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$20M in Fees to Class Counsel in Madoff Ponzi Suit

March 15, 2019 | Posted in : Fee Award, Fee Cap / Fee Limits, Fee Issues on Appeal, Lodestar, Practice Area: Class Action / Mass Tort / MDL

A recent Law 360 story by Rick Archer, “Lead Class Attys in Madoff Ponzi Suit Awarded $20M,” reports that a New York federal judge awarded nearly $20 million in fees to the counsel for a class that received a $1 billion settlement for money lost through Bernard Madoff's Ponzi scheme, saying objectors to the award were rehashing rejected arguments.  Saying the objectors' claims that class counsel is being compensated for work unconnected to the case "go well beyond the mandate" set forth in a 2017 Second Circuit ruling on the fee award, U.S. District Judge Colleen McMahon accepted a magistrate judge's findings and approved the new attorneys fee award on the Tremont Fund settlement.

Tremont, part of Massachusetts Mutual Life Insurance Co., was the second-largest Madoff feeder fund.  The $1 billion settlement reached in 2011 stemmed from allegations by trustee Irving Picard that the company continued to pour money into Bernard L. Madoff Investment Securities LLC despite obvious red flags.  In August 2105, U.S. District Judge Thomas Griesa issued an oral order approving a complex plan of allocation to the plaintiffs that included a 3 percent fee award for the plaintiffs' counsel, capped at 2.5 times the lodestar.  Based on the size of the settlement fund at the time, the award would have been $18.7 million and capped at about $40 million.

Several Tremont investors objected to the plan and the fee request, in particular, on the grounds that there was little risk involved in reaching the settlement and because class counsel had already received substantial fees from a previous settlement in the litigation.  Judge Griesa rejected those objections, and in June 2017, the Second Circuit upheld his ruling on the settlement distribution but remanded the fee award, saying the lodestar multiplier was not justified by the "limited risk" plaintiffs' counsel had run.

After Judge Griesa's death in December 2017, the case was remanded to Judge McMahon, who asked U.S. Magistrate Judge Gabriel Gorenstein to issue a report.  Judge Gorenstein's report was issued in February, saying that while plaintiffs' counsel was now requesting a lodestar of 1.67, which would produce a $33.2 million fee cap, he had found that the risk factors did not justify any modifier and set the cap at approximately $19.9 million.

A group of Tremont investors filed a new objection to the fees, arguing new evidence provided last year showed that 75 percent of the fees Judge Griesa used to calculate the lodestar were for work unconnected with the fund distribution, but class counsel argued that the Second Circuit had rejected those claims and had remanded solely to recalculate the lodestar multiplier cap.  In her ruling, Judge McMahon said the only reason the case had been remanded was to revise the lodestar cap down.  "In his excellent report, Judge Gorenstein anticipated and answered every objection raised by the Tremont Fund objectors. I find no flaw in his reasoning," she said.

The case is In re: Tremont Securities Law litigation, case number 1:08-cv-11117, in the U.S. District Court for the Southern District of New York.