2006 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-20-2006

In Re: AT&T

Precedential or Non-Precedential: Precedential

Docket No. 05-2727

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 PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 05-2727 & 05-2728

IN RE: AT&T CORPORATION

SECURITIES LITIGATION

MARION WASHBURN

and WILLIAM A. HOFFMANN, III,

Class Members and Objectors,

Appellants at No. 05-2727

JACQUELYNN D. FRAME

and DONALD J. FRAME,

Class Members and Objectors,

Appellants at No. 05-2728

On Appeal from the United States District Court

for the District of New Jersey

MDL Docket No.1399

D.C. Civil Action Master File No. 00-cv-5364

(Honorable Garrett E. Brown, Jr.)

Argued April 24, 2006
 *

The Honorable William H. Yohn Jr., United States District

Judge for the Eastern District of Pennsylvania, sitting by

designation.

2

Before: SCIRICA, Chief Judge,

NYGAARD, Circuit Judge, and YOHN, District Judge*

(Filed July 20, 2006)

EDWARD F. SIEGEL, ESQUIRE (ARGUED)

5910 Landerbrook Drive, Suite 200

Corporate Center II

Cleveland, Ohio 44124

STEPHEN TSAI, ESQUIRE

941 East Main Street

Bridgewater, New Jersey 08807

Attorneys for Appellants,

Marion Washburn, William A. Hoffmann, III,

Jacquelynn D. Frame and Donald J. Frame

KENNETH E. NELSON, ESQUIRE

2900 City Center Square

1100 Main Street

Kansas City, Missouri 64105

Attorney for Appellants,

Marion Washburn and William A. Hoffmann, III
3

ROY B. THOMPSON, ESQUIRE

Thompson & Bogran

15938 Southwest Quarry Road, Suite B-6

Lake Oswego, Oregon 97035

Attorney for Appellants,

Jacquelynn D. Frame and Donald J. Frame

SANFORD SVETCOV, ESQUIRE (ARGUED)

Lerach, Coughlin, Stoia, Geller, Rudman & Robbins

100 Pine Street, Suite 2600

San Francisco, California 94111

Attorney for Appellees,

International Brotherhood of Electrical Workers

of America, Local 98, The New Hampshire Retirement

System, Robert Baker, Mohammed Karkanawi,

Mauline Karkanawi, and Secure Holdings, Inc.

RACHEL B. NIEWOEHNER, ESQUIRE (ARGUED)

DAVID F. GRAHAM, ESQUIRE

Sidley Austin

One South Dearborn Street

Chicago, Illinois 60603

Attorneys for Appellees,

AT&T Corporation and C. Michael Armstrong
 1

The International Brotherhood of Electrical Workers Local

98 Pension Fund was later appointed as an additional lead

plaintiff.

4

OPINION OF THE COURT

SCIRICA, Chief Judge.

This is a consolidated appeal by four objectors to an

award of attorneys’ fees in the settlement of a securities fraud

class action. The District Court approved the settlement

agreement, including the attorneys’ fees provisions. We will

affirm.

I.

On October 27, 2000, several plaintiffs filed federal

securities fraud actions, alleging the AT&T Corporation and its

principal executives violated Securities and Exchange

Commission Rule 10b-5 and §§ 10(b) and 20(a) of the Securities

Exchange Act of 1934. They alleged defendants made

knowingly false statements between October 25, 1999, and May

1, 2000, about AT&T’s anticipated performance for the year

2000 to artificially inflate the company’s stock price. The

District Court appointed the New Hampshire Retirement

System, Secure Holdings, Inc., Robert Baker, Mohammed

Karkanawi, and Mauline Coon as lead plaintiffs,1

 and approved
5

their retained counsel as lead counsel. Plaintiffs filed a

consolidated complaint on February 14, 2001.

Defendants filed a motion to dismiss. On January 30,

2002, the District Court denied the motion with respect to the §

10(b) claims against AT&T and its Chief Executive Officer and

Board Chairman, C. Michael Armstrong, granted the motion

with respect to all claims against other individual defendants,

and certified a class. After two years of discovery, including 80

depositions, the District Court granted partial summary

judgment for defendants, but concluded a disputed issue of fact

existed with respect to whether Armstrong’s statements made at

a December 6, 1999 analyst conference—projecting 9% to 11%

revenue growth for AT&T’s Business Services Unit in

2000—were made with actual knowledge of their falsity. 

Trial began on October 5, 2004. The jury was selected

and impaneled, the parties gave opening statements, and

plaintiffs called eleven witnesses. After eight days of jury trial,

at the suggestion of the District Judge, the parties began

discussing settlement options. Negotiations were successful and

the parties entered a tentative settlement agreement. Under the

agreement, AT&T agreed to pay the class $100 million by May

1, 2005, in return for complete release of the class’s claims. As

soon as the funds were deposited into escrow, attorneys’ fees

and expenses would be paid to class counsel in an amount equal

to 21.25% of the settlement fund ($21.25 million), in addition to

costs and expenses of $5,465,996.79. The 21.25% fee resulted

from a sliding scale formula negotiated between lead counsel
6

and the lead plaintiff New Hampshire Retirement Systems at the

beginning of the case. The formula provided attorneys’ fees

would equal 15% of any settlement amount up to $25 million,

20% of any settlement amount between $25 million and $50

million, and 25% of any settlement amount over $50 million.

The plan of allocation required class members to submit claim

forms by March 9, 2005. Neither the settlement agreement nor

the plan of allocation specified a timeline for payments to class

members. Class members have not yet been paid.

On October 26, 2004, the District Court granted

preliminary approval of the settlement agreement. Notice was

mailed to more than one million potential class members, eight

of whom filed objections, including appellants Marion

Washburn, William A. Hoffman III, Jacquelynn D. Frame, and

Donald J. Frame. The objections related to the attorneys’ fees

provisions, the form of notice, and certain ERISA claims. There

were no objections to the settlement amount. On February 28,

2005, the District Court held a fairness hearing and on April 25,

2005, issued a memorandum opinion granting final approval of

the settlement agreement, including the attorneys’ fees

provisions. The District Court denied objectors’ motion for

reconsideration. 
 2

Of the other four original objectors, two withdrew their

objections prior to the District Court’s decision, and two do not

appeal.

7

Washburn, Hoffman, and the Frames now appeal,2

contending the award of attorneys’ fees and expenses is unfair

and unreasonable because (1) it is excessive, (2) it employs a

sliding scale that provides for the fee percentage to increase

rather than decrease as the settlement amount increases, and (3)

it provides for payment of the full amount of attorneys’ fees

before class members will receive payment. Objectors ask that

fees be reduced to 15% of the settlement fund, in addition to

requested costs and expenses, and that the pay-out be staged,

with the final installment withheld until class members have

been paid. 

II.

The District Court exercised jurisdiction over this federal

securities fraud action under 28 U.S.C. § 1331. We have

jurisdiction to review the District Court’s decision under 28

U.S.C. § 1291.

We review a district court’s award of attorneys’ fees in

a securities class action for abuse of discretion. In re Rite Aid

Corp. Sec. Litig., 396 F.3d 294, 299 (3d Cir. 2005). “The

standards employed calculating attorneys’ fees awards are legal

questions subject to plenary review, but ‘[t]he amount of a fee

award . . . is within the district court’s discretion so long as it

employs correct standards and procedures and makes findings
 3

The billing rate should be a blended billing rate of all

attorneys who worked on the matter, In re Rite Aid Corp. Sec.

Litig., 396 F.3d 294, 306 (3d Cir. 2005), and should be

reasonable in light of “the given geographical area, the nature of

the services provided, and the experience of the attorneys.” Id.

at 305. 

8

of fact not clearly erroneous.’” Id. (quoting Pub. Interest

Research Group of N.J., Inc. v. Windall, 51 F.3d 1179, 1184 (3d

Cir. 1995)). We require district courts “to clearly set forth their

reasoning for fee awards so that we will have a sufficient basis

to review for abuse of discretion.” Rite Aid, 396 F.3d at 301. 

III.

A.

Attorneys’ fees are typically assessed through the

percentage-of-recovery method or through the lodestar method.

See id. at 300. The percentage-of-recovery method applies a

certain percentage to the settlement fund. See In re Cendant

Corp. PRIDES Litig., 243 F.3d 722, 732 n.10 (3d Cir. 2001).

The lodestar method multiplies the number of hours class

counsel worked on a case by a reasonable hourly billing rate for

such services.3

 See id. at 732 n.11. 

In common fund cases such as this one, the percentageof-recovery method is generally favored because “it allows

courts to award fees from the fund ‘in a manner that rewards

counsel for success and penalizes it for failure.’” Rite Aid, 396
 4

“The multiplier is a device that attempts to account for the

contingent nature or risk involved in a particular case and the

quality of the attorneys’ work.” Rite Aid, 396 F.3d at 305–06

(footnote omitted). Accordingly, when used as a cross-check in

a common fund case, the lodestar calculation can be adjusted to

account for particular circumstances, such as the quality of

representation, the benefit obtained for the class, the complexity

and novelty of the issues presented, and the risks involved. See

Gunter v. Ridgewood Energy Corp., 223 F.3d 190, 195 n.1 (3d

Cir. 2000). In statutory fee-shifting cases, “the Supreme Court

has held that courts may not increase the lodestar amount in

consideration of the attorney’s contingent risk when calculating

a fee.” Brytus v. Spang, 203 F.3d 238, 243 (3d Cir. 2000).

“‘Although upward adjustments of the lodestar figure are still

permissible, such modifications are proper only in certain rare

and exceptional cases, supported by both specific evidence on

the record and detailed findings by the lower courts.’” Id.

(quoting Pennsylvania v. De. Valley Citizens’ Council for Clear

Air, 478 U.S. 565 (1986)).

9

F.3d. at 300 (quoting In re The Prudential Ins. Co. of Am., 148

F.3d 283, 333 (3d Cir. 1998)). But we have recommended that

district courts use the lodestar method to cross-check the

reasonableness of a percentage-of-recovery fee award. See Rite

Aid, 396 F.3d at 305; Prudential, 148 F.3d at 333. The crosscheck is performed by dividing the proposed fee award by the

lodestar calculation, resulting in a lodestar multiplier.4

 “[W]hen

the multiplier is too great, the court should reconsider its
10

calculation under the percentage-of-recovery method, with an

eye toward reducing the award.” Rite Aid, 396 F.3d at 306. The

lodestar cross-check, while useful, should not displace a district

court’s primary reliance on the percentage-of-recovery method.

See id. at 307.

In Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975), we set

forth factors a district court should consider when reviewing a

proposed class action settlement. The Girsh factors are: 

(1) the complexity, expense and likely duration of

the litigation; (2) the reaction of the class to the

settlement; (3) the stage of the proceedings and

the amount of discovery completed; (4) the risks

of establishing liability; (5) the risks of

establishing damages; (6) the risks of maintaining

a class action through the trial; (7) the ability of

defendants to withstand a greater judgment; (8)

the range of reasonableness of the settlement fund

in light of the best recovery; and (9) the range of

reasonableness of the settlement fund to a

possible recovery in light of all the attendant risks

of litigation.

Rite Aid, 396 F.3d at 301 n.9 (citing Girsh, 521 F.2d at 157). 

The Girsh factors do not provide an exhaustive list of

factors to be considered when reviewing a proposed settlement.

In Prudential, we held because of a “sea-change in the nature of

class actions” since Girsh was decided in 1975, district courts
11

should also consider other potentially relevant and appropriate

factors, including, among others:

[T]he maturity of the underlying substantive

issues, as measured by the experience in

adjudicating individual actions, the development

of scientific knowledge, the extent of discovery

on the merits, and other factors that bear on the

ability to assess the probable outcome of a trial on

the merits of liability and individual damages; the

existence and probable outcome of claims by

other classes and subclasses; the comparison

between the results achieved by the settlement for

individual class or subclass members and the

results achieved—or likely to be achieved—for

other claimants; whether class or subclass

members are accorded the right to opt out of the

settlement; whether any provisions for attorneys’

fees are reasonable; and whether the procedure for

processing individual claims under the settlement

is fair and reasonable. 

Prudential, 148 F.3d at 323 (citing Edward H. Cooper, Mass

Torts Model, prepared for the Conference on Mass Torts, Mass

Torts Working Group, Philadelphia, Pa. (May 1998)); see also

id. at 324 n.73 (citing Judge William Schwarzer, Settlement of

Mass Tort Class Actions: Order Out of Chaos, 80 Cornell L.

Rev. 837, 843–44 (May 1995) and listing other potentially

relevant factors).
12

When analyzing a fee award in a common fund case, a

district court considers several factors, many of which are

similar to the Girsh factors. See Rite Aid, 396 F.3d at 301 n.9.

These include: 

(1) the size of the fund created and the number of

persons benefitted; (2) the presence or absence of

substantial objections by members of the class to

the settlement terms and/or fees requested by

counsel; (3) the skill and efficiency of the

attorneys involved; (4) the complexity and

duration of the litigation; (5) the risk of

nonpayment; (6) the amount of time devoted to

the case by plaintiffs’ counsel; and (7) the awards

in similar cases.

Id. at 301 (quoting Gunter, 223 F.3d at 195 n.1). This list was

not intended to be exhaustive. See Gunter, 223 F.3d at 195 n.1

(prefacing the list by stating “[a]mong other things, these factors

include . . .”). In Prudential, we noted three other factors that

may be relevant and important to consider: (1) the value of

benefits accruing to class members attributable to the efforts of

class counsel as opposed to the efforts of other groups, such as

government agencies conducting investigations, Prudential, 148

F.3d at 338; (2) the percentage fee that would have been

negotiated had the case been subject to a private contingent fee

agreement at the time counsel was retained, id. at 340; and (3)

any “innovative” terms of settlement, id. at 339. We stated that

whenever a district court awards attorneys’ fees in class action
13

cases, “[w]hat is important is that the district court evaluate what

class counsel actually did and how it benefitted the class.” Id.

at 342. 

In reviewing an attorneys’ fees award in a class action

settlement, a district court should consider the Gunter factors,

the Prudential factors, and any other factors that are useful and

relevant with respect to the particular facts of the case. The fee

award reasonableness factors “need not be applied in a

formulaic way” because each case is different, “and in certain

cases, one factor may outweigh the rest.” Rite Aid, 396 F.3d at

301 (quoting Gunter, 223 F.3d at 195 n.1). In cases involving

extremely large settlement awards, district courts may give some

of these factors less weight in evaluating a fee award. See In re

Cendant Corp. Litig., 264 F.3d 201, 283 (3d Cir. 2001);

Prudential, 148 F.3d at 339. What is important is that in all

cases, the district court “engage in robust assessments of the fee

award reasonableness factors,” Rite Aid, 396 F.3d at 302,

recognizing “an especially acute need for close judicial scrutiny

of fee arrangements in class action settlements.” Cendant

PRIDES, 243 F.3d at 730 (internal quotations omitted). 

In its memorandum opinion dated April 25, 2005, the

District Court explained in detail its reasons for approving the

settlement and attorneys’ fees award, providing us with an

adequate and sufficient basis for review. See Rite Aid, 396 F.3d

at 301 (requiring district courts “to clearly set forth their

reasoning for fee awards so that we will have a sufficient basis

to review for abuse of discretion.”). The court first analyzed the
 5

Defendants AT&T and Armstrong submitted a brief “to

clarify that the appeal does not concern the fairness,

reasonableness or adequacy of the Settlement . . . but addresses

only the distinct issue of the District Court’s approval of the

attorneys’ fees award, which was accomplished by separate

order.” (Br. of AT&T and Armstrong 5–6.) Because we affirm

the attorneys’ fees award, we need not reach the question of

whether a decision reversing the judgment of the District Court

would disrupt the settlement as a whole.

14

overall settlement in terms of the nine Girsh factors. Its

subsequent discussion of the attorneys’ fees provisions

incorporates this analysis by reference. Accordingly, even

though objectors challenge only the attorneys’ fees award, we

begin by reviewing the District Court’s analysis of the

settlement as a whole.5

The District Court concluded none of the Girsch factors

weighed against approval of the settlement and factors one

through five weighed “overwhelmingly” in favor of approval.

(App. 4.) Under the first factor, the court noted “from its

inception, the case involved complex legal and factual issues.”

(App. 5.) Though partial summary judgment had narrowed the

issues, the remaining factual issue was not “straightforward or

simple” as plaintiffs were left with the “formidable task” of

proving defendants had actual knowledge their statement was

false or misleading. (Id.) Furthermore, plaintiffs had the burden

of proving loss causation and damages, which would “likely

involve conceptually difficult economic theories and complex
15

calculations” based on experts with “diametrically opposed

opinions.” (Id.) The court noted uncertainty as to whether the

report and testimony of plaintiffs’ damages expert would be

admissible at trial, a question it reserved for the damages phase

of trial. The court concluded the first factor weighed strongly in

favor of approval. 

Under the second Girsh factor, the court noted that out of

more than one million class members notified of the proposed

settlement, only eight objected. None of the objections opposed

the settlement amount, and only four opposed the attorneys’ fees

award. No objections were filed by institutional investors, those

with the greatest financial stake in the settlement. The District

Court characterized this low level of objection as rare and

concluded the second factor weighed in favor of approval. 

Under the third Girsh factor, the District Court observed

that because the case had been “vigorously litigated for over

four years,” (App. 7), class counsel had “a thorough and

exhaustive appreciation for the merits of the case prior to

settlement,” (App. 8). The court noted the extent of discovery:

Plaintiffs reviewed and analyzed over 4.5 million

pages from Defendants’ document production,

and over 380,000 additional pages from fortyeight non-party witnesses. Plaintiffs conducted

numerous informal interviews, deposed more than

eighty fact witnesses, and produced over 3,000

pages of documents in response to Defendants’

requests.
16

(App. 8.) The Court noted the filing of several motions,

including motions to dismiss, complex discovery motions, a

motion for class certification, and a motion for summary

judgment. Furthermore, the case went to trial, which proceeded

for two weeks before settlement. The court concluded class

counsel had a thorough appreciation of the merits of the case

prior to settlement and that the third factor weighed in favor of

approval of the settlement.

The District Court noted high risks involved in

establishing both liability and damages under the fourth and fifth

Girsch factors. To succeed at trial, plaintiffs would have to

prove the December 6, 1999 statement was made with actual

knowledge of its falsity. The District Court noted the difficulty

of this task, given that defendants “vehemently denied any

wrongdoing,” asserted a “reasonable basis existed” for the

statement, and “intended to call key witnesses . . . who would

support this assertion.” (App. 8.) The court concluded that

“whether the jury would have returned a favorable verdict for

the Class remains uncertain.” (App 9.) As for the risk of

establishing damages, the court again noted the likelihood of a

battle of the experts, and the possibility of plaintiffs’ damages

expert being excluded from trial. 

The court concluded Girsch factors six through nine

weighed “slightly or moderately in favor of approval.” (App. 4.)

It noted risks that the class would be narrowed and that a larger

settlement would force AT&T into bankruptcy. It also noted the

reasonableness of the settlement fund in light of the risks of
17

establishing liability. The court concluded the settlement

“represents an excellent result for the Class considering the

substantial risks Plaintiffs faced, and the absence of any

guarantee of a favorable verdict.” (App. 11.)

Having concluded the overall settlement warranted

approval under the Girsch factors, the District Court turned to

the issue of attorneys’ fees and expenses, explicitly

acknowledging its duty to engage in a “robust assessment” of

the fee award reasonableness factors. (App. 13 (citing Rite Aid,

396 F.3d at 302).) It cited Cendant for the “proper standard”

that should be applied in class action lawsuits brought under the

Private Securities Law Reform Act. This standard entailed

“afford[ing] a presumption of reasonableness to fee requests

submitted pursuant to an agreement between a properly-selected

lead plaintiff and properly-selected lead counsel,” a presumption

that would “be rebutted when a district court finds the fee to be

(prima facie) clearly excessive.” (App. 13–14 (quoting

Cendant, 264 F.3d at 220).) The District Court noted the

21.25% fee resulted from a sliding scale formula negotiated by

lead counsel and lead plaintiff New Hampshire Retirement

Systems at the beginning of the case, and had been subsequently

approved by each court-appointed lead plaintiff. The court

concluded the requested fee was presumptively reasonable and

“the relevant inquiry for the district court is whether this

presumption has been rebutted.” (App. 14.)

The presumption of reasonableness set forth in Cendant

was intended to “take into account the changes wrought by the
18

Reform Act.” Cendant, 264 F.3d at 220. Prior to the Private

Securities Law Reform Act, lead counsel were often

instrumental in selecting lead plaintiffs. Under the PSLRA, the

court appoints as lead plaintiff the plaintiff it determines is most

capable of adequately representing the class’s interests. The

plaintiff with the largest financial stake in the action is

presumptively the most adequate representative. Once

appointed, the lead plaintiff is responsible for selecting and

retaining lead counsel, subject to court approval. 

But the PSLRA has not eliminated all difficulties with

establishing fair and reasonable attorneys’ fees in class action

suits. As objectors note, the adversarial process is often

“diluted” or entirely “suspended” during fee proceedings, and

fee requests often go unchallenged. (Appellants’ Br. 19–20

(quoting Goldberger v. Integrated Res. Inc., 209 F.3d 43, 52

(2nd Cir. 2000)).) Lead plaintiffs, having previously negotiated

a fee arrangement with lead counsel, will rarely oppose a fee

request. Class members may have little incentive to oppose a

fee request, since any reduction will only result in a minor

increase in their share of the settlement. And defendants have

little incentive to oppose a fee request, since usually they are not

impacted by the way in which the settlement fund is distributed.

Even more problematic are so-called “pay-to-play”

arrangements, such as where a law firm makes campaign

contributions to elected officials who control governmental

pension funds and is selected as the fund’s lead counsel. In

these instances, the relationship between lead plaintiff and lead
19

counsel may entail conflicts of interest. These arrangements

have been noted in law review articles, see John J. Coffee, Jr.,

The Attorney as Gatekeeper: An Agenda for the SEC, 103

Colum. L. Rev. 1293, 1315 n.61 (2003); in newspaper articles,

see Daniel Fisher, Bedfellows, Forbes, Feb. 13, 2006, at 102;

Karen Donavan, Legal Reform Turns a Steward into an Activist,

N.Y. Times, April 16, 2005, at C1; Daniel Fisher and Neil

Weinberg, The Class Action Industrial Complex, Forbes, Sept.

20, 2004, at 150; Kevin McCoy, Campaign Contributions or

Conflicts of Interest?, USA Today, Sept. 11, 2001, at B1; and

even in congressional testimony, see Outlook for U.S. Capital

Markets, Transcript of cong. testimony of James R. Copland,

Director, Manhattan Institute, before the Comm. on H. Financial

Services, Subcomm. on Capital Markets, Insurance and

Government Sponsored Enterprises, 2006 WLNR 7026076

(Apr. 26, 2006).

We recognized this problem in Cendant, noting that

“district courts should be particularly attuned to the risk of payto-play,” a development “Congress may not have contemplated

when it enacted the PSLRA.” 264 F.3d at 270 n.49. Yet we did

not specifically discuss the problem in relation to the

presumption of reasonableness. We only noted, in general

terms, “an arguable tension between the general schema of the

PSLRA on the one hand and its overarching provision that

requires the court to insure that counsel fees not exceed a

reasonable amount, on the other.” Id. at 220 (internal citation

omitted). We acknowledged the court’s “independent obligation

to ensure the reasonableness of any fee request.” Id. at 281–82.
20

We now emphasize that the presumption of

reasonableness set forth in Cendant does not diminish a court’s

responsibility to closely scrutinize all fee arrangements to ensure

fees do not exceed a reasonable amount. We caution against

affording the presumption too much weight at the expense of the

court’s duty to act as “a fiduciary guarding the rights of absent

class members.” Id. at 231.

After noting the presumption, the District Court reviewed

the fee award reasonableness factors and explained “[g]iven the

similarity and overlap of the Girsh factors with the factors the

Court must consider here, the Court incorporates by reference

the reasons given for approval of the settlement.” (App. 14.)

The court then addressed “additional reasons that support

approval of attorneys’ fees in this matter.” (Id.) These included

the absence of substantial objections to the requested attorneys’

fees, the “excellent, sizeable” settlement amount, the number of

persons who would benefit from the settlement, the skill and

efficiency of the attorneys, and the “substantial amount of time

and effort” invested by lead counsel. (App. 14–17). The

District Court concluded the fee award was both fair and

reasonable under the fee award reasonableness factors. 

The District Court cross-checked the percentage fee

award using the lodestar method, comparing the $21.25 million

award to a $16.6 million lodestar calculation (based on the hours

submitted by counsel multiplied by the blended billing rates of

all attorneys and paraprofessionals who worked on the case).
 6

On appeal, objectors contend the 1.28 lodestar multiplier is

misleading because it reflects time class counsel spent on a

contested lead plaintiff motion. They contend class counsel

should not be compensated for efforts expended before they

began representing the entire class. At oral argument, objectors’

counsel suggested district courts should require class counsel to

submit their time sheets, partly to ensure time spent becoming

class counsel is not included in the lodestar calculation. These

issues were not raised before the District Court. Regardless, we

have noted the lodestar cross-check calculation need not entail

“mathematical precision” or “bean-counting,” Rite Aid, 396 F.3d

at 306, and is “‘not a full-blown lodestar inquiry,’” id. at 307,

n.16 (quoting Report of the Third Circuit Task Force, Selection

of Class Counsel, 208 F.R.D. 340, 423 (2002)). District judges

have the authority to request time sheets, subject to their sound

discretion whether or not to do so. Here, we are satisfied with

the District Court’s conclusion that the lodestar calculation was

based on an appropriate number of hours, as supported by

declarations submitted by the parties. 

21

The court concluded the corresponding multiplier of 1.286

indicated a “truly reasonable fee award.” (App. 19.) Finally,

the District Court approved class counsel’s request for

reimbursement of expenses in the amount of $5,465,996.79,

finding “these expenses were reasonably and appropriately

incurred during the prosecution of this case, and sufficiently

documented in the declarations.” (App. 20.)
22

The District Court’s analysis and discussion demonstrates

it considered the fee award reasonableness factors relevant to the

facts of the case—directly in its discussion of fees and indirectly

in its discussion of the Girsh factors. A review of these factors

demonstrates the District Court did not abuse its discretion in

approving the attorneys’ fees award. 

The District Court addressed the first fee award

reasonableness factor directly, stating “[w]ith regard to the size

and nature of the common fund and the number of persons

benefitted by the settlement . . . Lead Counsel were able to

obtain an excellent, sizeable result on behalf of the Class despite

the substantial risks they faced in establishing liability.” (App.

16.) The court noted that many thousands of people would

likely participate in settlement, given that notice of the

settlement was sent to over a million potential class members. 

Objectors contend the size of the settlement amount is

misleading, since relative to the size of the class, $100 million

dollars is not such a large fund. They also note it represents

only 4% recovery of the total damages claimed. At oral

argument, class counsel contended the 4% figure was

misleading. They noted the class’s original damages claim of

$2.9 billion—of which the settlement amount represents

approximately 4%—was asserted long before the class’s

position was severely weakened by the grant of partial summary

judgment for the defendants. Based on a defense expert’s

estimate of damages after summary judgment of $1.88/share,
23

class counsel contends the settlement amount ($.44/share)

represents approximately 25% recovery.

As the District Court noted in its discussion of the eighth

Girsch factor, “‘[t]he fact that a proposed settlement may only

amount to a fraction of the potential recovery does not, in and of

itself, mean that the proposed settlement is grossly inadequate

and should be disapproved.’” (App. 10 (quoting In re Cendant

Corp. Sec. Litig., 109 F. Supp. 2d 235, 263 (D.N.J. 2000)).)

Rather, the percentage recovery, “must represent a material

percentage recovery to plaintiff in light of all the risks

considered under Girsh.’” Id. The District Court did not abuse

its discretion in concluding that in light of the risks of

establishing liability and damages, the $100 million settlement

was an “excellent” result, weighing in favor of approval of the

attorneys’ fees award. (App. 16–17.) 

The District Court addressed the second fee award

reasonableness factor both in its discussion of the second Girsch

factor and its discussion of attorneys’ fees, concluding that “the

absence of substantial objections by class members to the fees

requested by counsel strongly supports approval.” (App. 14.)

The court noted that out of one million potential class members

to whom notice was sent, only eight objected. The District

Court did not abuse its discretion by characterizing this low

level of objection as rare. See Rite Aid, 396 F.3d at 305

(characterizing two objections, after notice of a settlement and

fee request was mailed to 300,000 class members, as “a low
24

level of objection” that was a “rare phenomenon”) (internal

quotations omitted).

The third fee award reasonableness factor—the skill and

efficiency of the attorneys prosecuting this action—was

addressed under the third Girsh factor and in the discussion of

attorneys’ fees. In concluding this factor favored approval of

the award, the court observed, “Lead Counsel displayed

excellent lawyering skills through their consistent preparedness

during court proceedings, arguments and the trial, and their

well-written and thoroughly researched submissions to the

Court.” (App. 17.) Given the length of the case and the

difficulty of the issues involved, we do not think the District

Court abused its discretion in concluding this factor weighed in

favor of approval of the attorneys’ fees.

The District Court addressed the fourth fee award

reasonableness factor—the complexity and duration of the

litigation—in its discussion of attorneys’ fees and in its analysis

under the first Girsh factor. In both places, it noted the

substantial risks plaintiffs faced in establishing liability and

damages. In Rite Aid, we emphasized the difficulty of proving

actual knowledge under § 10(b) of the Securities Exchange Act,

and concluded this factor weighed in favor of approval of the fee

request. See Rite Aid, 396 F.3d at 304. Here, too, plaintiffs

faced the difficult task of proving defendants had actual

knowledge of the falsity of the statement made on December 6,

1999. We do not believe the District Court abused its discretion
25

in concluding the potential difficulty of this task weighed in

favor of approval of both the settlement and the fee award.

The District Court addressed the fifth fee award

reasonableness factor, “the risk of nonpayment,” under its

analysis of the seventh Girsh factor. The court noted plaintiffs’

contention that AT&T may not have been able to withstand a

multi-million or billion dollar judgment, and cited Cendant for

the proposition that “the possibility of bankruptcy is quite real

when the settlement or judgment numbers sufficiently increase.”

(App. 10 (quoting Cendant, 264 F.3d at 241).) We think the

chances of AT&T going bankrupt are small, but we do not think

the District Court abused its discretion in concluding that

because of a minor risk in this regard, the risk of nonpayment

“weigh[ed] in favor, albeit only slightly, of approval” of the

settlement and by implication, of the fee award. (App. 10.)

The sixth fee award reasonableness factor—the amount

of time devoted to the case by plaintiffs’ counsel—overlaps with

the third. As noted, the District Court repeatedly emphasized

that class counsel’s efforts in achieving this settlement were

substantial. The court stated, “[h]aving accepted the

responsibility of prosecuting this class action on a contingent fee

basis and without any guarantee of success or award, Lead

Counsel nonetheless maintained vigor and dedication

throughout.” (App. 17.) Considering the number of pre-trial

motions class counsel litigated, the extent of discovery, and the

two weeks of trial, we conclude the District Court did not abuse
 7

We again caution courts to refrain from granting this

presumption too much weight.

26

its discretion in concluding class counsel’s efforts weighed in

favor of approval. 

The District Court addressed the seventh fee award

reasonableness factor—awards in similar cases—in addressing

the objections that were made to the amount of attorneys’ fees

under its discussion of the second fee award reasonableness

factor. The court acknowledged a 2003 study, cited by

objectors, concluding 15.1% was the average percentage for fee

awards in class actions resulting in settlements over $100

million. But the District Court noted “this lawsuit may be

characterized as anything but average,” and objectors had not

cited “controlling authority that would require this Court to

make a downward adjustment.” (App. 15.) The court concluded

objectors had failed to present evidence sufficient to rebut the

presumption of reasonableness.7

Other than the size of the settlement fund, this last

factor—awards in similar cases—is the only one that objectors

address on appeal. They contend the fee arrangement was not

adequately negotiated or contested because the lead plaintiff

who originally negotiated the fee arrangement, New Hampshire

Retirement Systems, was no longer a lead plaintiff at the time of

settlement. They contend there is no evidence that any

subsequently appointed lead plaintiff “engaged in any rigorous

negotiation, revisited the agreement, or did anything other than
27

to ‘rubber stamp’ the deal.” (Appellants’ Br. 11.) In Cendant,

we stated the presumption of reasonableness would likely be

“abrogated entirely” by a showing that unusual and unexpected

factual and/or legal developments “materially altered” the

original premises of the negotiated agreement. Cendant, 264

F.3d at 282–283. Were it the case that New Hampshire

Retirement Systems was no longer a lead plaintiff at the time of

settlement, and that subsequent lead plaintiffs had not carefully

reviewed the fee arrangement, we “could be justified in holding

that the presumption of reasonableness had been abrogated.” Id.

at 283. We would then “review the fee request using the

traditional standards.” Id. But New Hampshire Retirement

Systems was a lead plaintiff at the time of settlement. (See App.

609–13.) And even under “traditional standards,” in the absence

of a presumption, we would conclude the District Court had not

abused its discretion in declining to reduce the fee award.

Objectors contend “courts are increasingly finding that

class counsel can be reasonably compensated by a fee award

that is substantially less than 20% of the settlement fund.”

(Appellants’ Br. 14.) They cite a study, which they cited to the

District Court, concluding the average award for fees and costs

in class action cases whose settlements were valued over $100

million was 15.1%, and the average award for fees and costs in

all cases was 18.4%. See Stuart J. Logan, Jack Moshman, and

Beverly C. Moore, Jr., Attorney Fee Awards in Common Fund

Class Actions, 24 Class Action Rep. 169 (2003). They also cite

several cases awarding percentages lower than what class

counsel received here, allegedly “demonstrat[ing] that the 26.7%
 8

Objectors repeatedly refer to the percentage award as being

26.7%. But the attorneys’ fee award was 21.25% of the

settlement fund. Expenses are generally considered and

reimbursed separately from attorneys’ fees, and it is accordingly

misleading to compare the 26.7% figure against the percentage

fee awards granted in other cases. 

28

awarded to Class Counsel is excessive and unreasonable.”8

(Appellants’ Br. 10.) See e.g., Cendant, 243 F. Supp. 2d 166,

174 (D.N.J. 2003), on remand from 264 F.3d 201 (3d Cir. 2001)

(reducing initial fee award of $262 million, about 8.275% of

settlement, to $55 million); Goldberger v. Integrated Res., Inc.,

209 F.3d 43, 45 (2nd Cir. 2000) (upholding fee of 4% of

settlement); In re Interpublic Sec. Litig., 2004 US Dist. LEXIS

21429 (S.D.N.Y. Oct. 27, 2004) (awarding fee of 12% of

settlement amount); In re Infospace, Inc. Sec. Litig., 330 F.

Supp. 2d 1203, 1216 (W.D. Wash. 2004) (awarding fee

representing approximately 12% of settlement amount); In re

Cylink Sec. Litig., 274 F. Supp. 2d 1109, 1116 (N.D. Cal. 2003)

(concluding fee award of 16% award was fair, adequate and

reasonable); In re Bankamerica Corp. Sec. Litig., 228 F. Supp.

2d 1061, 1064 (E.D. Mo. 2002) (awarding fees of 18% of

settlement amount rather than the requested 25%). 

Class counsel contends the cases cited by objectors as

supporting a lower fee award can be distinguished on two
 9

In re Bankamerica Corp. Securities Litigation, 228 F. Supp.

2d 1061 (E.D. Mo. 2002), is the one exception, involving

substantial amounts of time and litigation. But in BankAmerica,

there was a significant disparity between the requested

percentage fee award of 25% and the lodestar cross-check,

leading to an approximate lodestar multiplier of four. Id. Here,

the 1.28 multiplier does not indicate a need to reduce the fees.

29

grounds. First, they lack the extent of litigation involved here,9

which entailed four years of litigation and two weeks of trial,

leading to a total of 48,000 hours spent by lead counsel in

discovery, motion practice, and trial. Second, the cited cases

involved significant disparities between the originally requested

fee award and the lodestar cross-check. For example, lead

counsel in Goldberger sought a $13.5 million fee, but its

lodestar was $1.3 million, leading to a lodestar multiplier of ten.

Here, the lodestar cross-check produced a multiplier of 1.28.

We have noted that the lodestar multiplier “need not fall within

any pre-defined range, provided that the District Court’s

analysis justifies the award.” Rite Aid, 396 F.3d at 307. But we

think a multiplier of 1.28 is well within a reasonable range,

particularly given the District Court’s emphasis on the

significant time and effort devoted to the case by class counsel.

As a comparison, we approved of a lodestar multiplier of

2.99 in Cendant PRIDES, in a case we stated “was neither

legally nor factually complex.” 243 F.3d at 742. The case

lasted only four months, “discovery was virtually nonexistent”

id. at 736, and counsel spent an estimated total of 5,600 hours on
30

the case, id. at 735. We noted, “the case was relatively simple

in terms of proof, in that Cendant had conceded liability and no

risks pertaining to liability or collection were pertinent.” Id. If

a lodestar of 2.99 was reasonable in a short and “relatively

simple” case, we believe the District Court did not abuse its

discretion in concluding a lodestar of 1.28 was reasonable in this

lengthy, relatively complex case.

Furthermore, class counsel in this case was not aided by

a government investigation. In Prudential, we noted this as a

significant factor for district courts to consider. There, we

remanded the fee award for the district court’s further

consideration after determining the court had failed to

distinguish between benefits created by class counsel and those

created by a multi-state life insurance task force, organized to

investigate allegations against the defendant. See Prudential,

148 F.3d at 338. We concluded the district court had improperly

“credited class counsel with creating the entire value of the

settlement.” Id. Here, class counsel was not aided by the efforts

of any governmental group, and the entire value of the benefits

accruing to class members is properly attributable to the efforts

of class counsel. This strengthens the District Court’s

conclusion that the fee award was fair and reasonable.

Objectors acknowledge that “[b]oth Class Counsel and

Objector’s counsel have cited numerous cases supporting their

view of the reasonableness of attorney fees,” and concede that

“[e]ach could ‘string-cite’ many more cases supporting its

position.” (Reply Br. 5.) They contend that “at the very least,
31

the mere fact that some courts have awarded high fees in the

past ought not to be considered a justification for awarding the

fee requested in the face of ever-increasing evidence that class

counsel can be reasonably compensated at rates far less than

those that might have prevailed in the past.” (Appellants’ Br.

14.) But the District Court did not justify its approval of the fee

by reference to high fees in the past. It justified its approval by

demonstrating this case was not an average case. The District

Court “consider[ed] the relevant circumstances of the particular

case,” Cendant PRIDES, 243 F.3d at 736, and concluded the fee

was not excessive. In light of its analysis under the fee award

reasonableness factors and the reasonable lodestar multiplier,

the District Court did not abuse its discretion in concluding the

fee award was not excessive.

B.

Objectors also contend the fee arrangement, which

provided for the fee percentage to increase with the size of the

settlement fund, was unfair and unreasonable. They cite

Goldberger v. Integrated Resources, Inc., for the proposition

that “[o]bviously, it is not ten times as difficult to prepare, and

try or settle a 10-million-dollar case as it is to try a 1-milliondollar case.” (Appellants’ Br. 20 (quoting Goldberger, 209 F.3d

at 52).) Based on this logic, they contend the District Court

should have required the fee percentage to be based on a sliding

scale that bears an inverse relationship to the size of the

settlement. 
 10In Cendant, we also recognized the declining percentage

principle is “criticized by respected courts and commentators,

who contend that such a fee scale often gives counsel an

incentive to settle cases too early and too cheaply.” In re

Cendant Corp. Litig., 264 F.3d 201, 284 n.55 (3d Cir. 2001).

32

We have recognized that “it may be appropriate for

percentage fees awarded in large recovery cases to be smaller in

percentage terms that those with smaller recoveries.” Rite Aid,

396 F.3d at 302. In Prudential, we agreed with the district

court’s reduction of a percentage award in a case where the

settlement fund was going to be at least $410 million, explaining

“[t]he basis for this inverse relationship is the belief that in 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.” 148 F.3d at 339 (internal quotations omitted); see also

Cendant, 264 F.3d at 284 n.55 (“[O]rdinarily, the percentage of

a recovery devoted to attorneys fees should decrease as the size

of the overall settlement or recovery increases.”).10 But while it

may be appropriate in some circumstances for fee percentages

in large recovery cases to be smaller than those in smaller

recovery cases, “there is no rule that a district court must apply

a declining percentage reduction in every settlement involving

a sizable fund.” Rite Aid, 396 F.3d at 303. In RiteAid, we held

the district court did not abuse its discretion in declining to

apply a percentage fee scale that decreased as the size of the

settlement increased, concluding “the declining percentage

concept does not trump the fact-intensive Prudential/Gunter
33

analysis.” Id. We distinguished Prudential, which we

concluded “does not mandate application of the declining

percentage sliding scale.” Id. In Prudential, in vacating a fee

award of $90 million on a settlement estimated at $1 billion,

much of our concern was case-specific. 148 F.3d at 338–340.

We questioned such a significant fee award when “much of the

settlement was achieved by [a multi-state insurance task force],

and other enhancements resulted from the separate negotiations

of state regulators.” Id. at 342. Here, the District Court did not

abuse its discretion in concluding the sliding scale was fair and

reasonable in light of the size of the settlement fund, the

difficulty and length of the litigation, and the fact that all

benefits accruing to class members are properly credited to the

efforts of class counsel. 

C.

Nor did the District Court abuse its discretion in

approving a single payment of attorneys’ fees and expenses.

Objectors contend a portion of the attorneys’ fees should be

withheld pending payment of claims to class members. They

contend payments should be staggered, and class counsel should

be required to file periodic and final reports to prove class

members are receiving relief. Otherwise, they fear class counsel

will abandon the class as soon as their fees are paid. 

The District Court noted there was no indication class

counsel would stop working diligently on behalf of the class,

“having witnessed [class counsel] vigorously prosecute this

action for four years without any guarantee of success.” (App.
34

16.) We see no evidence on the record that lead counsel has

ever abandoned a class, or is likely to do so in this case. Class

counsel notes that one of the objectors, Washburn, admitted he

was “not challenging the ability or integrity” of class counsel

who, he acknowledged, were “the best in the business” and

“should get paid for what they’ve done.” (Appellees’ Br. 21.)

Objectors cite certain cases in which staggered fee

payments have been applied in class action settlements. See,

e.g., In re Prudential Ins. Co. of Am., 962 F. Supp. 450 (D.N.J.

1997), aff’d in part (class certification and settlement) and

vacated and remanded in part (attorneys’ fees), 148 F.3d 283

(3d Cir. 1998). Prudential was an “‘atypical common fund

case’ involving an uncapped, ‘future fund’ whose ultimate value

[was] dependent on the final number of claims remediated under

the settlement.” Prudential, 148 F.3d at 334 (quoting In re

Prudential Ins. Co. of Am. (Fee Opinion), 962 F. Supp. 572, 583

(D.N.J. 1997)). We remanded the fee award for the district

court’s further consideration, but we approved its two-part

structure. The first part of the award would be calculated as a

percentage of the guaranteed minimum settlement amount and

the second would be calculated as a percentage of the future

payments. We concluded this bifurcated structure “obviate[d]

the need to guesstimate the value of the settlement.” Id. at 333

(quoting Fee Opinion, 962 F. Supp. at 589). Here, the

settlement amount of $100 million is fixed, and there is no need

to stage the payout to ensure attorneys’ fees are in the correct

amount. 
35

Moreover, the District Court here retained jurisdiction,

and stated it “will be available to Class members for final

resolution of any dispute that may arise.” (App. 16.) We have

noted that “[u]nder Rule 23(e), the District Court acts as a

fiduciary guarding the rights of absent class members.”

Cendant, 264 F.3d at 231; see also Fed. R. Civ. P. 23(h)

advisory committee’s notes (2003) (“Active judicial

involvement in measuring fee awards is singularly important to

the proper operation of the class-action process”). Given the

District Court’s obligation to thoroughly review the settlement

and its attorneys’ fees provisions to ensure fairness and

reasonableness, see Rite Aid, 396 F.3d at 299, we are confident

in this case that should objectors’ fears regarding class counsel

be realized, the court will be available to ensure proper

administration of the settlement. See also Report of the Third

Circuit Task Force, Court Awarded Attorneys Fees, 108 F.R.D.

237, 255 (1985) (explaining the court “must monitor the

disbursement of the fund and act as a fiduciary for those who are

supposed to benefit from it, since typically no one else is

available to perform that function”).

IV.

For the reasons set forth, we will affirm the judgment of

the District Court.