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Category: Fee Award Data

Article: The Changing Landscape of Fees in Securities Class Actions

December 11, 2023

A recent Law 360 article by Edward Flores, The Shifting Landscape of Securities Class Action Fees”, reports on the changing landscape of attorney fees in securities class actions.  This article was posted with permission.  The article reads:

A recent Law360 article notes that there appears to be a growing shift in how class action fees are awarded, with the benefits secured for class members taking an increasing role in determining fees rather than fees simply being a function of the settlement amount.  An examination of data on the percentage of the recovery awarded to attorneys in securities class actions shows that while the percentage declines as recoveries get larger, that percentage also increases as recoveries grow relative to a statistically predicted recovery.

As part of the settlement stage of a securities class action, plaintiffs file motions for approval of the settlement, as well as attorney fees and expenses.  In these motions, the attorney fees sought are typically based on a percentage of the proposed settlement, with the proposed figures often based on a sample of recent cases, the case's lodestar multiplier or relevant benchmarks.  For example, a June case in the U.S. District Court for the District of Delaware, In re: Electric Last Mile Solutions Inc., noted that "Lead Counsel intends to seek an award of attorneys' fees of no more than one third of the Settlement Amount.  This fee request is in line with other settlements approved in recent cases."

In another case in the U.S. District Court for the Middle District of Tennessee in July, Bond v. Clover Health Investments Corp., the plaintiffs' counsel noted that the "request for 25% of the Settlement Fund ... amounts to a lodestar multiplier of 3.53, which is within the range of multipliers commonly awarded in securities class actions and other complex litigation."

Finally, the plaintiffs' counsel in a U.S. District Court for the Northern District of California case in August, Purple Mountain Trust v. Wells Fargo & Co., noted that "Lead Counsel seeks an award of attorneys' fees of 25% of the Settlement Amount.  This fee request ... is consistent with the benchmark for attorneys' fee awards in this Circuit."

Plaintiffs counsel also typically highlights the recovery they have obtained for the class and their work to obtain that recovery.  For example, in the aforementioned case involving Clover Health, counsel for the plaintiffs noted that the "recovery represents approximately 13.2% of the likely recoverable damages in this case, well above the median recovery of 1.8% of estimated damages for all securities class actions settled in 2022."

However, those recoveries are, at best, benchmarked as a percentage of some estimate of losses suffered by the class.  An important question is whether plaintiffs counsel receives a higher fee when they obtain an unexpectedly large settlement, potentially indicating productive work on their part.  Moreover, it may be of interest to see what other factors drive attorney fees awarded in securities class actions, both in terms of examining the direction and magnitude that certain factors have on attorney fees, as well as for purposes of estimating or cross-checking proposed fees given certain characteristics of a case.

Data and Analysis

To examine what factors can help explain attorney fees awarded, we analyzed securities class actions with alleged violations of Rule 10b-5 involving common stock that settled during the period from January 2012 through June.  In addition to the logarithm of the actual settlement amount, some of the variables analyzed include a potential proxy for attorney performance and the strength of a case, the time to resolution of a case, and the status of certain motions as of the time of settlement.

As a potential proxy for attorney performance and the strength of a case, we calculated the ratio of the actual settlement value to its mean predicted settlement value to examine if better-than-expected settlements are reflected in attorney fees received.  For each case, the mean predicted settlement value was calculated using an econometric model that uses as inputs variables that are historically known to drive settlement values.[8] For the middle 95% of cases in the dataset, the value of this ratio ranges from 0.2 to 3.8.

We also examined the effect that the time to resolution has on attorney fees, based on the filing of the first complaint of a case.  Finally, we examined the effects that the filing and outcome of the motion to dismiss and the motion for class certification have on attorney fees.  In measuring attorney fees, we used two different variables: attorney fees as a percentage of the settlement, and total attorney fees and expenses as a percentage of the settlement.  As these variables range from 0 to 1, a fractional logistic regression model is used to analyze the relationship between attorney fees and the independent variables.

As the coefficients of this model can be hard to interpret, we examined the marginal effects of the independent variables in order to get an idea of the effect that a change in one variable has on attorney fee percentage, holding all others constant.

Results

From Table 1, we see that the ratio of the actual settlement to the mean predicted settlement has a positive and statistically significant effect, possibly highlighting how a better-than-expected outcome is rewarded in attorney fees.  In terms of magnitude, we find that a 0.1 increase in this ratio results in an additional 0.1% in attorney fee percentage.

One interesting question that our data does not let us answer is whether higher-than-predicted settlements reflect a particularly strong prosecution of the case by plaintiffs counsel or case factors favorable to the class that are not captured by our model.  Overall, we find that the variables in the model using attorney fee percentage as the dependent variable can explain nearly 20% of the total variation in attorney fee percentage.

Looking at the individual variables beyond the ratio of the actual to predicted recovery, the logarithm of the settlement value is unsurprisingly the strongest predictor of attorney fees, with higher settlement values being associated with a lower attorney fee percentage, consistent with prior research.

On the other hand, the time-to-resolution variable had a small and statistically insignificant effect, with each year contributing an additional 0.22% in attorney fee percentage.  Thus, to the extent that courts are rewarding plaintiffs counsel — or plaintiffs counsel are willing to ask for more — through the fee percentage, that would appear to be based more on results than time spent.

When analyzing the motion variables, we find that the filing of a motion to dismiss has a statistically significant negative effect on attorney fees.  Meanwhile, the effect of a motion to dismiss being denied or partially granted is positive and statistically significant, contributing an additional 1.5% in attorney fee percentage and again potentially showing that plaintiffs counsel is rewarded for achieving outcomes favorable to the class.

As over 90% of settled cases have a motion to dismiss filed, this means that cases where the motion to dismiss is denied or partially granted tend to have a 1.5% higher attorney fee percentage relative to cases that settle before a court decision was reached in the motion to dismiss.

The filing of a motion for class certification has a small and not statistically significant effect on attorney fees.  However, the effect of a motion for class certification being granted is positive and statistically significant, contributing an additional 1.6% in attorney fee percentage, again consistent with the idea that plaintiffs counsel is being rewarded for achieving outcomes favorable to the class.

We also performed this analysis using total attorney fees and expenses as a percentage of the settlement size as the dependent variable.  Under this model, the explanatory variables explain roughly 40% of the total variation in total attorney fees and expenses.

While the results look similar for several of the variables analyzed, there are a few notable differences. For example, the time-to-resolution variable was statistically significant in this model, with each year contributing an additional 0.62% in attorney fee percentage and expenses.  In other words, plaintiffs counsel appear to be compensated for actual expenses, but are not being compensated through the fee percentage for time spent.

The filing of a motion for class certification was also positive and statistically significant, contributing to an additional 2.8% in attorney fee percentage and expenses.

Conclusion

Our analysis of settled cases shows that in addition to the settlement size, plaintiffs counsel in securities class actions appear to be rewarded for good settlement outcomes relative to a statistical prediction, with certain outcomes for the motion to dismiss and motion for class certification also affecting attorney fees awarded.

As a starting point, this means that in securities class actions, attorney fees are not just based on "the amount of money involved in a settlement," but also to at least some degree on the difference between that amount of money and the expected amount of money based on characteristics of the case.

That said, it is possible that analyses such as those described here may also be useful for purposes of estimating or cross-checking proposed fees given certain characteristics or outcomes in a case, particularly if one would like to reward successful advocacy by plaintiffs counsel. 

As noted above, however, while our proxy variable for attorney performance and strength of case incorporates several quantitative factors that drive settlement values, it may not account for other qualitative strengths and weaknesses of a case.

Nevertheless, given that there are some areas that we can measure, it may make sense to see how a proposed settlement compares to a statistical prediction as part of the consideration of the relevant amount of attorney fees.

Edward Flores is a senior consultant at NERA Economic Consulting.

Ethical Questions for Bankruptcy Judge on Fee Issues

November 3, 2023

A recent Law 360 story by Daniel Connolh, “US Trustee Moves to Reverse ‘Tainted’ Jackson Walker Fees”, reports that, in the ethics fallout involving former U.S. Bankruptcy Judge David R. Jones of the Southern District of Texas and his undisclosed intimate relationship with a Jackson Walker LLP bankruptcy partner, the federal agency that oversees the bankruptcy court system filed multiple motions to strip millions of dollars in fee awards from the firm.  Writing that "all orders awarding fees and expenses are tainted and should be set aside," the U.S. Trustee's Office for the region that covers the Southern District filed motions to undo fee awards in at least 11 cases, including the bankruptcies of J.C. Penney Co. and Neiman Marcus.

The trustee, Kevin Epstein, cited Jones' cohabitation with Elizabeth Freeman, a former Jackson Walker bankruptcy partner who now leads her own small firm.  The relationship was recently revealed through litigation and media reports, and led to a formal ethics complaint filed Oct. 13 against Jones, who has resigned.  "Judge Jones' secret relationship with Ms. Freeman created an unlevel 'playing field' for every party in interest in every case Jackson Walker had before Judge Jones, including this one, and in Jackson Walker cases mediated by Judge Jones," Epstein wrote in Thursday's motion in the J.C. Penney case.

In the J.C. Penney bankruptcy alone, Judge Jones had signed orders compensating Jackson Walker for its work as debtor's local counsel and awarded about $14,000 in expenses and about $1.1 million in fees, including about $286,000 billed by Freeman, according to a summary compiled by the U.S. Trustee's Office.  The precise dollar amounts of all the proposed fee reversals weren't immediately clear, but one section of Epstein's motion describes the general scope.

"Judge Jones presided over at least 26 cases, and perhaps more, where he awarded Jackson Walker approximately $13 million in compensation and expenses while Ms. Freeman was both a Jackson Walker partner and living with him in an intimate relationship.  This includes approximately $1 million in fees billed by Ms. Freeman herself in 17 of those cases."  The U.S. Trustee's Office has filed proposed orders that call for the previous orders approving Jackson Walker's fees and expenses to be vacated.  If approved, parties would have 120 days to object to Jackson Walker's fees and expenses, and a hearing would take place.

The U.S. Trustee's Office has also moved to block a $1.3 million fee award to Jackson Walker in at least one case — the GWG Holdings Inc. bankruptcy — in which Judge Jones acted not as presiding judge, but as a mediator.  A recent document filed by the trustee highlights several other cases in which Judge Jones acted as mediator, rather than as judge.  Property records show that Judge Jones and Freeman had jointly owned a house in Houston since 2017. Earlier, Freeman had served as Judge Jones' law clerk.

In a previous interview, Wilkinson said the law firm first learned about a potential relationship between Freeman and Jones in March 2021, and took steps including consulting outside ethics counsel.  Wilkinson had forwarded an emailed statement: "Our firm acted in a timely fashion once we learned of this issue, including conducting a full inquiry and consulting independent outside ethics counsel for their guidance.  From the time we first learned of this allegation Ms. Freeman was instructed not to work or bill on any cases before Judge Jones.  We are confident that we acted responsibly."

The U.S. Trustee's recent filings say Jackson Walker didn't act responsibly.  "Notwithstanding Jackson Walker's admitted knowledge of the secret relationship between its partner, Ms. Freeman, and Judge Jones no later than March 2021, Jackson Walker never disclosed that relationship in any pending or subsequently filed case during the following 21 months while Ms. Freeman was a partner — or thereafter when she was working as a Jackson Walker contract attorney on bankruptcy cases after leaving Jackson Walker," Epstein wrote in the motion, which was signed by Millie Aponte Sall, assistant U.S. trustee.

And at least one court document suggests that Freeman was still indirectly participating in cases for Jackson Walker that were pending before Judge Jones after March 2021, by consulting with other attorneys.  A Fifth Circuit ethics complaint said that whether or not Freeman directly participated in a case before Judge Jones, she still stood to gain money.  The U.S. Trustee's Office has filed motions seeking to undo Jackson Walker's fees and expenses in the following cases, all in the U.S. Bankruptcy Court for the Southern District of Texas:

J.C. Penney Co. Inc., et al., case number 20-20184
Neiman Marcus Group Ltd. LLC, case number 20-32519
Westmoreland Coal Co. et al., case number 18-35672
Whiting Petroleum Corp., case number 20-32021
Stage Stores Inc., case number 20-32564
Chesapeake Energy Corp., case number 20-33233
Covia Holdings Corp., case number 20-33295
Tug Robert J. Bouchard Corp., case number 20-34758
Mule Sky LLC, case number 20-35561
Seadrill Partners LLC, case number 20-35740
Katerra Inc. et al., case number 21-31861

$267M Attorney Fee Award Appealed in $1B Dell Settlement

October 2, 2023

A recent Law 360 story by Jeff Montgomery, “Pentwater Appeals $267M Atty Fee Award in Dell Case in Del.”, reports that a private equity investor in Dell Technologies Inc. is appealing a Chancery Court's record $266.7 million fee award to class counsel that secured a $1 billion settlement for stockholders who sued over a $23.9 billion stock swap in 2018.  Pentwater Capital Management filed notice of appeal without a transcript late Friday with the Delaware Supreme Court, challenging both the attorney fee award and a $50,000 incentive award granted to Steamfitters Local 449 Pension Plan, the lead plaintiff for the suit filed in November 2018.

Vice Chancellor J. Travis Laster set the fee at $266.7 million on July 31, trimming a request of $285 million.  He said in his July 31 decision and order that eight funds that had invested in Dell but were not part of the class suit, recommended a lower fee, citing concerns about "windfall" profits in the case of large awards.

Pentwater — holder of 1.6% of the Dell Class V tracking stock at issue in the Chancery Court suit — branded the fee award as massive and a potentially "dangerous" precedent. In a Chancery Court brief opposing the fee, Pentwater argued that "the requested fee in absolute and percentage terms is disproportionate to the value conferred on class members."

Settlement of the overall case prevented a trial on claims targeting Dell's effort to exchange Class V stock — created to finance much of Dell's $67 billion acquisition of EMC Technologies in 2016 — for shares of Dell common stock.  The Class V shares generally traded at only 60% or 65% of the price of VMware, a business in which EMC owned an 81.9% equity stake when Dell acquired EMC.  Public shareholders, the class had argued, were shortchanged by $10.7 billion when, in December 2018, Dell Technologies paid $14 billion in cash and issued 149,387,617 shares of its Class C common stock for the Class V shares.

When the challenged conversion closed on Dec. 28, 2018, VMware stock closed at $158.38 per share, and Class V stockholders received just $104.27 per share, fueling objections that the Dell Class C stock to be received for Class V shares had been overvalued.

In his fee opinion, the vice chancellor noted that class attorneys provided hundreds of examples of contingent fee agreements to support their original request for $285 million.  However, he noted, none of the objectors provided examples, except for Pentwater, and that example was "not for a Delaware case."  Vice Chancellor Laster also observed in his July 31 decision that investment funds that had recommended a lower amount, including Pentwater and seven others, had "a strong economic motivation for seeking a lower fee award."

The vice chancellor's decision elaborated on the idea that the investment funds that didn't go to the trouble of suing had a financial motivation now to object.  Following a 10% fee trend in federal securities actions, he noted, would have given them an extra $49 million for the equity holders, rather than sharing it with the class.  Five law professors suggested in a friend-of-the-court brief that a 15% fee would be appropriate, which still would have added $35.78 million to the objectors' recovery, the vice chancellor's decision noted.

"Having sat back and done nothing, the objectors now claim that a fee award without a sizable reduction would 'not yield equitable results,'" the vice chancellor wrote in an August filing confirming the $266.7 million fee award.  "That assertion masks self-interest with an appeal to equity.  Wanting more money for yourself is understandable, but it is not grounds for a fee objection."

New Billing Rate Matrix Adopted to Set Fees in DC Litigation

August 14, 2023

A recent Bloomberg Law story by Bernie Pazanowski, “’Fitzpatrick Matrix Adopted for Setting DC Attorneys’ Fees Awards”, reports that a government employee in Washington, who settled a discrimination lawsuit against the federal agency for which she worked, is entitled to an award of $526,101 in attorneys’ fees, a federal court in Washington said.

The correct method for establishing prevailing market rates for attorneys’ fees in the Washington area is the Fitzpatrick Matrix, which lays out a “finely tuned rate schedule that lists a different market rate for each additional year of experience a lawyer brings instead of bundling experience levels into bands,” Judge James E. Boasberg of the US District Court for the District of Columbia said.

Cindy Brackett, who worked for the Federal Emergency Management Agency, said that the court should use the Legal Services Index Matrix to compute the fees, which is a general schedule of hourly fees based on years of attorney experience.  But Boasberg rejected that method, saying that there were problems with the age of the data it used, with the sample of federal litigators it used, and the way it groups attorneys into just five experience bands.

  • District precedent established that the Fitzpatrick Matrix was more reliable than the LSI Matrix because it’s limited to the Washington market, Boasberg said
  • Fitzpatrick also employed lessons from an economics rather than a legal textbook to blend data from the cases he reviewed into a linear model that reflects common economic practice, he said
  • Computing the rates here, Boasberg noted that both parties caused delays in the case that started in 2017 and said that using the 2022 version of the Fitzpatrick Matrix was proper
  • The final award included fees for the time Brackett’s attorneys spent litigating the fee dispute

Law Firm Denied Partner Billing Rates in Litigation

August 11, 2023

A recent ABA Journal story by Debra Cassens Weiss, “Big Law Firm Partners Awarded Fraction of Their $1,500-Plus Hourly Legal Fees”, reports that two Gibson, Dunn & Crutcher partners usually bill more than $1,500 per hour, but they trimmed the amount to only $950 per hour in a request for an award of attorney fees following successful litigation in the Southern District of Florida.  Even that amount was too much for a federal judge, who adopted a magistrate judge’s conclusion that $700 was a reasonable hourly fee for partners in Miami, Reuters reports.

Gibson Dunn had successfully represented defendant Peak One Opportunity Fund in a lawsuit alleging that the lender harmed startup Social Life Network Inc. when it exercised an option to obtain stock at a discount and then resold it.  Gibson Dunn was entitled to fees and expenses under a contractual agreement between the two litigants. Gibson Dunn sought to recover more than $237,000.  Chief U.S. Magistrate Judge Edwin G. Torres recommended an award of nearly $158,000 in fees and expenses, a recommendation adopted by U.S. District Judge Darrin P. Gayles of Miami.

The award included only $700 per hour for the “high-level partner work” of Gibson Dunn partners Helgi Walker and Barry Goldsmith. Walker, co-chair of Gibson Dunn’s litigation practice, is based in Washington, D.C., while Goldsmith is in New York, Reuters reports.

Torres said he had no trouble understanding why Walker and Goldsmith charge more than $1,500 per hour for their services.  But when awarding fees to a prevailing party, “this court has long recognized that it cannot force the loser to pay for the luxury of unusually well-qualified counsel when the standard the court must apply is designed to ensure nothing more than competent legal representation,” Torres said, quoting from another decision.

Walker provided a statement to Reuters.  It is “not surprising that a national firm’s rates might be slightly reduced in a context where local market comparisons are being made,” she said.  “The headline here is that we were successful in getting our client awarded almost $150,000 in fees for the plaintiff’s inappropriate and meritless suit,” she said.