second, as I mentioned in footnote 4, although it is
impossible to know with certainty the ultimate value of the injunctive relief, it may very likely
exceed the value of the monetary relief in the long run. The injunctive relief is therefore a
“relevant circumstance,” to say the least. See Staton, 327 F.3d at 974.
7
Because the value of this case is “only” $5.7 billion, I have not filled in the chart past that value,
though there will eventually be settlements that exceed that amount. One approach would be to create additional
brackets with even lower marginal percentages. It would also be possible, and probably wiser, to index the bracket
values to inflation.
8
For the twelve settlements in 2006 and 2007 between $72.5 and $100 million, the median fee was
24.3%; for the 14 settlements between $100 and $250 million, the median was 16.9%; for the eight settlements
between $250 and $500 million, the median was 19.5%; for the two settlements between $500 million and $1
billion, the median was 12.9%; and for the nine settlements between $1 and $6.6 billion, it was 9.5%. See
Fitzpatrick, Empirical Study, at 839.
9
See, e.g., In re Oracle Sec. Litig., 132 F.R.D. at 540-41 (proposed fee schedules from three bidders
in securities case tied both to amount of recovery and to stage at which litigation settles or duration of litigation).
12
A final reason to employ the schedule methodology advanced here is for the
benefit of counsel in future cases. If plaintiffs’ lawyers know in advance (that is, at the start of a
case) that such a schedule will be used, it will alter their thinking for the better. A graduated
schedule ensures that the greater the settlement, the greater the fee, and it therefore avoids certain
incentive problems that come from simply scaling an overall percentage down as the size of the
fund increases.10 See In re Synthroid Mktg. Litig., 264 F.3d 712, 721 (7th Cir. 2001) (citing
cases, and noting that the graduated schedule ensures that “attorneys’ fees never [go] down for
securing a larger kitty, and counsel always [have] an incentive to seek more for their clients”).
Using such a schedule as a guideline for future cases – from which departures based on casespecific circumstances may of course be warranted – will permit counsel to make reasonable
decisions ex ante in those future cases.
In my view, a guidepost is sorely needed. We know from other contexts that the
conferral of broad discretion on district judges without providing sufficient guidance for the
exercise of that discretion produces unwarranted disparities in outcomes, which undermine
justice and the appearance of justice. Broad discretion in this context is certainly appropriate; as
Goldberger acknowledges, each case is unique, and district judges should be empowered to set a
fee that recognizes those unique circumstances.11
10
Imagine, for example, how counsel will behave if a court adopts the following non-graduated rule
instead: 30% of the (total) fund if it’s up to $100 million, or 20% of the (total) fund if it’s between $100 million and
$500 million. Counsel will prefer to settle a case for $100 million, yielding a $30 million fee, than for $140 million,
yielding a fee of $28 million. See also In re Synthroid Mktg. Litig., 264 F.3d 712, 718 (7th Cir. 2001) (describing
similar problem in actual case). That incentive is contrary to the best interests of the class.
11
Even in large-value cases, courts have sometimes awarded contingency fees exceeding 30% of the
overall fund. In addition to In re Initial Pub. Offering Sec. Litig., 671 F. Supp. 2d 467 (S.D.N.Y. 2009), awarding
one third of a fund that slightly exceeded $500 million, there is In re Checking Account Overdraft Litig., 830 F.
Supp. 2d 1330, 1367 (S.D. Fla. 2011), which awarded 30% of $410 settlement in consumer litigation, and cases it
cites: In re Vitamins Antitrust Litig., 2001 WL 34312839 (D.D.C. July 16, 2001) (34.6% of $365 million) and
Allapattah Servs. Inc. v. Exxon Corp., 454 F.Supp.2d 1185 (S.D. Fla. 2006) (31.33% of $1.075 billion). Likewise,
even in mega-fund cases, courts have sometimes awarded contingency fees of under 6% of the total fund. E.g. In re
AOL Time Warner, Inc. Sec., 02 CIV. 5575 (SWK), 2006 WL 3057232 (S.D.N.Y. Oct. 25, 2006) (5.9% of $2.65
billion); In re Worldcom, Inc. Sec. Litig., 388 F.Supp.2d 319, 353, 360 (S.D.N.Y. 2005) (5.6% of $3.5 billion).
13
Still, a starting point, from which explained departures in either direction would
be permissible, and perhaps even frequent, might reduce both those unwarranted disparities and
the extent to which class counsel, ex ante, regard future attorneys’ fee proceedings as a crapshoot
in large cases. I expect no deference to the particular schedule I have found useful here; I have
tailored it to the unique facts and circumstances of the settlement I have approved here, which
combine to produce a generous but well-deserved fee. I believe that the adoption of something
like this schedule – or indeed a different sort of benchmarking mechanism, such as a PSLRA-like
mechanism for a negotiated rate – by a higher court or a coordinate branch would be beneficial.
In any event, it is my considered judgment that, in this case, the cutoff amounts and percentages I
have used above result in a fair overall figure.
5.
Lodestar Cross-Check
There are at least two reasons that judges are comfortable assessing hourly rates
when awarding fees. First, the billable hour is common in our profession, especially in certain
types of cases and for certain types of clients. Second, many federal fee-shifting civil rights
statutes that permit court-awarded attorneys’ fees incorporate a lodestar value or a close cousin.
See generally Arbor Hill Concerned Citizens Neighborhood Ass’n v. Cnty. of Albany & Albany
Cnty. Bd. of Elections, 522 F.3d 182, 186-90 (2d Cir. 2008). However, the fact that statutes
dictate such a measure for some cases does not mean that the billable hour represents the “true”
value of attorney time in general. Nor does the fact that many firms bill by the hour for many
types of cases compel that conclusion. Many defense firms are now facing pressure to change
their billing models to flat fees or to incorporate incentives to avoid inflation of hours. Their
clients evidently do not believe that the value of a firm’s services is necessarily related to the
number of hours billed. On the plaintiffs’ side, where it is often easier to measure the value that
14
lawyers produce for their clients, the contingency fee – that is, a cut of the proceeds – rules. That
fact would be unremarkable to bankers, real estate brokers, sports agents, and other professionals
who are used to being paid based on the value they obtain for their clients rather on the number
of hours they have worked.
These concerns diminish the value of the lodestar crosscheck, but they do not
eliminate it. Critically, the lodestar multiplier is one metric that permits comparison across a
wide range of case types and fund sizes. Here, with a fee award of $544.8 million, and a lodestar
of about $160 million, the multiplier is about 3.41. That multiplier is comparable to (indeed,
nearly identical to) the one I awarded in the Wal-Mart case ten years ago, and it is also
comparable to multipliers in other large, complex cases. Without engaging in a “gimlet-eyed
review” of the fee application, I am nonetheless confident that this is a reasonable multiplier and
a reasonable overall fee. See, e.g., In re WorldCom, Inc. Sec. Litig., 388 F. Supp. 2d 319, 354-59
(S.D.N.Y. 2005) (approving $194.6 million fee award, for multiplier of 4.0, or 5.5% of the fund,
in complex securities case with value of approximately $3.5 billion, and citing cases).
B. Expenses
Counsel have also sought reimbursement of expenses slightly in excess of $27
million. As a general rule, counsel are entitled to reimbursement for reasonable out-of-pocket
expenses incurred over the course of litigating the case. See, e.g., In re Vitamin C Antitrust
Litig., 06-MD-1738 BMC JO, 2012 WL 5289514, at *11 (E.D.N.Y. Oct. 23, 2012) (“Courts in
the Second Circuit normally grant expense requests in common fund cases as a matter of
course.”); In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 468 (S.D.N.Y. 2004).
Finding these expenses reasonable, I approve them here in the full amount requested:
$27,037,716.97.
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C. Incentive Payments
Finally, Class Counsel have also sought incentive payments totaling $1.8 million
for the nine Class Plaintiffs. Along with their motion for attorneys’ fees, Class Counsel
submitted declarations of corporate officers for each of the nine Class Plaintiffs. In various
levels of detail, these declarations document the work that the named plaintiffs undertook to
support the case, as well as the expenses they incurred in doing so.
It is true that $1.8 million constitutes only about .03% of the $5.7 billion fund.
Nonetheless, the average incentive award proposed – $200,000 for each plaintiff – will no doubt
dwarf the average monetary recovery per class member.12
Class representatives will certainly be permitted to recover their (properly
documented) expenses. Just as the lawyers worked on behalf of the entire class, so too did the
class representatives in producing documents, attending depositions, and so on. It is thus only
fair for the absent class members to reimburse the named plaintiffs’ reasonable expenses. See,
e.g., In re Marsh & McLennan Companies, Inc. Sec. Litig., 04 CIV. 8144 (CM), 2009 WL
5178546, at *21 (S.D.N.Y. Dec. 23, 2009). To this point, however, only some of the Class
Plaintiffs have even attempted to document those expenses. Before I approve any
reimbursements, counsel for those representatives will need to provide better evidence of the
amount of each named plaintiff’s expenses.
As to the incentive awards, while I am mindful of the risks that the named
plaintiffs may have undertaken, to this point, Class Counsel have not come close to justifying
such large awards. In an admittedly much smaller case, I declined to approve a settlement in
which the proposed incentive payments were four times the mean anticipated payment and over
12
In their brief in support of the motion for settlement approval, Class Counsel estimated that the
class contains at least 12 million members. See DE 2111 at 33 n.36. The history of the Wal-Mart settlement
suggests that the number of actual claims filed will be lower.
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thirteen times the median anticipated payment. Gulino v. Symbol Technologies, Inc., 06 CV
2810 (JG) (AKT), 2007 WL 3036890, at *3 (E.D.N.Y. Oct. 17, 2007). Here, the ratio of the
average incentive award to the average payment is much higher. Class Counsel are expected to
provide, at a minimum, documentation setting forth the approximate value of each Class
Plaintiff’s claim and each one’s proposed incentive award. They are also expected to provide
any relevant authority, factual and legal, for the requested awards.
CONCLUSION
For the reasons stated above, I award Class Counsel fees of $544.8 million and
costs and expenses of $27,037,716.97. The application for incentive payments to class
representatives is denied without prejudice to renewal in a properly-supported motion.
So ordered.
John Gleeson, U.S.D.J.
Dated: January 10, 2014
Brooklyn, New York
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