In the

United States Court of Appeals

For the Seventh Circuit ____________________

Nos. 12-2339 & 12-2354

ERIC SILVERMAN, et al.,

Plaintiffs-Appellees,

v.

MOTOROLA SOLUTIONS, INC., et al.,

Defendants-Appellees.

Appeals of:

EDWARD FALKNER and PAUL A. LILES

____________________

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 07 C 4507 — Amy J. St. Eve, Judge.

____________________

ARGUED NOVEMBER 1, 2012 — DECIDED AUGUST 14, 2013

____________________

Before EASTERBROOK, Chief Judge, and ROVNER and 

HAMILTON, Circuit Judges.

EASTERBROOK, Chief Judge. A class of Motorola’s investors 

contended that, during the second half of 2006, the firm 

made false statements in order to disguise its inability to deliver a competitive mobile phone that could employ 3G pro-
Nos. 12-2339 & 12-2354 2

tocols. When the problem became public, the price of 

Motorola’s stock declined. After the suit had been pending 

for four years, the district court denied Motorola’s motion 

for summary judgment. 798 F. Supp. 2d 954 (N.D. Ill. 2011). 

The parties then settled for $200 million. None of the class 

members contends that this is inadequate—but two contend 

that the judge abused her discretion by approving counsel’s 

proposal that they receive 27.5% of the fund. See 2012 U.S. 

Dist. LEXIS 63477 (N.D. Ill. May 7, 2012).

Paul Liles, one of the objectors, protested almost a month 

after the deadline. And although he filed a belated objection 

to the award of legal fees, he did not file a claim to his share 

of the recovery. He thus lacks any interest in the amount of 

fees, since he would not receive a penny from the fund even 

if counsel’s take should be reduced to zero. The class representatives’ appellate brief flags this problem; Liles’s reply 

brief ignores it. We dismiss his appeal on the ground that he 

lacks any interest in the outcome.

Edward Falkner, the other objector, contends that the 

award is improper because it was fixed at the end of the litigation. He maintains that fee schedules should be set at the 

outset, preferably by auction in which law firms competing 

to represent the class tell the judge how much they will accept, and the judge picks the low bidder. We agree with 

Falkner’s premise that attorneys’ fees in class actions should 

approximate the market rate that prevails between willing 

buyers and willing sellers of legal services. See In re Continental Illinois Securities Litigation, 962 F.2d 566, 572 (7th Cir. 

1992); In re Synthroid Marketing Litigation, 264 F.3d 712, 718 

(7th Cir. 2001) (Synthroid I); In re Synthroid Marketing Litigation, 325 F.3d 974, 975 (7th Cir. 2003) (Synthroid II). In many 
3 Nos. 12-2339 & 12-2354

markets competition proceeds by auction. But we also observed in Synthroid II, 325 F.3d at 979–80, that solvent litigants do not select their own lawyers by holding auctions, 

because auctions do not work well unless a standard unit of 

quality can be defined and its delivery verified. There is no 

“standard quality” of legal services, and verification is difficult if not impossible.

The two Synthroid decisions observed that establishing a 

fee structure at the outset of a suit is desirable; unlike auctions, which private markets in legal services do not use, ex 

ante fee structures are common and beneficial to clients. But 

neither Synthroid nor any other decision of which we are 

aware holds that fee schedules set ex ante are the only lawful 

means to compensate class counsel in common-fund cases. It 

is unfortunate that the district judge originally assigned to 

this case did not consider the possibility of establishing a fee 

schedule when he appointed a lead plaintiff and approved 

that party’s choice of counsel. By the time that judge died, 

and the case had been reassigned to the judge who awarded 

the fees, it was not possible to recreate the conditions that 

existed at the case’s outset. Too much legal time had been 

sunk into the litigation, and it would have been counterproductive to invite other law firms to make other offers and, if 

selected, start over.

When reviewing awards set after the fact, the court of 

appeals asks whether the district judge has abused her discretion. Harman v. Lyphomed, Inc., 945 F.2d 969, 973 (7th Cir. 

1991). Falkner contends that the judge abused her discretion 

here because fees substantially less than 27.5% have been 

awarded in other cases. Data show that 27.5% is well above 

the norm for cases in which $100 million or more changes 
Nos. 12-2339 & 12-2354 4

hands. See Brian T. Fitzpatrick, An Empirical Study of Class 

Action Settlements and Their Fee Awards, 7 J. Empirical Legal 

Studies 811 (2010); Theodore Eisenberg & Geoffrey P. Miller, 

Attorney Fees and Expenses in Class Action Settlements: 1993–

2008, 7 J. Empirical Legal Studies 248 (2010); Theodore Eisenberg & Geoffrey P. Miller, Attorney Fees in Class Action 

Settlements: An Empirical Study, 1 J. Empirical Legal Studies 

27 (2004). Eisenberg and Miller find that the mean award 

from settlements in the $100 to $250 million range is 12% and 

the median 10.2%. All three articles find that the percentage 

of the fund awarded to counsel declines as the size of the 

fund increases. An award fixed at 27.5% of a $200 million 

fund is exceptionally high.

It does not necessarily follow that 27.5% is legally excessive. Contingent fees compensate lawyers for the risk of 

nonpayment. The greater the risk of walking away emptyhanded, the higher the award must be to attract competent 

and energetic counsel. See Kirchoff v. Flynn, 786 F.2d 320 (7th 

Cir. 1986). The district court received a report from Professor 

Charles Silver, who concluded that this suit was unusually 

risky. Defendants prevail outright in many securities suits. 

This one took more than four years, and more than $5 million in out-of-pocket expenses by counsel to conduct discovery and engage experts, before reaching the summaryjudgment stage. Only after the district court denied its motion for summary judgment was Motorola willing to settle 

for a substantial sum—and Motorola might well have prevailed on summary judgment but for some unanticipated 

facts plaintiffs’ lawyers turned up in discovery. When this 

suit got under way, no other law firm was willing to serve as 

lead counsel. Lack of competition not only implies a higher 

fee but also suggests that most members of the securities bar 
5 Nos. 12-2339 & 12-2354

saw this litigation as too risky for their practices. The district 

judge did not abuse her discretion in concluding that the 

risks of this suit justified a substantial award, even though

compensation in most other suits has been lower.

Our concern is less with the absolute level of fees than 

with the structure of the award. The articles we have cited 

reinforce the observation in the Synthroid opinions that negotiated fee agreements regularly provide for a recovery that 

increases at a decreasing rate. In Synthroid II, for example, 

the award was 30% of the first $10 million, 25% of the next 

$10 million, 22% of the band from $20 to $46 million, and 

15% of everything else.

Many costs of litigation do not depend on the outcome; it 

is almost as expensive to conduct discovery in a $100 million 

case as in a $200 million case. Much of the expense must be 

devoted to determining liability, which does not depend on 

the amount of damages; in securities litigation damages often can be calculated mechanically from movements in stock 

prices. There may be some marginal costs of bumping the 

recovery from $100 million to $200 million, but as a percentage of the incremental recovery these costs are bound to be 

low. It is accordingly hard to justify awarding counsel as 

much of the second hundred million as of the first. The justification for diminishing marginal rates applies to $50 million 

and $500 million cases too, not just to $200 million cases.

Awarding counsel a decreasing percentage of the higher 

tiers of recovery enables them to recover the principal costs 

of litigation from the first bands of the award, while allowing the clients to reap more of the benefit at the margin (yet 

still preserving some incentive for lawyers to strive for these 

higher awards). Professor Silver’s report does not identify 
Nos. 12-2339 & 12-2354 6

suits seeking more than $100 million in which solvent clients 

agree ex ante to pay their lawyers a flat portion of all recoveries, as opposed to a rate that declines as the recovery increases. The district judge did not discuss whether a marketbased rate would include different portions of different 

bands of the recovery. There’s a reason for that omission: 

Falkner did not raise this subject in the district court. (Nor 

did he call the judge’s attention to data showing that 27.5% 

substantially exceeds the norm for large settlements. Falkner 

pointed to three cases where the rates were low, but the district court needed data rather than cherry-picked examples.)

A district judge, looking out for the interests of all class 

members, sometimes must consider issues that the class representatives and their lawyers prefer to let pass. This is not 

such a situation, however. Institutional investors such as 

pension funds and university endowments hold claims to 

more than 70% of the settlement fund. These institutional 

investors have in-house counsel with fiduciary duties to protect the beneficiaries. That these large investors, looking out 

for themselves, help to protect the interests of class members 

with smaller stakes is a premise of several rules in the Private Securities Litigation Reform Act of 1995. The difference 

between 27.5% of $200 million and a smaller award (say, one 

averaging 20%) could be a tidy sum for institutional investors (including this suit’s lead plaintiff, a pension fund), one 

worth a complaint to the district judge if the lawyers’ cut 

seems too high. Yet none of the institutional investors has 

protested—either by filing a motion asking the judge to reduce the fees or by supporting Falkner’s position in this 

court. This award may be at the outer limit of reasonableness, but, given the way the subject was litigated in the dis-
7 Nos. 12-2339 & 12-2354

trict court, deferential appellate review means that the decision must stand.

Appeal No. 12-2339 is dismissed for lack of a justiciable 

controversy. In appeal No. 12-2354, the decision is affirmed.