The U.S. Court of Appeals for the Ninth Circuit, in In Re Mercury Interactive Corp. (for publication) has snatched away a $29.3 million fee award that two law firms received for serving as lead plaintiffs’ counsel in a class action in California.  The appeals panel vacated the lower court’s decision, holding that U.S. District Court Judge Jeremy Fogel erred in setting the schedule for objecting to counsel’s fee award.  The ruling stems from a stock option backdating securities class action against Mercury Interactive Corp.  The case settled for $117.5 million.  At the time the lower court certified the settlement, it required notice to class members that the attorneys were seeking 25% of the settlement amount ($29.3 million) in a common fund.

After a general fee award notice was disclosed to class members (without specific details, including lodestar calculation), plaintiffs’ counsel filed their fee motion.  The memorandum and declarations supporting the fee motion stated that lead counsel and other law firms worked a total of 17,001.06 hours on the case.  Counsel did not provide time sheets detailing how many hours were spent by each attorney on specific tasks.  Instead, it provided tables listing a lawyer, his or her hourly rate, and the number of hours he or she expended on the case.

In vacating the fee award, the appeals court held that Federal Rules of Civil Procedure 23(h) required the lower court to give class members a chance to object to the fee motion itself, not merely to give preliminary notice that the fee motion was pending.  “At the time that its objection to the fee motion was due, [the objectors] could make only generalized arguments about the size of the total fee because they were only provided with generalized information,” the panel wrote.  The panel expressed no opinion about the merits of the fee motion.