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Category: Fee Award Factors

Investor Seeks Attorney Fees in Compensation Savings Matter

September 26, 2017

A recent Law 360 story by Vince Sullivan, “Puma Investor Seeks Fees for $20M in Director-Pay Savings,” reports that a shareholder of Puma Biotechnology Inc. filed suit in Delaware seeking the payment of attorneys’ fees and expenses for his efforts in pursuing changes to the compensation packages of non-employee directors, which he says ultimately saved the company more than $20 million.  In a complaint, shareholder Paul Alan Leafstedt said Puma made changes to its director compensation plans that saved the company millions after he sent a demand letter to the board in February, but the sides could not work out a deal on compensation for attorneys he brought on in the effort.

As a result of Leafstedt’s demand letter, the company engaged an independent compensation consultant and amended its director packages to reduce awards to non-employee directors significantly.  The demand letter was spurred by the board awarding itself what Leafstedt described as “grossly excessive levels” of compensation that were allegedly nine times greater than what was appropriate.

Puma also capped director stock award and allowed shareholders to provide input on compensation procedures at annual meetings.  The company also added information about the program into its proxy statement, which were reviewed by Leafstedt’s attorneys before filing, and instituted additional corporate governance reforms relating to pay practices.

“Plaintiff’s efforts directly conferred a substantial and quantifiable benefit to Puma and its stockholders — with the compensation reductions and limits alone amounting to a savings of up to $20 million over the next five years,” the complaint said.  Leafstedt cites Delaware law that allows for fee awards where a corporate benefit results from a meritorious demand on the board in asking for attorneys’ fee and expenses related to the effort.

The compensation packages for non-employee directors of the company resulted in average annual awards in the amount of more than $1.4 million each, with each director receiving a $50,000 cash retainer and options to purchase 10,000 shares of Puma stock.  Directors who sat on a committee of the board were granted an additional option for 10,000 shares, while committee chairs could buy up to 20,000 shares.  Each newly appointed director would also receive a one-time option to buy 30,000 shares.

“The demand letter asserted that the compensation program constituted a waste of corporate assets, a breach of fiduciary duty and an unjust enrichment for the non-employee directors who agreed to accept the excessive levels of compensation they granted themselves,” the complaint said.

Puma made changes to the program that cap the annual compensation for non-employee directors at $1 million and shifted the stock option award metrics from a specific number of shares to a dollar amount.  So directors still receive a $50,000 cash retainer each year, but the annual stock option award is capped at $300,000, and committee service retainers have been switched to cash amounts ranging from $20,000 to $5,000.  Newly appointed directors will have the option to purchase stock up to an amount of $700,000.

These changes resulted from negotiations between the company and Leafstedt’s attorneys and were accomplished in May without the need to file a lawsuit.  Leafstedt filed the current complaint because the parties could not come to an agreement on reasonable attorneys’ fees for achieving the benefit that will save Puma more than $20 million over the next five years.

“Plaintiff’s counsel has expended considerable time and expense, completely at risk of loss and without remuneration, in pursuit of making the demand and subsequent negotiations, the resolution of which conferred substantial benefits to Puma and its stockholders,” the complaint said.  Leafstedt is asking for an equitable apportionment of attorneys’ fees and payment of legal expenses incurred in the pursuit of the demand and the negotiations, as well as the costs of bringing the current action.

The case is Leafstedt v. Puma Biotechnology Inc., case number 2017-0659, in the Court of Chancery for the State of Delaware.

Class Action Fee Awards Shaped by Circuits and Benchmarks

September 12, 2017

A recent NLJ article by Amanda Bronstad, “Class Action Fees Shaped by Circuit, Benchmark,” reports on attorney fee awards in class action litigation.  The article reads:

When it comes to attorney fees in class actions, it pays to be in the U.S. Court of Appeals for the Seventh Circuit — and it's tough to get what you want in the Second and Ninth circuits.  That's according to two leading academic research reports that federal judges increasingly cite in determining how much in fees to award plaintiffs attorneys who work on contingency.

New York University School of Law professor Geoffrey Miller and the late Theodore Eisenberg, a professor at Cornell Law School, authored one of the studies.  The second is a 2010 study conducted by Brian Fitzpatrick, a professor at Vanderbilt University Law School.

Both reports found that federal judges tend to determine a percentage of the settlement amount, then crosscheck it against the hours that plaintiffs attorneys spent multiplied by a reasonable hourly rate — called the lodestar.  They also found that as the size of the settlement goes up, the percentage of fees that judges award to plaintiffs attorneys goes down.  That's particularly true when it comes to the largest class action settlements.

But a lot depends on what circuit of the U.S. court of appeals the case ends up.  Here are some key points from the studies:

Fee awards aren't evenly spread out: The vast majority of class action fee awards come in the Second, Ninth, First and Seventh circuits, Fitzpatrick said.  He attributed much of that to the larger cities in those circuits — Boston, New York, Chicago, San Francisco and Los Angeles.  "The lawyers are there, the defendants are often there, and I think judges with a lot of experience are often there, so that attracts these cases," he said.

Benchmarks might matter: The Ninth Circuit is one of the few circuits with a benchmark that judges cite in determining fees — 25 percent based on its 2011 holding in In re Bluetooth Headset Products Liability Litigation.  Fitzpatrick said "that really limits the number of times a court would award more than 25 percent.  It's working as a ceiling in the Ninth Circuit." Miller said having a benchmark didn't seem to matter when it comes to lower fee awards — his report found the Ninth Circuit stuck to 25 percent for the most part.

The Second Circuit has experience: The Second Circuit handled nearly a third of all the cases, according to the Eisenberg/Miller report.  Many are securities class actions.  The circuit doesn't have a benchmark, but it did set forth six factors for judges to consider in a 2000 ruling called Goldberger v. Integrated Resources.  It's the circuit in which a judge is most likely to reject the original fee request made by lawyers.  "It's a hard road to convince a district judge in the Second Circuit that your fee request ought to be accepted without question," Miller said.

One of the most generous circuits is the Seventh: That's due in large part to a 2001 decision in In re Synthroid Marketing Litigation, in which the Seventh Circuit downplayed the significance of using the percentage of the settlement fund by directing judges to look at market rates when assessing the lodestar component of an attorney fee request.  "They have said clearly you should not lower the percentage over the entire amount of the settlement," Fitzpatrick said.  "You should do it on a marginal basis.  I see more district courts doing it in the Seventh Circuit than anywhere else because of those admonitions."

National Law Journal Cites NALFA Program

September 11, 2017

A recent NLJ article by Amanda Bronstad, “Judges Look to Profs in Awarding Lower Percentage Fees in Biggest Class Actions,” quotes NALFA’s CLE program, “View From the Bench: Awarding Attorney Fees in Federal Litigation” in an article on class action fee awards.  The full article reads:

After reaching a $101 million class action settlement to resolve lawsuits brought over a chemical spill that contaminated a West Virginia river, the plaintiffs lawyers asked a federal judge to grant them 30 percent of the fund as contingency fees.

The judge praised their work but found that fee request to be just too high.  "Even without accounting for fund size, the empirical literature clearly demonstrates that a 30 percent fee is higher than that awarded in the vast majority of class actions," U.S. District Judge John Copenhaver of the Southern District of West Virginia wrote in a July order.  "Courts have found through empirical analysis that larger common funds typically have smaller percentage fees."

The empirical analysis Copenhaver referred to came from the findings of two leading academic reports — both cited in the opinion — that federal judges across the country have used for the past decade to guide them in decisions about attorney fees in some of the nation's largest class action settlements.

New York University School of Law professor Geoffrey Miller and the late Theodore Eisenberg, a professor at Cornell Law School, wrote one of the studies, an updated version of which is set to be published this year.  The second is a 2010 study conducted by Brian Fitzpatrick, a professor at Vanderbilt University Law School.

Both studies have provided critical assistance for federal judges, particularly when it comes to class action settlements of $100 million or more.  The concern for those on the bench is how to award plaintiffs lawyers for their work without granting them excessive fees and leaving class members in the lurch.

"Judges do take the role seriously," said William Rubenstein, a professor at Harvard Law School whose highly regarded "Newberg on Class Actions" has cited the Eisenberg/Miller and Fitzpatrick studies in his 11-volume treatise, alongside data he has used from a former publication called Class Action Attorney Fee Digest.  "And they understand they're a bulwark against excessive fees from the class members' money."

How to determine the exact amount has often been more art than science.  In a webinar earlier this year hosted by the National Association of Legal Fee Analysis, U.S. District Judge David Herndon of the Southern District of Illinois, who has handled several of the nation's largest mass torts and class actions, said a lot depends on the amount of recovery to the class.

"It just depends … on the case and what the benefit is that the lawyers have achieved by their work," he said at the webinar, called "View from the Bench: Awarding Attorney Fees in Federal Litigation."  "If it's reasonable, then you can approve the contingency, but if it's pretty far out of whack maybe you've got to have the lawyers justify the difference or perhaps go with the lodestar.  There are a lot of things to look at."

And there are outside concerns as well.  Judges have increasing scrutiny from appeals courts, which often take up the petitions of objectors to class action settlements, Rubenstein said.  "Public policy generally cautions against awarding too high a fee," Copenhaver wrote in the West Virginia water case.  "The court's challenge is to award a fee that both compensates the attorneys with a risk premium on their skill and labor and avoids a windfall."

Last month, plaintiffs lawyers in the case submitted a renewed motion for settlement approval that lowered their fee request to 25 percent — more in line with what Copenhaver had found was reasonable.

Judges often look to previous case decisions, or their own experience, to determine what amount is appropriate to award lawyers in class actions.  They also get a list of cases from the lawyers — but those often come with vested interests.  For a long time, there was limited statistical data on what other judges had done.  That's where Fitzpatrick said he and the Eisenberg-Miller team tried to give judges a starting point.

"We tried to give the judges the full data instead of just leaving them at the whim of the cherry-picked cases the lawyers give them," he said.  "The judges don't have to replicate what other courts have done, but they have the opportunity to stick within the mainstream of what their colleagues have done if they want it now that they have the power of empirical studies."

Miller said he came up with the idea while serving as an expert witness in cases.  When his first report with Eisenberg published in 2004, one year before the U.S. Class Action Fairness Act passed, the political atmosphere was rife with criticism about attorney fees in class actions.  At the time, only one group had looked at the data — but it wasn't really a controlled study.

"On the issue of fees, the data was there but hadn't been developed," he said.  Eisenberg wasn't an expert on class actions, Miller said, "but he was the leading person probably in the world who was doing empirical studies of legal material."  Their report looked at published data of class action settlements from 1993 to 2002.

By the time of their second report in 2009, which expanded the data through 2008, Miller and Eisenberg had some competition.  Fitzpatrick thought that their report, like those before it, relied too much on "ad hoc" data that focused primarily on bigger, published decisions.  "I really endeavored to find every last one to have the complete and representative picture," he said.

He came up with a wider range of class action settlements within a shorter period of time — just 2006 and 2007.  Combined, both reports have been cited by judges more than 100 times, Miller said.  And they often involve the biggest settlements in dollar amount, he said.  "The issue is that there aren't as many cases," he said.  "There's less data. And that puts an additional premium on getting what data there is, so that's one reason judges look to this research in big cases."

Another came in 2012, he said, when U.S. District Judge Lee Rosenthal of the Southern District of Texas, the former chairwoman of the Judicial Conference Committee on Rules of Practice and Procedure, endorsed both studies in a case called In re Heartland Payment Systems Customer Data Security Breach Litigation: "District courts increasingly consider empirical studies analyzing class-action-settlement fee awards to set the appropriate percentage benchmark or to test the reasonableness of a given benchmark," she wrote.  "Using these studies alleviates the concern that the number selected is arbitrary."

Economies of Scale

Both studies have come out with slight differences in their specific findings.  But they came to the same conclusions: The vast majority of judges award fees based on a percentage of the total settlement amount — then cross-check that amount against the total number of hours the lawyers billed multiplied by the hourly rate, referred to as the lodestar.  There's a good reason for that trend.

"It's economies of scale," Miller said.  "Judges understand that to get a $1 billion settlement is not 1,000 times harder for an attorney to get a $1 million settlement.  It's a lot harder, but not 1,000 times harder."

Herndon, in the webinar, said that's just common sense.

"If they got a third of $1 billion, and compared to their lodestar, it would be an astronomical per hour figure," he said.  "There's some common sense in doing something like that, and I don't really have a particular feeling one way or the other, but I think there's certainly authority in the law for doing it."

In fact, many judges who cite the Eisenberg-Miller and Fitzpatrick reports look specifically to the data as it pertains to the size of the settlement in front of them and what the case is about.

But Fitzpatrick questioned whether judges were doing the right thing in lowering the percentages as the settlements get bigger.  "I think the judges are responding to perception when they do that and they're not responding to good economic policy analysis," he said.  "Because why would we want to punish lawyers with lower percentages for getting their clients more money?"

Not all judges agree with the conclusions made by the professors, who sometimes go up against each other as paid experts in individual cases.  In a $415 million settlement of "no poach" claims involving high-tech workers, U.S. District Judge Lucy Koh of the Northern District of California weighed Fitzpatrick's report against the Eisenberg/Miller study in awarding $40 million in fees.  In that case, Fitzpatrick was a paid expert for the lead plaintiffs attorneys, while Rubenstein cited the Eisenberg-Miller report in a declaration filed on behalf of one of the lead firms that had submitted a separate fee request.

"The court finds the Eisenberg & Miller study more persuasive than the Fitzpatrick study," Koh wrote in a 2015 order, concluding that the "length and large sample size of the Eisenberg & Miller study suggest that its results are entitled to greater weight."

Fitzpatrick said he's working on an updated report, likely to be drafted next year.  "Whenever I hear from these judges, they say the same thing: We love your study but we need more recent data," Fitzpatrick said.  "So that's what I'm trying to give them."  But gathering the data takes a lot of time and money, he said.  He's hired research assistants to code all the data.

The latest Eisenberg-Miller report, co-authored with research scholar Roy Germano at NYU's law school, uses data through 2013.  Without Eisenberg, who died in 2014, Miller said he's not certain he'll keep publishing the report.  "I don't think I'll do it anymore," he said. "It is a lot of work."

Novel Fee Award Factors in $5M Fee Request

September 5, 2017

A recent Law 360 story by Matt Chiappardi, “C&J Energy Blasts $5M Legal Fee Bid in Merger Suit,” reports that C&J Energy Services Inc. blasted a $5 million fee request from a shareholder who unsuccessfully challenged a $2.9 billion merger with Nabors Industries Ltd. in Delaware Chancery Court, arguing the suit did not result in any corporate benefit and the bid would be squelched anyway due to C&J’s prior bankruptcy.

The suing shareholder — The City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, whose case was thrown out by the Chancery Court a year ago — pushed for the fee award in July, arguing its lawsuit spurred a $250 million reduction in the cash price C&J paid Nabors as part of the deal, a “massive cash reduction” that benefited C&J stockholders.

But C&J counters that the lawsuit had no effect, arguing the action was essentially dormant when the price reduction took place and was eventually tossed by the Chancery Court in a decision upheld by the Delaware Supreme Court in March.

“There is absolutely no support for plaintiff’s theory that its lawsuit spooked C&J’s directors into asking for the price reduction to whitewash their alleged breaches of fiduciary duties,” C&J said in its objection to the proposed fee award.  “During the entire time that the C&J board was pursuing the price reduction, plaintiff’s lawsuit was on life support.”  C&J also argues that the Chancery Court need not even consider the merits of the fee bid, contending that it is essentially a prepetition claim in its bankruptcy case initiated in 2016 in the Southern District of Texas.

The fee request is a claim from 2015, and the suing shareholder never filed a proof of claim in the Chapter 11 case, only a statement and reservation of rights that it was not objecting to the company’s plan because the exit strategy wouldn’t affect the action against nondebtor directors in Delaware, C&J said in its objection.

But the party from whom the suing shareholder is seeking the fee award in the Chancery Court is the debtor, which has since emerged from Chapter 11 in January, C&J argues.  C&J completed its $2.9 billion merger with Nabors in 2015, with Nabors receiving about $688 million in cash and retaining 55 percent of the equity in the newly formed company.  The overall cost of the deal to C&J was scaled back by $250 million at one point for reasons that were said to reflect energy market weakening and a need to shore up stockholder support, according to court records.

The case is City of Miami General Employees' and Sanitation Employees' Retirement Trust v. C&J Energy Services Inc. et al., case number 9980, in the Delaware Court of Chancery.

$18M in Fees Sought in Home Depot Data Breach Deal

September 1, 2017

A recent Law 360 story by Kat Greene, “Home Depot Data Breach Attys Seek $18M Fees on $27M Deal,” reports that attorneys who scored just more than $27 million in settlements from The Home Depot Inc. for banks suing over the 2014 data breach asked a Georgia federal court to approve $18 million in fees, arguing their work spurred other payouts for would-be class members out of court.

The lawyers that represented a proposed class of financial institutions after the breach that compromised 56 million credit and debit card numbers said their work had resulted not only in a $25 million deal to cover financial institutions’ losses and another $2.25 million for those whose claims had been released by a sponsor in connection with a recovery program launched by MasterCard, but also further financial benefits and security changes, according to the filing.

For example, Home Depot had also separately solicited financial institutions that would have been part of the class and paid them $14.5 million to release their claims, and shelled out another $120 million to Visa Inc. and MasterCard Inc. as part of a negotiation to cover losses through their card brands to some of the banks, according to the filing.

The court should count the $14.5 million in the settlement total when determining the reasonableness of the fee request, the attorneys said, because those payments wouldn’t have been made without this litigation and the lawyers were directly involved in advising financial institutions on their decisions to release claims, including holding mass conference calls and conducting industry outreach, they said.

“There is no doubt this litigation was the impetus for the $14.5 million that Home Depot paid for releases,” the attorneys said in the request. “Home Depot admits its goal in soliciting releases was to avoid legal exposure, including exposure for attorneys’ fees that might have to be paid in a settlement.”  The company shouldn’t be allowed to circumvent the multidistrict litigation process, thereby cutting into the plaintiffs’ lawyers’ compensation for their work, the attorneys argued.

Counting the on-paper settlement amount and the additional payment for releases, the $18 million fee request is just under 30 percent of the settlement amount, class counsel said.  A year ago, U.S. District Judge Thomas W. Thrash granted final approval to a $13 million deal between Home Depot and consumers in the litigation, awarding the attorneys representing those class members $7.5 million in fees, court records show.

Although the consumers’ attorneys sought approval of attorneys’ fees of $8.5 million, or 1.46 times the lodestar calculation of reasonable fees multiplied by the amount of time the consumers’ legal team spent on the case, the judge said a multiplier of 1.3 was appropriate given the amount of time spent by the consumers’ attorneys as well as the risks they took in bringing the suit.  Home Depot had objected to that fee bid, saying it was excessive.  The company has not agreed on a fee amount with the financial institution class attorneys either, court records show.

The case is In Re: The Home Depot Inc., Customer Data Security Breach Litigation, case number 1:14-md-02583, in the U.S. District Court for the Northern District of Georgia.

Seventh Circuit Cuts Fee Award in Half

August 18, 2017

A recent NLJ story by Amanda Bronstad, “Fees in Class Action Over Moldy Washing Machines Nearly Halved,” reports that a federal appeals court has slashed plaintiffs' attorney fees by nearly half...

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