1 15-3011(L) In Re: Tremont Securities Law, State Law and Insurance Litigation



### UNITED STATES COURT OF APPEALS
**FOR THE SECOND CIRCUIT**



## SUMMARY ORDER

**R ULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT**  **. C**  **ITATION TO A SUMMARY ORDER**

**FILED ON OR AFTER J**  **ANUARY 1,**  **2007, IS PERMITTED AND IS GOVERNED BY**  **F EDERAL**  **R ULE OF** 
**A PPELLATE**  **P ROCEDURE**  **32.1 AND THIS COURT**  = **S L**  **OCAL R**  **ULE 32.1.1.**  **W HEN CITING A SUMMARY** 

**ORDER IN**  **A DOCUMENT**  **FILED WITH**  **THIS COURT**  **, A**  **PARTY MUST**  **CITE EITHER**  **THE F**  **EDERAL A**  **PPENDIX**

**OR AN**  **ELECTRONIC DATABASE**  **( WITH**  **THE NOTATION**  A **SUMMARY ORDER**  @ **). A**  **PARTY CITING**  **A SUMMARY** 

**ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL .** 

**At a stated term of the United States Court of Appeals for** 1 **the Second Circuit, held at the Thurgood Marshall United States** 2 **Courthouse, 40 Foley Square, in the City of New York, on the** 3 **26 th**  **day of June, two thousand seventeen.** 4

5 **PRESENT: DENNIS JACOBS,** 6 **CHRISTOPHER F. DRONEY,** 7 **Circuit Judges,** 8
**TIMOTHY C. STANCEU,**  9 **Chief Judge, U.S. Court of Int’l Trade.** 10

11

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13 **IN RE: TREMONT SECURITIES LAW, STATE 15-3011 (L)** 14 **LAW AND INSURANCE LITIGATION 15-3241 (Con)** 15 **15-3251 (Con)** 16

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**FOR APPELLANTS GEORGE** VINCENT T. GRESHAM, Law 19 **TURNER, BINDLER LIVING** Office of Vincent T. Gresham, 20 **TRUST, MADELYN HAINES,** Atlanta, GA. 21 **JOHN JOHNSON, WILLIAM J.** 22 **MILLARD TRUST, STELLA** 23

 Judge Timothy C. Stanceu, Chief Judge of the United States Court of International Trade, sitting by designation.2 **RUGGIANO TRUST, WEST** 1 **TRUST, PAUL ZAMROWSKI:** 2
3
**FOR APPELLANT MARY** JOSHUA FRUCHTER, Wohl & 4 **CATHERINE MARTIN, as the** Fruchter LLP, New York, NY. 5 **personal representative of** 6 **the estate of Michael S.** Gary S. Graifman, Kantrowitz, 7 **Martin:** Goldhamer & Graifman, P.C., 8 Chestnut Ridge, NY. 9
10
**FOR APPELLANT** RICHARD G. HADDAD, Otterbourg 11
**PHILADELPHIA FINANCIAL** P.C., New York, NY. 12
**LIFE ASSURANCE COMPANY:** 13

14
**FOR APPELLEES ARTHUR E.** ANDREW J. ENTWISTLE (Arthur 15 **LANGE REVOCABLE TRUST,** V. Nealon, Robert N. 16 **ARTHUR C. LANGE, NEAL** Cappucci, on the brief), 17 **J. POLAN, EASTHAM** Entwistle & Cappucci LLP, New 18
**CAPITAL APPRECIATION** York, NY. 19 **FUND LP, NPV POSITIVE** 20 **CORP., and all others** Reed R. Kathrein, Lee M. 21 **similarly situated:** Gordon, Hagens Berman Sobol 22 Shapiro LLP, Berkeley, CA. 23
24
**FOR APPELLEES ARTHUR M.** Jeffrey M. Haber, Stephanie 25 **BRAINSON, YVETTE** M. Beige, Bernstein Liebhard 26 **FINKELSTEIN, GROUP DEFINED** LLP, New York, NY. 27 **PENSION PLAN & TRUST, and** 28 **all others similarly** 29 **situated:** 30
31
**FOR APPELLEES DOLOS X** IRWIN WARREN (Adam J. 32 **LLC, DOLOS XI LLC, DOLOS** Bookman, Matthew S. Connors, 33
**XII LLC:** on the brief), Weil, Gotshal 34 & Manges LLP, New York, NY. 35
36 **FOR APPELLEE SPCP GROUP,** Walter Rieman, Paul, Weiss, 37
**LLC:** Rifkind, Wharton & Garrison 38 LLP, New York, NY. 39
40
**FOR APPELLEE HSBC BANK** Thomas J. Moloney, Joaquin P. 41
**PLC:** Terceño, Cleary Gottlieb 423 Steen & Hamilton LLP, New 1 York, NY. 2
3
**FOR APPELLEE THE ROYAL** Michael S. Feldberg, Allen & 4
**BANK OF SCOTLAND N.V.:** Overy LLP, New York, NY. 5
6
**FOR APPELLEES NEW YORK** JOHN M. VASSOS (Mary C. 7
**LIFE INSURANCE AND ANNUITY** Pennisi, on the brief), 8 **CORPORATION, METROPOLITAN** Morgan, Lewis & Bockius LLP, 9 **LIFE INSURANCE COMPANY,** New York, NY. 10
**GENERAL AMERICAN LIFE** 11 **INSURANCE COMPANY, NEW** 12
**ENGLAND LIFE INSURANCE** 13 **COMPANY, JOHN HANCOCK LIFE** 14 **INSURANCE COMPANY (U.S.A.),** 15
**PACIFIC LIFE INSURANCE** 16 **COMPANY, SECURITY LIFE OF** 17 **DENVER, DELAWARE LIFE** 18 **INSURANCE COMPANY, PRUCO** 19 **LIFE INSURANCE COMPANY,** 20
**NATIONWIDE LIFE INSURANCE** 21
**COMPANY:** 22
23 Appeal from a judgment of the United States District Court 24 for the Southern District of New York (Griesa, J.). 25

**UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED AND** 26
**DECREED** that the judgment of the district court be **AFFIRMED IN** 27
**PART AND VACATED AND REMANDED IN PART**

. 28

Appellants, investors in various hedge funds managed by 29 Tremont Group Holdings, Inc. and its affiliates, appeal from 30 a judgment of the United States District Court for the Southern 31 District of New York (Griesa, J.), approving a post-settlement 32 plan to allocate the liquidated assets of certain funds (the 33 “Plan of Allocation,” or “POA”) and awarding attorneys’ fees. 34 For the reasons stated below, we affirm the district court’s 35 approval of the POA, but vacate and remand for a reduction of 36 the fee award consistent with this order. 374 We assume the parties’ familiarity with the underlying 1 facts, the procedural history, and the issues presented for 2 review. 3

Tremont Group Holdings and its affiliates managed two 4 groups of hedge funds. The first, known as the “Rye Funds,” 5 invested all of their assets either with Bernard L. Madoff 6 Investment Securities (“BLMIS”) or, in the case of Rye Select 7 Broad Market XL Fund, L.P. (“Rye XL”), in synthetic derivatives 8 intended to mirror the returns of BLMIS. The Rye Funds include 9 Rye Select Broad Market Fund, L.P. (“Rye Onshore”), Rye Select 10 Broad Market Portfolio Limited (“Rye Offshore”), Rye Select 11 Broad Market Insurance Fund, L.P. (“Rye Insurance”), Rye Select 12 Broad Market Prime Fund, L.P. (“Rye Prime”), and Rye XL. Three 13 of these (Rye Onshore, Rye Offshore, and Rye Insurance) invested 14 directly with BLMIS and were “net losers,” meaning they invested 15 more money with BLMIS than they withdrew. 16

The second group of hedge funds, the “Tremont Funds,” were 17 “funds of funds,” investing a portion of their assets in the 18 Rye Funds (and therefore indirectly with BLMIS) and the rest 19 in investments unrelated to BLMIS. Appellants largely 20 invested in Tremont Funds. 21

When BLMIS collapsed in December 2008, investors in the Rye 22 and Tremont Funds filed several putative class actions and 23 derivative complaints against various entities and individuals 24 responsible for the investment of fund assets with BLMIS. 25 These actions were consolidated in 2009, with counsel (referred 26
to herein as “Lead Counsel”) appointed to represent all settling 27 investors. 28

The parties to these consolidated actions settled in 29 February 2011. That “Investor Settlement” created two 30 separate escrow accounts: (1) the Net Settlement Fund (“NSF”), 31 containing $100 million paid by the defendants in exchange for 32 the release of all claims against them 1 ; and (2) the Fund 33 Distribution Account (“FDA”), containing all the assets that 34 remained in the liquidated Rye Funds after claims by and against 35

1 The NSF has already been distributed and is not at issue in this appeal.5 the trustee of the BLMIS bankruptcy estate (the “Trustee”) were 1 resolved in separate litigation (the “Trustee Litigation”). 2

In the Trustee Litigation, the three net-loser Rye Funds 3 filed approximately $2.2 billion in claims against the Trustee 4 under the Securities Investor Protection Act (“SIPA”). The 5 Trustee, in turn, sought to claw back approximately $2.1 billion 6 in avoidable transfers made to the Ry e and Tremont Funds. In 7 July 2011, a settlement (the “Trustee Settlement”) was reached: 8 the Rye and Tremont Funds collectively paid the Trustee $1 9 billion in cash; in exchange, the Trustee withdrew its avoidance 10 claims against each of them and granted the net-loser Rye Funds 11 roughly $2.2 billion in claims plus a claim for the return of 12 eighty percent ($800 million) of the $1 billion payment pursuant 13
to section 502(h) of the Bankruptcy Code. Thus, after the funds 14 paid the Trustee $1 billion to settle the clawback claims 15 against them, 2 the net-loser Rye Funds received claims totaling 16 roughly $3 billion. 17

The FDA is composed almost entirely of those $3 billion in 18 claims. It also includes $32.4 million in cash remaining in 19 Rye XL (a Rye Fund that did not have to contribute to the $1 20 billion Trustee Settlement). It is expected that a total of 21 around $1.45 billion will eventually flow into the FDA from the 22
Trustee. 3 23

The allocation of the FDA was not part of the Investor 24 Settlement. Nevertheless, the parties agreed that a “plan of 25 allocation [would] be approved by the [District] Court,” J.A. 26

2 The $1 billion payment by the funds to the Trustee was collected as follows: the three net-loser Rye Funds contributed a combined $212 million of their own money plus $650 million they borrowed from Fortress Investment Group, LLC (“Fortress”);
the Tremont Funds and one of the net-winner Rye Funds (Rye Prime) contributed the remaining $138 million.

3 As of September 2015, approximately $650 million had already poured into the FDA. Another $650 million was recovered from the Trustee and never reached the FDA because it was used to repay the Fortress loan.6 285, and the court explicitly retained jurisdiction over the 1 FDA’s allocation. 2

In its 2011 final judgment approving the Investor 3 Settlement, the district court tasked Lead Counsel with 4 responsibility for proposing a plan of allocation. In April 5 2014, Lead Counsel solicited proposed plans from interested 6 parties and notified them of mediation to resolve the allocation 7 issue. After more than a year of mediation among numerous 8 parties (including multiple appellants), a consensus plan of 9 allocation (the “POA”) emerged. 10

Under the POA -- which is supported by investors holding 11 approximately ninety-seven percent of the net equity in the 12 funds -- FDA assets are distributed as follows. 13

First, the $32.4 million that Rye XL contributed to the FDA 14 is returned to Rye XL investors. 15

Next, the funds are awarded equal priority to the balance 16 of the FDA using a simple formula: (1) each net-loser Rye Fund 17 has a claim (referred to as a “SIPC Claim”) equal to its portion 18 of the $3 billion Trustee Settlement; (2) each Tremont and 19 net-winner Rye Fund that contributed cash to the Trustee 20 Settlement has a “Virtual SIPC Claim ” equal to eighty percent 21 of its Trustee Settlement contribution. 22

Finally, once the money is allocated to the appropriate 23 funds using the formula described above, each fund’s investors 24 will receive a pro rata share of the fund’s allocation according 25 to the investor’s net equity (i.e., amount lost) in that fund. 26 In other words, only investors who lost money in a given fund 27 due to that fund’s investment in BLMIS are entitled to recover 28 anything from the fund. Thus, net-loser investors in any fund 29 will recover a share of that fund’s SIPC or Virtual SIPC Claim; 30 and net-loser investors in any net-loser fund will recover a 31 share of that fund’s cross-investment in each Rye Fund in which 32 it was invested. 33

In September 2015, after a three-hour hearing regarding 34 allocation of the FDA, the district court issued a written 35 opinion approving the POA, rejecting an alternative plan 36 proposed by appellant Michael S. Martin, granting Lead 377 Counsel’s motion for attorneys’ fees, and overruling all 1 objections. Appellants appeal the court’s approval of the POA 2 and award of attorneys’ fees. 3

We review a district court’s allocation of settlement funds 4 and award of attorneys’ fees for abuse of discretion. See In 5 re “Agent Orange” Prod. Liab. Litig., 818 F.2d 179, 181 (2d Cir. 6 1987) (settlement funds); Goldberger v. Integrated Res., Inc., 7 209 F.3d 43, 47 (2d Cir. 2000) (attorneys’ fees). 8

**1.** There are unusual features to this appeal. We are 9 reviewing an allocation of assets that were obtained in 10 unrelated litigation and that are being held in an account 11 created for the purpose of allocation by a settlement that is 12 not being challenged. Further complicating matters, those 13 assets represent the liquidated remains of a group of hedge 14 funds (the Rye Funds) that imploded after Madoff’s Ponzi scheme 15 was revealed. Unlike a typical settlement fund distribution 16 plan, the POA is separate from the underlying settlement, 17 involves assets that are already earmarked for the potential 18 recipients (the investors in the liquidated hedge funds), and 19 is the product of mediation between those recipients. These 20 circumstances, however, do not disturb the traditional 21 deference we owe to the district court’s equitable allocation 22 of settlement-related funds. 4 23

The district court did not abuse its discretion in 24 approving the POA. The POA is fair and reasonable, as was the 25 mediation process that produced it. See In re PaineWebber Ltd. 26 P’ships Litig., 171 F.R.D. 104, 133 (S.D.N.Y. 1997), aff’d, 117 27 F.3d 721 (2d Cir. 1997) (per curiam) (“As a general rule, the 28 adequacy of an allocation plan turns on whether counsel has 29 properly apprised itself of the merits of all claims, and 30

4 Nor does this peculiar procedural posture deprive the district court of jurisdiction over the FDA’s allocation. Although the Investor Settlement did not include a plan of allocation, it authorized the court to adopt such a plan, and the court explicitly retained jurisdiction over “all matters relating to” the Investor Litigation, including allocation of the FDA. J.A. 642.8 whether the proposed apportionment is fair and reasonable in 1 light of that information.”). 2

First, the POA reflects the net-loser Rye Funds’ superior 3 claim to the proceeds of the Trustee Settlement. See In re 4 Corrugated Container Antitrust Litig., 643 F.2d 195, 220 (5th 5 Cir. 1981) (“It is self-evident that if the settlement’s 6 adequacy rests on the value of one set of claims, distribution 7 of the settlement should be weighed heavily in favor of 8 plaintiffs whose claims comprise that set.”). That settlement 9 granted roughly $3 billion in claims exclusively to these three 10 funds because only they were net-loser BLMIS customers. See 11 In re Bernard L. Madoff Inv. Secs. LLC, 654 F.3d 229, 238 (2d 12 Cir. 2011) (limiting SIPA recovery to net-loser BLMIS 13 customers). To be sure, the Tremont and net-winner Rye Funds 14 contributed $138 million to the Trustee Settlement, and that 15 contribution helped enable the net-loser Rye Funds to receive 16 their $800 million section 502(h) claim. But the Tremont and 17 net-winner Rye Funds’ $138 million contribution was not 18 selfless: the payment settled the clawback claims against them. 19 And, in any event, that contribution is recognized by the 20 allowance of Virtual SIPC Claims, which are calculated on the 21 same eighty-percent basis as the net-loser Rye Funds’ section 22 502(h) claim. 23

Second, the POA reflects the net-loser Rye Funds’ greater 24 victimization by BLMIS. Unlike the other funds, they invested 25 their entire portfolio with BLMIS and incurred enormous losses. 26

Third, the Tremont Funds were exposed to Madoff’s fraud 27 only through their cross-investments in Rye Funds. Under the 28 POA, Tremont Funds, like all Rye Fund investors, are compensated 29 for their Madoff losses. 30

Fourth, the POA adopts the net equity principle of 31 allocation that this Court has previously endorsed with respect 32 to Madoff’s Ponzi scheme. This principle holds that, because 33 net winners were given money stolen from net losers, only net 34 losers have an equitable right to recovery. See id. at 235, 35 238. 36

Fifth, the POA respects the separate legal status of the 37 funds. Rather than pool all of the Trustee Settlement proceeds 389 into one pot for distribution directly to the individual 1 investors -- as the rejected plan proposed by Martin would do 2 -- the POA first allocates the proceeds according to the claims 3 held by the funds. This is appropriate given that the FDA 4 arises from the derivative claims brought on behalf of the funds 5 in the Investor Litigation. 6

Finally, the POA provides for the priority distribution of 7 $32.4 million to Rye XL’s investors in recognition of Rye XL’s 8 direct cash contribution to the FDA in that amount. 9

Thus, in sum, the POA is based on fair and equitable 10 principles. It is the product of protracted, contentious 11 mediation in which numerous Rye and Tremont Fund investors with 12 diverse interests participated through counsel. 5 Attorneys 13 for two of the appellants (Martin and Philadelphia Financial 14 Life Assurance Company) took part in the mediation and advocated 15 on their clients’ behalf. The retired federal judge who served 16

as the mediator attested to the inclusive and hard-fought nature 17 of the negotiations, the numerous compromises made, the 18 opportunity for all parties to advance their positions, and the 19 fairness of the POA. And the district court provided ample 20 opportunity for appellants and other interested parties to 21 voice their concerns and submit competing proposals before it 22 decided to allocate the FDA according to the POA. 23

Given these facts, and the fair terms of the POA (including 24 significant concessions to Tremont and net-winner Rye Fund 25 investors in the form of Virtual SIPC Claims), the district 26 court did not abuse its discretion in concluding that 27 appellants’ interests were adequately represented and 28 protected. 6 See In re Literary Works in Elec. Databases 29

5 The Tremont Funds’ interests were represented at mediation not only by the several Tremont Fund investors who attended, but also by: (1) Rye Fund investors, who, like the Tremont Funds, were exposed to Madoff’s fraud through their investments in the Rye Funds; and (2) investors in Rye Prime, which, like the Tremont Funds, contributed cash to the Trustee Settlement without receiving a claim in return.

6 Accordingly, the district court’s denial of Martin’s 2015 motion to certify a subclass of Tremont Fund investors pursuant1 0 Copyright Litig., 654 F.3d 242, 252 (2d Cir. 2011) (“The Supreme 1 Court’s decision in Amchem . . . allows courts, in assessing 2 the adequacy of representation, to examine a settlement’s 3 substance for evidence of prejudice to the interests of a subset 4 of plaintiffs.”). 5

**2.** The POA allows a recovery only to investors who 6 suffered a net loss in the Madoff Ponzi scheme. Appellants 7 argue that this conflicts with the Investor Settlement, which 8 they claim entitles every investor to recover. Appellants’ 9 argument rests on ¶ 1.18 of the Investor Settlement, which 10 defines “Fund Distribution Claimant” as “any limited partner 11 or shareholder in any of the Settling Funds . . . , each of which 12 shall be entitled to receive a disbursement from the [FDA].” 13 J.A. 263-64 (emphasis added). 14

Paragraph 1.18 of the Investor Settlement does not impugn 15 the POA. The Investor Settlement explicitly stated that 16 allocation of the FDA would be decided separately. It is 17 implausible that the parties intended to drastically limit the 18 terms of that allocation through a vague reference to 19 entitlement buried in the definitional section of the 20 settlement. 21

Viewed in context, ¶ 1.18 is more naturally read as a 22 statement of eligibility, rather than a guarantee of recovery. 23 See Huertas v. East River Hous. Corp., 992 F.2d 1263, 1267 (2d 24 Cir. 1993) (“[A] court may look to certain aids, such as the 25 circumstances surrounding a settlement agreement’s formation, 26 when construing it for enforcement purposes.”). 27

**3.** Philadelphia Financial contends that the POA should be 28 rejected because it conflicts with the funds’ governing 29 documents. Many of the funds are limited partnerships whose 30 partnership agreements dictate the allocation of assets, 31 including upon liquidation. The partnership agreements 32 generally require that assets of the fund be distributed 33

to Federal Rule of Civil Procedure 23 was not an abuse of discretion. Moreover, because the POA was a mechanism to
resolve the derivative (rather than class action) claims in this litigation, Rule 23 is arguably inapplicable.1 1 proportionally according to the value of each investor’s 1 capital account, whereas the POA distributes FDA assets based 2 on an investor’s net equity in a given fund. 3

However, the Investor Settlement rendered the funds’ 4 governing documents irrelevant for purposes of allocation. 5 When the funds and their investors signed the Investor 6 Settlement, all assets flowing into the FDA became subject to 7 equitable distribution by the district court. See J.A. 285, 8 ¶ 2.23 (explaining that the FDA will be disbursed to the funds’ 9 limited partners and shareholders pursuant to a plan of 10 allocation approved by the district court). In other words, 11 because the POA determines how the FDA is distributed to 12 investors, the funds’ partnership agreements do not control. 13 And because the partnership agreements would not allocate 14 assets more fairly than the POA (and would risk giving effect 15 to Madoff’s fictitious account statements), the district court 16 did not abuse its discretion in ignoring them. 17

**4.** Martin claims that the mediation was tainted by secret, 18 collusive side-deals, and that the district court erred in 19 denying his motion for disclosure of all agreements reached 20 during the mediation process. Martin relies on Federal Rule 21 of Civil Procedure (“Rule”) 23(e)(3), which requires that 22 parties seeking approval of a proposed class action settlement 23 “file a statement identifying any agreement made in connection 24 with the proposal.” Fed. R. Civ. P. 23(e)(3). 25

As an initial matter, Rule 23, which governs class actions, 26 is arguably not controlling here. The FDA, unlike the NSF, 27 resolves the non-class derivative claims in this litigation. 28

In any event, all mediation attendees signed a 29 confidentiality agreement which covered “all statements of the 30 parties, counsel, and mediators, as well as the materials 31 generated solely for purposes of the mediation.” J.A. 1691. 32 Attendees also orally agreed “that the entire mediation process 33 and all communications, negotiations and agreements pursuant 34 thereto were covered with a complete cloak of confidentiality 35 and must remain confidential, including in particular, being 36 off limits from discovery, court papers, arguments or other 371 2 Court proceedings, absent further agreement by the parties.” 1 J.A. 2178. 2

Rule 23 does not require disclosure of all agreements made 3 during confidential mediation. As we have observed: 4

A party seeking disclosure of confidential mediation 5 communications must demonstrate (1) a special need for 6 the confidential material, (2) resulting unfairness 7 from a lack of discovery, and (3) that the need for 8 the evidence outweighs the interest in maintaining 9 confidentiality. All three factors are necessary to 10 warrant disclosure of otherwise non-discoverable 11 documents. 12

Savage & Assocs. P.C. v. K&L Gates LLP (In re Teligent, Inc.), 13 640 F.3d 53, 58 (2d Cir. 2011) (citations omitted). 14

The district court found that there was no reason to believe 15 that any agreements reached during mediation were collusive, 16 and that the need for c onfidentiality outweighed the need for 17 disclosure. Given the importance of encouraging mediation in 18 this tangled matter, the mediator’s testimony regarding the 19 fairness of the negotiations and the evident fairness of the 20 POA, the district court did not err in denying Martin’s motion 21 to revoke confidentiality. See id. at 59-60 (“Were courts to 22 cavalierly set aside confidentiality restrictions on 23 disclosure of communications made in the context of mediation, 24 parties might be less frank and forthcoming during the mediation 25 process or might even limit their use of mediation 26 altogether.”). 27

**5.** Appellants (with the exception of Martin) argue that 28 the district court erred in awarding Lead Counsel a fee equal 29 to three percent of the FDA, 7 capped at two-and-a-half times the 30 “lodestar” of counsel’s hourly rate multiplied by hours worked. 8 31 If, as the parties anticipate, the Trustee pays approximately 32

7 The three percent is not applied against Rye XL’s $32.4 million priority distribution.

8 The district court also awarded Lead Counsel nearly $1 million in expenses.1 3 $1.45 billion into the FDA, this cap will likely be triggered 1 and Lead Counsel will receive in excess of $40 million. 2

“We review a district court’s award of attorney’s fees for 3 abuse of discretion, which occurs when (1) the court’s decision 4 rests on an error of law (such as application of the wrong legal 5 principle) or clearly erroneous factual finding, or (2) its 6 decision -- though not necessarily the product of a legal error 7 or a clearly erroneous factual finding -- cannot be located 8 within the range of permissible decisions.” McDaniel v. Cty. 9 of Schenectady, 595 F.3d 411, 416 (2d Cir. 2010) (internal 10 citation, quotation marks, and brackets omitted). 11

In absolute terms, an award of three percent of a common 12 fund is not excessive, as numerous opinions confirm. 9 However, 13 the calculation is guided by several (non-exclusive) factors: 14 “(1) the time and labor expended by counsel; (2) the magnitude 15 and complexities of the litigation; (3) the risk of the 16 litigation; (4) the quality of representation; (5) the 17 requested fee in relation to the settlement; and (6) public 18 policy considerations.” Goldberger, 209 F.3d at 50 19 (alterations and quotation marks omitted). Further, fee 20 awards should be approached “with an eye to moderation,” and 21 “should be assessed based on scrutiny of the unique 22 circumstances of each case, and a jealous regard to the rights 23 of those who are interested in the fund.” Id. at 53 (internal 24 quotation marks omitted). 25

9 See, e.g., In re Nortel Networks Corp. Secs. Litig., 539 F.3d 129, 134 (2d Cir. 2008) (affirming fee award equal to 3% of $438 million fund and acknowledging that f ee was “toward the lower end of reasonable fee awards”); Wal-Mart Stores, Inc. v. Visa

U.S.A. Inc., 396 F.3d 96, 123 (2d Cir. 2005) (affirming fee award equal to 6.5% of $3.38 billion common fund); Goldberger, 209 F.3d at 52 (observing that “empirical analyses demonstrate that in cases like this one, with recoveries of between $50 and $75 million, courts have traditionally accounted for these economies of scale by awarding fees in the lower range of about 11% to 19%”); Carlson v. Xerox Corp., 596 F. Supp. 2d 400, 414 (D. Conn. 2009), aff’d, 355 F. App’x 523 (2d Cir. 2009) (summary order) (awarding fee equal to 16% of $750 million common fund).1 4 The district court concluded that the Goldberger factors 1 supported Lead Counsel’s requested fee, stating in relevant 2 part: 3

In its work on the FDA, [Lead] Counsel has 4 unquestionably put forth great labor. Furthermore, 5 the litigation has been highly complex, involving a 6 great deal of unsettled law, many parties, and a 7 voluminous case history. [Lead] Counsel has 8 displayed great skill in managing these challenges. 9 Objectors uncharitably characterize [Lead] Counsel as 10 mere “administrators” of the FDA. In fact, [Lead] 11 Counsel’s driving role in structuring the FDA as part 12 of the [Investor] Settlement, and thereafter working 13 to mediate conflicts and effect a fair and expedient 14 distribution of the funds, has gone well beyond rote 15 administration. In short, the allocation and 16 distribution of the FDA is a complex matter of great 17 importance to many parties, and [Lead] Counsel has 18 performed admirably. . . . [T]his litigation 19 involved unique practical and legal challenges. The 20 outcome of [Lead] Counsel’s labor was never certain. 21

In re Tremont Sec. Law, State Law & Ins. Litig., No. 08-CV-11117, 22 2015 WL 5333494, at *10, 2015 U.S. Dist. LEXIS 122204, at *36-38 23 (S.D.N.Y. Sept. 14, 2015). 24

We do not question the district court’s characterization 25 of Lead Counsel’s performance or the complexity or importance 26 of this matter. However, we think the court gave insufficient 27 consideration to the lack of contingency risk, and that factor 28 is generally the most important in determining whether to award 29 a lodestar multiplier. Goldberger, 209 F.3d at 54 (“We have 30 historically labeled the risk of success as perhaps the foremost 31 factor to be considered in determining whether to award an 32 enhancement.” (internal quotation marks omitted)). 33

The district court identified two risks Lead Counsel 34 supposedly faced. Neither supports Lead Counsel’s requested 35 2.5 lodestar multiplier. 36

The first identified risk was “in bringing the derivative 37 claims that gave rise to the inclusion of the FDA as part of 381 5 the [Investor] Settlement.” In re Tremont, 2015 WL 5333494, 1 at *9, 2015 U.S. Dist. LEXIS 122204, at *34. This is not a 2 proper consideration in relation to this particular fee award. 3 First, Lead Counsel was already compensated for the risk in 4 bringing the derivative (i.e., state law) claims in the fee 5 award for the August 2011 Investor Settlement. See J.A. 617 6 (stating that the 2011 fee award compensated Lead Counsel for 7 “their respective contributions in the prosecution of the State 8
Law Actions and the Securities Actions”); J.A. 619 (finding that 9 had Lead Counsel “not achieved the Settlement, a significant 10 risk would remain that State Law and Securities Plaintiffs and 11 the State Law and Securities Subclasses may have recovered less 12 or nothing”). 13

Second, Lead Counsel is requesting fees for work completed 14 only afterthe district court approved the Investor Settlement 15 in August 2011. 10 It does not do to multiply the fee award here 16 -- which is based on hours worked after the Investor Settlement 17 -- in order to compensate a ris k that dissipated when the court 18 approved that settlement. 19

Third, the hundreds of millions of dollars that have been 20 flowing into the FDA were essentially guaranteed by the July 21 2011 settlement in the Trustee Litigation, a separate case led 22 by separate counsel (who already took their cut) involving money 23 obtained by the Trustee (who is also being compensated). There 24 is no reason to award Lead Counsel a lodestar multiple based 25 on the size of a recovery they did not secure. 11 Nor was there 26 ever a real possibility that the FDA would be so insignificant 27

10 More specifically, Lead Counsel is seeking fees for work completed from May 2011 through August 2015. The district

court approved the Investor Settlement and the initial fee award in August 2011. However, Lead Counsel submitted the initial fee request in May 2011, which explains why they are now seeking fees from May 2011 to August 2011 in addition to fees for work involving the FDA POA after approval of the settlement.

11 Although Lead Counsel was responsible for securing the $100 million NSF, they were paid a thirty-percent fee for that.1 6 that Lead Counsel might be deprived of rich compensation for 1 their work relating to it. 2

The second risk identified by the district court was the 3 “risk[] in defending the Plan of Allocation against objectors.” 4 In re Tremont, 2015 WL 5333494, at *9, 2015 U.S. Dist. LEXIS 5 122204, at *35. However, Lead Counsel’s fee award is not tied 6 to any particular plan of allo cation; rather, it is dependent 7 on the size of the FDA (which is a product of the Trustee’s 8 efforts) and the lodestar -- which only increased as the number 9 of objections to the POA (and thus Lead Counsel’s hours spent 10 defending it) grew. Accordingly, there appears to have been 11 little (if any) risk in defending the POA against objectors, 12 except for the remote possibility that the district court would 13 refuse to approve any plan of allocation submitted by Lead 14 Counsel. 15

Given the lack of contingency risk, a lodestar multiplier 16 cap of 2.5 “cannot be located within the range of permissible 17 decisions.” McDaniel, 595 F.3d at 416; see also City of Detroit 18 v. Grinnell Corp., 495 F.2d 448, 471 (2d Cir. 1974), abrogated 19 on unrelated grounds by Goldberger, 209 F.3d at 49-50 (“The 20 greater the probability of success, of either ultimate victory 21 on the merits or of settlement, the less this consideration 22 should serve to amplify the basic hourly fee.”). A lodestar 23 multiplier of 2.5 would be considered high for a standard common 24 fund case in this Circuit. 12 At the same time, virtually all 25 the cases that feature a multiplier are those in which, unlike 26

12 See, e.g., In re Citigroup Inc. Secs. Litig., 965 F. Supp. 2d 369, 401 (S.D.N.Y. 2013) (citing data regarding lodestar multipliers in securities class action settlements and observing that a multiplier of 2.8 is “high”); In re Merrill Lynch & Co. Research Reports Secs. Litig ., No. 02 MD 1484, 2007 WL 313474, at *23, 2007 U.S. Dist. LEXIS 9450, at *75 (S.D.N.Y.
Feb. 1, 2007) (ruling that “an award that equates to a multiplier
of 2.43 of the lodestar is excessive”); In re Twinlab Corp. Secs. Litig., 187 F. Supp. 2d 80, 87 (E.D.N.Y. 2002) (describing counsel’s requested multiplier of 3.58 as “inconsistent with post-Goldberger courts which have generally refused multipliers as high as 2.03”).1 7 here, the fund was collected by the efforts of counsel with an 1 inherent risk that the litigation would yield less or none. 2

We therefore remand so that the district court can revise 3 the cap to reflect counsel’s limited risk. 13 The specific 4 recalculation, of course, remains subject to the district 5 court’s sound discretion. Although a cap of 2.5 times the 6 lodestar is excessive, one equal to the lodestar is not 7 necessarily required. 8

13 Appellants George Turner, Bindler Living Trust, Madelyn Haines, John Johnson, William J. Millard Trust, Stella Ruggiano Trust, West Trust, and Paul Zamrowski challenge the lodestar multiplier cap on the additional grounds that the district court relied on time summaries (rather than contemporaneous time records) and Lead Counsel’s hourly rates. With respect to time records, although they are ordinarily required, see Scott v. City of New York, 626 F.3d 130, 133-34 (2d Cir. 2010) (per curiam), the district court may rely on summaries that are based

on voluminous contemporaneous records. See Cruz v. Local Union No. 3 of Int’l Bhd. of Elec. Workers, 34 F.3d 1148, 1160 (2d Cir. 1994) (“A review of the submissions made by [counsel] shows that they made contemporaneous entries as the work was completed, and that their billing [summary] was based on these contemporaneous records. We believe this falls sufficiently within the meaning of ‘contemporaneous’ . . . .”). However, the sparse summaries provided by Lead Counsel are of doubtful adequacy. Therefore, on remand, the district court should require the submission of more detailed summaries that, at the very least, break down the hours worked by year and task. With respect to the district court’s use of counsel’s hourly rates to calculate the lodestar, we find no abuse of discretion. Given the skill and experience required in this complex securities litigation, we cannot conclude that those rates were
unreasonable.1 8 Accordingly, and finding no merit in appellants’ other 1 arguments, we hereby **AFFIRM** the judgment of the district court 2 with respect to the plan of allocation and **VACATE AND REMAND** 3 with respect to the fee award. 4

FOR THE COURT: 5 CATHERINE O’HAGAN WOLFE, CLERK 6