fifteen percent." Toshiba, 91 F. Supp.2d at 972, 989.
This Court finds from the factors considered — (1) the fee set by
the "market"; (2) the quality of result and representation; and (3)
awards in other settlements — 8.275% to be an appropriate and
Traditionally, the "appropriate" percentage is then subjected to a
cross-check. See General Motors, 55 F.3d at 820. This takes the form of a
lodestar analysis to determine whether the contemplated fee is reasonable
in comparison to the hours expended on the case. Id. The Court finds no
need to do this.
Another, more accurate and more realistic benchmark of reasonability
exists — the fee set by competitive bids in the Court's September
1998 auction. Chief Judge Posner has written, "The object in awarding a
reasonable attorney's fee . . . is to give the lawyer what he would have
gotten in the way of a fee in an arm's length negotiation . . . . the
object is to simulate the market." In re Continental, 962 F.2d at 572.
The paragon of reasonableness is the lowest qualified fee available on
the open market. The auction process embodies this concept by moving the
market-based analysis from the theoretical to the actual. See In re
Cendant Corp. Litig., 182 F.R.D. 144, 150 (D.N.J. 1998) ("[T]he most
effective way to establish reasonable attorney fees is through
marketplace (which this Court terms, adversarial) competition."). The
winner (whose bid was matched by Lead Counsel) "has already offered the
lowest price [for his or her services] in a competitive market." See
Coffee Decl. at ¶ 43. Absent circumstances of bid collusion, bad
faith, inadequate numbers of qualified bidders or some other infirmity in
the auction process, no cross-check is warranted.
To reduce the fee award set by auction would be antithetical to the
Task Force's recommendation that a fee agreement be reached early in the
litigation and not later re-adjusted once recovery is known. 108 F.R.D.
at 257-58 ("the amount of work performed will not be permitted to alter
the [pre-determined] contingent fee"). Such is consistent with this
Court's reasoning that attorneys should not be rewarded for taking longer
to solve a problem nor penalized for expending shorter time.*fn9
Recently, the Third Circuit repeated its approval of pre-determined
fees. See Gunter v. Ridgewood Energy Corp., 2000 WL 1038142, at *11 n. 6
(3d Cir. July 27, 2000) (Becker, J.) ("We note that the district courts
can avoid many of the complications associated with fee awards by setting
fee guidelines and ground rules early in the litigation process. Such
ground rules may include: developing means of record keeping that
facilitate judicial review. . . . Another approach is for the district
court to determine the fee arrangement in advance through competitive
bidding. This device appears to have worked well, and we commend it to
district judges within this circuit for their consideration." (citing,
inter alia, In re Cendant) (emphasis added)); see also In re Cendant
Corp. Litig., 182 F.R.D. 144, 151 (D.N.J. 1998) ("The Court need not be
compelled to learn by hindsight — to be told at the end of months
or years of litigation, `this is what we seek for services rendered.'").
Consequently, this Court will not adjust the pre-set fee award nor will
it abandon this approach because the fee scale used provided for an
increasing, rather than decreasing, percentage of settlement. In the
past, certain courts have operated on the assumption that "economies of
scale" warrant reducing fee awards as the size of a recovery increases.
See, e.g., In re Prudential, 148 F.3d at 339. As stated by the Third
Circuit: "The basis for this inverse relationship is the belief that
`[i]n many instances the increase [in recovery] is merely a factor of the
size of the class and has no direct relationship to the efforts of
counsel.'" Id.; see also In re NASDAQ, 187 F.R.D. at 486 ("It is
generally not 150 times more difficult to prepare, try and settle a $150
million case than it is to try a $1 million case."). It is respectfully
suggested that this analysis fails to account for the fact that,
realistically, the first dollars offered in settlement are the simplest
to achieve; the difficulty lies in getting a defendant to increase its
initial offer. E.g., ABA, Formal Opinion 94-389 § J ("it is the last
dollars . . . of recovery that require the greatest effort and/or ability
on the part of the lawyer"). Moreover, the increase in fee percentage as
recovery increases was designed to stimulate counsel to strive for
ever-increasing recovery. See In re Cendant Corp. Litig., 191 F.R.D.
387, 390 (D.N.J. 1998) (the chosen bidder's fee schedule should
"represent a realistic incentive to pursue a determined resolution of
the plaintiffs' cause at a reasonable cost"); see also id. (lowest
qualified bid, bidder 9 of 12, "represents a fee calculated to engender
and maintain counsel's pursuit of the optimum recovery for the
plaintiffs"). The amount of settlement here surprised all of the class,
including present objectors. The Court is also unwilling to sanction
"economies of scale" timidity. Rather, the Court is of like mind with
Judge Katz's pragmatic observations:
[T]he court is well aware that most decisions
addressing similar settlement amounts have adopted
some variant of a sliding fee scale, by which counsel
is awarded ever diminishing percentages of ever
increasing common funds. This court respectfully
concludes that such an approach tends to penalize
attorneys who recover large settlements. More
importantly, it casts doubt on the whole process by
which courts award fees by creating a separate,
largely unarticulated set of rules for cases in which
the recovery is particularly sizeable. It is difficult
to discern any consistent principle in reducing large
awards other than an inchoate feeling that it is
simply inappropriate to award attorneys' fees above
some unspecified dollar amount, even if all of the
other factors ordinarily considered relevant in
determining the percentage would support a higher
In re Ikon, 194 F.R.D. at 196 (emphasis added).
To repeat, this Court finds no need whatsoever to ignore or modify the
"benchmark of reasonableness" — the September 1998 auction result.
Not one objection was made then to the actual process, the number and
quality of the bidders, their bids, and the Court-specified conditions.
True, New York City comes now to object to the legal underpinnings of the
auction — but does not challenge the breadth and quality of those
who participated in it.
The Court, in September 1998, decided that under the PSLRA, the Court
is charged with ensuring that Lead Plaintiff is capable of pursuing the
class's claims with vigor and that qualified counsel is chosen who will
charge "the best rates for the class." See In re Cendant Corp. Litig.,
182 F.R.D. 144, 145-46, 150-52 (D.N.J. 1998) (citing
15 U.S.C. § 77z-1(a)(3)(B)(iii)(I) (lead plaintiff presumption is
rebuttable) & § 77z-1(a)(3)(B)(v) (selection of counsel subject to
court approval)). The Court therefore set an auction framework for
determining the lowest attorneys fees obtainable in the Cendant action.
of the auction, the city was on notice that the "lowest qualified bidder"
determined by the Court would be appointed Lead Counsel, unless counsel
previously chosen by the co-Lead Plaintiffs "matched" the bid. Neither the
city nor other co-Lead Plaintiffs raised an objection to that ruling when
issued even after the Court allegedly informed the city that the auction
results would supersede any other previous fee arrangement. See Pugh
Decl. at ¶ 19 (retainer agreement would be "in full force and effect
except as to the [fee] grid, for which [the Court] would substitute the
results of the court auction").
The city now appears as a fee objector. Its other co-Lead Plaintiffs,
the New York State Common Retirement Fund and the California Public
Employees' Retirement System, make no objection. The city argues that
given the $3.1 billion recovery, the fee set in the retainer agreement
signed by Lead Counsel is lower than the fee set by auction. See Pugh
Decl at ¶ 17. The retainer fee set a decreasing
percent-age-of-recovery fee as recovery increased; the fee set by the
Court escalates. The "crossover point" — the amount of recovery
where the fee set by auction exceeds than that set by retainer agreement
— is $1.263 billion. Weiss Aff. at ¶ 27(e)(v); Pugh Aff. Ex. D
(grid comparing auction and retainer agreement fees). It is only now that
the actual recovery is known that the two fee schedules can be evaluated
to see which one results in the lowest fee. At a $3.1 billion
settlement, the fee set by auction is $262 million; by retainer $186
The city states: "Only in hindsight do we know that the Court's grid
did not produce the lowest fee structure." Pugh Decl ¶ 19. This
argument is off-target. The purpose of the auction was to obtain the
legal market's lowest qualified bid through adversarial competition at
the onset of litigation. And it did. The city's fee analysis is precisely
the after-the-fact reevaluation of the fee that the Court sought to
prevent by setting the fee scale while the size of recovery was unknown.
See, e.g., In re First Fidelity Bancorp. Securities Litig.,
750 F. Supp. 160 (D.N.J. 1990) ("The percentage of recovery should be
negotiated and fixed while the risks and amount of recovery are still
unknown"); Task Force Rep. at 255-56 ("the district court, on motion or
its own initiative and at the earliest practicable moment, should attempt
to establish a percentage fee arrangement"). The post hoc comparison
advanced by the city, in the words of Judge Sarokin, is "akin to placing
a wager after the outcome of the event is known or playing poker with
everyone's cards face up." First Fidelity, 750 F. Supp. at 163.
Here the city did not attempt to enforce the grid set out in the
retainer agreement anytime before "the outcome of the event [was] known."
This objection based entirely on the benefit of 20-20 hindsight will not
be accepted. The Court again notes that neither of the other two co-Lead
Plaintiffs seeks to enforce the retainer agreement. This lends credence
to Lead Counsel's argument that co-Lead Plaintiffs understood that the
fee set by auction superseded any earlier fee arrangement.
The city's remaining arguments — use of lodestar to cross-check
the fee; its reliance on In re Prudential; and the role of Lead Plaintiff
— have been addressed. This Court affirms its use of an auction
process to set attorneys' fees under the PSLRA:
As mentioned, the Court acknowledges lead plaintiffs'
statutory opportunity [to choose counsel]. However,
whether under the present statute or earlier
discipline, the Court is the final arbiter of fees
sought by successful plaintiffs' lawyers in this
action. See Fed.R.Civ.P. 23(e);
15 U.S.C. § 77z-1(a)(6). The mechanism of an
auction gives to the Court a measure of needed
foresight to meet its obligations to members of the
group. The Court need not be compelled to learn by
hindsight — to be told at the end of months or
years of litigation, "this is what we seek for
The Court is required to protect the interests of
all members of the class. If Congress had intended
otherwise with its PSLRA, it could have easily
permitted lead plaintiff to designate and retain
counsel without judicial approval. It did not.
In re Cendant, 182 F.R.D. at 151.
Throenle and Schonbrun
Throenle's objection that the fee request is premature ignores the
clear statement in the settlement notice that "[a]t the conclusion of the
Settlement Hearing . . . Lead Counsel will apply" for fees. Notice ¶
Her objection that Cendant and E & Y should pay the fees ignores the
provision in the settlement agreement that all sides are to bear their own
legal costs. Notice ¶¶ 23-25.
Schonbrun's assertion that detailed time records should be filed has
been addressed in the Court's discussion of lodestar. In re Prudential
held that a district court does not abuse its discretion to not require
the submission of detailed time records. 148 F.3d at 342. Finally, his
objection to the Lazard Frères fee is rejected because the
investment bank provided needed services to the class. See Garner Decl;
Section G, below.
Lead Counsel have submitted affidavits which set out their own expenses
and those incurred by experts they hired to facilitate litigation and
settlement negotiation. The experts have also supplied the Court with
declarations which detail their efforts on behalf of the class. Counsel's
use of the experts, particularly Lazard Frères, is also set out in
the companion opinion assessing settlement. "There is no doubt that an
attorney who has created a common fund for the benefit of the class is
entitled to reimbursement of . . . reasonable litigation expenses from
that fund." Lachance v. Harrington, 965 F. Supp. 630, 651 (E.D.Pa.
The bulk of counsel's expenses relate to the use of Lazard
Frères, whose fee correlates to the amount of recovery in the
Cendant settlement. This investment bank was selected by Lead Counsel
using an auction process to find the best expert at the lowest cost to
the class. Joint Decl. at ¶ 152. Lead Counsel discussed the necessity
for and retention of such experts informally with the Court early on. The
Court had no objection then and none now. It expected competent counsel
to seek competent assistance, if required, in a case of this magnitude.
According to Lead Counsel, the analysis prepared by Lazard Frères
"assisted significantly in settlement negotiations . . . . and were
significant in Lead Plaintiffs' decision to agree to the Cendant
settlement." Joint Decl. ¶ 120, ¶¶ 112-19, 151-54 (detailing
efforts of experts); see also Garner Aff. The expertise of Forensic
Economics, Marks Paneth, and Arthur S. Ainsberg also were necessary to
the successful negotiation.