00-6676.064 July 12, 2006

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

DOUG SUTTON and PRESCOTT )

NOTTINGHAM, on behalf of )

themselves and all others )

similarly situated, )

)

Plaintiffs, )

)

v. )

) No. 00 C 6676

ROBERT F. BERNARD, )

ROBERT T. CLARKSON, and )

BERT B. YOUNG, ) 

 )

Defendants. )

MEMORANDUM OPINION

This is a class action in which the shareholder plaintiffs

allege securities fraud against three officers of Marchfirst, Inc.

(“Marchfirst”), a Chicago-based consulting corporation. The

complaint alleges that defendants artificially inflated the price

of Marchfirst’s stock by publicly issuing materially false and

misleading statements and failing to disclose material facts

necessary to make those statements not false and misleading.

Marchfirst, which was named as a defendant, filed for bankruptcy

five and one-half months after the complaint was filed. 

The court has under advisement the motion of class counsel for

final approval of a proposed class settlement and an award of

attorneys fees and expenses. We believe the $18,000,000 settlement
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1/ See Ex. 1 to Aff. of Brad N. Friedman in Support of Plaintiffs’

counsels’ Supplemental Petition for Attorneys’ Fees and Reimbursement of Costs

and Expenses (Oct. 21, 2005). We were surprised by the submission of this large

number of requests, since we had made it clear at the time we appointed lead

counsel for the class, Milberg Weiss Bershad & Schulman LLP (“Milberg Weiss”),

and local counsel, Miller Faucher and Cafferty LLP, that these two firms were to

handle all of the legal work for the class. Our intention was to avoid the

inevitable problem of duplication that arises when multiple firms are involved

in the representation. During the progress of the case, none of the additional

firms had appeared before us, and we were never informed of their participation.

In our first Order of May 4, 2006, we asked for an explanation of the use of

these additional firms. Lead counsel filed a response, Aff. of Brad N. Friedman

(June 9, 2006), explaining that the case involved more document review than

Milberg Weiss was able to handle by itself and that the additional firms did

necessary work that was not done by Milberg Weiss. Therefore, there was no

additional expense to the class. The problem with this explanation is that, as

far as the work is concerned, the voluminous time records make it impossible for

the court to verify that there was no duplication. It is that very impossibility

that was the reason for our limitation on the number of firms. Because the total

fee we award will be a percentage of the settlement, rather than a lodestar fee,

it is true that the additional lawyers will not result in an increase in the fee.

It is the expenses for which reimbursement is sought that give rise to the

problem. Expenses incurred in connection with duplicate or overlapping work are

likely to be unnecessary.

is reasonable, considering the uncertain outcome of the legal and

factual questions that would be involved in a trial of the case, as

well as the problems that would be encountered in collecting a

judgment in excess of the proposed settlement amount. No class

member has objected to the settlement, and we believe it is in the

best interest of the class that it be approved. Accordingly, we

will grant final approval of the settlement.

What remains, then, is the matter of fees and expenses. We

will deal first with the expenses.

Request for Reimbursement of Expenses

The original request of class counsel was for reimbursement in

the amount of $757,274.23, which covered the expenses of fifteen

different law firms.1 We had questions about some of the expense
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2/ Aff. of Brad N. Friedman in Support of Plaintiffs’ Counsel’s

Submission of Additional Information Concerning Their Unreimbursed Expenses. 

3/ Id. at Ex. 5.

items, and, in our first Order of May 4, 2006 (the “First Order of

May 4") we requested further information. It was provided by

counsel on June 22, 2006.2 As part of the response, some of the

reimbursement requests were reduced, with the revised total being

$701,824.01.3 But we believe further reductions are required.

The cost of computer-assisted legal research is included in

attorneys fees and is not separately recoverable as an expense.

Montgomery v. Aetna Plywood Inc., 231 F.3d 399, 409 (7th Cir. 2000).

Therefore, the following amounts claimed by the following law firms

for computer research will be deducted from the requested expense

award: 

Milberg Weiss $22,348.00

Miller Faucher and Cafferty 522.70

Berger & Montague 4,335.22

Shiffrin & Barroway 3,400.00

Wolf Haldenstein Adler

 Freeman & Herz 4,029.61

Faruqi & Faruqi 1,230.00

Futterman & Howard 232.00

Bernard M. Gross 684.70

Marc S. Henzel 78.24

Lowenstein Sandler PC 456.60

 Total: $37,317.07

Another expense we questioned in our First Order of May 4 was

secretarial overtime. We observed that “[t]his is the kind of cost

that is normally included in a lawyer’s overhead. In order to

recover this expense, counsel should provide case authority for the
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allowance.” (First Order of May 4 at 3.) In their response,

counsel cited two district court cases, one from the Eastern

District of Pennsylvania and the other from the District of

Colorado. (Response of June 22, 2006 at 9, ¶ 24.) Both cases

allowed reimbursement for secretarial overtime, but without

discussion and without providing any rationale. In their research

that came up with the Pennsylvania and Colorado cases, it would

have been impossible for counsel not to have found two cases that

are squarely on point and closer to home. In In re Abbott

Laboratories Omniflox Products Liability Litigation, No. 94 C 2469,

1997 WL 162891, at * (N.D. Ill. Mar. 26, 1997), Judge Aspen of this

court denied a request for reimbursement of secretarial overtime:

“[S]ecretarial overtime is overhead and will not be granted.”

Judge Aspen cited Spicer v. Chicago Board Options Exchange, Inc.,

844 F. Supp. 1226, 1261 (N.D. Ill. 1993), where Judge Will of this

court denied reimbursement for secretarial overtime because “as

with all clerical salaries,this is part of overhead.”

The decisions of Judges Aspen and Will are obviously in accord

with our own preliminary impression, and we will deny the following

requests for secretarial overtime:

Milberg Weiss $4,125.77

Lowenstein Sandler 25.00

 Total: $4,150.77

We are disappointed that counsel did not cite the Abbott

Laboratories and Spicer cases, especially since the firm that was
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denied reimbursement for secretarial overtime by Judge Aspen in

Abbott Laboratories was Miller Faucher and Cafferty, local counsel

in this case. Rule 3.3(a)(3) of the Illinois Rules of Professional

Conduct provides that “a lawyer shall not ... fail to disclose to

the tribunal legal authority in the controlling jurisdiction known

to the lawyer to be directly adverse to the position of the client

and not disclosed by opposing counsel.” Our Local Rule 83.53.3

adopts the same language. This matter of secretarial overtime is

an illustration of the fact that “class actions are rife with

potential conflicts of interest between class counsel and class

members,” Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781, 785 (7th

Cir. 2004).

It was necessary for counsel to incur expenses of travel,

meals and hotel stays in connection with trips to court, to

depositions and to places where documents had to be reviewed on

site. We have requested information about the travel expenses and

meals, and, assuming the trips and meals were necessary (see n.1,

supra) the amounts were reasonable. (Air travel, for instance, was

by coach unless in some unusual circumstance a business class fare

was cheaper). We are, however, concerned about the average hotel

bill incurred by Milberg Weiss. It was $450.00, whereas the bills

incurred by all other counsel were in the area of $200 to $250. In

response to an inquiry we made of Milberg Weiss, we are informed

that their total hotel bills were $11,722.53. We will exclude
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4/ “What experts were retained, what were they paid, and what did their

services contribute to the plaintiffs’ case? Copies of the experts’ reports and

invoices should be provided.” (First Order of May 4, 2006 at 2.)

approximately 50 percent of that amount, or $5,800.00, in order to

bring Milberg Weiss’s reimbursement into line with that of their

colleagues. As Judge Aspen remarked in Abbott Laboratories, “[n]o

first-class airfare, expensive hotels, or lavish meals were

reasonably necessary to discovery. Attorneys should not view

representation of the consolidated plaintiffs as an opportunity to

travel in style.” 1997 WL 162891, at *2. 

 In its original fee petition, Milberg Weiss requested

reimbursement for fees it paid to experts, consultants and other

professionals. These were stated to be a total of $106,737.06,

with a reference to an “Exhibit 4" to the petition. Exhibit 4 is

simply a list of various categories of expenses and their amounts.

One category is “Professional Fees (Expert/Consultant)” in the

amount of $106,737.06, without any detail. In our First Order of

May 4, we asked counsel to explain this expense item.4 Counsel’s

response of June 22, 2006 ignored our specific inquiry as to the

identity of the experts, referred again to “Exhibit 4,” and stated

that “[d]ue to an accounting oversight,” the fee petition had

included as an expense a payment that Milberg Weiss had made to the

law firm of Lowenstein Sandler for legal services rendered in

connection with the bankruptcy issues in the case. The payment was

said to be approximately $15,000.00. Milberg Weiss advised that it
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“no longer seeks to be reimbursed for that expense,” and reduced

the claim for experts, consultants and other professionals from

$106,736.06 to $89,222.90. (Aff. of Brad N. Friedman in Support of

Plaintiffs’ Counsel’s Submission of Additional Information

Concerning Their Unreimbursed Expenses at 4 & Ex. 2.) (The legal

bill of Lowenstein Sandler was actually $17,514.16). Still,

however, we had no listing of the experts, no explanation of their

services, no copies of their reports and no invoices. We needed

this information in order to evaluate the reduced claim of

$89,222.90, and a member of our staff made three telephone requests

of counsel to provide a copy of the missing “Exhibit 4.” Finally,

on June 29, 2006, Exhibit 4 was hand-delivered to chambers. It

consists of a sheaf of copies of market studies and other reports

of properly reimbursable work done by experts and service

providers, along with copies of their invoices. But also included

are invoices totaling $15,047.61 from the law firm Tishler & Wald,

Ltd. for services rendered in connection with the litigation

between the class and Marchfirst’s bankruptcy trustee. The work

described in these invoices consisted entirely of legal services,

such as court appearances, legal research, conferences with other

counsel, drafting of pleadings and the like. If we were to allow

this charge as an “expense,” the effect would be to increase the

legal fees we might otherwise award. Counsel eliminated the legal

fees of Lowenstein Sandler in response to our May 4 inquiry, and we
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5/ Computer-assisted research, $37,317.07; secretarial overtime,

$4,150.77; hotel expense, $5,800.00; Tishler & Wald, $15,047.61.

6/ To quote from that order: “The court agrees that the percentage method

is the more practical. In fact, an accurate analysis of the voluminous time

records submitted in this case would be extraordinarily difficult, if not

impossible. Counsel have nonetheless submitted these time records in support of

their requested percentage fee, arguing that the time spent is one justification

for the requested percentage.” (Second Order of May 4, 2006 at 1.) 

are puzzled as to why they did not also eliminate the legal fees of

Tishler & Wald.

The $15,047.61 charge for the legal services of Tishler &

Wald, Ltd. will be excluded from expense reimbursement. Those

services will be covered by the amount awarded for attorneys fees.

Counsel pared their original $757,274.23 request by $55,450.22

in response to our inquiries, resulting in a revised request of

$701,824.01. The additional reductions we have made in this

opinion come to another $62,315.45,5

 lowering the $701,824.01 to

$639,508.56. This will be the amount of the expense award.

Attorneys Fees

As we indicated in our Second Order of May 4, 2006, we agree

with class counsel that their fees should be based on a percentage

of the recovery rather than on the time they have spent.6 This

brings us to the question, percentage of what? Counsel seek 28

percent of the total settlement amount of $18,000,000. The request

makes no sense because it would allow as attorneys fees a

percentage of the $639,508.56 we have just held must be deducted

from the settlement for expenses. The distribution to the class
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members would be reduced not only by the expenses, but by an

additional amount consisting of a percentage of the expenses. For

example, the class would be paying, as fees on top of the expenses,

a percentage of the amounts spent by counsel for travel, meals and

hotels. Counsels’ memorandum in support of their fee petition

makes no effort to justify this approach and apparently takes it

for granted that this is the way it should be done. But the

Seventh Circuit has rejected the argument that the district court

is obliged to award a percentage of the gross recovery:

We begin with class counsel’s contention that its fee

should be based on the gross settlement recovery–the

settlement recovery before counsel’s cost award is

deducted–rather than the net recovery-the recovery after

the cost award is deducted. Counsel cites no authority

standing for the proposition that gross recovery is to be

preferred over net recovery as the basis for calculating

a fee under the percentage-of-recovery method, nor has

our review of the relevant case law revealed any

authority to that effect. Moreover, counsel has not come

forward with evidence indicating that private contingent

fee arrangements typically employ one or the other basis,

nor has counsel suggested any logical reason that gross

recovery should be the preferred basis. As such, it is

impossible to conclude that the district court abused its

discretion in using net recovery as a basis for awarding

attorneys’ fees.

Montgomery, 231 F.3d at 408. We will award a percentage of the net

recovery, not a percentage of the gross recovery.

The next question is what percentage of that recovery should

be awarded. As the Supreme Court said in Hensley v. Eckerhart, 461

U.S. 424, 436 (1983), “the most critical factor is the degree of

success obtained.” The Court went on to say that “where the
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7/“[T]he law of this circuit [is] that in common fund cases, the decision

whether to use a percentage method or a lodestar method remains in the discretion

of the district court.” Florin v. Nationsbank of Georgia, N.A., 34 F.3d 560, 566

(7th Cir. 1994).

8/ The request is for a percentage of the gross recovery, and, as discussed

supra at 9, the percentage we allow will be based on the net recovery. Twenty-

(continued...)

plaintiff achieved only limited success, the district court should

award only that amount of fees that is reasonable in relation to

the results obtained.” Id. at 440 (emphasis added). Hensley

dealt with a lodestar fee (in fact, it was the case that

established the lodestar approach as the preferred method of

determining court-awarded fees), but we can think of no reason the

holding does not apply as well to percentage fees. The percentage

approach is now permitted in common-fund cases,7 and we are aware

of no case that has held the degree of success is unrelated to the

selection of an appropriate percentage. It would be a strange rule

that would say that limited success could not justify a large

lodestar fee but could justify a percentage yielding the same

dollar amount. Therefore, although we have not found a case

expressly discussing the point — probably because no one has ever

contended otherwise – we hold that the degree of success has the

same critical importance in determining percentage fees as it does

in determining lodestar fees.

We turn now to the petitioners’ arguments in support of their

request for fees in the amount of 28 percent of the settlement

amount.8

 They state that, “[t]hrough their efforts, Petitioners
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8/(...continued)

eight percent of the net would come to $4,860,937.60.

have obtained a significant recovery for the Class,” and point out

that a percentage of 28 percent is in the range of what is often

approved by the judges of this district in common fund cases.

(Mem. In Support of Plaintiffs’ Counsels’ Joint Pet. For an Award

of Attorneys’ Fees and Reimbursement of Costs and Expenses at 1,

7.) They also emphasize that the combined lodestar of the

petitioning firms would come to $5,693,884.50, id. at 8, and that

there was a substantial risk of non-payment. Nonetheless, “they

collectively risked more than 14,600 hours of labor and incurred

more than $744,000 in out-of-pocket expenses in what ultimately was

a highly successful result for the Class.” Id. at 10 (emphasis

added). 

Petitioners are obviously aware of the importance of a

successful result, but they offer only their conclusory references

to success, without explanation. In order to find out more about

what was achieved for the class, we entered an order on May 3, 2006

requesting answers to specific questions about the benefit the

class members will receive. Counsel responded with the following

information. A total of 11,718 class members will share in the

settlement. The median number of shares held by class members

participating in the settlement is 400. Total recognized claims

are $438,817,661. The largest recognized claim is $23,400 and the
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smallest is $1. The median recognized claim amount is $2,300. The

settlement represents a recovery of 19 cents per share, before

attorneys fees and expenses. 

What this information reveals is that the $18 million gross

settlement represents about 4 percent of recognized claims. The

net settlement of $17,360,492 is a little less than 4 percent of

recognized claims. The distribution to a class member holding the

median number of shares (400) will be $78, before deducting

attorneys fees and expenses. This means, of course, that the half

of the class members owning less than 400 shares will each receive

a distribution of less than $78.

If these are good results, it would follow that the claims of

the class were virtually worthless to begin with. But we do not

assume that experienced class counsel would have undertaken a case

with no merit, or spent the time they have recorded on a case they

thought would yield so little. Rather, what obviously occurred

here is that, for the very reasons we have approved the settlement,

counsels’ expectations have been overtaken by events, including the

bankruptcy of Marchfirst and the emergence of general creditors

represented by the bankruptcy trustee. The legal and practical

problems discussed in detail in counsels’ memorandum requesting

final approval of the settlement have caused a reevaluation of the

prospects of success and a willingness to accept what the

defendants and their insurance companies are willing to offer. 
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9/ Because settlement of a class action, like settlement of

any litigation, is basically a bargained exchange

between the litigants, the judiciary’s role is properly

limited to the minimum necessary to protect the interest

of the class and the public. Judges should not

substitute their own judgments as to optimal settlement

terms for the judgment of the litigants and their

counsel.

Gautreaux v. Pierce , 690 F.2d 616, 638 (7th Cir. 1982) (quoting Armstrong v.

Board of Sch. Dirs., 616 F.2d 305, 315 (7th Cir. 1980), overruled on other

grounds by Felzen v. Andreas, 134 F.3d 873 (7th Cir. 1998)). See also Ruiz v.

McKaskle, 724 F.2d 1149, 1152 (5th Cir. 1984) (“In the absence of fraud or

collusion, the trial court ‘should be hesitant to substitute its own judgment for

that of counsel.’”) (quoting Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir.

1977); 7B Charles Alan Wright et al., Federal Practice and Procedure § 1797 (3d

ed. 2005).

We believe class counsel obtained what may well be the best

settlement possible under the circumstances. We had no basis for

rejecting their settlement recommendation.9 But, unfortunately for

the class, this has nothing to do with the degree of success

achieved. We do not see how a net recovery as small as this one

could justify attorneys fees in the $5 million range that counsel

are requesting. We believe it would demean the judicial system to

allow that request when the median distribution, before deducting

fees and expenses, will be less than $80 per class member. In a

different but still instructive context (civil rights litigation),

the Seventh Circuit has held that the recovery of only a small

percentage of the amount demanded can warrant the reduction or

outright denial of attorney’s fees. See Fletcher v. City of Fort

Wayne, 162 F.3d 975, 976 (7th Cir. 1998) (fees denied where

settlements were 3.3 percent and 8.3 percent of plaintiffs’

demands); Cole v. Wodziak, 169 F.3d 486, 489 (7th Cir. 1999)
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10/ “Class actions were originally created to efficiently address a large

number of similar claims by people suffering small harms. Today they are too

often used to efficiently transfer the large fees to a small number of trial

lawyers, with little benefit to the plaintiffs.” Fears v. Wilhelmina Model

Agency, Inc., No. 02-Civ. 4911 (HB), 2005 WL 1041134, at *5 (S.D.N.Y. May 5,

2005).

(“[r]ecovering less than 10% of the demand is a good reason to

curtail the fee award substantially.”). We view the situation in

light of the Seventh Circuit’s observation that “inflated

attorneys’ fees are an endemic problem in class action litigation

and the fee applications of such attorneys must therefore be given

beady-eyed scrutiny by the district judge.” Reynolds v. Beneficial

Nat’l Bank, 288 F.3d 277, 286 (7th Cir. 2002).10 See also Mirfasihi,

356 F.3d at 783-85, observing that one of the “warning signs” of

the unfairness of a class action settlement is “a handsome fee for

the class lawyers, despite the meagerness of the relief agreed to

in the settlement.” Our objective should be to award a fee that is

fair but not excessive in relation to what has been achieved for

the class. 

One of the points urged by petitioners is that they took the

risk of working for nothing. This is a common argument in support

of large fees in class actions, but it has no relationship to

reality. Trials of class actions are an extreme rarity. For

practical purposes, they are all settled, and class counsel expect

them to be settled. The prospect that class counsel will try the

case, lose it and therefore be paid nothing for their efforts is,
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in the experience of almost all class action lawyers, a mere

whimsy. Attorneys fees are paid out of the settlement proceeds,

just as will happen here. The size of the fees may not be what

counsel would like, because the recovery may be smaller than they

would like. But there will virtually always be some recovery by

way of settlement, and counsel will receive fees at least equal to

the reasonable value of what they have accomplished. In this case,

the recovery is small and the return to the individual class

members is a token. In that situation, who should bear the

consequences of the small recovery – the class members alone, or

the class members and their attorneys? The only fair answer in our

opinion is that the consequences of the small settlement must be

shared by attorney and client. Hensley permits no other result.

If 28 percent is excessive — and we think it clearly is – then

what is a reasonable percentage? There is no formula for arriving

at a “right” result, and opinions can differ. We are not disposed

to award token fees just because there is a token recovery.

Counsel tried hard and the shortfall was not of their doing. On

the other hand, there has to be recognition of the fact that their

services yielded little of consequence to the class. 

This court has a duty to the class members to see to it that

their already small recovery is not further diminished by excessive

fees. It has a duty to class counsel to be fair and balanced in

considering their claim for compensation. Finally, it has a duty
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to the public to reach a judgment that will not only be fair, but

will have the appearance of fairness. We have concluded that a

fee of 15 percent of the net settlement of $17,360,492, or

$2,604,073.80, is the highest we can award consistent with these

objectives. We will round the number off to $2,605,000.

Conclusion

The class settlement in the amount of $18,000,000.00 will be

approved. Class counsel will be allowed reimbursement of expenses

in the amount of $639,508.56 and attorneys’ fees in the amount of

$2,605,000. A separate order so providing will be entered this

date.

DATE: July 12, 2006

ENTER: ____________________________________________

John F. Grady, United States District Judge