Opinion ID: 6342044
Heading Depth: 2
Heading Rank: 2

Heading: Fee Allocation

Text: Nor is discovery required regarding the allocation of attorney fees among the ﬁrms. As the district court observed, “Lead Plaintiﬀs have already explained how they intend to distribute the fee award.” Speciﬁcally, they had indicated that the ﬁrms will divide the fees according to their respective lodestars. The parties disagree about whether that disclosed allocation is suﬃcient. In his opening brief, Petri insisted that any other fee-sharing agreements would be “probative to the concern about political kick-backs.” Lead counsel responded: “The undisputed record is that there are no other fee sharing agreements—the sharing of fees between counsel has been fully disclosed.” Petri then suggested that this statement leaves open the possibility that there were earlier fee-sharing agreements with diﬀerent terms. Even assuming Petri is right about the ambiguity of lead counsel’s statement, we do not see how earlier fee-sharing agreements would be relevant to our analysis. Suppose, for example, that lead counsel had initially agreed to give 20 percent of the fee award to Gadow Tyler and Klausner. Petri says that such an agreement would explain the 25 percent fee request: lead counsel had to ask for a huge fee to make up for the 20 percent portion going to the other ﬁrms. We take the No. 20-2055 25 point, but lead counsel’s request was never going to be the ﬁnal word on the subject—the fee still had to be approved by the district court. Even if prior fee-allocation agreements existed, the district court did not abuse its discretion in denying this discovery request. 10 C. Lead Counsel’s Relationship with the Mississippi Fund Finally, Petri sought discovery regarding lead counsel’s relationship with the Mississippi fund and the elected oﬃcials who oversee its operations. He argued that the fund “has a pattern and practice of awarding lucrative legal work to ﬁrms that support [former Mississippi Attorney General Jim Hood].” The district court rejected that request as well, concluding that Petri’s allegations about lead counsel’s political contributions were insuﬃcient to justify discovery. Reasonable judges could diﬀer, but we ﬁnd no abuse of discretion.
As the Third Circuit has explained, securities litigation involves unique pay-to-play concerns. See In re AT&T Corp., 455 F.3d 160, 168 (3d Cir. 2006). In securities class actions, especially under the terms of the Private Securities Litigation Reform Act, massive publicly managed pension funds often serve as lead plaintiﬀs. Those circumstances present the risk of “so-called ‘pay-to-play’ arrangements, such as where a law ﬁrm makes campaign contributions to elected oﬃcials who control governmental pension funds and is selected as the fund’s lead counsel.” Id. Such arrangements can distort fair 10Our decision on this point does not affect our earlier statement in note 6, above, that the earlier fee agreement with the Arkansas fund should be disclosed to help the court approximate the results of an ex ante negotiation here. 26 No. 20-2055 fee arrangements for the beneﬁt of the class, for “the adversarial process is often ‘diluted.’” Id. One empirical study found that when pension funds whose managers have received campaign contributions serve as lead plaintiﬀs, they “appear to be less vigorous in negotiating attorney fees.” Stephen J. Choi, Drew T. Johnson-Skinner & A.C. Pritchard, The Price of Pay to Play in Securities Class Actions, 8 J. Empirical Legal Stud. 650, 651 (2011) (analyzing securities class actions ﬁled between 2002 and mid-2007). Accordingly, district courts handling these cases “should be particularly attuned to the risk of pay-to-play.” In re Cendant Corp. Litigation, 264 F.3d 201, 270 n.49 (3d Cir. 2001). At the same time, district courts must also “take care to prevent the use of discovery to harass presumptive lead plaintiﬀs.” Id. We see no reason that logic should not extend to discovery requests at the fee-award stage. Requiring some preliminary evidentiary showing before allowing such discovery is standard practice in both securities litigation, see 15 U.S.C. § 78u-4(a)(3)(B)(iv) (permitting discovery as to whether a class member is the most adequate plaintiﬀ “only if the plaintiﬀ ﬁrst demonstrates a reasonable basis for a ﬁnding that the presumptively most adequate plaintiﬀ is incapable of adequately representing the class”), and class actions more generally. See Fed. R. Civ. P. 23 advisory committee’s notes to 2003 amendment (“If the [fee] motion provides thorough information, the burden should be on the objector to justify discovery to obtain further information.”).
Petri’s allegations are based on lead counsel’s campaign contributions to former Mississippi Attorney General Jim Hood, who held that position from 2004 to 2020. The No. 20-2055 27 Mississippi Attorney General’s Oﬃce has full authority “to bring, decide and settle cases on behalf of [the Mississippi fund].” According to Petri, four Bernstein Litowitz partners contributed a total of $20,000 to Hood’s campaign in October 2016, one month after the Mississippi fund moved to have the ﬁrm appointed as lead counsel in this case. Hood’s gubernatorial campaign also received $21,800 from various partners in April 2019, not long after the district court issued its preliminary approval of the settlement. And Bernstein Litowitz previously contributed $100,000 to the Democratic Attorneys General Association (DAGA), which provided a signiﬁcant portion of Hood’s 2015 campaign budget. Based on these publicly reported facts, we cannot say the district court abused its discretion in denying discovery of possible further contributions. The allegations resemble those in Cendant, which addressed pay-to-play concerns in selecting the lead plaintiﬀ and class counsel in another securities class action. The Cendant district court recognized a consortium of three pension funds as the presumptive lead plaintiﬀs because of the funds’ ﬁnancial stakes in the litigation. Two other plaintiﬀs objected. They argued that the consortium could not protect the interests of the class because its chosen counsel had made campaign contributions to an elected oﬃcial overseeing one of the funds, which “created an appearance of impropriety.” 264 F.3d at 269 (citation omitted). The district court rejected that argument because the plaintiﬀs provided no evidence that the contributions had inﬂuenced the consortium’s selection process. The Third Circuit aﬃrmed, concluding that “[a]llegations of impropriety are not proof of wrongdoing.” Id. at 270. 28 No. 20-2055 Cendant also discussed steps that courts can take to mitigate pay-to-play concerns. In cases involving publicly managed funds, for example, courts might require lead plaintiﬀs to disclose any contributions by counsel to elected oﬃcials who oversee the fund. 264 F.3d at 270 n.49. If there is evidence of such contributions, the fund might be required to submit “a sworn declaration describing the process by which it selected counsel and attesting to the degree to which the selection process was or was not inﬂuenced by any elected oﬃcials.” Id. The Third Circuit’s suggestions for guarding against payto-play activity may be useful at the fee-award stage as well. In this case, however, much of the suggested information is already in the record. Cf. Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 120 (2d Cir. 2005) (holding that decision to grant or reject objector’s motion for discovery regarding fairness of settlement depended on “whether or not the District Court had before it suﬃcient facts intelligently to approve the settlement oﬀer” (citation omitted)). First, Petri submitted publicly available information about lead counsel’s contributions to Attorney General Hood’s campaigns and to DAGA. The district court reasonably concluded that the campaign contributions themselves did not justify discovery. See Cendant, 264 F.3d at 270 n.49 (concluding in context of lead plaintiﬀ appointment that “evidence of campaign contributions, standing alone, does not create ‘a reasonable basis’ suﬃcient to justify party-conducted discovery”); see also In re Diamond Foods, Inc., Securities Litigation, 295 F.R.D. 240, 256 (N.D. Cal. 2013) (upholding choice of class counsel after requiring pension funds and counsel to describe No. 20-2055 29 selection process and to disclose certain contributions to Mississippi campaigns and DAGA). Petri also wants information about in-kind contributions and contributions by attorneys’ family members. If the district court had found that information about such contributions was needed to assess the reasonableness of the fee, it could have followed up on the issue. See Cendant, 264 F.3d at 270 n.49 (observing that evidence of campaign contributions would be suﬃcient “for the court, on its own initiative, to seek further information from the presumptive lead plaintiﬀ”). But given the intrusive nature of the discovery and the limited value it seemed likely to provide, it was not an abuse of discretion for the court to deny Petri’s motion. Cf. Hemphill v. San Diego Ass’n of Realtors, Inc., 225 F.R.D. 616, 619 (S.D. Cal. 2005) (noting in settlement context that objectors “should be allowed ‘meaningful participation in the fairness hearing without unduly burdening the parties or causing an unnecessary delay’”), quoting In re Domestic Air Transportation Antitrust Litigation, 144 F.R.D. 421, 424 (N.D. Ga. 1992). Lawyers are “free to exercise their right to donate to politicians who support their views,” In re Countrywide Financial Corp. Securities Litigation, 273 F.R.D. 586, 604 (C.D. Cal. 2009), and the same is certainly true of lawyers’ family members. Second, an assistant attorney general in the Mississippi ofﬁce submitted an aﬃdavit explaining the process for selecting counsel in securities cases. The oﬃce relies on a panel of eleven law ﬁrms to monitor the Mississippi fund’s investment portfolio. According to the assistant attorney general, those ﬁrms were selected based on their track records, resources, and reputations; campaign contributions “have no consideration in the selection process.” The oﬃce also has a “ﬁrst-to30 No. 20-2055 approach” policy for selecting lead counsel, meaning that whichever ﬁrm initially ﬂagged the case is selected. Here, Bernstein Litowitz was the only panel member that alerted the oﬃce to the Mississippi fund’s potential claims against Stericycle. We can imagine a district court ﬁnding such explanations not suﬃciently persuasive, but in this case the court did not abuse its discretion in thinking that the selection process did not appear to have been tainted by political contributions. See Cendant, 264 F.3d at 269 (noting that objecting plaintiﬀs “had no evidence that the contributions, themselves legal, had inﬂuenced the [consortium’s] selection process”); see also In re Bank of New York Mellon Corp. Forex Transactions Litigation, 148 F. Supp. 3d 303, 308–09 (S.D.N.Y. 2015) (acknowledging pay-to-play concerns but also recognizing that “no evidence” cast doubt on deputy attorney general’s assertion that campaign contributions did not aﬀect selection of lead counsel). On this record, it was not an abuse of discretion for the district court to deny the requested discovery. Nor would we be inclined to reverse if the court had come out the other way or somewhere in-between. These issues are case- and fact-speciﬁc, and the district judge “is in the best position to decide the proper scope of discovery.” Scott v. Chuhak & Tecson, P.C., 725 F.3d 772, 785 (7th Cir. 2013) (citation omitted); see also Fields v. City of Chicago, 981 F.3d 534, 550–51 (7th Cir. 2020) (“District court judges are accorded broad discretion in dis- covery matters, and therefore our review is deferential….”). Based on Petri’s evidence and allegations, we are not persuaded that the district court was required to order the requested discovery. 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