A recent Thomson Reuters story, “Plaintiffs’ Lawyers to Receive all the Cash in Moody’s Derivative Settlement,” reports that plaintiffs’ firms asked U.S. District Judge George Daniels of Manhattan to grant final approval to the settlement and fee award in the consolidated shareholder derivative litigation against Moody’s. Moody’s agreed to settle the case last month, in a deal that requires the rating agency to institute corporate governance reforms. If approved, the $4.95 million may well be the only cash Moody’s shells out in any of the shareholder litigation accusing the agency of misrepresenting its role in rating subprime mortgage-related securities.
Moody’s settlement of five derivative suits would provide for governance provisions aimed principally at promoting “independence, rigor, professional skepticism, and credit judgment” in the agency’s credit rating processes, according to the motion to approve the accord filed in court. Plaintiffs’ lawyers argued that the reforms would address core claim in their suit that Moody’s failed to properly manage the quality and independence of its ratings because issuers of mortgage-backed securities paid the agency to rate their offerings.
Co-lead plaintiffs’ lawyer Richard Greenfield of Greenfield & Goodman said the settlement was notable, given the tough standards derivative plaintiffs have to meet in litigation, in addition to the difficulty of pursuing claims against rating agencies, which have largely avoided liability in the financial crisis. Greenfield said the corporate governance reforms Moody’s agreed to adopt are worth a lot to shareholders and justify the fee request. “The nature of the relief is of substantial value,” he said.
The plaintiffs’ firm asserted in their fee request (pdf) that they would have earned $15.8 million had they billed by the hour. They argued that $4.95 million is a “modest fraction” of those hourly billings, so the fee award is “presumptively reasonable.” The plaintiffs’ lawyers cited at least four derivative cases in which larger fee requests have been approved, including a 2008 case against Home Depot in which a Georgia state court awarded $14.5 million to Robbins Geller Rudman & Dowd.