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Category: Fee Calculation Method

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.


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.


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.

Plaintiffs' Counsel Concerned With 'Value-Added' Fee Cuts in Georgia

November 9, 2023

A recent Law.com story by Cedra Mayfield, “Lawyers Are Watching as Attorney Fees Slashed Over ‘Value-Added’ Calculation”, reports that a Fulton County State Court judge has rejected a plaintiff firm’s request for a contingency fee-based award of attorney fees under Georgia’s offer-of-settlement statute.  After taking issue with Brodhead Law’s approach used to calculate its seven-figure request, Judge John R. Mather opted to adopt defense counsel Webb Daniel Friedlander’s “reasonable hours and rate” proposal, and award plaintiff counsel just over $424,000.

The ruling is now catching the attention of lawyers, as it could have implications on a $549 million fee request based on a similar approach in the unrelated, yet high-profile Hill v. Ford case currently pending in Gwinnett County State Court.

40% Contingency

The underlying auto tort dated to a 2010 injury wreck between plaintiff Joao Junior and defendant Sharon Graham.  Represented by Brodhead Law’s Ben Brodhead and Ashley Fournet, Junior sought compensatory damages, punitive damages, attorney fees and litigation costs under OCGA 13-6-11 in an amended complaint.  However, prior to trial, plaintiff counsel served the defendant with a document styled “Plaintiff’s Offer to Settle Tort Claim to Defendant Pursuant to OCGA 9-11-68” that proposed to settle their client’s claims against Graham for $600,000.

Robb Cruser and former Cruser, Mitchell, Novitz, Sanchez, Gaston & Zimet colleague R. Russell Grant II handled Graham’s initial defense.  Rather than agreeing to the proposed resolution, defense counsel failed to accept the settlement offer within 30 days of its issuance, rendering it rejected by operation of law, per court records.

When the case proceeded to trial before Mather in July 2019, Fulton State Court jurors found in Junior’s favor.  The jury awarded the plaintiff $3 million in compensatory damages, $1.2 million in attorney fees and more than $51,500 in litigation expenses pursuant to 13-6-11.  The attorney fee award aligned with the plaintiff’s fee agreement with Brodhead Law to pay counsel 40% of any compensatory damages award.

With the awarded compensatory damages exceeding plaintiff counsel’s $600,000 settlement offer by more than 125%, Brodhead Law filed a post-trial motion for attorney fees and litigation expenses under 9-11-68.  However, defense counsel opposed the motion on grounds the plaintiff’s settlement offer had not been made in good faith.  They also challenged that an award under 9-11-68 would give Junior a prohibited “double recovery.”

Siding with defense counsel, Mather concluded that allowing the plaintiff “a further award of attorney’s fees would permit a double recovery.”  The trial judge contended 9-11-68 (b) (2) and 13-6-11 contemplated awards based on different conduct, but that the total of attorney fees and litigation expenses used to measure the awards had been ”incurred as to the same cause of action against the same defendant.”

In addition to concluding that the plaintiff had already been “fully compensated” for the entire amount of attorney fees and litigation expenses incurred in the underlying suit, Mather determined 9-11-68 (b) (2) permitted no additional recovery before denying the plaintiff’s motion.  However, Mather did not conduct an evidentiary hearing before issuing his denial, prompting a plaintiff appeal.

Brodhead Law plaintiff counsel teamed with Darrell Hinson of Shiver Hamilton Campbell and Lawrenceville attorney John Wesley Ingram Nichols on appeal.  Across the aisle, Cruser Mitchell defense counsel joined forces with Laurie Webb Daniel and Matt Friedlander of Webb Daniel Friedlander.

Junior’s appellant counsel argued the trial court erred in its determination that the jury award under 13-6-11 precluded the imposition of an award under 9-11-68 (b) (2), but the Georgia Court of Appeals affirmed Mather’s ruling, albeit on a different basis.  The intermediate appellate court rejected the trial court’s rationale that receiving attorney fee and litigation expenses awards under both statutes in the same proceeding amounted to a double recovery.

However, the panel made up of Presiding Judges Sara Doyle and Christopher McFadden and Judge Kenneth Hodges II concluded the plaintiff could not demonstrate entitlement to an award under 9-11-68 (b) (2).  “This is because by the time that Junior filed his motion pursuant to OCGA § 9-11-68 (b), he had no longer ‘incurred’ the $1,251,554.95 in attorney fees for which he was awarded additional damages by the jury—those costs had been compensated,” wrote Doyle in the October 2020 opinion.

After challenging the intermediate appellate affirmation, plaintiff counsel received a decision from the Supreme Court of Georgia in March 2022.  After assessing whether 9-11-68 (b) (2) required the trial court “to deduct from the sanction any amount awarded by the jury as damages under OCGA § 13-6-11,” justices issued a 20-page opinion reversing the Court of Appeals’ affirmation.

“Contrary to the decision of the Court of Appeals, we hold that the statutory schemes at issue do not provide for or compel any such set-off because they address different conduct of the defendant despite using a similar measure—attorney fees and litigation expenses—to calculate their respective amounts,” read the decision written by Justice Charles Bethel. “Accordingly, we reverse the decision of the Court of Appeals and remand this case with direction that the case be remanded to the trial court for reconsideration of the plaintiff’s claim for attorney fees and litigation expenses pursuant to OCGA § 9-11-68 (b) (2) in a manner consistent with this opinion.”

‘Value-Added’ Model

Upon the reversal and remand traveling down from the Court of Appeals to the trial court, Maher held a hearing on plaintiff counsel’s motion for attorney fees on Sept. 22.  After considering supplemental briefs from opposing counsel, Mather issued an order rejecting plaintiff counsel’s motion for attorney fees under 9-11-68.  In determining on remand whether plaintiff counsel made its $600,000 settlement offer in good faith, the trial judge said he couldn’t make a definite determination.

“[T]he Court is unable to say that this offer was not made in good faith.  The amount of Plaintiff’s special damages alone exceeded the amount of available coverage.  While the Court’s visibility into the subjective motivations of Plaintiff are limited on the present record, he was permanently impaired and his ability to continue in his career was severely impacted.  In relation to the damages actually suffered, it therefore appears that $600,000 was objectively reasonable,” Mather’s order read.  “Further, while Defendant contends that the offer was beyond her financial capability to meet, the operative language of the statute gives no indication that the financial circumstances of the parties may be considered in determining whether an offer is made in good faith.”

Mather determined that an award is not precluded by a lack of good faith under 9-11-68(d)(2) but concluded plaintiff counsel had failed to provide “a reasonable basis” for its submitted attorney fee award calculation.

“Plaintiff advances a method of calculation that calculates his contingency percentage, 40 percent, based on the amount ultimately recovered—less the amount offered by either Plaintiff or Defendant pursuant to the procedure of O.C.G.A. § 9-11-68.  Under this ‘value added’ calculation, the contingency rate would be applied against either $4,379,066.87 or $4,879,066.87—which represents a subtraction from the amount ultimately recovered either by the amount offered by Defendant ($100,000) or the amount offered by the Plaintiff ($600,000),” Mather wrote.  “The problem with Plaintiff’s value added model is that this calculation does not necessarily bear any relation to the amount of work actually expended in the case between the time of the settlement rejection and judgment.  Further, while Plaintiff’s counsel testified that ‘roughly a few thousand’ hours were required and pointed to twelve thousand electronic files generated during litigation, these metrics are too imprecise to determine what was reasonably expended during the relevant period.”

Based on testimony from a defense expert, Mather concluded plaintiff counsel had “reasonably spent” 780 hours in its prosecution of the case ”at a reasonable rate of $495 per hour.”  “With expenses of $37,936.46, the amount hereby awarded by the Court is therefore $424,036.46,” Mather ordered.

‘Direction From the Supreme Court Is Needed’

When reached for comment about the trial ruling, plaintiff counsel Brodhead noted the disparate trial and appellate court rulings.  “This case again shows that direction from the Supreme Court is needed. Rulings from the trial courts and the Court of Appeals are inconsistent,” Brodhead told the Daily Report. “Here, the defense argued for, and the trial court followed, the Lodestar method of multiplying hours times rates to reach its decision. Georgia law, however, specifically disapproves the use of that method.”

He reiterated that 9-11-68(b) “required the fees to be measured by the fees ‘incurred’ by the plaintiff.”  “In this case, the ruling from the trial court did not follow the methodology mandated by the statute, and the judgment bears no resemblance to the actual fees that were incurred by Plaintiff Junior,” Brodhead said. “Plaintiff Junior did not incur fees based on an hourly rate at all; he incurred fees based on a contingency, and those fees, which have already been paid, exceeded $2,000,000.”

He maintained that the plaintiff should be entitled to the recovery of the attorneys’ fees he incurred after the defendant rejected his offer of settlement.  “We believe that, if presented to the Supreme Court, the Supreme Court would mandate that the plain language of the statute be followed,” Brodhead told the Daily Report. “We believe clear direction from the Supreme Court would help provide consistency in the application of the law.”

Tesla Calls $230M Fee Request in Derivative Case ’Unreasonable’

October 5, 2023

A recent Law 360 story by Rose Krebs, “Tesla Calls $230M Fee Bid For Pay Suit Deal ‘Unreasonable’”, reports that Tesla is opposing a $230 million attorney fee request in connection with the proposed settlement of a shareholder suit in Delaware Chancery Court that accuses company directors of pocketing excessive compensation, asserting the request is "demonstrably unreasonable."

In a brief, Tesla, the nominal defendant in the derivative suit, took aim at the bid for $229.6 million in attorney fees and roughly $1 million in legal expenses by the plaintiff, the Police and Fire Retirement System of the City of Detroit. Tesla argued that no more than $64 million should be awarded "based on the actual monetary benefit conferred to Tesla."

Tesla says the pension fund's counsel, in a filing in support of the request, misstated "the purported benefit of the settlement," in part, by improperly including "the value of options that the director defendants agreed to forgo in 2021, 2022, and 2023 (estimated at about $184 million)."

"But nothing was paid by Tesla to the director defendants for those years, and nothing is being returned to Tesla as part of this settlement," Tesla contends.  "Plaintiff's counsel offer only hypothetical scenarios about what the director defendants could have been paid if they had not forgone compensation those years.  But they did."  Tesla argues that the pension fund's counsel "offer no authority for including a hypothetical amount, premised on a counter-factual, in the 'benefit conferred' denominator."  "Tesla will receive no benefit from the forgone compensation, so it should not be included in the calculation of the fee award," the filing said.

In a brief made public last month, the pension fund argued that the settlement, which has yet to be approved by the court, is valued at $919 million, including roughly $735 million in shares, stock options and cash to be returned by director defendants and the elimination of three years of compensation for 2021 to 2023 that is "conservatively valued" at roughly $184 million.

The pension fund asserted that the proposed deal is "the largest derivative claim settlement in" the Chancery Court's history and "the second-largest settlement of any kind behind only In re Dell Technologies Class V Stockholders Litigation."  In July, the Chancery Court approved a $266.7 million fee award for the Dell shareholder suit settlement.

In its filing, the pension fund said that "the $735,266,505 returned compensation alone captures 45% to 99% of possible trial damages, depending on what the court would deem 'fair,' as opposed to 'excessive,' compensation."  "The settlement fairly balances the strengths and trial risks of the claims," the pension fund argued.  Also, the proposed deal "delivers strong shareholder value," and thus, an award equal to 25 percent of the $919 million "monetary benefit" is reasonable, the pension fund said.

But in the filing, Tesla said the "actual total benefit conferred to Tesla by this settlement" is actually about $295 million.  In addition to arguing that the $184 million should not have been included in calculating the fee bid, Tesla takes issue with the $735 million valuation of stocks, options and cash to be returned.

In its brief, the pension fund applied the $184 million value for the eliminated compensation to calculate the fee request.  Tesla argues that the amount should not be included and also takes aim at the $735 million valuation.  "In quantifying the purported benefit of this settlement, plaintiff's counsel seem to forget who they represented in this action," Tesla contends.  "Plaintiff's counsel are entitled to a reasonable percentage of the monetary benefit conferred to Tesla.  Plaintiff's counsel misstate the purported benefit of the settlement as $919 million."

As the nominal party represented in the litigation, Tesla is set to receive only "about $19.9 million for the returned options" and about $276 million in returned cash and stock, the filing asserts.  Tesla said it "does not dispute that it will receive a benefit of approximately $276 million from the returned cash/stock," but argues the almost $459 million valuation for the returned options is wrong.

"However, unlike the returned cash/stock, which has a recognizable value to Tesla, the returned options cannot be monetized, which necessarily impacts the analysis of the benefit conferred to Tesla," the company contends.  The formula used to calculate the value of the returned options was flawed as Tesla will not in fact be able to exercise the options to get the value set forth in the settlement, the company says.  "The value of an option in the hands of a director defendant is not the same as the value of that option in the hands of Tesla," the company said.

"The requested fee award would amount to about 78% of the actual benefit conferred to Tesla — or about $229 million of $295 million, with Tesla keeping only 22% of that benefit," the company argues.  "That request is demonstrably unreasonable.  No Delaware court has awarded a fee at that percentage."

Ninth Circuit Affirms Fee Reduction in Class Settlement

August 15, 2023

A recent Law 360 story by Rachel Riley, “9th Circ. Oks Fee Cut In Progressive Deal Over Totaled Cars”, reports that a Ninth Circuit panel ruled that a lower court had the discretion to decide a $5 million fee request was unreasonable in a class action in which Progressive Direct Insurance Co. was accused of shortchanging Washington state policyholders for totaled vehicles, upholding the revised $1.1 million award.  Rejecting the lead plaintiff's argument that the fees should have been calculated as a percentage of the entire $19.2 million settlement fund, the three-judge panel said the lower court didn't overstep its authority by basing the fees on the amount expected to go to the class after just one-fifth of members filed claims.

In a four-page unpublished memorandum, the panel pointed to the trial judge's "broad discretion to determine the reasonableness of attorney fees" under Washington law.  Ameenjohn Stanikzy sued Progressive in January 2020, claiming the company had paid him and other automobile policyholders less for total vehicle losses than their policies entitled them to under Washington law.

Represented by Stephen M. Hansen of the Law Offices of Stephen M. Hansen PS and Scott P. Nealey of the Law Office of Scott P. Nealey, Stanikzy contended the class and Progressive had negotiated the nearly $20 million fund size as the maximum amount that could be claimed under the deal and agreed up to 26%, or about $5 million, would be paid in attorney fees.

U.S. District Judge Barbara Rothstein denied that request in June last year, explaining only about 5,600 of 28,500 identified class members filed a claim before the deadline.  She reasoned the settlement should be 26% of $4.26 million, her estimation of the "actual benefit conferred on the class" based on the number of claims filed.  The $19.2 million total is a theoretical maximum, Judge Rothstein added, because the agreement clearly states that any portion not claimed by class members or spent on class costs will remain in Progressives' possession.

Progressive took no position on the appeal, according to a brief it filed in the Ninth Circuit, and said the attorney fee challenge does not affect the terms of the deal.  The appellate panel said Judge Rothstein had adequately explained how she weighed competing factors in her calculation. 

The panel noted the judge "observed that the requested fee would dwarf the class recovery; that a comparison to the lodestar amount of $390,000 showed that class counsel's requested award of $5 million was unreasonable; and that class counsel achieved 'good' but not 'exceptional' results for the class in litigation that was active for scarcely over a year and never even reached the class certification stage."

According to Judge Rothstein's ruling, Hansen reported spending nearly 140 hours on the litigation at a $300 hourly rate for himself and a $100 hourly rate for a paralegal.  Nealey's time records showed he spent about 330 hours on the case at hourly rates of up to $1,000, Judge Rothstein noted.

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