Opinion ID: 1357701
Heading Depth: 3
Heading Rank: 3

Heading: The Objectors' Challenges on Appeal

Text: The Iaad/Zorkess objectors argue that the District Court abused its discretion when it awarded $29,950,000 in attorneys' fees and costs to Class Counsel because the District Court overestimated the settlement funds created solely by Class Counsel, included time in Class Counsel's lodestar that was spent pursuing unsuccessful litigation, and failed to exclude from the lodestar calculation clearly excessive time submissions. In particular, these objectors argue that Zurich class counsel can take credit for no more than $70 million of the overall settlement, because although the MOU secured $100,000,000 for a settlement fund, class counsel were eventually forced to cede $29,900,000 to the Three-State Settlement in order to make the overall deal work. Moreover, they assert that because 57% of the Settlement Fund [goes] to the Excess Claimants represented by the various attorneys general ... only 43% of the $70 million balance of the MOU monies, or $30 million, will be paid to the clients of the Zurich class counsel. Thus they argue that the attorneys' fees awarded to Class Counsel represent far too high a percentage of the total settlement value that Class Counsel's efforts secured. With respect to the calculation of the lodestar, the Iaad/Zorkess objectors argue that there is no justification for Class Counsel's inclusion of all of the time spent to date in this consolidated case in support of their requested fee in the settlement of only one small portion of the overall MDL litigation. Accordingly, these objectors contend that the District Court should not have allowed Class Counsel to merely summarize[] the time and expenses of each of the 44 law firms that claimed to have performed work that contributed to the Zurich settlement. Additionally, they argue that Class Counsel abused their gatekeeper function with respect to allocating work in such a way that promotes efficiency, and moreover that the amount of time claimed by certain firms ... raises the possibility of fraud. In response, the plaintiffs argue that they executed the MOU with the Zurich Defendants seven months before Zurich settled with the Attorneys General and other regulators, and that it was a requirement under the MOU ... that Zurich settle with the Attorneys General and therefore Class Counsel played a critical role in the settlement. They also contend that [t]he argument that Class Counsel can only recover for time spent on Zurich, moreover, ignores the reality that Class Counsel's efforts cannot be compartmentalized, as a number of their actions against all the Defendants provide a benefit to the Class and clearly had a bearing on the Zurich Defendants' interest in and willingness to settle. With respect to the objectors' time calculation challenge, the plaintiffs argue that even if one assumed there was some duplication, the award was not excessive because it was a fraction of Class Counsel's total lodestar. In sum, the plaintiffs argue that since the requested fee amount is no more than a fraction of the total lodestar to date, and the requested fee and expense award is not being paid out of the common settlement fund, there is especially little risk here that firms will somehow benefit from inefficient billing practices, or that the Class will in any way be harmed by the requested award. The Zurich Defendants do not take a position as to the reasonableness of the attorneys' fees; however, they do point out that under the terms of the Zurich Settlement Agreement, if the Fees and Expenses award is reduced, as the Objectors seek, Class Counsel must reimburse the Zurich Defendants that amount, with interest. The intervenor attorneys general also take no position relating to the payment of attorneys' fees. We believe that it was appropriate for the District Court to evaluate the reasonableness of the fee award under a percentage of recovery method even though the Zurich Settlement is not a typical common fund. In order to test the reasonableness of the fee under this method, the District Court needed to determine what amount of the total settlement value could be attributed to the work of Class Counsel. Although at one point the District Court refers to Class Counsel achieving a sizeable result of $121,800,000 for the settlement fund, it is clear from the remainder of the District Court's analysis that it was crediting Class Counsel with achieving $129,950,000 of the Settlement Fund based on the $100,000,000 secured under the MOU and the $29,950,000 secured under the separate fee agreement. It was reasonable to include the $29,950,000 amount in the calculation of the settlement value created by Class Counsel in order to determine the percentage of the total recovery that the fee constitutes because in the typical common fund case, class counsel would be awarded a percentage of the fund and the balance would be available for the class members (e.g., defendants agree to pay $100,000,000 to a common fund, but class counsel is awarded 25% of the settlement value, leaving only $75,000,000 for the class). Here, it is possible to view the agreement reached between the Zurich Defendants and the plaintiffs (absent the amount that was contributed to the settlement fund pursuant to the Multi-State Agreement negotiated by the attorneys general) as totaling $129,950,000 with a 23% fee award. This is why Class Counsel asserts that their fee request amounts to 23% of the settlement value for which they were responsible (or 19.9%, once expenses and incentive awards are subtracted from the total fee award). The objectors make a colorable argument that Class Counsel should not be allowed to take credit for the entire $100,000,000 as set forth in the MOU because, under the terms of the Settlement Agreement, the Zurich Defendants were allowed to reduce the total amount that they contributed to the class settlement fund by $29,900,000 based on the separate fund that they were creating pursuant to the Three-State Agreement. If Class Counsel can only take credit for $70,000,000 of the value of the Zurich settlement fund, then the percentage-of-recovery which Class Counsel requested is much larger. Rather than asking for approximately $30,000,000 out of $130,000,000, Class Counsel's request would amount to about $30,000,000 out of $100,000,000, or 30% of the fund. Nonetheless, we do not believe that the District Court abused its discretion by crediting Class Counsel with achieving the entire $100,000,000 as provided for in the MOU, because even though nearly $30,000,000 of this amount was separately earmarked for distribution through the Three-State Agreement, the money still benefitted potential Settlement Class Members in that everyone who chose to claim under the Three-State Agreement otherwise would have been eligible to claim under the Zurich Settlement Agreement. We agree with the District Court that Class Counsel's efforts produced at least $100,000,000 for the Settlement Class in addition to the $29,950,000 separately designated for their fees. Next we consider the District Court's lodestar analysis. Although the District Court was only utilizing the lodestar method as a cross-check of the reasonableness of the fee request under the percentage-of-recovery method, it still needed to calculate the lodestar multiplier correctly in order for the cross-check to be meaningful. Initially, despite the objectors' arguments to the contrary, it was not error for the District Court to rely on time summaries instead of reviewing actual time records. See In re Rite Aid Corp. Sec. Litig., 396 F.3d at 306-07; In re Prudential Ins. Co., 148 F.3d at 342. Although Class Counsel did not disclose the billing rate they used to calculate their lodestar, the District Court had enough information to conclude that the blended billing rate was approximately $365, and the District Court considered this a reasonable hourly billing rate for such services based on the given geographical area, the nature of the services provided, and the experience of the attorneys. Zurich Settlement Attorneys' Fees Opinion at  (internal quotation marks omitted). We have no reason to believe this finding was in error and, because the District Court was in the best position to make this assessment, we defer to its reasonable judgment. The lodestar multiplier that the District Court calculated was less than one and thus reveals that Class Counsel's fee request constitutes only a fraction of the work that they billed in conjunction with the Zurich Settlement Agreement. Even assuming there was some inflation of the hours billed in relation to the Zurich Settlement or some duplicative work involved in the total hours count, a significant adjustment would have to be made to the hours calculation before the lodestar multiplier (here, a fraction) would even begin to approach one. While district courts must be aware of the potential for manipulation of the lodestar and lodestar multiplier, we are satisfied that in the present case the District Court's lodestar cross-check confirmed the reasonableness of the fee request. Additionally, the District Court's analysis of the Gunter factors was well-reasoned and thorough and therefore further supports the conclusion that the District Court's award of fees was not an abuse of discretion.