Opinion ID: 1349586
Heading Depth: 2
Heading Rank: 2

Heading: Size of the Settlement Award

Text: Appellants argue that the portion of the fee awarded from the Settlement Accounts, more than $434 million in all, was excessive. Riepen claims that the District Court improperly calculated the award as a percentage of the recovery, instead of using the lodestar method, and Riepen and Valori both contend that the award is based on an erroneous application of the reasonableness factors we have previously articulated.
Attorneys' fees are typically assessed through the percentage-of-recovery method or through the lodestar method. In re AT&T Corp., 455 F.3d 160, 164 (3d Cir.2006) (citation omitted). The former applies a certain percentage to the [settlement] fund. Id. (citation omitted). The latter multiplies the number of hours class counsel worked on a case by a reasonable hourly billing rate for such services. [33] Id. (citation omitted). Riepen argues that the District Court's employment of the percentage-of-recovery method was erroneous because, when a case involves fee shifting as does this one, the lodestar method should be used. Riepen's contention is misguided for two reasons. First, no fee shifting, as that term is traditionally used, occurred in this case. Fee shiftingan exception to the so-called American Rule, whereby parties pay their own attorneys' fees occurs when one party is compelled by statute to bear the opposing party's fees. Alyeska Pipeline Svc. Co. v. Wilderness Soc'y, 421 U.S. 240, 269-70, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). It is true that, under our precedent, the lodestar method is often applied in cases where fee-shifting statutes operate. Prudential, 148 F.3d at 333. But there is no such statute at work here. Wyeth voluntarily undertook the process of compensating opposing counsel, by establishing and funding various escrow accounts dedicated to the payment of claimants' legal costs. Second, even if this case could be said to involve fee shifting, Riepen does not complain about fee shifting at all. His problem is not that the burden of attorneys' fees was improperly shifted from the plaintiffs to Wyeth. Rather, Riepen is appealing the fee award to challenge the allocation of fees among the various attorneys who represented plaintiffs' interests. Contrary to Riepen's characterization, this case falls under the common fund doctrine, a second exception to the American Rule. That doctrine `provides that a private plaintiff, or plaintiff's attorney, whose efforts create, discover, increase, or preserve a fund to which others also have a claim, is entitled to recover from the fund the costs of his litigation, including attorneys' fees.' In re Cendant Corp. Sec. Litig., 404 F.3d 173, 187 (3d Cir.2005) (quoting G.M. Truck, 55 F.3d at 820 n. 39). When calculating attorneys' fees in such cases, the percentage-of-recovery method is generally favored. Prudential, 148 F.3d at 333; see also The Manual for Complex Litigation § 14.121 (4th ed.2004) (reporting that the vast majority of courts of appeals now permit or direct district courts to use the percentage method in common-fund cases). It was entirely appropriate for the District Court to adhere to the general convention and apply the percentage-of-recovery method in this case. The lodestar method is designed to reward counsel for undertaking socially beneficial litigation in cases where the expected relief has a small enough monetary value that a percentage-of-recovery method would provide inadequate compensation. Prudential, 148 F.3d at 333. Riepen contends, however, that the percentage-of-recovery method resulted in too much, as opposed to inadequate, compensation for Class Counsel in this case. Moreover, the financial stakes in this case were enormous, and the lawyers involved were primarily concerned with obtaining relief for their clients and the members of the class, not with serving the public interest. Thus, the District Court correctly applied the method better designed to reward[ ] counsel for success and penalize[ ] it for failure. G.M. Truck, 55 F.3d at 821.
In determining what constitutes a reasonable percentage fee award, a district court must consider the ten factors that we identified in Gunter, 223 F.3d 190, and Prudential, 148 F.3d 283. They are: (1) the size of the fund created and the number of beneficiaries, (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, (7) the awards in similar cases, Gunter, 223 F.3d at 195 n. 1; Prudential, 148 F.3d at 336-40, (8) the value of benefits attributable to the efforts of class counsel relative to the efforts of other groups, such as government agencies conducting investigations, (9) the percentage fee that would have been negotiated had the case been subject to a private contingent fee arrangement at the time counsel was retained, and (10) any innovative terms of settlement, Prudential, 148 F.3d at 338-40; see also AT & T, 455 F.3d at 165. [34] Trial courts must engage in robust assessments of the [ Gunter/Prudential ] factors when evaluating a fee request, Rite Aid, 396 F.3d at 302 (citation omitted), and that occurred here. In an exhaustive opinion, the District Court gave thorough consideration to each of the factors. Appellants do not argue to the contrary. Instead, they challenge the Court's analysis of three particular factors: the presence or absence of substantial objections, the risk of nonpayment, and the value of benefits attributable to the efforts of other groups. [35]
The District Court found it remarkable that there were so few objections to the settlement terms and to the fees requested by counsel, given the approximately six million class members in the MDL. Diet Drugs, 553 F.Supp.2d at 473. By the Court's count, fewer than thirty objections to the Settlement Agreement, eleven objections to the interim joint fee petition, and only four objections to the final joint fee petition were filed. Id. Valori claims that it was clear error for the District Court to rely so heavily on the absence of objections to the final joint fee petition because the Major Filers, some of whom had vigorously contested the interim petition, agreed not to object. In essence, according to Valori, the Class Counsel improperly influenced this factor through their Agreement with the Major Filers, and the Court should not have considered it. [36] Valori overstates the Court's reliance on the lack of objections. In fact, the Court explicitly declared that [t]he paucity of objections filed in response to the original and renewed petitions for attorneys' fees and costs does not necessarily establish that the requests in the Joint Petition are proper. Indeed, some objectors may not have been forthcoming because this court is obligated to exercise its inherent authority to assure that the amount and mode of payment of attorneys' fees are fair and proper ... independently of any objection. Diet Drugs, 553 F.Supp.2d at 474 (quoting Cendant PRIDES, 243 F.3d at 730). Valori also fails to recognize the breadth of the Court's analysis. Whatever weight the Court gave to this factor it gave based on the dearth of objections throughout the settlement and fee adjudication process, instead of focusing only on the objections to the final joint fee petition. Finally, Valori distorts the effect of the agreement between Class Counsel and the Major Filers. The record indicates that only one Major Filer objected to the interim fee petition, and there is nothing but Valori's argument, unsupported by evidence, that suggests that more of the Major Filers would have objected to the final petition absent the agreement. In short, Valori's contention leaves us unpersuaded that the District Court erredclearly or otherwisein its consideration of this factor.
Appellants claim that the District Court applied the wrong legal standard to its risk-of-nonpayment analysis, made at least one erroneous factual finding, and neglected to consider an important risk mitigator. We disagree with them on each point. Valori argues that the District Court erred as a matter of law by assessing the risk of nonpayment only at the beginning of litigation, instead of throughout the action. That risk, according to Valori, dissipated after the Settlement Agreement was reached and, pursuant to its terms, Wyeth agreed to fund escrow accounts from which Class Counsel would be compensated. We have never addressed whether courts must reconsider the risk of nonpayment as the action evolves, and we need not do so here because, whether it was required or not, the District Court did reassess the risk in this case. Although the Court stated that it was evaluating the risk of nonpayment as of the inception of the action and not through the rosy lens of hindsight, Diet Drugs, 553 F.Supp.2d at 478 (citing In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465, 488 (S.D.N.Y.1998)), its analysis was more comprehensive than that. The Court specifically concluded: The risk of non[ ]payment did not end with the approval of the Settlement Agreement. The second wave of litigation increased the liability exposure Wyeth faced and endangered the entire Settlement Agreement. [Class Counsel] renewed and redoubled their efforts at this point, not knowing whether the Settlement Agreement could be saved. Fortunately it was, but during this time it again appeared uncertain whether [Class Counsel] could reach a point in this litigation where they would be compensated for all of their efforts. At the inception, and throughout this litigation, there was a substantial risk that the efforts of [Class Counsel] would not be successful. Id. at 479. In practice, therefore, the Court evaluated the risk of nonpayment in the very manner that Valori advocates; Valori simply does not like the conclusion the Court reached. In a related argument, Riepen takes issue with the Court's finding that Class Counsel faced significant risk [of nonpayment] at the beginning of the litigation. Id. at 478. He claims that, to the contrary, the deck [was] stacked against Wyeth from the very beginning. (Appellant's Br., No. 08-2363, at 41.) Wyeth, according to Riepen, faced potentially crippling liability, through state and federal litigation, and high-profile scholarship that established the link between the diet drugs and heart disease. As a result, it entered into settlement negotiations with the PMC very early in the litigation process, and as part of the settlement it agreed to pay more than $400 million into two funds from which class attorneys would be compensated. Riepen confuses the risk of nonpayment at the inception of litigation with the risk immediately after the Settlement Agreement was executed. While the escrow funds undoubtedly reduced the risk of nonpayment, those funds were but one part of an intricate agreement that the PMC negotiated with Wyeth. If, as the District Court recognized, the Settlement Agreement had not been structured to avoid a ruinous outcome for Wyeth, the efforts of [Class Counsel] would have been for naught. Diet Drugs, 553 F.Supp.2d at 479. Additionally, Riepen's view of the risk of nonpayment is more myopic than the Court's. As noted above, the Court assessed risk not at one fixed point in the action, but throughout its existence. Riepen does not challenge, for example, the Court's finding that the risk of nonpayment increased once the second wave of litigation threatened the Settlement Agreement, and, based on the record, he could not persuasively do so. Lastly, Valori contends that the Court erred in evaluating the risk of nonpayment by neglecting to consider the potentially billions of dollars in fees that Class Counsel was receiving from their representation of diet drug claimants in concurrent state law cases. What individual counsel received in a particular state case, however, is irrelevant to the fee award here, which compensates Class Counsel for services that benefitted all class members, as well as the litigants in coordinated state actions. See, e.g., Rite Aid, 396 F.3d at 302 n. 11 (refusing to conflate [ ] two distinct settlements when considering the reasonableness of the attorneys' fees based on one settlement fund).
In assessing whether Class Counsel had benefitted from the efforts of other groups, such as government agencies conducting investigations, AT & T, 455 F.3d at 165 (citation omitted), the District Court noted that this case differed from the typical antitrust or securities litigation in which the Gunter/Prudential factors are often consideredwhere government prosecutions frequently lay the groundwork for private litigation, Diet Drugs, 553 F.Supp.2d at 481. The Court concluded that, while Class Counsel was in some sense beholden to the scholars who linked the diet drugs to VHD, and beholden as well to the FDA for its efforts to remove the drugs from the market, Class Counsel had not relied on the government or other public agencies to do their work for them as has occurred in some cases. Id. at 481-82. According to Riepen, the Court committed an error of law by limiting its analysis to the efforts of scholars and the FDA, and thereby ignoring the contributions of the lawyers who, while conducting contemporaneous diet drugs litigation in Texas state courts, obtained millions of pages of discovery from Wyeth and took 43 depositions before a single deposition took place in the MDL. Because the MDL trial docket lagged behind those in state court cases in Texas, Riepen believes that the Texas lawyers provided Class Counsel a litigation road map ... [:] At the end of the day, the PMC only had to take depositions for a few months ... before [Wyeth] initiated settlement discussions with them [sic]. (Appellant's Br., No. 08-2363, at 39.) Riepen is correct that the District Court did not mention the Texas lawyers' work in conjunction with this factor. That does not mean, however, that the Court ignored the contributory efforts of the Texas lawyers in determining an appropriate percentage of recovery. The issue was litigated during both the interim and final fee adjudication, and the Court determined that, whatever the Texas cases may have added, the recoveries arising from the MDL were due to the herculean efforts of the PMC [37] in developing the case against Wyeth, in negotiating an agreement that allowed Wyeth to resolve the claims against it, and in amending the Settlement Agreement when it appeared to be in jeopardy. [38] Diet Drugs, 553 F.Supp.2d at 474. But even if we agreed that the District Court undervalued the Texas lawyers' contributionsor if we agreed with any one of Appellants' discrete challengeswe would not, on that basis alone, vacate the fee award. The fee award reasonableness factors `need not be applied in a formulaic way' because each case is different, `and in certain cases, one factor may outweigh the rest.' AT & T, 455 F.3d at 166 (quoting Rite Aid, 396 F.3d at 301). Our task is to discern whether the Court's percentage-of-recovery analysis, when examined in its totality, supports the fee that it finally determined was appropriate. The Court made numerous findings pertaining to the Gunter/Prudential factors that Appellants do not dispute. For instance, it found that (1) the work of Class Counsel yielded a $6.44 billion settlement fund that benefitted more than 800,000 class members; (2) the Diet Drugs litigation was complex, [39] and it endured significantly longer than did other super-mega-fund cases; [40] (3) Class Counsel had devoted an extraordinary amount of time to the Settlement Agreement and the litigation surrounding it; (4) the requested award was, in percentage terms, slightly below the average award granted in the super-mega-fund cases; (5) the Major Filers' consent to the joint fee petition indicated that the petitioners were not seeking fees in excess of market value; and (6) many of the Settlement Agreement's featuresincluding the multiple downstream opt-out rightswere innovative and ha[d] already served as models for other cases. [41] Diet Drugs, 553 F.Supp.2d at 472-85. On the basis of those extensive and uncontestedfindings alone, we would conclude that the District Court's fee award was not an abuse of discretion. As noted above, however, the aspects of the Court's analysis that Appellants challenge also support the percentage-of-recovery award that Class Counsel received. [42]