Opinion ID: 1357701
Heading Depth: 2
Heading Rank: 4

Heading: Challenge to the Attorneys' Fees in the Zurich Settlement

Text: Requests for awards of attorneys' fees in a class action settlement may be presented as either a percentage of the total recovery of a common fund or as a dollar amount that is not derivative of the settlement value. When a percentage of the total recovery of the settlement is requested, we have articulated several factors that a district court should consider for assessing the reasonableness of the fee. See Gunter v. Ridgewood Energy Corp., 223 F.3d 190 (3d Cir.2000). The Gunter factors are as follows: (1) the size of the fund created and the number of persons 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 awards in similar cases. Id. at 195 n. 1. These factors need not be applied in a formulaic way ... and in certain cases, one factor may outweigh the rest. Id. We have instructed district courts that they are to engage in robust assessments of the fee award reasonableness factors when evaluating a fee request. In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 302 (3d Cir.2005). The alternative to requesting a percentage of the total recovery is to request a particular dollar amount in connection with class counsel's lodestar. The lodestar award is calculated by multiplying the number of hours reasonably worked on a client's case by 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. The multiplier is a device that attempts to account for the contingent nature or risk involved in a particular case and the quality of the attorneys' work. Id. at 305-06 (footnote omitted). The reasonableness of the requested fee can be assessed by calculating the lodestar multiplier, which is equal to the proposed fee award divided by the lodestar (i.e., the product of the total hours and the blended billing rate). But the lodestar multiplier need not fall within any pre-defined range, provided that the District Court's analysis justifies the award. Id. at 307. The percentage-of-recovery method is generally favored in common fund cases because it allows courts to award fees from the fund `in a manner that rewards counsel for success and penalizes it for failure.' Id. at 300 (quoting In re Prudential Ins. Co., 148 F.3d at 333). The lodestar method is more typically applied in statutory fee-shifting cases, but [r]egardless of the method chosen, we have suggested it is sensible for a court to use a second method of fee approval to cross-check its initial fee calculation. Id. When the lodestar method is used only as a cross-check, it is appropriate to apply an abridged analysis, but courts should still explain how the application of a multiplier is justified by the facts of a particular case. In re Prudential Ins. Co., 148 F.3d at 340-41. The lodestar cross-check serves the purpose of alerting the trial judge that when the multiplier is too great, the court should reconsider its calculation under the percentage-of-recovery method, with an eye toward reducing the award. In re Rite Aid Corp. Sec. Litig., 396 F.3d at 306.
The District Court began its analysis by calculating the percentage of recovery that Class Counsel's fee request represented, analogizing the fee request to a common fund case. The District Court explained that according to Class Counsel, the $29,950,000 fee award was 23% of the minimum recovery attributable to their efforts or, alternatively, if expenses and incentive awards were subtracted from the total award, then the attorneys' fee would amount to 19.9% of the minimum recovery. See Zurich Settlement Attorneys' Fees Opinion at . Class Counsel claimedand the District Court accepted for the purposes of this calculationthat they deserved credit for the $100,000,000 settlement fund established under the MOU and the $29,950,000 for fees and expenses, for a combined total of $129,950,000. Id. The District Court acknowledged that this Settlement is not strictly a common fund, but reasoned that the appropriate analysis is analogous to that performed to the common fund doctrine. Id. at . The District Court proceeded to analyze each of the Gunter factors, at times applying some of the same reasoning it used in approving the Zurich Settlement Agreement under the Girsh factors. The District Court concluded that the first factor the size of the fund created and the number of persons benefittedweighed in favor of approval because Class Counsel were able to obtain a sizeable result, $121,800,000, on behalf of the Class. Id. at . The District Court also referenced the number of people who would benefit from the Settlement Agreement and the fact that the Settlement Agreement would not be reduced by awarding attorneys' fees and expenses. Id. The District Court determined that the second factorthe presence or absence of substantial objections by members of the class to the settlement terms and/or fees requested by counsel weighed in favor of approval due to the small number of objections ... [and the lack of] merits of those objections. Id. at . The District Court relied on the same reasoning it used in its Girsh analysis to conclude that the third and fourth factors were satisfiedthe skill and efficiency of the attorneys involved and the complexity and duration of the litigation. See id. The District Court found that the fifth factorthe risk of non-paymentweighed in favor of approval because Class Counsel invested a substantial amount of time and effort to reach this point and obtain the favorable Settlement and Class Counsel accepted the responsibility of prosecuting this class action on a contingent fee basis and without any guarantee of success or award. Id. at . As for the sixth factorthe amount of time devoted to the case by plaintiffs' counselthe District Court determined that it also weighed in favor of approval due to the large amount of time (200,000 hours prior to settlement), money (aggregate lodestar of nearly $74,000,000 and expenses of nearly $4,000,000), and effort put forth by many firms (approximately fifty law firms). See id. Finally, the District Court determined that the award requested by Class Counsel (either 23% or 19.9%) was reasonable because it was on par with amounts previously awarded in similar settlement cases in the District of New Jersey and it was within the range of privately negotiated contingent fees for commercial litigation. See id. at -8. Consequently, the District Court concluded that the requested fee by Class Counsel is fair and reasonable according to the Gunter factors. Id. at . In addition to considering the percentage of recovery in the context of the Gunter factors, the District Court also performed a lodestar cross-check and calculated the lodestar multiplier by using Class Counsel's proposed fee award of $29,950,000, and dividing that number by the value of the lodestar that Class Counsel claimed for its work through July 31, 2006 (the approximate time when the Zurich Settlement Agreement was reached). See id. at . The District Court accepted the total number of hours submitted by Class Counsel and explained that it may rely on summaries submitted by the attorneys, and is not required to scrutinize every billing record. Id. The District Court also noted that Class Counsel did not provide declarations in support of any particular hourly rate, but based on the District Court's own calculation (which it arrived at by dividing the total lodestar by the total hours worked), [i]t appears that the hourly rate being used by Class Counsel is approximately $365. Id. at . The District Court considered this rate reasonable based on Class Counsel's experience and the lack of objections to the rate. Id. The District Court's calculation produced a lodestar multiplier of 0.4, which the District Court stated was within an accepted range. Id. at . Before concluding its analysis, the District Court also addressed the five objections raised to Class Counsel's fee request. First, the District Court rejected the claim that the value of Class Counsel to class members was lower due to the participation of several attorneys general, stating that [b]ased on details of the Settlement Agreements, it does not appear that Class Counsel has run afoul of [the Third] Circuit's prohibition of collecting fees based on the work of governmental agencies. Id. at . Next, relying on Hensley v. Eckerhart, 461 U.S. 424, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983), the District Court rejected the claim that Class Counsel was seeking to recover fees based on non-Zurich Settlement related issues, explaining that there are situations where `the plaintiff's claims for relief will involve a common core of facts or will be based on related legal theories' and that `[m]uch of counsel's time will be devoted generally to the litigation as a whole, making it difficult to divide the hours expended on a claim-by-claim basis.' Zurich Settlement Attorneys' Fees Opinion at  (quoting Hensley, 461 U.S. at 435, 103 S.Ct. 1933). The District Court also rejected the objections that Class Counsel failed to perform their gatekeeper function and that the fees requested were too high, finding both objections not persuasive. Id. at . The District Court finally rejected the objection that the $10,000 class representation fee was too high, stating that the Objectors fail to put forth any authority to support this argument. Id. Relying on its Gunter analysis, which involved calculating the percentage of recovery, and its lodestar crosscheck, the District Court approved Class Counsel's requested attorneys' fees, reimbursement of expenditures, and incentive awards for named plaintiffs.
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.