A recent Courthouse News Service, “Huge Fee Award OK’d for Lawyers in Motorola Suit,” reports that the U.S. Court of Appeals for the Seventh Circuit affirmed a $55 million (27.5 percent) fee award in the $200 million Motorola Solutions settlement in a class action securities case. Chief Judge Frank Easterbrook wrote the nine-page opinion (pdf). Easterbrook has been the author of all the court’s major recent opinions on legal fees.
Fee objector Edward Falkner argued that fee schedules should be set at the start of litigation, preferably in an auction in which the judge picks the lowest bidder among law firms competing to represent the class. But the court rejected this argument.
While the Seventh Circuit agreed that attorneys’ fee in class actions should approximate the market rate between willing buyers and willing sellers of legal services, it found that “solvent litigants do not select their own lawyers by holding auctions, because auctions do not work well unless a standard unit of quality can be defined and its delivery verified. There is no ‘standard quality’ of legal services and verification is difficult if not impossible.”
The court emphasized the factor of risk in the upholding the attorney fees. Easterbrook relied on the attorney fee expert declaration (pdf) of law professor Charles Silver who wrote that, “this suit was unusually risky. Defendants prevailed outright in many securities suits. This one took more than four years, and more than $5 million in out-of-pocket expenses by counsel to conduct discovery and engage experts, before reaching the summary-judgment stage.”
Indeed, Motorola had been primed to prevail on its summary judgment motion until class counsel uncovered some unanticipated facts during discovery. Motorola was only willing to settle for a substantial sum after its motion was denied.
In addition, no other law firm wanted to take on the case in the beginning. “Lack of competition not only implies a higher fee but also suggests that most members of the securities bar saw this litigation as too risky for their practices,” Easterbrook wrote. “The district court did not abuse her discretion in concluding that the risks of this suit justified a substantial award, even though compensation in most other suits has been lower.”
Investor would certainly reap more from the settlement if the court reined in the fees, but Easterbrook highlighted the lack of protest from the pension funds, university endowments and other large institutional investors that hold claim to more than 70 percent of the settlement fund.
“The difference between 27.5 percent of $200 million and a smaller award (say, one averaging 20 percent) could be a tidy sum for institutional investors (including this suit’s lead plaintiff, a pension fund), one worth a complaint to the district judge if the lawyers’ cut seems too high,” he wrote. “Yet none of the institutional investors has protested – either by filing a motion seeking the judge to reduce the fees or by supporting Falkner’s position in this court.
The ruling also notes data about attorneys’ fees in other class actions settlements. Empirical studies, Attorney Fees in Class Action Settlements: An Empirical Study by Theodore Eisenberg and Geoffrey P. Miller and An Empirical Study of Class Action Settlements and Their Fee Award by Brian T. Fitzpatrick and Attorney Fees and Expenses in Class Action Settlements: 1993-2008 by Theodore Eisenberg and Geoffrey P. Miller were referenced by the court. The studies found that the mean award from settlements that range from $100 to $250 million is 12 percent, and the median is 10.2 percent. Courts usually award counsel a declining percentage as the size of the settlement fund increases.