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Attorneys Defend $16M Fee Request in Securities Class Action

June 12, 2018 | Posted in : Contingency Fees / POF, Fee Award, Fee Award Factors, Fee Calculation Method, Fee Request, Hourly Rates, Lodestar

A recent Law 360 story by Bonnie Eslinger, “Attys Defend $16M LendingClub Fee Bid That ‘Shocked’ Judge,” reports that attorneys seeking $16 million for representing LendingClub Corp. investors in securities class actions against the peer-to-peer lending company defended their fee bid to a California federal judge who previously said the amount “shocked” him, saying their work produced an “outstanding result under any measure.”

The 28-page motion filed by attorneys for Robbins Geller Rudman & Dowd LLP, lead counsel for the lead plaintiff, argues that the requested 13.1 percent cut of the $125 million settlement is reasonable in light of the results achieved, the risks of the litigation, the skill required to tackle the case, the financial burden carried by counsel in the contingency matter, the work performed in a related state action, the positive support of the class and the hours spent prosecuting the litigation.

“An undeniable reality of the legal industry’s evolution (or regression) is that few legal teams pose a credible threat to take large complex cases to trial on a contingent basis — and win.  The prosecution team for lead counsel Robbins Geller Rudman & Dowd LLP demonstrated that it was one of these few,” the attorneys state at the top of their motion.  “Defendants’ counsel are experienced enough to recognize when an adversary is preparing a case for trial, and that is what Robbins Geller was doing when this case settled.”  According to the law firm, it had obtained crucial documents, “secured the right to argue an inference that rendered summary judgment for the underwriter defendants almost impossible,” and was set to depose key LendingClub former executives.

As a percentage of reasonably recoverable damages, the settlement is several times greater than the average recovery in other cases under the Private Securities Litigation Reform Act, Robbins Geller argues, but the 13.1 percent fee is far below the average award.  The settlement ends class action claims in California federal and state court that allege the peer-to-peer lending company misled investors in the run-up to its $1 billion initial public offering in 2014.

But while the deal was preliminarily approved by U.S. District Judge William Alsup on March 16, at a hearing held one week prior the judge expressed skepticism over the proposed $16 million attorneys' fees award.  "I'm not sure you did enough to justify $16 million,” Judge Alsup said.  “To me that's too much money.  I'm shocked at that amount.  Maybe you can convince me."

At that hearing, an attorney for the class, Jason Forge of Robbins Geller, said his clients had negotiated the percentage cut of the net settlement before they signed a retainer agreement.  But Judge Alsup said he wasn’t beholden by that contract, adding, "I still, at the end of the case, have to do what’s right for the class, and you may be being greedy."

In its motion for attorneys' fees, Robbins Geller argues that basing the award on a percentage of a settlement is a “well tested and accepted” method throughout the country.  The requested fee is also significantly less than the Ninth Circuit’s 25 percent benchmark for similar cases, the law firm notes.

The results achieved in the litigation also lean toward the fee award, the firm said.  According to a study conducted by NERA Economic Consulting, the LendingClub settlement lands in the middle of 2017’s top 10 securities class action recoveries, "yet the requested fee percentage here is below the fee percentages awarded in all those cases,” Robbins Geller notes.

The top settlement, according to the study, was a $210 million deal to end a proposed class action by Salix Pharmaceuticals Ltd. shareholders, which yielded a $44.6 million, 21 percent fee cut.  A $100 million settlement between Halliburton Co. and disgruntled investors came with a $33 million class counsel award, or 33 percent.  A Dole Food Co. $74 million settlement in a Delaware federal securities suit included an $18.5 million fee award, or 25 percent.

Lead counsel’s prosecution of this case yielded a number of achievements in the litigation, the firm added, including defeating defendants’ motions to dismiss as to all claims and most allegations; moving to strike the majority of the defendants’ affirmative defenses, which led to them withdrawing 115 of 154 of their affirmative defenses and amending the remaining defenses; and obtaining class certification in the case.

But there were certainly risks to the case, the law firm said.  “Defendants had already staked out, and were actively developing, the argument that LendingClub’s admitted material weakness in internal control did not exist at the time of the IPO,” Robbins Geller states in its motion, adding that it was also “impossible to predict how a jury would assess a complex trial involving issues of specific intent or how an appellate court would view the myriad issues that arise in lengthy litigations.”

The reaction of the class also supports approval of the attorneys' fees, the motion states.  To date, over 104,600 notices have been sent out about the settlement and only one class member has objected.

Finally, Robbins Geller tells the court that 24,260.25 hours of attorney and paraprofessional time was spent prosecuting the action on behalf of the class.  Based on those professionals' rates, the resulting $13,152,167 lodestar would only be subject to a reasonable multiplier of 1.24 for the $16,384,087 requested fee, the firm states.

“Lead counsel’s efforts on behalf of the class resulted in an outstanding result under any measure,” Robbins Geller states.  The fee bid is the latest legal turn in the winding litigation, which stretches back to May 2016, when LendingClub shareholders began suing the company in federal court, claiming that before it went public, the company misled investors about its compliance practices, especially the adequacy of its internal controls to ensure its loans conformed to customers' criteria.  The parties announced a tentative $125 million settlement and filed a motion for preliminary approval in February.

The cases are In re: LendingClub Securities Litigation, case number 3:16-cv-02627, in the U.S. District Court for the Northern District of California, and In re: LendingClub Corp. Shareholder Litigation, case number CIV537300, in the Superior Court of the State of California, County of San Mateo.