Opinion ID: 2994681
Heading Depth: 2
Heading Rank: 2

Heading: Attorneys’ Fees, Costs, and the

Text: Incentive Award Class counsel challenges several aspects of the district court’s decisions regarding attorneys’ fees, costs, and the requested incentive award for the lead plaintiff. Specifically, counsel argues that the district court should have: (1) awarded it 33-1/3% of the gross settlement recovery; (2) awarded it a like percentage of the stock promised to the class; (3) included computer-assisted legal research costs in the expense reimbursement; and (4) granted the lead plaintiff an incentive award. We review the district court’s decisions respecting these matters for abuse of discretion, except where counsel challenges the methodology employed by the district court, in which case our review becomes plenary. Harman v. Lyphomed, Inc., 945 F.2d 969, 973 (7th Cir. 1991). Before getting to class counsel’s specific challenges, we note that in cases like the present one, where the district court is asked to award reasonable attorneys’ fees or reasonable costs, the measure of what is reasonable is what an attorney would receive from a paying client in a similar case. Cook v. Niedert, 142 F.3d 1004, 1012 (7th Cir. 1998); In re Continental Ill. Sec. Litig., 962 F.2d 566, 568, 570, 573 (7th Cir. 1992). This standard obviates, at least to a certain extent, the need to assign a value to an attorney’s work based on nothing more than a subjective judgment regarding that work. It gives a court a background against which to work by requiring courts to look to evidence regarding the sorts of fees and costs generated in analogous suits funded by paying clients. To the extent possible, then, our analysis in this case will be guided by this methodology. We begin with class counsel’s contention that its fee should be based on the gross settlement recovery--the settlement recovery before counsel’s cost award is deducted--rather than the net recovery-- the recovery after the cost award is deducted. Counsel cites no authority standing for the proposition that gross recovery is to be preferred over net recovery as the basis for calculating a fee under the percentage-of-recovery method, nor has our review of the relevant case law revealed any authority to that effect. Moreover, counsel has not come forward with evidence indicating that private contingent fee agreements typically employ one or the other basis, nor has counsel suggested any logical reason that gross recovery should be the preferred basis. As such, it is impossible to conclude that the district court abused its discretion in using net recovery as a basis for awarding attorneys’ fees. We consider next class counsel’s complaint that the district court should have awarded counsel a greater percentage of the settlement recovery, 33-1/3% rather than 25%. Counsel contends that the district court, in adopting what it found to be the median percentage-of- recovery figure used in securities cases, failed to adequately appreciate the riskiness of this case. The district court concluded that the case was not particularly risky because the fact (although not the amount) of the Montgomery defendants’ liability could not be doubted. Although a reasonable argument can be made that the case was more risky than the district court thought, the district court’s assessment of the risk involved is not without support. It is fairly obvious that at least some of the Montgomery defendants (most notably Jeff Davis) plainly were not acting in the best interests of Aetna Plywood’s shareholders or in the best interest of the ESOP. Moreover, a lack of risk was not the only reason the district court gave for refusing to select a percentage-of-recovery figure greater than the median; the court also noted that the large settlement recovery counseled against a high figure. In fact, the court undertook a careful analysis of both the factors weighing in favor of a greater-than-median percentage figure and those weighing against such a figure. Because it is impossible to say that the district court’s balancing of these factors was unreasonable, we cannot conclude that the district court abused its discretion in selecting 25% as the appropriate percentage-of-recovery figure. We come, then, to class counsel’s challenge to the district court’s refusal to award counsel a portion of the stock the settlement agreement promised to the class. Counsel contends that the stock obtained for the class should be treated just as the cash obtained for the class is treated. The district court’s only reason for not awarding counsel stock was that counsel’s fee was already substantial. We do not believe this is an adequate reason for denying counsel stock. Stock, like cash, is simply a form of compensation secured on the class’s behalf. There is no reason it should be treated differently than cash. In fact, treating it differently creates perverse incentives for attorneys by encouraging them to seek all cash recoveries even when a cash and stock recovery would be in their clients’ best interest or would otherwise be more appropriate. If a court believes a fee award would be too large if stock is made part of the award, then it should reduce the percentage-of- recovery figure (something which, as noted above, the district court here essentially did). Although we have not discovered any significant authority on this matter, and the record does not reveal how private contingent fee arrangements in securities cases treat awards of stock, we are convinced that the district court’s refusal to award class counsel any of the stock obtained for the class is unreasonable. As such, we conclude that the district court abused its discretion in so ruling. We next turn to class counsel’s claim that the district court erred in refusing to include in the expense reimbursement award computer-assisted legal research costs. Counsel contends that the district court should have included these costs in the reimbursement award because the private market compensates lawyers for these costs and to do otherwise would violate the ethical rules regarding the payment of costs by attorneys. Counsel’s arguments are misguided. Computer research charges are considered a form of attorneys’ fees. Haroco, Inc. v. American Nat’l Bank & Trust Co. of Chicago, 38 F.3d 1429, 1440-41 (7th Cir. 1994); Harman, 945 F.2d at 976. The idea is that computer-assisted legal research essentially raises an attorney’s average hourly rate as it reduces (at least in theory) the number of hours that must be billed. Haroco, 38 F.3d at 1440-41; Harman, 945 F.2d at 976. As a form of attorneys’ fees, the charges associated with such research are not separately recoverable expenses. When a court uses the percentage-of-recovery method of calculating attorney’s fees, such charges are simply subsumed in the award of attorneys’ fees./3 Here, therefore, counsel’s arguments regarding the necessity of separately recoverable computer research charges are not persuasive because counsel has already been compensated for the computer research charges it incurred through the attorneys’ fee awarded it. Thus, we conclude that the district court did not abuse its discretion or otherwise err in excluding computer-assisted legal research charges from the expenses awarded class counsel. Finally, we take up class counsel’s challenge to the district court’s decision to deny the lead plaintiff an incentive award for his participation in this case. Incentive awards are appropriate if compensation would be necessary to induce an individual to become a named plaintiff in the suit. Cook, 142 F.3d at 1016; Continental Ill. Sec. Litig., 962 F.2d at 571-72. Counsel claims that the circumstances of the lead plaintiff’s participation require that he be awarded $30,000 out of the settlement fund. Without directly addressing whether the lead plaintiff’s participation justified an incentive award, the district court gave three reasons for refusing to grant such an award: (1) counsel’s failure to make any serious argument in favor of granting such an award (especially in the amount requested); (2) counsel’s failure to include in the most recent notice to the class adequate information regarding counsel’s plan to seek an incentive award; and (3) the possibility that counsel could pay an incentive award out of the fees awarded it. Although the district court’s last reason for its ruling is not a particularly persuasive one, the other two carry significant weight. Counsel’s uncertain and less than vigorous efforts to seek an incentive award in the district court can reasonably be interpreted as an abandonment of its request for such an award. In any event, the case for granting the lead plaintiff in this case an incentive award is not so overwhelming as to remove any doubt about whether an award would be appropriate. While the lead plaintiff was the only named plaintiff, was subjected to a rough deposition, and was portrayed by the Montgomery defendants in an unfavorable light during the litigation, it does not appear that he had to devote an inordinate amount of time to the case or that, as a former employee, he suffered or risked any retaliation by Aetna Plywood. Accordingly, we conclude that the district court did not abuse its discretion in refusing to grant the lead plaintiff an incentive award.