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# I n R e: C e nd a n t C or p P r ides Lit i g a t ion

P r e c e de n t i al or N on-P r e c e de n t i al :

D ock e t 99-5555

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### R e c omme nde d C it a t ion

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. e du/thir dc ir c uit_2001/55Filed March 21, 2001

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 99-5555

IN RE: CENDANT CORPORATION PRIDES LITIGA TION

WELCH & FORBES, INC., an institutional investment manager, individually and on behalf of all others similarly situated,

v.

CENDANT CORPORATION, MERRILL LYNCH & CO.; CHASE SECURITIES, INC.; HENRY R. SILVERMAN; WALTER A. FORBES; COSMO CORIGLIANO

JOANNE A. ABOFF FAMILY TRUST,

Appellant

Pursuant to Rule 12a

On Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 98-02819) District Judge: Honorable William H. W alls

Argued: Friday, December 15, 2000

BEFORE: SCIRICA, FUENTES and GARTH, Circuit Judges

(Opinion Filed: March 21, 2001)Howard B. Sirota (argued)

Sirota & Sirota LLP 110 Wall Street, 21st Floor New York, New York 10005

Counsel for Appellant

Roger Kirby (argued) Kirby McInerney & Squire LLP 830 Third Avenue, 10th Floor New York, New York 10022

Counsel for Plaintiffs-Appellees

Samuel Kadet (argued) Skadden, Arps, Slate, Meagher &

Flom LLP Four Times Square New York, New York 10036

Counsel for Defendants-Appellees

OPINION OF THE COURT

GARTH, Circuit Judge:

This appeal arises out of a class action filed on b ehalf of investors in Cendant Corporation ("Cendant") after Cendant disclosed prior "accounting irregularities" on Apri l 15, 1998.1
Several actions were filed as a result of this disc losure, including an action commenced on June 15, 1998 on behalf of purchasers of Cendant's Feline PRIDES sha res. The PRIDES litigation was subsequently consolidated with the other pending Cendant actions. However, on Augu st 4, 1998, the District Court ruled that separate lead p laintiffs and lead counsel were to represent the interests of the PRIDES shareholders, as distinct from the rest of t he Cendant class. (JA1300-01.)

The firm of Kirby, McInerney & Squir e, formerly Kaufman, Malchman, Kirby & Squire, ("Kirby") was

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1. Although there are other defendants, we refer to all the defendants as

Cendant.

2appointed as lead counsel of the Cendant PRIDES cla ss. On

November 12, 1998, Kirby filed a motion for class certification, for summary judgment on the claims u nder S 11 of the Securities Act, and for injunctive reli ef. On behalf of the PRIDES class, Kirby entered into a pr oposed settlement agreement with Cendant on Mar ch 17, 199 9-- three and a half months after Kirby's motions were filed
and no more than nine months after the action had b een started.

Under the settlement agreement, Cendant agr eed to issue Rights to new PRIDES, with a stated value of $11.71

. (JA576-79.) Those rights were in trade for existing PRIDES. The total possible number and amount of Rights to b e distributed pursuant to the agreement was 29,161,47 4, with an approximate stated value of $341,500,000. ( JA590.) Regarding Kirby's attorneys' fees, the settlement a greement provided: "Cendant . . . will take no position on a n application by Lead Counsel for an award of fees an d expenses provided that such application shall not r equest fees in excess of 10% percent [sic] of the aggregat e Stated Value of 29,161,474 Rights, which is appr oximately $341,500,000, plus reasonable expenses incurr ed by Lead Counsel in connection with this Action." (JA590.)

The Notice of Pendency of Class Action summarized t he proposed settlement of the PRIDES litigation. (JA23 9-52.) In connection with "Lead Counsel's fees and expense s," the
Notice stated: "Lead Counsel has notified the other signatories hereto that it intends to apply to the Court for an award of fees, in an amount not to exceed 10% of the aggregate Stated Value of 29,161,474 Rights, or approximately $34.1 million, plus reasonable expens es." (JA247.) The Notice went on to explain how the atto r neys' fees would be paid, first out of "Unclaimed Rights, "2 then

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2. "Unclaimed Rights" are defined in the Stipulatio n and Agreement of Compromise and Settlement as "Rights as to which a timely and valid Proof of Claim has not been filed by a Holder ." (J A576.) All Unclaimed Rights "shall be cancelled and Cendant shall not is sue, sell, or
distribute any further Rights to any other person." (Notice of Proposed Settlement, JA248.) In addition, the Settlement provided that, though "Merrill Lynch beneficially owned 738,526 PRIDES as of the close o f business on April 15, 1998, Merrill Lynch nevertheless is not a class member and cannot
recover new PRIDES in connection with the Settlemen t." (JA577.)

3out of "Opt Out Rights," then out of the rights of class

members with claims.3

The Notice also asserted:

You also should know that the lead counsel appointment process included a court-manda ted bidding process. This was intend to assur e that the largest possible portion of any recovery r emained with participating class members, or conversely that qualified lead counsel took the least poss ible sums from the benefits to be obtained by partic ipating class members. In Lead Counsel's view, under the fee mechanism proposed by Lead Counsel and des cribed herein, there is a substantial likelihood that a substantial part, if not all, of the fees sought will be obtained from Unclaimed Rights and Opt Out Rights. As a consequence, in Lead Counsel's view, those Class
Members who become Authorized Claimants wi ll not have to pay any of Lead Counsel's fees, or if they do,
there is a substantial likelihood that it will be less than the amount otherwise payable under the bid s appr oved by the Court in the process of appointing lead counsel.

(JA247.)

On May 4, 1999, the Joanne A. Aboff Trust ("Trust") filed several objections to the notice of settlement, all of which pertained to Kirby's representation and fee request ,4 as well

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3. The settlement consisted of 29,161,474 Rights. A fter subtracting the attorneys' fees and expenses for Lead Counsel, 27,3 08,617 Rights remained. Proofs of Claim were filed with respect t o 26,606,422 Rights, of which 22,502,782 Rights were validated by the cl aims administrator as of August 18, 1999. (Kirby Aff., Ex. L, atP 2.) Pursuant to the settlement agreement, the unclaimed Rights that wer e not used to pay Kirby for its fees and expenses were to be canceled by Cendant. Because the total amount of Rights requested in the Pr oofs of Claim (26,606,422 Rights) was less than the amount of the settlement, after subtracting the amount to be given to Kirby (1,650,680 Rights, valu ed at $19,329,463), no claiming class members have had or will have the ir recovery reduced by the fees and expenses taken by Kirby.

4. The Trust's objections concerned: 1) a "confiden tial Supplemental Agreement" between lead plaintiff and Cendant which was included in

4as a notice of its intention to appear at the settl ement

hearing. (JA38-78.) At the settlement hearing on Ma y 18, 1999, lead counsel stated that "[t]her e is no obje ction to the settlement," (JA736), and the Trust's attor neys ob jected only to selection of class counsel and Kirby's r eq uest for attorneys' fees.

On June 15, 1999, the District Court signed an Opin ion and Order approving the settlement, stating: "The C ourt considers the settlement to be eminently fair and reasonable. The class is made completely whole by s uch compensation. There are no objections voiced to the settlement--only to the request for attor ney fees. The proposed settlement is approved subject to the foll owing modifications to the attorneys' fees." In re Cendan t Corp. PRIDES Litig., 51 F.Supp.2d 537, 541 (D.N.J. 1999).

The District Court granted Kirby's request for expe nses, finding that the requested expenses of $2,367,493 w ere "reasonable and necessary to the prosecution of thi s litigation." 51 F.Supp.2d at 542. Then the Court fo und that, for attorneys' fees, Kirby should receive a number of Rights equivalent to 5.7% of the balance of Rights r eceiv ed by the Class. That percentage amounts to 1,650,680 Rights, valued at approximately $19,329,463. The District C ourt directed "Lead Counsel to seek to satisfy payment o f these awards of expenses and fees from any unclaimed Righ ts. Then, and only then, to the extent that such fees a nd expenses have not been satisfied by unclaimed Right s, shall any deficiency be assessed against and bor ne by th e class." 51 F.Supp.2d at 542. The Court went on to instruct that "[a]ny rights unclaimed after authorized class clai mants

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the Settlement but not published and apparently con tained information about Cendant's and Lead Plaintiff 's obligations u nder the Settlement; and 2) "lead counsel's excessive fee request." (JA3 9-40.) The Trust argued, inter alia, that "[t]he combination of this unusual confidential agreement with Lead Counsel's excessive fee r eques t . . . multiplies the potential that the class and the public will suspec t that the settlement contains a collusive or improper provision by which Lead Plaintiff, Lead Counsel, and/or Cendant will benefit at the expense of the class." (JA46.) The text of this "Supplemental Agr eement" does not appear in the record, nor can we tell if it was discussed in the Notice.

5and Lead Counsel have been issued their entitled Ri ghts

shall be canceled by Cendant Corporation." 51 F .Su pp.2d

at 542.

On June 15, 1999, the District Court entered an Ord er and Judgment5 certifying the PRIDES class for settl ement, approving the settlement "and the distribution of R ights
and New PRIDES to Authorized Claimants set forth therein," dismissing with prejudice all settled cla ims, and awarding Lead Counsel 1,650,680 Rights as r easonab le attorneys' fees and 202,177 Rights as r eimbursemen t of Lead Counsel's reasonable expenses. (JA728-30.) On the same date and as part of its opinion, the District Court denied the Trust's application for attor neys' fees . On July 22, 1999, the Trust timely appealed the District Co urt's June 15 Orders and Judgment.

We have jurisdiction over this appeal pursuant to t he final order doctrine of 28 U.S.C. S 1291, and we re view the District Court's award of attorneys' fees for an ab use of discretion, "which can occur `if the judge fails to apply the proper legal standard or to follow pr oper procedur es in making the determination, or bases an awar d upon f indings of fact that are clearly erroneous.' " Zolfo, Coope r & Co. v. Sunbeam-Oster Co., 50 F.3d 253, 257 (3d Cir. 1995) (quoting Electro-Wire Prods., Inc. v. Sirote & Perm utt, P.C. (In re Prince), 40 F.3d 356, 359 (11th Cir. 1994)).

On August 27, 1999, Kirby filed a Motion in this co urt to dismiss the Trust's appeal for lack of standing, as well as presenting the standing issue in its appellate brie f.

I.

Before we consider the merits of the Trust's appeal , a threshold question must be answered: does the Trust have standing to challenge the District Court's awar d o f attorneys' fees to Kirby? See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998) (stating th at "[t]he requirement that jurisdiction be established as a t hreshold

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5. The District Court judge signed both the Opinion and the Order and Judgment on June 15, 1999, but the Opinion was file d on June 16, 1999 and the Order and Judgment was filed on June 2 4, 1999.

6matter `spring[s] from the natur e and limits of th e judicial

power of the United States' and `is inflexible and without exception' "). Because "the core component of stand ing is an essential and unchanging part of the case-or -contr oversy requirement of Article III," Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), we may not hear this appe al if the Trust does not have standing.

"Ordinarily, only a party aggrieved by a judgment o r order of a district court may exercise the statutor y right to appeal therefrom. A party who receives all that he has sought generally is not aggrieved by the judgment a f fording the relief and cannot appeal from it." Deposit Guar . Nat'l Bank v. Roper, 445 U.S. 326, 333 (1980) (emphasis a dded). In Ace Heating & Plumbing Co. v. Crane Co., the Thi rd Circuit explicated the application of this principl e to class actions, holding: "aggrieved class members may appe al any final order of a district court in pr oceedings hel d pursuant to Rule 23. This general proposition holds true eve n though such class members have the right to exclude themse lves from the class." 453 F.2d 30, 32 (3d Cir. 1971) (em phasis
added).

The standing question in this case is troublesome, because it appears as if the PRIDES settlement has provided the class members with full recovery and b ecause any reduction in the amount of attorneys' fees to K irby will not be distributed among the class members, but ins tead those rights will be returned to and canceled by Ce ndant. Therefore, Kirby argues, the T rust is not aggrieve d by the award of attorneys' fees and has no standing to app eal.

While this argument admittedly has a superficial
attraction because the PRIDES class members will seemingly recover a "dollar-for -dollar" return for their claims and Kirby's fees will not reduce their r eco very, we nevertheless hold that the Trust does have standing to appeal the award of attorneys' fees. 6 We base this holding on two related concepts: 1) the nature of the relat ionship between class plaintiffs, class counsel, and defend ants in

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6. Our holding that the Trust has standing to appea l disposes of the motion made by Kirby on August 27, 1999 to dismiss the Trust's appeal. We will deny that motion.

7class actions requires that the "aggrieved" require ment be

construed broadly in class action cases; and 2) the judiciary's independent authority over the appointm ent of class counsel, the grant of attorneys' fees, and th e review of attorneys' fee awards in class actions. In connecti on with these two principles, we require that district cour ts conduct an extensive analysis and inquiry before deter mini ng the amount of fees, because we have an independent inte r est in monitoring district courts' fee awards, particularl y those awards stemming from Rule 23 class actions. See, e. g., Zucker v. Occidental Petroleum Corp., 192 F.3d 1323 , 1328 (9th Cir. 1999); see generally Advisory Committee's Notes on Fed. R. Civ. P. 23, 28 U.S.C., Notes following R ule 23 (addressing, inter alia, "the question of the measu res that might be taken during the course of the action to a ssure procedural fairness"). Indeed, we ar e in effect th ird parties to the fee award process, albeit silent parties for the most part until the award is finalized and r eviewed.

A.

Ostensibly, lead class counsel represents all class plaintiffs. However, in attempting to settle a larg e class action, class counsel must often spend more time negotiating with and interacting with the defendant s than with their own clients. This situation presents sev eral dangers. First, as we observed in Prandini v. Natio nal Tea Co., "a defendant is interested only in disposing o f the total claims asserted against it[, and] the allocation be tween the class payment and the attorneys' fees is of little or no interest to the defense." 557 F.2d 1015, 1020 (3d C ir. 1977). Moreover, the "divergence in [class members' and class counsel's] financial incentives . . . cr eate s the `danger . . . that the lawyers might urge a class settlemen t at a low figure or on a less-than-optimal basis in exchange for redcarpet treatment for fees.' " In r e General Motors Corp. PickUp Truck Fuel Tank Prod. Liab. Litig. (hereinafter "In re GM Trucks"), 55 F.3d 768, 820 (3d Cir. 1995) (quoting Weinberger v. Great Norther n Nekoosa Corp., 925 F. 2d 518, 524 (1st Cir. 1991).

This unique relationship among plaintif fs' counsel
, plaintiffs, and defendants in class actions imposes a special

8responsibility upon appellate courts to hear challe nges to

fee awards by class members whose claims may have b een reduced or in some way affected in exchange for lar ge fee awards. See In re GM Trucks , 55 F.3d at 819-21. Th is is so even in this case, where the Trust pr esumably will not benefit from a reduction in Kirby's attorneys' fees , because the PRIDES settlement was structured so that any remaining Rights will be returned to Cendant.

The Ninth Circuit addressed a similar situation in Zucker v. Occidental Petroleum Corp., 192 F .3d 1323 (9th Cir. 1999), pointing out in its discussion that, even wh ere the plaintiff "gets the same money whether the fee is c ut or not, . . . a client whose attorney accepts payment, with out his consent, from the defendants he is suing, may have a remedy, and this remedy may extend to a plaintiff c lass whose class attorneys accept payment fr om the defe ndants the class is suing." 192 F.3d at 1326.

The Ninth Circuit took this reasoning a step furthe r in Lobatz v. U.S. West Cellular of Calif., in which th e court, holding that a class member had standing to appeal an attorneys' fee award "even though that award was pa yable independent of the class settlement," stated:

If . . . class counsel agreed to accept ex cessive fees and costs to the detriment of class plaintiffs , then class counsel breached their fiduciary duty to t he class[, and] any excessive award could be consider ed property of the class plaintiffs, and any injury th ey suffered could be at least partially redressed by a llocating to them a portion of that award.

Lobatz, 222 F.3d 1142, 1147 (9th Cir . 2000).

Under the Ninth Circuit's analysis, ther efore, the Trust need not benefit from a reduction in Kirby's fee to have standing to appeal. Moreover, the Ninth Circuit sug gested in Zucker that the requirement that class plaintiff s be aggrieved should be construed broadly, citing Judge
Sneed's observation in his dissent in In r e First Capital Holdings "that `[a]rguably, a class member always r etains an interest in attorney fees, even when her claims have been met in full.' " Zucker, 192 F .3d at 1328 (quo ting In re

9First Capital Holdings Corp. Fin. Prods. Sec. Litig ., 33 F.3d

29, 31 (9th Cir. 1994) (Sneed, J., dissenting).

As a class member, the Trust was eligible to receiv e "one Right, a marketable security freely tradeable until February 14, 2001, having the terms described her ein for ea ch Income PRIDES and Growth PRIDES ($50.00 face amount ) beneficially owned by Class members at the close of business on April 15, 1998 if such Class member sub mits a valid and timely proof of claim form." (JA239.) T he Notice of the Proposed Settlement stated that "[e]ach Righ t will be designed to have a stated or theoretical value of $ 11.71," but acknowledged that "the Rights may trade in the market at a price below their theoretical value." (JA239.) Moreover,
the Notice stated that "Cendant believes that r eco verable damages (if any) per share could be lower or higher than the per PRIDES damages estimated by lead counsel fo r the Class." (JA239.)7

Though Kirby asserts that each class member r eceiv ed full recovery from this settlement, in which case, it is contended, the Trust would not be aggrieved by the fee award, the description of the settlement in the Not ice and its ultimate implementation by class members is unc ertain as to class members' actual recovery. Because class members received rights which must be traded on the market to be liquidated, a number of factors could contribute to class members not receiving the theor etical $11.71 per Right. It is noteworthy that the settlem ent provided class members with no immediate cash payme nt, but rather left class members in the position of r elying on the marketability of their new Rights for reimburse ment of their claims. That reliance, apart from any other m arket risks, might itself be chancy in light of Cendant's history of "accounting irregularities" and in light of the rec ent market and economy slow down.

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7. The settlement, as noted above, provides for Rig hts which are "freely tradeable until February 14, 2001," which date has passed. The record does not disclose whether all the claimed Rights ha ve been traded or the actual value of those Rights. Hence, because the r ecord is silent and the settlement itself has not been challenged on this a ppeal, we do no more than call attention to that aspect of the settlemen t.

10Nor does even a "dollar-for-dollar" recovery in cas h

undermine our power and jurisdiction and our specia l responsibility to review fee awards. Indeed, though the fact
of market fluctuation and its effect on the value o f class members' recovery influences our decision that the Trust has standing, we are equally convinced of our appel late jurisdiction over class settlements in which plaint iffs received a "dollar-for-dollar" recovery in cash. In deed, it would be preposterous to hold that, even where a di strict court awarded a fee of 75% of the recovery to class counsel, we would have no power to review such an inappr opr iate and outrageous award in the absence of an objector whose claims had been directly reduced as a r esult of th e award. Our oversight and supervisory function would necess arily come into play to correct such a decree. This duty of review
with which we are vested will be discussed in more detail
in the next section.

B.

As indicated above, we are convinced of our obligat ion to vacate the District Court's order awarding fees by the special position of the courts in connection with c lass action settlements and attorneys' fee awar ds. As w e observed in In re GM Trucks,"a thorough review of f ee applications is required in all class action settle ments." 55 F.3d at 819. Specifically, the danger inher ent in the relationship among the class, class counsel, and defendants "generates an especially acute need for close judicial scrutiny of fee arrangements" in class act ion settlements.8 55 F.3d at 820. In discussing this du ty of

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8. We should make clear that we do not attribute an y motives or designs to Kirby that would indicate any conflict by Kirby with its responsibility to the class, nor do we mean to intimate that Kirby acted improperly. Indeed, as the District Court found and we have no r eason to dispute, Kirby discharged its function as lead counsel in ex emplary fashion. The cautions we express, which are present in the uniqu e context of class
actions and the fee awards which arise in this cont ext, pertain solely to the issue of whether, where class members have appa rently received dollar-for-dollar recovery, standing is available f or an objector to a fee award. For all the reasons we express here, we are satisfied that it is.

11district courts to oversee class settlements in In re GM

Trucks, we explained:

the court's oversight task is considerably complicated by the fact that these attorney-class conf licts are often
difficult to discern in the class action c ontext, "where full disclosure and consent are many times difficult and frequently impractical to obtain." Fin ally, we emphasize that the court's oversight funct ion serves not only to detect instances of "the actua l abuse[that potential attorney-class conflicts] may ca use, but also [the] potential public misunderstandings t hey may cultivate in regard to the interests of cl ass counsel."

55 F.3d at 820 (quoting In re Agent Orange Prod. Li ab. Litig., 818 F.2d 216, 224, 225 (2d Cir . 1987)). In other words, we indicated in In re GM T rucks the importa nce of the judicial role in finalizing class action settle ments, and we suggested that this importance derived fr om gen eral concerns about "potential public misunderstandings" as much as from a desire to protect the plaintiffs in the particular class.

In Zucker, in asserting that the district court was required to review the award of attorneys' fees reg ardless of whether anyone had standing to challenge the awar d , the
Ninth Circuit stated:

In a class action, whether the attorneys' fees come from a common fund or are otherwise paid, the district court must exercise its inherent authority to assure that the amount and mode of payment of att or neys' fees are fair and proper. This duty of the court exists independently of any objection. Therefor e it exists, a fortiori, regardless of whether an objecto r has a
remediable economic stake in the court's d ecision.
Because the district court had the authori ty and duty to pass upon the fairness of the attor ney s' fees settlement independently of whether there was objection, we need not decide whether the objector had standing.

192 F.3d at 1328-29.

The court in Zucker further explained that"[n]o Art icle III case or controversy is needed with regar d to attor neys' fees

12as such, because they are but an ancillary matter o ver

which the district court retains equitable jurisdic tion." 192 F.3d at 1329. The Ninth Circuit found support for t his proposition in the reasoning of the Eighth Circuit that "because `the reasonableness of attor neys' fees is within the overall supervisory authority' of the court in a cl ass action, the court did not need to reach the question of whe ther an objector has standing." Zucker, 192 F .3d at 1329 ( quoting Grunin v. Int'l House of Pancakes, 513 F .2d 114, 1 27 n.13 (8th Cir. 1975)).

While the statements in In re GM T rucks and Zucker refer to the authority of district, not appellate, courts in connection with class action settlements, the cases make clear that reviewing courts retain an interest--a m ost special and predominant interest--in the fairness o f class action settlements and attorneys' fee awar ds. Acco rdingly, our interest as a reviewing court in ensuring that district courts fulfill their obligations and comply with th e instructions and guidelines in this area bolsters o ur determination that the Trust has standing to challe nge Kirby's fee award.

Nor is our responsibility in connection with class action matters restricted to reviewing the final fee deter mination made by the District Court. Our interest and superv isory role is pervasive and extends not only to thefinal fee award but also to the manner by which class counsel is se lected and the manner by which attorneys' fee conditions a re established.

Here, the District Court employed a sealed-bid auct ion to select class counsel. That process, which occurred virtually at the inception of the instant class action, is it self feedriven. As such, it invites, indeed requir es, judi cial examination and, hence, our jurisdiction. This is s o both because of the unique relationship between class me mbers, class counsel, and the defendants in class actions and because of our strong interest in the fair ness of class settlements and the cost of achieving such settleme nts. See, e.g., John C. Coffee, Jr., National Law Journa l, Sept. 14, 1998, at B6 (discussing selection of lead couns el through auctions and "bidding rules").

13Because it is the district court's function to part icipate in

the litigation process in this way, as the District Court did here, and because, as noted, our judicial scrutiny reaches to all corners of the class action process includin g the selection of class counsel--a selection which impac ts on the
final fee award and fairness of the settlement--we would be remiss if we failed to exercise our jurisdiction in this area.

An analogy, albeit one that is far afield fr om cla ss action fees, is helpful to illustrate and emphasize the co urt's interest and the role that our inter est plays in o ur decision to hear this appeal. In Powers v. Ohio, a post-Bats on case,9 the Supreme Court held that a white criminal defend ant had standing to object to and appeal the exclusion of black jurors through peremptory challenges, even though t he defendant and the potential jurors were of differen t races. 499 U.S. 400 (1991). In its discussion of standing, the

Court stated:

The discriminatory use of peremptory chall enges by the prosecution causes a criminal defendant co gnizable injury, and the defendant has a concrete i nter est in challenging the practice. This is not beca use the individual jurors dismissed by the prosecu tion may have been predisposed to favor the defenda nt; if that were true, the jurors might have been excu sed for cause. Rather, it is because racial discri mination in the selection of jurors "casts doubt on the in tegrity of the judicial process," and places the fair nes s of a criminal proceeding in doubt.

Powers, 499 U.S. at 411 (internal citations omitted ).

Likewise, just as discriminatory selection of jur o rs "casts doubt on the integrity of the judicial process" suc h that the defendant in Powers had standing to appeal, the int egrity and fairness of class settlements is thr eatened by excessive attorneys' fee awards such that class plaintiffs ha ve

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9. In Batson v. Kentucky, 476 U.S. 79 (1986), the S upreme Court "held that a [black] defendant can raise an equal pr otec tion challenge to the use of peremptories at his own trial by showing tha t the prosecutor used them for the purpose of excluding members of the de fendant's race." Powers v. Ohio, 499 U.S. at 405 (citing Batson, 476 U.S. at 96).

14standing to challenge excessive fee awards, even wh en they

have received dollar-for-dollar r ecovery in the cl ass settlement.

Because of the possible injury to the Trust as well as other class members from the fee award in this case and, more importantly, because of our overar ching inter est in class fee awards, we therefore hold that the Trust has standing to appeal the fee award. Accor dingly, we now turn to the fee award that the District Court granted to Kirby
and review that award for an abuse of discretion. S ee In re GM Trucks, 55 F.3d 768, 782 (3d Cir . 1995).

II.

There are two primary methods for calculating attor neys' fees: the percentage-of-recovery method 10 and the lodestar method.11 "The per centage-of-recovery method is ge nerally favored in cases involving a common fund,12 and is designed to allow courts to award fees fr om the fu nd `in a manner that rewards counsel for success and penaliz es it for failure.' " In re Prudential, 148 F.3d at 333. "The lodestar method is more commonly applied in statutory fee-sh ifting cases, and is designed to reward counsel for undert aking

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10. This method has been described as follows:"The percentage of recovery method resembles a contingent fee in that it awards counsel a variable percentage of the amount recover ed for th e class." In re GM Trucks, 55 F.3d 768, 819 n.38 (3d Cir. 1995).

11. The lodestar method was initially set forth in Lindy Bros. Builder,

Inc. of Philadelphia v. American Radiator & Standar d Sa nitary Corp., 487 F.2d 161 (3d Cir. 1973), appeal following remand, 5 40 F.2d 102 (3d Cir. 1976). As this court explained in Gunter v. Ridgewo od Energy Corp., "[a] court determines an attorney's lodestar by multiply ing the number of hours he or she reasonably worked on a client's cas e by a reasonable hourly billing rate for such services given the geo graphical area, the nature of the services provided, and the experience of the lawyer." 223 F.3d 190, 195 n.1 (3d Cir. 2000).

12. "[T]he common-fund doctrine . . . allows a pers on who maintains a lawsuit that results in the creation, pr eservation , or increase of a fund in which others have a common interest, to be r eim bursed from that fund for litigation expenses incurred." Court Award ed Attorney Fees, Report of the Third Circuit Task Force, 108 F.R.D. 237, 241 (1985) (hereinafter "Task Force Report").

15socially beneficial litigation in cases wher e the expected

relief has a small enough monetary value that a percentage-of-recovery method would pr ovide inadeq uate compensation." 148 F.3d at 333.

The total settlement in this case was valued at $341,500,000, and the District Court granted attor neys' fees in the amount of $19,329,463.13 As the Distric t Court noted, this amount constitutes 5.7% of the class's total recovery. In connection with the lodestar calculati on, the District Court observed that "Lead Counsel, thr oug h its principal partners, associates, and paralegals expe nded approximately 5,600 hours, and its senior partners have a regular hourly rate of $495." 51 F.Supp.2d at 542. Using the $495 hourly rate, the lodestar multiplier14 for the
District Court's fee award is 7.15

Two primary principles govern our review of the Dis trict Court's fee award to Kirby: 1) did the District Cou rt provide sufficient explanation for granting the fee awar d of $19.3 million?; and 2) was the award so unreasonably high that the District Court abused its discretion in grantin g that amount in attorneys' fees?

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13. Kirby's ceiling for fees, as explained in the N otice of Settlement,

was ten percent of the total settlement. The settlement was calculated at $341.5 million, ten percent of which would be $34,1 50,000. That figure was reduced by the District Court to $19,329,463.

14. The Task Force Report explained that, after the lodestar is calculated, "[t]he `lodestar' then could be increas ed or decreased based upon the contingent nature or risk in the particula r case involved and the quality of the attorney's work. An incr ease or decrease of the

lodestar amount is referred to as a `multiplier.' " Task For ce Report, 108 F.R.D. 237, 243.

15. 5,600 hours x $495 = 2,772,000. $19,329,463 div ided by 2,772,000 = 6.97. This multiplier of 7 essentially comports w ith the information provided by Kirby after oral argument. In that lett er, Kirby stated that "the blended hourly compensation to ourselves and t hose law firms who were working with us was approximately $3,300." (De c. 19, 2000 Kirby Letter, at 2.) $3,300 divided by $495 = 6.67, only slightly less than the 6.97 multiplier calculated from the figur es provid ed by the District

Court.

16A.

In Gunter v. Ridgewood Energy Corp., we considered a district court's award of attorneys' fees in a clas s action settlement. 223 F.3d 190 (3d Cir. 2000). That case involved a $9.5 million settlement, out of which the distric t court allowed attorneys' fees amounting to 18% of the set tlement fund, significantly less than the one-thir d reques ted by the attorneys. 223 F.3d at 191. The district court in G unter explained its decision as follows: "The natur e of this litigation, its resolution at this stage without th e necessity of trial, the nature of the settlement, and its val ue, convince the court that it would place a reasonable bur den on the class to award attorneys' fees of 18% of the Settle ment Fund, or $1,700,000." 223 F.3d at 192 (citing Gunte r v. Ridgewood Energy Corp., Civ. No. 95-438 (WHW), at 3 (D.N.J. Nov. 16, 1999)). The attorneys appealed the district court's reduction of their fee request.

In reviewing the district court's fee awar d in Gun ter, we stated that "[w]e give [a] great deal of deference to a district
court's decision to set fees." 223 F.3d at 195. How ever, we noted, "[n]otwithstanding our deferential standard of review, it is incumbent upon a district court to ma ke its reasoning and application of the fee-awar ds jurisp rudence clear, so that we, as a reviewing court, have a suf ficient
basis to review for abuse of discretion." 223 F.3d at 196. Therefore, "if the district court's fee-award opini on is so terse, vague, or conclusory that we have no basis t o review it, we must vacate the fee-award order and remand f or further proceedings." 223 F.3d at 196. In addition, "if a district court does not fulfill its duty to apply t he relevant legal precepts to a fee application, it abuses its discretion by not exercising it." 223 F.3d at 196.

In Gunter, we vacated the district court's fee awar d
because the district court "dealt with the fee-awar d issue in a cursory and conclusory fashion" and did not emplo y the
factors which this Court has stated that district c ourts should consider in awarding fees using the per cent age-ofrecovery method in common-fund class actions. See G unter,
223 F.3d at 196-97. These factors wer e set forth i n Gunter
in a footnote:

17Among other things, these factors include: (1) the size

of the fund created and the number of pers ons 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 a war ds in
similar cases.

Gunter, 223 F.3d at 195 n.1 (citing In re Prudentia l, 148 F.3d 283, 336-40 (3d Cir. 1998); In re GM Trucks, 5 5 F.3d 768, 819-22 (3d Cir. 1995)).

As in Gunter, the District Court's fee opinion in t his case was too cursory for us to "have a sufficient basis to review for abuse of discretion." Gunter, 223 F.3d at 196. The District Court did not even specify whether it was using the percentage-of-recovery method or the lodestar metho d to set attorneys' fees. Nor, if the District Court int ended to utilize the lodestar method, did it calculate the l odestar multiplier. Rather, the District Court, in a conclu sory paragraph bereft of analysis, stated:

This Court has examined the time expended by Lead Counsel and the regular hourly rates of it s services. Lead Counsel, through its principal partne rs, associates, and paralegals expended approx imately 5,600 hours, and its senior partners have a r egular hourly rate of $495. This represents signi ficant effort. But the Court is more impressed by the qua lity of result than the quantity of effort. The cl ass will receive
its full entitlement. And resolution of th is matter was greatly accelerated by the creative dynami sm of counsel. For this, counsel should not be p enalized by a slavish application of the lodestar. W e have seen the gifted execution of responsibilities by a lead counsel.

51 F.Supp.2d at 542. Despite the District Court's o bvious dissatisfaction with the lodestar method, the court did not even address the percentage-of-recovery method, exc ept to
the extent that it calculated that the fee awar d c onstituted 5.7% of the total class recovery.

18The percentage-of-recovery method has long been use d in

this Circuit in common-fund cases. Indeed, in the 1 985 Third Circuit Task Force r eport entitled Court Awa rded Attorney Fees, the Task Force discussed the problem s with the lodestar method in detail. "Accordingly, the Ta sk Force recommend[ed] that in the traditional common-fund situation . . . , the district court . . . should a ttempt to establish a percentage fee arrangement." Task Force Report, 108 F.R.D. 237, 255 (1985). Since that time, we hav e several times reaffirmed that application of a perc entage-ofrecovery method is appropriate in common-fund cases . See, e.g., Gunter v. Ridgewood Energy Corp. , 223 F.3d 1 90, 195 n.1 (3d Cir. 2000); Brytus v. Spang & Co. , 203 F.3 d 238, 243 (3d Cir. 2000); In re Prudential, 148 F.3d 283, 333-34 (3d Cir. 1998); In re GM Trucks, 55 F.3d 768, 821 ( 3d Cir. 1995).

Though this is not a traditional common-fund case, because the unclaimed portion of the settlement fun d is returned to Cendant and because the plaintiffs who recover may not be affected by the attorneys' fee award (de pending on the number of plaintiffs who recover rights from the fund), use of the percentage-of-recovery method is appropriate in this case. Since the District Court highlighted the inadequacy of the lodestar method, it can be assumed that that court also perceived that the percentage method was a better method of calculatin g attorneys' fees in this case. This is consistent wi th the District Court's opinion awarding attor neys' fees in the larger and separate Cendant settlement, in which it did declare, "[f]ollowing established Thir d Circuit la w . . . , the Court will award fees by a percentage-of-r ecovery method." In re Cendant Corp. Litig., 109 F .Supp.2d 285, 298 (D.N.J. 2000).16

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16. By referring to the District Court's method of calculating attorneys' fees in the separate Cendant case (see text at p. 2, supra, where we noted that the PRIDES shareholders were to be repre sented separately from the primary Cendant class), we by no means ind icate that the fees awarded to the primary Cendant class wer e a proper exercise of the
District Court's discretion. We leave that determin ation to the panel of this court assigned to review that fee awar d.

19As discussed above, we have articulated at least se ven

factors to be considered by district courts in sett ing percentage fee awards in common fund cases. See Gun ter, 223 F.3d 190, 195 n.1 (3d Cir. 2000). The District Court, however, did not explicitly consider any of these f actors.17 In addition to rejecting the lodestar method, the Dist rict Court stated: "The Court appreciates Lead Counsel's verve and the eminently satisfactory results it obtained for the class. There are no objections to the settlement agreement ." 51 F.Supp.2d at 541. In addition, the District Court m entioned the initial sealed bidding process and r eferred to the resulting bid to which Kirby agreed "as a benchmark of reasonableness." 51 F.Supp.2d at 542 (quoting In re Cendant Corp., 182 F.R.D. 144, 152 (D.N.J. 1998). However, when it came to setting the fee awar d, th e District Court said simply, "[t]he Court deter mines that co unsel fees of 5.7% of this net balance [of the total awar d le ss Lead Counsel's expenses of $2,367,493] are r easonable." 51 F.Supp.2d at 542.

It could be argued that, in the few terse statement s quoted above, the District Court took into account three of the seven Gunter factors: "the pr esence or absence of substantial objections by members of the class to t he settlement terms and/or fees requested by counsel"; "the skill and efficiency of the attorneys involved"; an d "the amount of time devoted to the case by plaintif fs' counsel." Gunter, 223 F.3d at 195 n.1. However , the District Court brushed over our required analysis of those factors in setting the attorneys' fees.

Significantly, the District Court did not consider at all the other factors which we deem to be more important in this case, namely "the complexity and duration of the li tigation" and "the [range of] awards in similar cases." 223 F .3d at

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17. We recognize that our decision in Gunter was is sued after the District Court ruled on the settlement and fee application i n this case and that, therefore, the District Court could not have been i nformed in its decision by our holding in Gunter. However, all of the princ iples enunciated in Gunter have been announced by this court befor e, i n cases predating the District Court's decision on appeal here. See, e.g. , In re Prudential, 148 F.3d 283, 336-40 (3d Cir. 1998); In re GM Trucks, 5 5 F.3d 768, 819-22 (3d Cir. 1995)

20195 n.1 (emphasis added). Nor does it appear that t he

District Court "cross-check[ed] the percentage awar d . . . against the `lodestar' award method," which is "sug gested" practice for district courts setting fee awar ds by the percentage-of-recovery method. Gunter , 223 F.3d at 195 n.1. Further, the District Court did not"make its r easoning and application of the fee-awards jurisprudence cle ar." Gunter, 223 F.3d at 196.18

B.

Because the District Court failed to consider the G unter factors that we deem essential to a proper exer cis e of discretion and to an appropriate consideration of a ttorneys' fee awards, we will discuss those factors her e.

1. Complexity and Duration of Litigation

In April 1998, Cendant announced past accounting irregularities and stated that its financial statem ents for certain past years would be restated. 51 F .Supp.2d at 539. On behalf of the Cendant PRIDES class, Kirby filed an Amended and Consolidated Class Action Complaint on November 11, 1998, accompanied by a motion for clas s certification, a motion for summary judgment, and a motion for preliminary injunctive relief. Less than two mo nths later, on January 7, 1999, the parties announced th at they had reached "an agreement in principal[sic]," and t he parties presented a proposed settlement agreement t o the District Court on March 17, 1999. 51 F.Supp.2d at 5 40.

As the District Court observed, "[t]his stage of th e

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18. The District Court did indicate in its opinion that it was using the bid to which Kirby had agreed "as a benchmark of re asonableness" in setting the fee. 51 F.Supp.2d at 541. However , a p reliminary bidding process cannot replace subsequent analysis of the f actors listed in Gunter. The circumstances and progression of every case are different, and these unique factors must be taken into account by district courts awarding attorneys' fees. Therefor e, though the re sult of a bidding process may be of use to a district court in awardi ng fees at the end of the case, it cannot supplant post-settlement analys is to determine a

reasonable fee.

21litigation, notwithstanding that Lead Counsel has m oved for

summary judgment, is what would be normally the discovery period, very early on in the litigation." 51 F.Supp.2d at 541. The District Court also noted tha t Kirby spent approximately 5,600 hours on this action.

In setting Kirby's fee award, the District Court ap parently turned a blind eye to the following factors: 1) the case was relatively simple in terms of proof, in that Cendan t had conceded liability and no risks pertaining to liabi lity or collection were pertinent; 2) the case was settled at a very early stage of the litigation, with an agreement be ing announced two months after Kirby filed for class certification and a proposed settlement being submi tted to the District Court two months after that; 3) ther e was a minimal amount of motion practice in this case--bef ore settlement, Kirby submitted only the Complaint and three motions, all on the same day; 4) discovery was virt ually
nonexistent--indeed the District Court did not ment ion any depositions taken or document review conducted by K irby; and 5) Kirby spent a relatively small amount of tim e on this case compared to the amount of time expended in mos t other large class actions.

2. Range of Awards

Before reviewing specific awards in other large cla ss settlements, we will review generally the range of attorneys'
fee awards in common fund settlements of class acti ons. In In re GM Trucks, we observed that "[o]ne court has noted that the fee awards have ranged from nineteen perce nt to forty-five percent of the settlement fund." 55 F.3d 768, 822 (3d Cir. 1995) (citing In re Smithkline Beckman Cor p. Sec. Litig., 751 F. Supp. 525, 533 (E.D. Pa. 1990)). We also noted in In re Prudential that "[t]he district cour t . . .
examined the fee awards in class actions with r eco veries exceeding $100 million and found the fee per centag es ranged from 4.1% to 17.92%." 148 F.3d 283, 339 (3d Cir. 1998).

However, recently two district courts in this Circu it have
declined to follow this court's statement of the ra nge in In re Prudential, stating that "the cases cited in [In re

22Prudential] were all decided at least thirteen year s ago." In

re Ikon Office Solutions, Inc. Sec. Litig. , 194 F. R.D. 166, 196 (E.D. Pa. 2000); In re Orthopedic Bone Screw Prod. Liab. Litig., 2000 WL 1622741, at 7 (E.D. Pa. Oct. 23, 20 00). Indeed, in another Cendant opinion dealing with att orneys' fees, this same District Court stated that, in case s surveyed by lead counsel, "[a]wards . . . ranged from a low of 20% in the case with a $200 million recovery to a high of 33.3% for cases with recoveries of $77.5 million and $110 mil lion." In re Cendant Corp. Sec. Litig., 109 F .Supp.2d 285, 2 90 (D.N.J. 2000). These varying ranges of attor neys' fees confirm that a district court may not r ely on a fo rmulaic application of the appropriate range in awar ding f ees but must consider the relevant circumstances of the par ticular

case.

One important consideration is the size of the sett lement. The Task Force Report stated, with r eference to fe e awards in common fund cases: "The negotiated fee, and the procedure for arriving at it, should be left to the court's discretion. In most instances, it will involve a sl iding scale dependent upon the ultimate recovery, the expectati on being that, absent unusual circumstances, the perce ntage
will decrease as the size of the fund incr eases." 108 F.R.D. 237, 256 (1985). We called attention to this statem ent in In re Prudential, explaining that "[t]he basis for thi s inverse relationship is the belief that `[i]n many instance s the increase [in recovery] is mer ely a factor of the s ize of the class and has no direct relationship to the efforts of counsel.' " In re Prudential, 148 F.3d at 339 (quot ing In re First Fidelity Bancorporation Sec. Litig., 750 F . Supp. 160, 164 n. 1 (D.N.J. 1990)). Accordingly, district cour ts setting attorneys' fees in cases involving lar ge settlemen ts must avoid basing their awards on percentages derived fr om cases where the settlement amounts were much smalle r.

3. Other Awards

The District Court did not undertake to review the fees granted in other class action settlement cases, par ticularly in other large settlement cases, i.e., cases in whi ch the common fund exceeded $100 million.19 Had it conduct ed

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19. A district court in this Circuit noted that "[c ]ourts have generally decreased the percentage awarded as the amount reco vered increases,

23such a review, the District Court should have looke d

specifically at cases in which the percentage-of-re covery method, not the lodestar method, was employed to se t the fee award, and it should have examined the r easoni ng behind the district courts' fee awards in cases of similar
size.

Below, we have set forth a chart of fee awar ds giv en in
federal courts since 198520 in class actions in whi ch the settlement fund exceeded $100 million21 and in whi ch the percentage of recovery method was used. 22 We have

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and $100 million seems to be the informal marker of a `very large' settlement." In re Orthopedic Bone Scr ew Prod. Lia b. Litig., 2000 WL 1622741, at 7 (E.D. Pa. Oct. 23, 2000).

20. In 1984, the Supreme Court observed in Blum v. Stenson that "[in] the calculation of attorney's fees under the`common fund doctrine,' . . . a reasonable fee is based on a percentage of the fu nd bestowed on the class." 465 U.S. 886, 900 n.16 (1984). Subsequently , the Third Circuit Task Force Report in 1985 outlined the pr oblems wi th the lodestar method and recommended that courts use the per cent age-of-recovery
method instead of the lodestar method in common fun d cases. After this instruction from the Supreme Court and the release of the Task Force Report, courts across the country regularly employe d the percentage
method to set fees in common fund cases.

21. Although we have emphasized the seven-factor an alysis required in class action fee cases set forth in Gunter v. Ridge wood Energy Corp., 223 F.3d 190, 195 n.1 (3d Cir. 2000), Gunter is not lis ted in this chart because the settlement in that case was less than $ 100 million.

22. In several cases, the class settlement exceeded $100 million but the lodestar method was used to determine attor neys' f ees. See, e.g., McLendon v. Continental Group, Inc., 872 F. Supp. 1 42 (D.N.J. 1994) (settlement was for more than $400 million, and lod estar multiplier of 1.5 was used to award attorneys' fees); In re Shell Oil Refinery Litig.,

155 F.R.D. 552 (E.D. La. 1993) ($170 million settlement and $31.8 million in fees, which represented a 3.25 lodestar multiplier and approximately 18% of the total settlement); In re W ashington Pub lic Power Supply Sys. Sec. Litig., 779 F. Supp. 1056 (D. Ariz. 1991) ($68 7 million settlement, $32 million in attorneys' fees, 1.2 lodestar multip lier, and attorneys'

fees were 4.7% of total settlement); In r e Baldwin-Unit ed Corp. Litig., 1986

WL 12195 (S.D.N.Y. June 27, 1986) ($183.8 million sett lement, $7.5 million in attorneys' fees, lodestar multiplier of 2, and f ees were 4.1% of total settlement); In re "Agent Orange" Pr od. Liab. Litig., 611 F. Supp. 129624outlined the amount of settlement, the percentage o f the

settlement that made up the attorneys' fee award an d the lodestar multiplier.

Case Settlement Fees as %

Lodestar of Recovery Multiplier

In re Cendant Corp. PRIDES Litig., $341.5 mill ion 5.7%

7-10 51 F. Supp. 2d 537 (D.N.J. 1999) ($19.3 mil.)

The instant case under review here.

In re Cendant Corp. Litig., $3.16 billi on 8.275%

32.7 109 F.Supp.2d 285 (D.N.J. 2000) ($262 mil.)

In re Auction Houses Antitrust Litig., $512 million 5.2%

Inf. not 2001 WL 170792 (S.D.N.Y. Feb. 22, ($27 mil.)

available 2001)

In re Orthopedic Bone Screw $100 millio n 12%

Inf. not Prod. Liab. Litig., 2000 WL 1622741
available (E.D. Pa. Oct. 23, 2000)

In re Prudential, $1.8 billio n 5%
2.13 106 F.Supp.2d 721 (D.N.J. 2000)23 ($90 mil.)

In re Ikon Office Solutions, Inc. Sec. $111 million 30%

2.7 Litig., 194 F.R.D. 166 (E.D. Pa. 2000)

Shaw v. Toshiba America Inf. Sys., $2.1 billio n 7%

Inf. not Inc., 91 F.Supp.2d 942 (E.D. Tex. 2000) ($147 mil.)

available

In re Sumitomo Copper Litig., $116 millio n 27.5%

2.5 74 F.Supp.2d 393 (S.D.N.Y. 1999) ($32 mil.)

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(E.D.N.Y. 1985), aff 'd in part 818 F.2d 226 (2d Ci r. 1987) ($180 million settlement, $10.7 million in attorneys' fees, lodes tar multiplier of 1.25

to 1.75, and fees were 6% of settlement).Additionally, it should be noted that the chart inc ludes a substantial

number of the post-1985 cases involving large settl ements and fees granted as a percentage of the total settlement, bu t the chart is not comprehensive. We feel that the selection of cases in the chart are representative of the range of cases r elevant to t he District Court's analysis of Kirby's fee application in this case.

23. The district court originally awarded attorneys ' fees in this case in 1997, see In re Prudential, 962 F . Supp. 572 (D.N. J. 1997), which decision was vacated and remanded by the Thir d Cir cuit. See In re Prudential, 148 F.3d 283 (3d Cir . 1998). Those dec isions are discussed
infra.

25Case Settlemen t Fees as %

Lodestar of Recovery Multiplier

Kurzweil v. Philip Morris Co., 1999 WL $123.8 mil lion 30%

2.46 1076105 (S.D.N.Y. Nov. 30, 1999) ($37.1 mil.)

In re Lease Oil Antitrust Litig., $190 milli on 25%

1.35 186 F.R.D. 403 (S.D. Tex. 1999)

In re Copley Pharm., Inc., $150 milli on 13%

2 1 F.Supp.2d 1407 (D. Wyo. 1998) ($19.5 mil.)

In re PaineWebber Ltd. P'ships Litig. , $200 milli on 13%

1.4 999 F. Supp. 719 (S.D.N.Y. 1998) ($25.9 mil.)

Walco Investments, Inc. v. Thenen, $141 milli on 15%
1.8 975 F. Supp. 1468 (S.D. Fla. 1997) ($21 mil.)

In re Combustion Inc., $127 milli on 36%

2.99 968 F. Supp. 1116 (W.D. La. 1997)

Local 56, United Food & Commercial $114.5 mil lion 2.8%

2.39 Workers Union v. Campbell Soup Co., ($3 mil.) 954 F. Supp. 1000 (D.N.J. 1997)

Bowling v. Pfizer, Inc., 922 F. Supp. $102.5 mil lion 10%

Inf. not 1261 (S.D. Ohio 1996), aff 'd ($10.2 mil.)

available 102 F.3d 777 (6th Cir. 1996)

In re Domestic Air Transportation $305 milli on 5.25%

Inf. not Antitrust Litig., 148 F.R.D. 297 ($14.3 mil.)

available (N.D. Ga. 1993)

In re MGM Grand Hotel Fire Litig., $205 milli on 7%
1-2.95 660 F. Supp. 522 (D. Nev. 1987)

In the charted cases, the attorneys' fee awards ran ged
from 2.8% to 36% of the total settlement fund. Look ing atthe percentage of recovery in this case (5.7%), it appears

that it is in line with the other cases and even at the low end of the range. However, a brief review of the fa cts and posture of these other cases makes clear that, when examined through the seven-factor lens of Gunter, t he higher fees awarded in the other cases wer e far mo re justified than the high award in this case. Accordi ngly, the
District Court should have learned from those cases that extensive time and effort exerted by the attorneys and the existence of complex legal and factual issues warra nted higher fee awards than the fee award that would hav e been appropriate for Kirby.

The district court in In re Auction Houses relied o n a presettlement bidding process in awarding attorneys' f ees. The

26bidding process in that case differed from the proc ess

employed by the District Court in this case, but it raised similar problems. However, regar dless of the argua ble flaws in the method by which the district court awarded f ees in In re Auction Houses, that case was far more comple x than the instant case and, as such, is distinguishable. Indeed, the comments of interim lead counsel, excerpted in the district court's opinion, are telling:

Mr. Furth, on behalf of all of the interim lead counsel, said that he "never in [his] fondest dream s . . . believed that these defendants would pay $512 milli on" and
that this settlement "is the most outstand ing r esult I have ever heard of in the history of the a ntitrust laws."
Another of the interim lead counsel noted that he and his colleagues had been negotiating with d efendants prior to the appointment of plaintiffs' le ad counsel, that they "had really good hard solid numbers f rom [defendants], and we didn't think we could have accomplished what Mr. Boies did."

In re Auction Houses Antitrust Litig., 2001 WL 1707 92, at 6 (S.D.N.Y. Feb. 22, 2001).

In In re Orthopedic Bone Screw, the district court described the case as "nothing less than an uninter rupted, hard-fought, `antagonistic' legal battle," in which the attorneys seeking fees had "conducted substantial, widespread and extensive discovery" including revie wing more than 1,500,000 pages of documents, and had "defended a variety of pleadings and discovery matt ers and `litigated a plethora of motions,' " which resulted in the court issuing nearly 2,000 Pretrial Orders. 2000 WL 1622741, at 6.

In In re Ikon Office Solutions, the district court granted the 30% fee request because, inter alia, "Counsel e xpended more than 45,000 hours on this case and paid out expenses of more than $3 million with no guarantee of recovery," the case presented "the legal obstacles of establishing scienter, damages, causation, and the like,"
and "derivative counsel fees will be taken fr om th is

amount." 194 F.R.D. at 194.

27In Shaw v. Toshiba, the district court noted the

protracted schedule of the case, because of which " it has been necessary to prosecute this action continuousl y, around the clock, seven days a week, workdays and holidays alike." 91 F.Supp.2d at 969. Other factors that made litigation of Shaw difficult included the two million pages of documents reviewed by class counsel, the f act that defendant's corporate headquarters were located in Tokyo, Japan, as well as the additional burden of having t o translate many documents and much of the testimony from Japanese to English. Even with these numerous proce dural difficulties, the district court only awarded 7% of the settlement in attorneys' fees.

The attorneys in Sumitomo spent mor e than 43,000 hours on the case and inspected 11 million pages of documents, and the case had legal and factual compl exities including "the existence and analysis of the relati onships between and among more than thirty Comex futures contracts, more than 500 LME contracts, literally h undreds of physical contracts, and millions of tons involve d in the copper futures, the copper options and the copper derivative contracts." Sumitomo, 74 F .Supp.2d at 3 98.

In Kurzweil, the district court noted that, before the settlement, "[t]here had been no lar ge settlements in tobacco litigation generally, and no successful act ion had yet been brought against a tobacco company based on allegations of addictiveness of nicotine." 1999 WL 1076105, at 1. In addition, the attorneys encountered severa l obstacles, including that the action was originally dismissed, and the attorneys reviewed millions of documents and tens of thousands of deposition and t rial transcripts and conducted numerous depositions. 199 9 WL 1076105, at 1.

In In re Lease Oil, the district court explained:

As well as being novel, this litigation wa s highly complex and thus required a great deal of lawyering skill. As just explained, the task of simp ly compiling the evidence was an unusually difficult ta sk, r equiring the assistance of experts and the investme nt of many hours.24 Also, being novel, the legal issu es raised in the litigation required skilled attorneys to h andle them.

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24. With respect to gathering evidence, the court a sserted:

Godfrey and others had to create their own databases, compiling

28186 F.R.D. at 445.

The district court in Copley, in granting the 13% f ee award, observed that, "[d]uring expedited discovery , class counsel reviewed and analyzed more than 125,000 pag es of documents and deposed roughly one hundr ed witnesse s." 1 F.Supp.2d at 1408. The case also included 42 days o f trial, and class counsel spent 48,794 hours on the case. F inally, the legal questions involved in Copley wer e both n ovel and complex. As the court explained: "not only was the certification of this class a complex question, but this was also the first and only mass tort class action to g o to trial, and the case presented complex medical and scientif ic issues of causation." 1 F.Supp.2d at 1413.

PaineWebber too had many featur es that would dicta te a high fee award. Class counsel conducted "extensive, coordinated discovery," including "coor dinating di scovery of hundreds of boxes of documents through the use of sophisticated computer databases, and deposing many key witnesses." 999 F. Supp. at 722. In mor e than two years of litigation, counsel spent "approximately 70,000 hou rs in heretofore uncompensated legal work in pursuit of f actual investigation, drafting of documents, brief writing
, document analysis, depositions, trial preparation, settlement negotiation and other tasks." 999 F . Su pp. at 723. Finally, the legal issues in PaineW ebber were complex, and class counsel "faced significant substantive an d procedural defenses." 999 F. Supp. at 724.

Walco Investments was described by the district cou rt as comprising "four years of bitterly-contested litiga tion." 975 F. Supp. at 1470. The case involved multiple defend ants, and the claims were only loosely related, making cl ass litigation exceedingly complicated, because "claims raised

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posted prices, NYMEX prices, transportatio n costs, grade and weight differentials and so forth simply to deter mine whether or not a cause of action might exist. And, in order tofirst articulate
their claims, class counsel had to hire experts to r esearch their allegation that the NYMEX trading center method is a reasonable way of determining market price at the lease.

In re Lease Oil, 186 F.R.D. at 445.

29against each category of defendants presented separ ate

issues of fact and law and involved differing theor ies of recovery." 975 F. Supp. at 1471. These circumstance s encouraged the court to award 15% in attor neys' fe es to attorneys from fourteen differ ent firms representi ng class plaintiffs.

The action in In re Combustion was eleven years old at the time of settlement and the attorneys had spent over 50,000 hours on the case. In the litigation, ther e had been "roughly 160 complaints filed, 1140 answers, 1922 motions, with almost 1000 memoranda in support of o r in opposition to these motions, 285 depositions . . . , 90 hearings, at least one oral argument per month sinc e the case was removed to federal court, and endless numb ers of settlement conferences," as well as "thr ee fairnes s hearings, the first one lasting one week, and the other two l asting approximately one day each" and "one Daubert hearin g lasting a total of two weeks." In re Combustion, 96 8 F. Supp. at 1136.

In Local 56, the court acknowledged "the complexity of the issues in this case, the significant attendant risks of proceeding with litigation, and the tenacity and vi gor with which all counsel represented their clients' intere sts," in this class action which lasted for four years. 954 F . Supp. at 1005. Even so, class counsel's fees amounted to only 2.8% of the total settlement, a far smaller per cen tage than the fee awarded to Kirby by the District Court.

In Bowling, the district court averr ed that "[t]he Court's choice of a percentage . . . will be heavily inform ed by the value of the services rendered by Counsel." 922 F. Supp. at
1280. The court observed that "Counsel wer e confro nted with myriad complex legal and factual questions in bringing this action and in negotiating the settlement." 922 F. Supp.
at 1280.

Domestic Air involved a class action against severa l airline companies claiming a conspiracy to fix pric es. The

court observed:

Counsel negotiated a significant settlemen t for the class in light of the precarious financial position of

most of the defendants and over defendants ' insistence

30that they could not provide a larger cash settlement.

Were it not for the considerable skill and effort of plaintiffs' counsel, the action would neve r have been
certified as a class action and members of the class would receive nothing in return for their claims against

defendants.

148 F.R.D. 297, 351-52 (N.D. Ga. 1993). In other wo rds, the action in Domestic Air involved fundamental pro cedural obstacles that could easily have resulted in no rec overy at all. Accordingly, class counsel was rewar ded signi ficantly for negotiating such a large settlement.

Finally, in In re MGM Grand Hotel, the court consid ered "the particular and unique circumstances of this ca se," including the fact that the attorneys had r ecovere d over 6,000 objects from the fire site and had conducted over 1,400 depositions, in granting the 7% fee awar d. 6 60 F. Supp. at 526.

Indeed, in case after case, the same factors r ecur : complex and/or novel legal issues, extensive discov ery, acrimonious litigation, and tens of thousands of ho urs spent on the case by class counsel. Because none of these factors which increase the complexity of class liti gation was present here, it makes sense that the fee awarded i n this
case should be far lower than those awarded in the charted cases, which fees ranged from 2.8% to 36% of the to tal

settlement.

Also relevant to the District Court's analysis in t his case is our holding in In re Prudential r emanding the c ase to the district court. In that case, we rejected an award of 6.7% of the settlement fund in a case with a fund of $1 bil lion to $2

billion because the district court had failed to ex plain adequately why it had applied such a high per centa ge to the settlement figure and because the court had not explained why the 5.1 lodestar multiplier was justi fied. We also warned in In re Prudential against overemphasi zing counsel's role in recovery, in the context of our c riticism of the district court's assumption that counsel had be en a catalyst for a plan authored by the Multi-State Lif e Insurance Task Force, which facilitated the class a ction
settlement in that it established Prudential's liab ility. We

31explained that "[a]llowing private counsel to recei ve fees

based on the benefits created by public agencies wo uld undermine the equitable principles which underlie t he concept of the common fund, and would create an inc entive for plaintiffs attorneys to `minimize the costs of failure . . . by free riding on the monitoring efforts of others. ' " In re Prudential, 148 F.3d at 337. Similarly, as we have consistently observed, Cendant's liability and cons equent collectability had been conceded at the outset of t he PRIDES controversy, and that fact should have been given major consideration by the District Court when sett ing Kirby's attorneys' fees.

Our review of the lack of complexity of this case a nd of awards in other large class action settlements, all of which involved more complex issues, more time invested by the attorneys, and, with only a few exceptions, smaller total settlements, leads us to the conclusion that the Di strict Court abused its discretion in granting a 5.7% atto rneys'
fee award in this case.25

4. Checking Against Lodestar

The District Court's abuse of discretion in this ca se is magnified when one looks at the lodestar multiplier . As we stated above, "we have . . . suggested that distric t courts cross-check the percentage award at which they arri ve against the `lodestar' award method." Gunter v. Rid gewood Energy Corp., 223 F.3d 190, 195 n.1 (3d Cir. 2000); see also In re Prudential, 148 F.3d at 333 (stating tha t " `it is

sensible for a court to use a second method of fee approval to cross check' its initial fee calculation"). Even when the lodestar method is used only as a cross-check,"cour ts must take care to explain how the application of a multiplier is justified by the facts of a particula r case."26 In re Prudential, 148 F.3d at 340-41.

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25. We should note that the award actually amounted to more than 5.7% of the total recovery. The fund had a value of $341 .5 million, but any unclaimed portion of the fund returned to Cendant. As of August 1999, only 22,502,782 Rights, with a monetary value of $2 63.5 million, were claimed. Taking this amount as the total r ecovery, Kirby's attorneys'

fees
constituted 7.3% of the total fund. 26. We observed in In re GM Trucks that "[t]he Supr eme Court . . . has rejected the use of multipliers to enhance the lode star's hourly rate

32In this case, the lodestar multiplier is 7 at a min imum

(using Kirby's senior partner rate as the rate for all hours), and the Trust calculates the lodestar multiplier as 10.27 Either of these multipliers (Kirby's multiplier of 7 or the Trust's multiplier of 10) is substantially higher t han any of the multipliers in the cases charted above, which r ange from 1.35 to 2.99, and is also significantly higher than the "large" 5.1 multiplier in In r e Prudential, which we questioned because "the court offer[ed] little expl anation as to why a multiplier was necessary or appropriate." 148 F.3d at 340-41. In allowing such a high multiplier in th is case without even calculating it, much less explaining h ow it is justified, the District Court strayed from all resp onsible discretionary parameters in the awarding of Kirby's attorneys' fees.

In all the cases in which high percentages wer e ap plied to arrive at attorneys' fees, the courts explained the extensive amount of work that the attorneys had put into the case, and appropriately the lodestar multiplier in those cases never exceeded 2.99. This range is consistent with the principle that " `[m]ultiples ranging from one to four are frequently awarded in common fund cases when the lodestar method is applied.' " In r e Prudential, 1 48 F.3d 283, 341 (3d Cir. 1998) (quoting 3 Herbert Newber g & Al ba Conte, Newberg on Class Actions, S 14.03 at 14-5 (3 d ed. 1992)). In this case, the District Court judge made clear that he wanted to reward Kirby for Kirby's quick an d beneficial settlement of the case, and that may be a good reason for the fee award to exceed the lodestar, bu t not to
the exclusion of all other factors. On remand of th is case to the District Court, we strongly suggest that a lode star multiplier of 3 (the highest multiplier of the case s reviewed above) is the appropriate ceiling for a fee award, although

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amount." 55 F.3d 768, 822 (3d Cir. 1995) (citing Ci ty of Burlington v. Dague, 505 U.S. 557 (1992)). However, as stated abo ve, calculation of the lodestar multiplier is still appropriate when u sed to cross-check the reasonableness of a percentage-of-r ecovery fee awa rd.

27. The Trust calculates the lodestar multiplier as 10 because it assesses the appropriate lodestar fee as $1.9 million, 1/10 of the $19.3 million awarded. (See Trust's Brief at 25-26.)

33a lower multiplier may be applied in the District C ourt's

discretion. The 3 multiplier would result in an awa rd of no more than $8.3 million for Kirby (calculating the l odestar at $495/hour).

5.

We are seriously troubled by the District Court's a ward of attorneys' fees constituting 5.7% to 7.3% of the to tal settlement. As discussed above, this case was neith er legally nor factually complex and did not require s ignificant motion practice or discovery by Kirby, and the enti r e duration of the case from the filing of the Amended Complaint to the submission of a Settlement Agr eem ent to the District Court was only four months. Other case s in which higher percentages were awar ded are so dissi milar factually and legally from this case that they cann ot be relied upon to support the 5.7% award made in this case. In addition, our discussion and holding in In r e P rudential requires a holding here that the District Court's a ward was an abuse of its discretion, particularly wher e the District Court appeared to be attributing more r esponsibili ty to Kirby for the quality of the settlement than may le gitimately be warranted. Accordingly, we will vacate the Distr ict Court's fee award to Kirby and remand the issue of Kirby's attorneys' fees to the District Court for a more th orough and thoughtful evaluation, including an analysis of , and compliance with, the factors enunciated by us in Gu nter and in this opinion.

III.

Finally, the Trust argues that the District Court e rred in not granting attorneys' fees to the Trust's attorne ys for suggesting a bidding process to choose Lead Counsel and for objecting to Lead Counsel's fee application.

The Second Circuit stated in White v. Auerbach:

it is well settled that objectors have a v aluable and important role to perform in pr eventing c ollusive or otherwise unfavorable settlements, and tha t, as the district court recognized, they are entitl ed to an

34allowance as compensation for attorneys' f ees and

expenses where a proper showing has been m ade that the settlement was improved as a result of their efforts.

Ordinarily the trial judge has broad discr etion in deciding whether, and in what amount, atto r neys' fees should be awarded, since he is in the best position to determine whether the participation of obj ectors
assisted the court and enhanced the recove ry.

500 F.2d 822, 828 (2d Cir. 1974).

In this case, the District Court judge exercised hi s "broad discretion" in finding that the Trust's attorneys h ad not made the "proper showing . . . that the settlement was improved as a result of their efforts." The Distric t Court judge made clear that he had considered the idea of a bidding process before the Trust's attorneys sugges ted that procedure, stating: "Walker's opinions have been ou t there since 1993 at least28 . . . Why do you think that t he door was only opened by your key?" (JA 766.) He also ass erted that "my last year's clerk and I actually had br oo ded this idea of an auction long before you came down the pi ke." (JA767.)

With respect to the Trust's claim that its attorney s' objections to the fee application resulted in a red uction of the fee award from $34.15 million to appr oximately $19 million, the District Court gave no indication that the objections were the reason for the r eduction and e ven stated, "if I find that what Mr. Kirby wants is exc essive, I'm not dependent upon you . . ." (JA765.) Hence, becau se the Trust had not demonstrated that it had been r espon sible for the procedure utilized by the District Court or that its actions had resulted in a reduction of Kirby's fees from $34 million to $19 million--findings which are not clea rly
erroneous--we will sustain the District Court in it s rulings on these points.

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28. Judge Vaughn Walker actually implemented the bi dding process in In re Oracle Sec. Litig. in 1990. 131 F.R.D. 688 (N.D. Cal. 1990). Judge Walker's process differed significantly from the bi dding process here in that it was not a sealed-bid process.

35However, our review of the District Court's attorne ys' fee

award to Kirby would not have come about had it not been for the Trust's appeal. As the Ninth Cir cuit obser ved in Zucker v. Occidental Petroleum Corp., to which we h ave earlier adverted, "[t]he contribution [a particular class member's] attorney made, by providing an adversaria l
context in which the district court could evaluate the fairness of attorneys' fees, was substantial." 192 F.3d 1323, 1329 (9th Cir. 1999).

Recognizing this fact, that it was the Trust which called our attention to the many aspects of Kirby's fee aw ard
which we have discussed and which we have found requires reconsideration by the District Court, we would be remiss if we did not acknowledge this benefit 29 an d remand the Trust's claims for its own attorneys' fees to t he District Court for reconsideration together with Kirby's fee application. Of course, this will requir e the nece ssary submissions by the Trust's attorneys to comply with normal fee procedures. Under these circumstances, w e think it appropriate for the District Court to eval uate the
value of the benefit of the Trust's contribution to the ultimate fee (to be decided by the District Court o n remand) and to compensate the Trust to that extent. 30

In so holding, we are fully aware that Cendant had agreed not to contest the award of fees as part of its

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29. It bears mention that the Trust's appellate bri ef urged that Kirby's fees be reduced from $19 million to $7.6 million, ( see Appellant's Brief, at 30), a similar figure to the one at which we arr ived independently.

30. In its appellate brief, Kirby suggests that the Trust may not have standing to appeal the District Court's denial of t he fee request because it was the Trust's counsel, not the Trust itself, t hat made that request in the District Court. This jurisdictional ar gumen t, though not without merit, need not concern us for two reasons. First, the District Court's decision denying fees to the Trust's counsel stands insofar as it related to the argument raised by counsel befor e the Distr ict Court. We remand the issue of the Trust's counsel's fee r equest to the District Court only with respect to the Trust's effect on the settlemen t through this appeal. Second, we have repeatedly emphasized in this opini on the importance of the court's role in reviewing counsel's fees in class actions, and we
believe this role extends to the District Court hea ring a fee application by the Trust's counsel at this point.

36settlement agreement. We also acknowledge that the return

to Cendant of any unclaimed rights may well enhance the value of Cendant's rights to its shareholders and r ights
beneficiaries.

IV.

Although we will not disturb the settlement itself which has not been challenged on appeal, we will vacate t he award of attorneys' fees to Kirby and r emand this case to
the District Court for a reevaluation of the amount of attorneys' fees, both because the District Court di d not adequately explain its reason for the fee awar d an d because the fee award does not comply with the r equirement s of our jurisprudence. We will also vacate the District Cou rt's order denying attorneys' fees to the Trust and remand for reconsideration in light of the foregoing discussio n and opinion.

A True Copy:

Teste:

Clerk of the United States Court of Appeal s for the Third Circuit

37