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Second Circuit Affirms $20M Fee Award for Madoff Investor Class Counsel

July 7, 2020 | Posted in : Contingency Fees / POF, Fee Award, Fee Award Factors, Fee Calculation Method, Fee Cap / Fee Limits, Fee Issues on Appeal, Lodestar, Practice Area: Class Action / Mass Tort / MDL

A recent Law 360 story by Dean Seal, “2nd Circ. Oks $20M Award For Madoff Investor Class Attys” reports that the Second Circuit rejected the last objection to a nearly $20 million fee award for counsel of an investor class that received a $1 billion settlement for money lost through Bernard Madoff's Ponzi scheme.  The appellate panel said aspects of the objection, which contended that class counsel was being compensated for work unconnected to the case, were "plainly untrue" and went beyond the scope of what the Second Circuit had mandated when it sent the award back to a New York federal judge in 2017 for revision of the award's lodestar multiplier.

"There is also no cogent reason for this court to revisit our earlier order affirming all but the lodestar multiplier cap in the 2015 attorneys' fee award," the appellate judges said.  The order affirmed the $19.9 million award for Entwistle & Cappucci LLP, Hagens Berman Sobol Shapiro LLP and Bernstein Liebhard LLP, firms that represented investors in the $1 billion deal known as the Tremont Fund settlement.

Tremont Group Holdings Inc., part of Massachusetts Mutual Life Insurance Co., was the second-largest Madoff feeder fund.  The $1 billion settlement Tremont reached with investors in 2011 stemmed from allegations by trustee Irving Picard that the company continued to pour money into Bernard L. Madoff Investment Securities LLC despite obvious red flags.

In August 2015, U.S. District Judge Thomas Griesa issued an oral order approving a complex plan of allocation to the plaintiffs that included a 3% fee award for the plaintiffs' counsel, capped at 2.5 times the lodestar.  Based on the size of the settlement fund at the time, the award would have been $18.7 million and capped at about $40 million.  Several Tremont investors objected to the plan and the fee request, in particular, on the grounds that there was little risk involved in reaching the settlement and because class counsel had already received substantial fees from a previous settlement in the litigation.

Judge Griesa rejected those objections, and in June 2017, the Second Circuit upheld his ruling on the settlement distribution but remanded the fee award, saying the lodestar multiplier was not justified by the "limited risk" plaintiffs' counsel had run.  After Judge Griesa's death in December 2017, the case was remanded to a different New York federal court, which asked a federal magistrate judge to issue a report.

The report, issued in February 2019, said that while plaintiffs' counsel was now requesting a lodestar of 1.67, which would produce a $33.2 million fee cap, the magistrate judge found that the risk factors did not justify any modifier and set the cap at approximately $19.9 million.  A group of Tremont investors filed a new objection to the fees, arguing new evidence provided last year showed that 75% of the fees Judge Griesa used to calculate the lodestar were for work unconnected with the fund distribution.  But class counsel argued that the Second Circuit had rejected those claims and had remanded solely to recalculate the lodestar multiplier cap.

U.S. District Judge Colleen McMahon followed the report's recommendation and agreed that the only reason the case had been remanded was to revise the lodestar cap downward.  On appeal, the Second Circuit reached the same conclusion, saying that its 2017 order only took issue with the lower court's "failure to account for the lack of contingency risk involved in the litigation, finding 'no merit in appellants' other arguments.'"  "We did not instruct the district court to determine whether the hours included in lead counsel's lodestar related only to [fund distribution]," the judges said.  "Consequently, doing so would have exceeded the scope of our mandate.