A recent Commercial Litigation Insider story, “Ramos Questions Firm’s Billing Judgment in Reducing Fees,” reports that an attorney’s request for more than $1,000 an hour in fees to settle a shareholder class action suit would be “an unwarranted windfall,” Manhattan Supreme Court Justice Charles Ramos said in a decision that slashed the fee request by one-third.
The case, William Schumacher v. NeoStem, was settled seven days after the complaint was filed in the Commercial Division in September 2012. It sought to enjoin a shareholder vote on a proposal to amend an executive compensation plan and alleged breach of fiduciary duty. A stipulation of settlement was executed on March 28, 2013.
Despite this brief period, Juan Monteverde, a partner at Faruqi & Faruqi representing the class, claimed that negotiations leading to the settlement and the purported benefits it produced for his clients warranted attorney fees of $477,817 for 455.25 hours of work. That works out to an hourly rate of roughly $1,043.
Monteverde’s figure includes a multiplier of 1.75. A multiplier is used when the standard lodestar method, which computes fees by multiplying reasonable hours expended by a reasonable hourly rate, does not suffice to cover factors as novelty and complexity of the issues, quality of representation, preclusion from other work as a result of the representation and level of success achieved on behalf of a client.
In motion papers, Monteverde said that his efforts to compel biopharmaceutical NeoStem to adopt resolutions that would improve board and shareholder oversight of executive compensation required the kind of legal maneuvering to justify the fee enhancement. The attorney cited the complexity of the issues, expedited work performed ahead of a shareholder vote at a scheduled annual meeting on Oct. 5, 2012, the success of settlement negotiations that prevented further litigation, the contingency fee agreement and corporate governance measures he help secure.
In approving the terms of the settlement, Judge Ramos reduced plaintiffs’ fees to $125,000. The judge wrote that an in camera review of the billing records showed it was “evident that a great deal of the expenses could have been avoided.” For instance, he said the records reflected a “duplication of services,” including 22.5 hours billed by a partner and associate each for drafting the complaint alone and 19.2 hours billed by two partners each to edit the complaint, plus 6.75 hours billed for paralegals to “deliver courtesy copies of motion papers to chambers.”
Ramos was also not convinced that the case rose to the level of complexity that warranted a fee enhancement. “While it is widely acknowledged that the securities class action is by its very nature a ‘complex animal,’ the complexity of the underlying issues of executive compensation do not appear extraordinary,” he said.
The adjusted fees amount of $125,000 equates to $274 per hour. According to motion papers, Faruqi & Faruqi uses a blended hourly rate of approximately $650 for partners and $416 for associates.