Rudman et al v. CHC Group Ltd. et al
Filing
79
MEMORANDUM OPINION (Corrected). Plaintiffs' motion for attorneys' fees and reimbursement of expenses [DI 70] is granted to the extent that the Kirby firm is hereby awarded an aggregate amount of $598,771.62. It is denied in all other respects. SO ORDERED. (Signed by Judge Lewis A. Kaplan on 7/24/2018 (Corrected)) Filed In Associated Cases: 1:15-cv-03773-LAK, 1:15-cv-03796-LAK(anc)
2
of the absent class members and provides counsel with just, not more than just, compensation for
their efforts.
Facts
Plaintiffs brought these damages actions under the Securities Act of 1933 claiming
that the registration statement issued in connection with the initial public offering of shares of CHC
Group Ltd. (“CHC”) contained false and misleading statements. Two motions for designation as lead
plaintiff and for approval of lead counsel were filed. One sought designation of Ira B. Press, Esq.,
of Kirby & McInerney as lead counsel (the “Kirby Motion”). The other sought such a designation
of Kim E. Miller, Esq., of the firm of Kahn Swick & Foti, LLC (the “Kahn Motion”). Kahn Swift
promptly conceded the merit of the Kirby motion. In due course, the Court granted the Kirby motion,
denied the Kahn Motion, consolidated the two cases, and granted leave to file a consolidated
amended complaint. From that point until following the settlement of the consolidated cases, the
Kahn firm neither appeared in these actions, nor signed any of the court papers.
Following the Kirby firm’s filing of the amended complaint, defendants moved to
dismiss as to all defendants save CHC, which by then had filed for bankruptcy. On November 7,
2016, the Court granted the motion and dismissed the case.1 As the opinion reflects, it considered
this to be a very weak claim.
Plaintiffs appealed. But virtually nothing transpired in the Court of Appeals. Less
than a month after the filing of the notice of appeal, the parties notified the Court of Appeals that they
had reached a settlement in principle and withdrew the appeal from active consideration pending
1
DI 54; Rudman v. CHC Grp. Ltd., 217 F. Supp. 3d 718 (S.D.N.Y. 2016).
3
finalization of settlement papers and an application to this Court to approve the settlement.2
The terms of the settlement are straightforward. CHC’s insurance carrier is paying
$3.85 million in cash.3 In order to appreciate the benefit to the class, it is relevant to point out that
this $3.85 million reflects just over one percent of the amount of money CHC raised on the allegedly
misleading prospectus, which covered an offering of 34 million shares at a price of $10 per share,
or $340,000,000. As the class notice made clear, the average recovery by damaged class members
would be about 11 cents per share,4 assuming that plaintiffs’ counsel was paid as they request.5
Plaintiffs moved for class certification and for approval of the settlement.6 As
plaintiffs already had lost the case by the time the settlement was reached and as the Court regarded
the prospects for ultimate success to be virtually negligible, it approved the settlement.7 It did so
2
Rudman v. Amelio, No. 16-4096, DI 39 (2d Cir. filed Jan. 4, 2017).
3
Stipulation of Settlement (DI 60-1) §§ 2.1, 7.1(b).
4
DI 60-1, Ex. A-1, at 3.
5
The Court recognizes that recovery of the entire $340 million raised in the IPO apparently
never would have been in the cards even if the suit had been meritorious. The more relevant
question is the size of the $3.85 million settlement as a proportion of an appropriate
assessment of damages if the plaintiffs had prevailed. Plaintiffs have provided virtually no
information on that subject. They have confined themselves to the unsworn contention in
a legal memorandum that the $3.85 million settlement is equal to 9.78 percent of total
estimated class-wide losses. Pl. Mem. [DI 71] at 1. That contention, which is unsupported
by an evidence, implies that the total estimated class wide damages were in the
neighborhood of $40,000,000. In any case, were plaintiffs’ counsel awarded one third of
the settlement, and were this unsubstantiated total loss estimate accurate, the class members
would receive something like 6.2 percent of their estimated losses.
6
DI 58.
7
DI 76.
4
essentially on the theory that 11 cents per share was better than nothing.
The Kirby firm, suddenly joined by the Kahn firm, now seek attorneys fees equal to
one third of the settlement fund, or $1,283,333.33 – approximately 33.33 percent of the settlement
fund. Their combined lodestar allegedly is $725,913.25, which is said to reflect 1,259.16 hours of
work multiplied by the current billing rates of the attorneys and other staff who worked on the case.8
This is increased by a multiplier of approximately 1.77. In addition, counsel seek reimbursement of
$12,723.86 in litigation expenses.9
There have been no objections to counsel’s proposed fees and expenses. This is far
from surprising. As 100 percent of any fee award will come out of the $3.85 million that the
insurance company has provided, neither it nor the defendants have any interest in objecting to the
requested fee award. Nor does it appear likely that any member of the class would have sufficient
economic interest, given the meager size of the settlement, to challenge the fee award even if it
thought a marginal adjustment to the fees requested were likely; the incremental difference to any
given class member probably would be too small.10
8
DI 77. The Court requested that counsel provide the Court with counsel’s billing rates that
were effective at the time work was performed, and counsel did so. Id.
9
DI 71.
10
If, as plaintiffs have said, the average recovery (assuming that one third of the $3.85 million
were to go to counsel) is expected to be 11 cents per share, even an outright denial of any
fees, an unrealistic and unwarranted outcome, would increase the recovery per share by
only fifty percent, or about 5.5 cents per share.
5
Discussion
I.
Legal Standard
Rule 23(h) allows the Court to “award reasonable attorney’s fees and nontaxable
costs” in a certified class action.11 What is “reasonable” is left to the discretion of the Court, which
is “intimately familiar with the nuances of the case.”12 In exercising that discretion, he Court acts
as a fiduciary for the class, which it must protect from excessive awards.13 A fee applicant, moreover,
bears the burden of establishing the reasonableness of the requested award, including the number of
hours for which the applicant seeks compensation.14
The Court may evaluate the reasonableness of a fee request using either the percentage
of the fund or the lodestar method.15 The latter requires the Court to compute a reasonable lodestar
amount. To do this, the Court first ascertains “the number of hours reasonably billed to the class,”
and then multiplies that figure by “an appropriate hourly rate.”16 Then that figure may be increased,
in some circumstances, by applying an appropriate multiplier. If the Court instead uses the
percentage of the fund method, it determines a percentage of the recovery that would constitute an
11
FED. R. CIV. P. 23(h).
12
In re Bolar Pharm. Co. Sec. Litig., 966 F.2d 731, 732 (2d Cir. 1992) (per curiam).
13
City of Detroit v. Grinell Corp., 560 F.2d 1093, 1099 (2d Cir. 1977), abrogated on other
grounds by Goldberger v. Integrated Resources, Inc., 209 F.3d 43 (2d Cir. 2000).
14
Cruz v. Local Union No. 3 of Int’l Bhd. Of Elc. Workers, 34 F.3d 1148, 1160 (2d Cir. 1994).
15
See Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 121 (2d Cir. 2005).
16
Goldberger v. Integrated Res., Inc., 209 F.3d 43, 47 (2d Cir. 2000).
6
appropriate fee. The methods are not mutually exclusive, however. Many courts in this circuit
“cross-check” a percentage of the fund with the lodestar to “ensure that the percentage of the fund
method yields appropriate compensation without resulting in a windfall for plaintiffs’ attorneys.”17
Whichever method the Court uses, it is guided by the six case-specific factors that the Second Circuit
described in Goldberger v. Integrated Resources (“the Goldberger factors”): (1) counsel’s time and
labor, (2) the litigation’s magnitude and complexity, (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.18
Although the steps are clear, a reviewing court faces difficulties when evaluating a
requested fee award in this context. As this Court has noted before, “[f]ocusing on the lodestar
encourages investment of needless hours, while the percentage of the fund method can generate
egregiously high fees for the lawyers and encourage counsel to settle a case prematurely.”19 The
Court’s discretion is guided significantly by its experience.
II.
The Kirby Firm’s Lodestar Reflects an Unreasonably High Number of Hours
The Kirby firm achieved a benefit for the class – it obtained a small settlement in an
extremely weak case. Under the common benefit theory, it is entitled to reasonable compensation
for having done so. The Court begins its analysis with the Kirby firm’s claimed lodestar.
17
In re Citigroup Inc. Bond Litig., 988 F. Supp. 2d 371, 373 (S.D.N.Y. 2013).
18
Goldberger, 209 F.3d at 50.
19
In re IndyMac Mortg.-Backed Sec. Litig., 94 F. Supp. 3d 517, 521-22 (S.D.N.Y. 2015),
aff’d sub nom. DeValerio v. Olinski, 673 F. App’x 87 (2d Cir. 2016).
7
The Kirby firm’s claimed lodestar seeks compensation for 1138.76 hours, of which
769.01 are attributable to lawyers and paralegals. The hourly rates claimed for these individuals
range from $210 to $985 per hour. The Court finds those hourly rates reasonable in all the
circumstances. But it has substantial concerns with respect to the hours expended by those lawyers
and paralegals.
A.
Lawyers and Paralegals
In response to the Court’s request for more data on the basis for the lodestar claim,
the Kirby firm submitted a categorization of its hours by task or groups of tasks. The first category
of concern is time spent on the lead plaintiff motion. The Kirby firm reports that its lawyers and
paralegals spent nearly 100 hours20 on its lead plaintiff motion. Unfortunately, counsel’s only
description of its efforts is “[r]esearching, drafting and briefing of lead plaintiff motions.”21
Initial motions to appoint a lead plaintiff and to approve its choice of lead counsel in
cases which, like this one, is subject to the Private Securities Litigation Reform Act (“PSLRA”), are
routine.22 That was true here, as there was no controversy because the only other movant conceded
the merit of the Rudman–Kirby firm motion. As the Rudman firm emphasizes, it is experienced in
this sort of litigation. The motion in this case could have been little more than a modest revision of
20
These hours and all hours hereafter discussed do not include hours attributed to Kirby’s
senior analysts and administrative clerks or Kahn, Swift & Foti.
21
DI 77, at p. 5.
22
If such a motion is seriously contested, it may be litigated vigorously and require significant
effort.
8
an often used form, and certainly there is no contention to the contrary. The Court cannot justify
compensating it for about 100 hours of work spent on an essentially boilerplate motion.
Another category lumped together time spent on the motion to dismiss the amended
complaint and time spent on “case management” without breaking those activities down and without
providing contemporaneous time records. The firm says it spent almost 210 hours on these tasks.
The perfunctory justification for those hours is that the firm spent considerable time
researching “the impact of CHC’s bankruptcy on the Action” in addition to responding to the motion
to dismiss.23 But counsel have given no details on what that research involved and why it warranted
so much time. Nor is there any explanation of how much time was spent on “case management” or
what that entailed. This presents a difficulty.
The Court acknowledges that responding to the motion to dismiss was a critically
important task that deserved care and effort. But it has no basis for concluding how much time was
spent on that motion or, for that matter, on bankruptcy research and “case management,” let alone
why that time was justified.24 Plaintiffs’ counsel therefore have failed to persuade the Court that “an
efficient attorney would have engaged in similar time expenditures” – especially considering the
23
Id. The Court assumes this task comes within the nebulous term “case management.”
24
Any lawyer with any experience at all would have known that the filing of the CHC
bankruptcy stayed proceedings against that defendant but not against others. The Court has
no idea what else concerning the bankruptcy there was to figure out.
“Case management” is equally a black hole. The Court of course understands that cases
with multiple parties, significant discovery, and other complexities require discussions with
adversaries, scheduling issues, and all sorts of other things that could fall under “case
management.” But this was a simple case. It involved filing and amending a complaint,
litigating a single motion to dismiss, and no discovery. There is no evidence of any case
management.
9
failure to justify time spent conducting bankruptcy research and the failure to offer any description
of whatever else “case management” might entail.25 The motion to dismiss justifies a significant
amount of time, to be sure. But not 210 hours.
The 31 hours attributed to the appeal are even more difficult to justify. Plaintiffs filed
the notice of appeal on December 7, 2016.26 They agreed to dismiss the appeal not much more than
one month later.27 They filed no brief. And plaintiffs’ counsel has offered no explanation as to why
31 hours were spent on a notice of appeal, a notice of appearance, and a stipulation to withdraw the
case.
Finally, the preliminary motion for settlement and class certification, final settlement
approval, and post-settlement stages account for 137.51 hours of work. Each of these motions was
unopposed. Each of these tasks was something plaintiffs’ counsel, as experienced securities class
action litigators, surely have performed many times over. And again, plaintiffs’ counsel offered to
the Court only a bare-bones description of the task and scant justification for this large request. It
is hard to believe that all of these hours were spent “usefully and reasonably.”28
B.
Analysts and Administrative Clerks
In addition to the time invested by lawyers and paralegals, the Kirby firm includes in
25
In re IndyMac, 94 F. Supp. 3d at 527.
26
DI 56.
27
DI 57.
28
See Lunday v. City of Albany, 42 F.3d 131, 134 (2d Cir. 1994).
10
its proposed lodestar 369.75 hours attributed to “senior analysts” (360.75 hours) and “administrative
clerks” (9 hours). It has given no explanation at all as to what these categories of employees are,
their qualifications, or – beyond placing their claimed hours into the activity categories in the
application – what they did. There is no information about how they are paid or on whether other
firms charge on an hourly basis for comparable personnel. There is no data on comparable market
rates, if indeed there are any.
It now is well established that attorneys’ fee awards should reflect reasonable
compensation for the work product of attorneys. In appropriate cases, such awards may include
compensation for the work of paralegals and other non-lawyers.29 The more difficult question is how
the work of non-lawyers is to be valued in determining the overall attorneys’ fee.30 As the Supreme
Court has said with respect to paralegals, albeit in a Section 1988 case, “the prevailing practice in
a given community”31 is to govern whether paralegals' time is billed separately, and whether it is
billed at cost or at market rates.32
At this point, it is well known that paralegals, at least in this market, customarily are
billed by law firms for their time at hourly rates. That is reflected in the Court’s ruling here with
respect to the Kirby firm’s paralegals. But the practices of the Bar concerning “senior analysts” and
“administrative clerks,” assuming there are any general practices, is unknown to the Court and
29
E.g., U.S. Football League v. Nat’l Football League, 887 F.2d 408, 415-16 (2d Cir. 1989).
30
Id. at 416.
31
Missouri v. Jenkins by Agyei, 491 U.S. 274, 287 (1989).
32
U.S. Football League, 887 F.2d at 416.
11
certainly not established by the Kirby firm’s papers. Accordingly, the Court declines to include the
hours and rates advanced by the Kirby firm.
This of course is not to say that the Court ignores whatever contribution such
personnel made to the Kirby firm’s work product in fixing a reasonable fee. Their work, like that
of others “whose labor contributes to the work product,” is likely “included in calculation of the
lawyers’ hourly rates,” as ordinarily is true of other overhead costs like rent, firm administrative staff,
and the like.33 And as will be seen, the multiplier that the Court ultimately applies to the Kirby firm’s
adjusted lodestar takes into account that contribution, as does its consideration of the percentage of
the recovery that seems appropriate in all of the circumstances. The point, however, is that the Court
does not consider it appropriate on this meager record to include the hours of those personnel in the
Kirby firm’s lodestar or to make any determination with respect to the reasonableness of the hourly
rates used by that firm for them.
C.
Summary
In view of the foregoing considerations, the Court makes the following adjustments
to the Kirby firm’s proposed lodestar for its own work. It excludes the hours of the senior analysts
and the administrative clerks. It exercises its discretion to cut the hours claimed for the following
categories of work by 50 percent: the lead plaintiff motion, the motion to dismiss and case
management, the appeal, the preliminary motion for settlement approval and class certification, the
motion for final settlement approval, and post-settlement. This results in a revised aggregate lodestar
33
See W. Virginia Univ. Hosps. v. Casey, 499 U.S. 83, 99 (1991), superseded by statute,
Landgraf v. USI Film Prods., et al., 511 U.S. 244 (1994).
12
for the Kirby firm of $293,023.88.34
Taking into account the benefit to the class attributable to the Kirby firm’s efforts, the
contribution of the senior analysts and the administrative clerks to the overall work product of the
firm, and the delay in payment, the Court applies a multiplier of 2.0.35 Accordingly, the adjusted
lodestar for the Kirby firm is $586,047.76.
III.
Plaintiffs Have Not Established Any Basis for a Fee Award to the Kahn Firm
The Kahn firm, which was not chosen as lead counsel, seeks compensation for 120.4
hours of work, including 33.90 hours for its lead plaintiff motion.
The Court sees no basis at all for compensating the Kahn firm for the time devoted
to its unsuccessful motion to have its client appointed lead plaintiff and itself appointed as lead
counsel. Although the motion was entirely appropriate under the PSLRA, it was filed for the benefit
of the Kahn firm, it was unsuccessful and it accomplished nothing at all for the members of the
alleged class. That time contributed nothing to the $3.85 million common fund that eventually was
created in this case.
Nor is there any basis for supposing that any other time devoted to the case by the
34
558.11 hours multiplied by the average hourly rate of Kirby’s original request. The Court
calculated the average rate of Kirby’s original request using the billing rates effective at the
time the work was performed.
35
This multiplier is higher than the Court would have applied had the work of the senior
analysts and administrative clerks been included on an hourly basis in the Kirby firm’s
lodestar.
It is higher also than the multiplier the Court would have applied had the lodestar been
calculated using the current hourly rates of the Kirby firm, as was requested, rather than the
then-effective rates.
13
Kahn firm contributed to the benefit secured by the settlement. Once the Kirby firm filed its lead
counsel motion, the Kahn firm conceded that the Kirby firm and its clients had won the prize of
leadership of the case. So far as the docket sheet and filed papers disclose, the Kahn firm did nothing
else from that point onward. It did not appear in court. It signed no papers. Its name does not
appear in the settlement stipulation. Indeed, the class notice submitted by the Kirby firm and
approved by the Court not only does not even mention the Kahn firm – it states that “Lead Plaintiffs
and the Settlement Class are being represented by Kirby McInerney PLC,” thus implying that it was
represented only by the Kirby firm. The Kahn firm has done nothing more than submit a schedule
listing claimed aggregate hours and purported billing rates along with a conclusory two-sentence
description of services said to have been performed.36
The Court declines in these circumstances to make any fee award to the Kahn firm.
IV.
The Requested Fee Award Would Be An Unreasonably High Percentage of the Fund
Next, the Court considers the fee request as a percentage of the fund.
Plaintiffs’ counsel argues that the proposed fee, which would be one third of the
settlement fund, is “fair and reasonable.”37 They cite numerous cases in which courts – both in this
36
DI 72-3 & Ex. 1.
It has submitted no contemporaneous time records in support of its fee application. While
that is true also of the Kirby firm, it is abundantly clear to the Court from its familiarity
with the litigation firm and with its submission of multiple court papers bearing its imprint
that the Kirby firm in fact litigated the case on behalf of the plaintiff class. No such
conclusion is supportable as to the Kahn firm.
37
DI 71, p. 6.
14
Circuit and elsewhere – have approved a similar percentage of similarly-sized funds.38 They cite also
a NERA report indicating that the median fee award in securities class actions was 30 percent of the
fund when the fund was less than $5 million.39
This data is a helpful starting point, but stops far short of painting a full picture of the
requested fee’s reasonableness. Although plaintiffs’ counsel cites many cases in which courts have
awarded similar percentages, no string cite alone – especially not the one here, which cherry picks
awards that favor plaintiffs’ position but ignores others – could adequately justify a fee award: there
are simply too many cases to choose from. Between 500 and 700 securities class actions were
pending in the federal courts in any given year from 2012 to 2016.40 Given the volume of these
cases, even a list of 50 examples could present a distorted picture of what is “reasonable.”
The report indicating a median fee award of 30 percent is slightly more helpful. But,
as this Court has observed before, the NERA report shows higher fee awards than other reports have
found.41 For example, a different study found that from 1993-2003 the median fee was 25 percent
in cases with settlements between $2.8 and $5 million.42 And fee awards reportedly have been
38
Id. at pp. 6-8.
39
Id. at 8.
40
DI 72, Exh. F, at p. 26. 47 to 57 percent of those cases had a settlement of $10 million or
less. Id. at 32.
41
In re IndyMac, 94 F. Supp. 3d at 523-24.
42
Theodore Eisenberg and Geoffrey P. Miller, Attorney Fees and Expenses in Class Action
Settlements 1993-2008, 7 J. EMPIRICAL LEGAL STUDIES 248, 265 (table 7) (2010).
15
trending downward since then.43
Therefore, the Court finds that a fee award of one third of the fund – a percentage
higher even than the median number given by the plaintiff – would be an unreasonably high
percentage of the fund, particularly given the almost trivial per share recovery. The Court’s proposed
award based on a its revision of the lodestar is approximately 15.2 percent of the fund. Although that
percentage is lower than the median award regardless of which study is cited, it is not so much lower
than the (likely less than) 25 percent median at least one study has found. And for reasons the Court
now discusses, a below-median fee is reasonable in this case.
V.
The Goldberger Factors
Finally, careful consideration of the Goldberger factors confirms that counsel’s fee
request is unreasonably high.44
(1) Counsel’s time and labor. Plaintiffs’ counsel claim to have devoted 1,259.16
hours to this litigation.45 That is a considerable amount of labor. But, as discussed above, the Court
finds that not all of those hours were spent reasonably.
(2) The magnitude and complexity of the action. Counsel asserts that this case was
at least as complex as the average securities fraud class action – an area of law that has been
43
DI 72, Exh. F, at p. 39 (“We also observe that fee percentages have been decreasing over
time, except for fees awarded on very large settlements.”).
44
Wal-Mart, 396 F.3d at 121.
45
DI 77, p. 3.
16
described as “notorious[ly] complex[].”46 With respect, the Court disagrees. This one, in its view,
was simple and straightforward.
(3) The litigation risks involved. There is no doubt that the litigation risk in this
case for the plaintiffs and their counsel was extremely high. This is reflected in its dismissal on
motion and in the fact that the settlement agreed to by the insurance carrier amounted to about one
percent of the size of the initial public offering that plaintiffs attacked. But while high litigation risk
in a case that nevertheless results in a recovery for a plaintiff claims often argues in favor of a more
rather than less substantial fee, that is not always true. While the bringing of this case perhaps did
not run afoul of Rule 11, the ready dismissal on motion and the small size of the settlement suggest
that there was not much to it. Indeed, while $3.85 million is a lot of money in most circumstances,
it is not a substantial settlement in the securities class action world – more than a nuisance payment
but not substantially so.
(4) The quality of class counsel’s representation. The Court finds that class counsel
represented the class effectively. Plaintiffs’ counsel are experienced in securities litigation and
managed here to obtain a settlement for the class. As noted, they are entitled to credit for that.
(5) The requested fee in relation to the settlement. Counsel asserts that the fee is
appropriate in relation to the settlement and approximates what counsel would receive if they were
bargaining in the open market. But as discussed above, the Court finds the requested fee to be an
unreasonable percentage of the fund. Moreover, the requested fee would be 8.38 times the
reasonable value of the Kirby firm’s lodestar before the application of the multiplier and mor ethan
double the lodestar adjusted upward by the 2.0 multiplier.
46
DI 71, at 11.
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