Court Opinion

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Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

1-26-2005

In Re: Rite Aid Corp
Precedential or Non-Precedential: Precedential

Docket No. 03-2914

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Recommended Citation
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                                   PRECEDENTIAL
           UNITED STATES COURT OF APPEALS
                FOR THE THIRD CIRCUIT

                          No. 03-2914

               IN RE: RITE AID CORPORATION
                  SECURITIES LITIGATION

        Plaintiff Class Member/Objector Walter Kaufmann,
                                                    Appellant

         On Appeal from the United States District Court
            for the Eastern District of Pennsylvania
               D.C. MDL No. 10-md-01360 and
              D.C. Civil Action No. 99-cv-01349
                  (Honorable Stewart Dalzell)

                    Argued May 27, 2004
                Before: SCIRICA, Chief Judge,
            FISHER and ALARCÓN* , Circuit Judges

                    (Filed: January 26, 2005)

    *
    The Honorable Arthur L. Alarcón, United States Circuit
Judge for the Ninth Judicial Circuit, sitting by designation.
LAWRENCE W. SCHONBRUN, ESQUIRE (ARGUED)
86 Eucalyptus Road
Berkeley, California 94705
      Attorney for Appellant

SHERRIE R. SAVETT, ESQUIRE (ARGUED)
ROBIN SWITZENBAUM, ESQUIRE
CAROLE A. BRODERICK, ESQUIRE
Berger & Montague
1622 Locust Street
Philadelphia, Pennsylvania 19103

DAVID J. BERSHAD, ESQUIRE
Milberg Weiss Bershad & Schulman
One Pennsylvania Plaza, 48th Floor
New York, New York 10119
      Attorneys for Appellees,
      John Tang, Joan Vorpahl, Haim Aybar,
      Ronald Tunney and Steve Couture

                OPINION OF THE COURT

SCIRICA, Chief Judge.

       At issue is whether the District Court abused its
discretion in assessing the reasonableness of attorneys’ fees

                             2
requested by class counsel in a § 10(b) securities class action.
In all respects but one, the trial judge performed an exemplary
analysis. But this factor requires that we vacate and remand.

                               I.

        This is an appeal in the Rite Aid Corporation securities
litigation, filed under the Private Securities Litigation Reform
Act of 1995, 15 U.S.C. § 78u-4 et seq. Class counsel in this
complex § 10(b) class action were successful in obtaining a
settlement of $126.6 million from outside auditors KPMG LLP
and former executives of Rite Aid. The KPMG settlement was
one of the highest ever obtained from an accounting firm in a
securities class action and resulted in the withdrawal of appeals
from the previously negotiated $193 million Rite Aid settlement.

       The District Court awarded class counsel, consisting of
co-lead counsel Berger & M ontague, P.C., Milberg Weiss
Bershad & Lerach LLP and other firms representing the class,
$31.6 million or 25% of the KPMG settlement fund. The trial
judge, who presided over both the Rite Aid and KPMG
settlements, believed “it would be hard to equal the skill class
counsel demonstrated here.” In re Rite Aid Corp. Secs. Litig.,
269 F. Supp. 2d 603, 611 (E.D. Pa. 2003) (“Rite Aid II”). The
class appeared to agree. Only two of the more than 300,000
class members objected to the fee award. Moreover, studies of
comparable cases confirmed the requested fee percentage was
within a reasonable range. For those reasons, the District Court
denied objector and unnamed class member W alter Kaufmann’s

                               3
challenge to the requested fee award of $31.6 million. Id. at
610-12.

Facts

        In the course of the litigation, there were two distinct, but
inter-related settlements— one with Rite Aid as the primary
defendant, see In re Rite Aid Corp. Secs. Litig., 146 F. Supp. 2d
706 (E.D. Pa. 2001) (“Rite Aid I”), and one with KPMG as the
primary defendant. See Rite Aid II, 269 F. Supp. 2d 603. The
fee award in Rite Aid II is under review, but Rite Aid I provides
the necessary context, so we detail it briefly.

        1. Rite Aid I

        The Rite Aid litigation commenced after public
disclosures of disappointing earnings and a resulting drop in
Rite Aid’s share price on March 12, 1999. Thirty-six law firms
filed class actions against Rite Aid, its officers and directors,
alleging, inter alia, violations of § 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5. Eventually on October
11, 1999, Rite Aid announced that its 1997, 1998, and 1999
financial statements could no longer be relied upon, resulting in
a reduction of Rite Aid’s previously reported pre-tax earnings.

       In June 1999, the trial court appointed lead plaintiffs for
the class and approved their selection of class counsel. The
court also permitted the class to add Rite Aid’s outside auditor,
KPMG, as a defendant. The complaint alleged Rite Aid
published materially false financial statements, which KPMG

                                 4
erroneously stated were in accordance with generally accepted
accounting principles. After the suit was filed, the Department
of Justice began its own investigation of Rite Aid’s accounting
practices which, eighteen months later, resulted in criminal
indictments against some Rite Aid officers. The Securities and
Exchange Commission also commenced an investigation of
KPMG, although no criminal or civil charges were ever brought.

       In December 2000, class counsel negotiated a $193
million cash and non-cash settlement with Rite Aid.1 The
settlement included Rite Aid and all its former officers and
directors except former Chief Executive Officer Martin L.
Grass, former Chief Operating Officer Timothy J. Noonan, and
former Chief Financial Officer Frank M. Bergonzi. The
settlement reserved claims of the class and of Rite Aid against
Grass, Noonan, and Bergonzi, as well as against KPMG.

       The notice of settlement, disseminated to 300,000
potential class members, advised that class counsel would seek
attorneys’ fees up to 33a% of the total recovery. There were no
objections to the fee request. At the settlement fairness hearing,

  1
    Initially, this sum included a cash payment of $43.5 million
and securities valued at $149.5 million. Class counsel converted
the securities to cash by renegotiating what had been stock into
Rite Aid Notes and then monetizing the Notes. On February 11,
2003, Rite Aid redeemed the Notes from the class for $145.75
million. The class also received $14.44 million in interest on the
Notes. The settlement value has now increased to $207 million.

                                5
class counsel petitioned for a reduced fee award of 25% of the
total recovery. In June 2001, the District Court approved the
settlement and a fee award of 25%, or $48.25 million. See Rite
Aid I, 146 F. Supp. 2d at 734-37.

       2. Rite Aid II

        In September 2001, defendants KPMG and non-settling
former Rite Aid officers appealed the Rite Aid I settlement,
contending a provision of the settlement barring claims by non-
settling parties against the settling defendants was overbroad.
The appeal effectively halted distribution of the $193 million
partial settlement to class members. Class counsel commenced
protracted settlement negotiations with KPMG and the non-
settling officers in early to mid-2002. These negotiations
culminated in the signing of a memorandum of understanding
with KPMG in September 2002 and with the non-settling
officers immediately before scheduled oral argument on the Rite
Aid I appeal on September 19, 2002. Concluding the settlement,
however, proved difficult. In January 2003, the District Court
ordered the parties to participate in mediation, which culminated
in KPMG entering into a Stipulation and Agreement of
Settlement on March 11, 2003.2

   2
    Grass entered into a Stipulation and Agreement on April 7,
2003. Noonan entered into a Stipulation and Agreement on
December 27, 2002. Class Counsel dismissed Bergonzi as a
defendant because they “determined that even a minimal
settlement with Bergonzi would not be worth the complications

                               6
        On March 13, 2003 and April 8, 2003, the District Court
gave preliminary approval to the settlements which included
cash payments of $126.6 million3 and withdrawal of all appeals
in Rite Aid I. Notice of the settlement was mailed to 300,000
class members, advising that class counsel would request a fee
of 25% of the settlement fund. No class members objected to
the settlement, but two members, including Kaufmann, objected
to the fee request.

       Following a fairness hearing on May 30, 2003, the
District Court overruled the objections and approved the
settlement and fee request. See Rite Aid II, 269 F. Supp. 2d at
610-12. Applying the factors announced in Girsh v. Jepson, 521
F.2d 153 (3d Cir. 1975), the District Court found the proposed
settlement to be “fair and reasonable under all of the

it would occasion[.]” Rite Aid II, 269 F. Supp. 2d at 609.
       Grass and Bergonzi ultimately pled guilty to charges of
criminal conspiracy to defraud. See Argent Classic Convertible
Arbitrage Fund L.P. v. Rite Aid Corp., 315 F. Supp. 2d 666, 672
(E.D. Pa. 2004). Noonan pled guilty to a criminal information
that charged him with misprison of felony in violation of 18
U.S.C. § 4. See Rite Aid II, 269 F. Supp. 2d at 609.
   3
     The settlement provided KPMG would pay $125 million,
Grass would pay $1.45 million, and Noonan would remit Rite
Aid common stock, which plaintiffs later sold for $157,453.60.
Rite Aid II, 269 F. Supp. 2d at 606.

                              7
circumstances.” Rite Aid II, 269 F. Supp. 2d at 609. With
respect to class counsel’s fee request, the court found the
declaration of Professor John C. Coffee, class counsel’s
attorneys’ fees expert, “most helpful” in assessing the fee
request’s reasonableness against “the factors . . . established in
In re Prudential Ins. Co., 148 F.3d 283 (3d Cir. 1998) and
Gunter v. Ridgewood Energy Corp., 223 F.3d 190 (3d Cir.
2000).” Rite Aid II, 269 F. Supp. 2d at 610. Relying on
Professor Coffee’s findings, the court noted that statistical data
from other class action settlements demonstrated: (1) an average
percentage recovery of 31% in securities class actions involving
settlements greater than $10 million; (2) a range of median rates
from 27% to 30% over the course of a two year period in
selected federal district courts; and (3) percentage recoveries
between 25% to 30% were “fairly standard” in “mega fund”
class actions involving settlements between $100 and $200
million. Id. The court also found significant that only two class
members objected to the fee amount and noted class counsel
bore a risk of nonpayment in the event KPMG went out of
business. Id. at 610-11. The court found class counsel’s skill
and efficiency in obtaining the settlement weighed in favor of
approving the fee request, finding class counsel to be
“extraordinarily deft and efficient in handling this most complex
matter” and concluding “it would be hard to equal the skill class
counsel demonstrated here.” Id. at 611. Performing a lodestar
cross-check to confirm the fees’ reasonableness, the court found
a “handsome,” yet “fairly common” lodestar multiplier of 4.07

                                8
based upon 12,906 hours billed since the fee application in Rite
Aid I at an hourly rate of $605. Id. at 611 and n.10.

       For those reasons, the District Court denied Kaufmann’s
objections and awarded class counsel the requested fees plus
reimbursement of out-of-pocket litigation expenses in the
amount of $290,086. Id. at 611-12.

       Kaufmann filed this timely appeal.4 He objects to the fee
award, contending the District Court abused its discretion by
awarding class counsel an unreasonable common fund
percentage fee and failed to follow the proper standards for
assessing attorneys’ fees. He also contends the District Court
violated the class’s rights to Fifth Amendment Due Process and
to adequate representation under Fed. R. Civ. P. 23 by failing to
appoint a guardian or fee award expert to counter class counsel’s
expert declaration supporting their fee contention.

        Although an unnamed class member, Kaufmann has
standing to appeal, without first intervening. See Devlin v.
Scardelletti, 536 U.S. 1, 14 (2002) (holding that unnamed class
members who object in a timely manner to approval of a
settlement at a fairness hearing may appeal without first
intervening); See also Bell Atlantic Corp. v. Bolger, 2 F.3d
1304, 1307 (3d Cir. 1993) (holding that an unnamed plaintiff
that did not intervene nonetheless had standing to appeal a class
action settlement). The 2003 Amendment to Fed. R. Civ. P. 23

   4
       We have appellate jurisdiction under 28 U.S.C. § 1291.

                                 9
added subsection (e)(4)(A), which allows “[a]ny class member”
to “object to a proposed settlement, voluntary dismissal, or
compromise that requires court approval under Rule
23(e)(1)(A).”

                                II.

        “[A] thorough judicial review of fee applications is
required for all class action settlements.” Prudential, 148 F.3d
at 333 (internal quotations omitted). We review the District
Court’s attorneys’ fees award for abuse of discretion “which can
occur if the judge fails to apply the proper legal standard or to
follow proper procedures in making the determination, or bases
an award upon findings of fact that are clearly erroneous.” In re
Cendant Corp. PRIDES Litig., 243 F.3d 722, 727 (3d Cir. 2001)
(internal quotations omitted).        The standards employed
calculating attorneys’ fees awards are legal questions subject to
plenary review, but “[t]he amount of a fee award . . . is within
the district court’s discretion so long as it employs correct
standards and procedures and makes findings of fact not clearly
erroneous.” Pub. Interest Research Group of N.J., Inc. v.
Windall, 51 F.3d 1179, 1184 (3d Cir. 1995) (internal quotations
omitted). The appointment of an expert to assist a district court
in the performance of its duties is governed by Fed. R. Evid. 706
which provides a court “may appoint expert witnesses of its own
selection,” 5 and is reviewable under an abuse of discretion

   5
       Fed. R. Evid. 706(a) provides:
         The court may on its own motion or on the motion

                                10
standard. Walker v. Am. Home Shield Long Term Disability
Plan, 180 F.3d 1065, 1070-71 (9th Cir. 1999).

                              III.

       Kaufmann challenges the District Court’s conclusion that
the $31.6 million fee request on the $126.6 million Rite Aid II
settlement was reasonable. He contends the District Court erred
in assessing the fees’ reasonableness under our jurisprudence

       of any party enter an order to show cause why
       expert witnesses should not be appointed, and
       may request the parties to submit nominations.
       The court may appoint any expert witnesses
       agreed upon by the parties, and may appoint
       expert witnesses of its own selection. An expert
       witness shall not be appointed by the court unless
       the witness consents to act. A witness so
       appointed shall be informed of the witness' duties
       by the court in writing, a copy of which shall be
       filed with the clerk, or at a conference in which
       the parties shall have opportunity to participate.
       A witness so appointed shall advise the parties of
       the witness’ findings, if any; the witness’
       deposition may be taken by any party; and the
       witness may be called to testify by the court or
       any party. The witness shall be subject to cross-
       examination by each party, including a party
       calling the witness.

                              11
governing fee awards and should have applied a declining
percentage “sliding scale” principle to reduce the percentage-of-
recovery to account for the magnitude of the settlement fund.
He also contends the District Court erred in calculating the
lodestar cross-check multiplier using the hourly rates of the most
senior lawyers on the case.

        In assessing attorneys’ fees, courts typically apply either
the percentage-of-recovery method or the lodestar method. 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.” Prudential, 148 F.3d at 333 (internal quotations
omitted). The lodestar method is more typically applied in
statutory fee-shifting cases because it allows courts 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” or in cases where the nature of the recovery does
not allow the determination of the settlement’s value required
for application of the percentage-of-recovery method. Id.
Regardless 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.6 Id.

    6
     The Manual For Complex Litigation (Fourth) § 14.122
(2004) also suggests “the lodestar is at least useful as a cross-
check . . . using affidavits and other information provided by the

                                12
        Consistent with past jurisprudence, the percentage-of-
recovery method was incorporated in the Private Securities
Litigation Reform Act of 1995. 15 U.S.C. § 78u-4(a)(6) (“Total
attorneys’ fees and expenses awarded by the court to counsel for
the plaintiff class shall not exceed a reasonable percentage of the
amount of any damages and prejudgment interest actually paid
to the class.”).7 Nonetheless, we do not believe the Private
Securities Litigation Reform Act precludes the use of the
lodestar method as a check on the percentage-of-recovery
calculation.8

fee applicant.”
  7
    It bears noting that Rule 23 was amended in 2003 to provide
explicit authority to award “reasonable attorney fees” in class
actions. See Fed. R. Civ. P. 23(h) (“In an action certified as a
class action, the court may award reasonable attorney fees and
nontaxable costs authorized by law[.]”); Fed. R. Civ. P. 23(h),
2003 Advisory Committee Notes. The Advisory Committee
Notes to the 2003 Amendments state that “[o]ne fundamental
focus is the result actually achieved for class members” and that
the “Private Securities Litigation Reform Act of 1995 explicitly
makes this factor a cap for a fee award in actions to which it
applies.”
  8
   The legislative history is ambiguous. The Joint Explanatory
Statement of the Committee of Conference in the House
Conference Report explains that the “Conference Committee

                                13
       Notwithstanding our deferential standard of review of fee
determinations, we have required district courts to clearly set
forth their reasoning for fee awards so that we will have a
sufficient basis to review for abuse of discretion. See
Prudential, 148 F.3d at 340; Gunter, 223 F.3d at 196; Cendant
PRIDES, 243 F.3d at 733. A district court should consider
seven factors when analyzing a fee award in a common fund
case:

       (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

does not intend to prohibit use of the lodestar approach as a
means of calculating attorney’s fees. The provision focuses on
the final amount of fees awarded, not the means by which such
fees are calculated.” H.R. Conf. Rep. 104-369, at 36 (1995),
reprinted in 1995 U.S.C.C.A.N. 730, 735. But, compare the
statement of Senator Christopher Dodd: “The conference report
puts an end to this outrageous practice, called the ‘lodestar’
approach, by encouraging courts to award attorney’s fees based
upon a reasonable percentage of the total amount of the
settlement or judgment.” 141 Cong. Rec. S17933-04, S17597
(daily ed. Dec. 5, 1995) (statement of Sen. Dodd).

                              14
       nonpayment; (6) the amount of time devoted to
       the case by plaintiffs’ counsel; and (7) the awards
       in similar cases.

Gunter, 223 F.3d at 195 n.1 (citing Prudential, 148 F.3d at 336-
40; In re GMC Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55
F.3d 768, 819-22 (3d Cir. 1995)); Cendant PRIDES, 243 F.3d
at 733; In re Cendant Corp. Litig., 264 F.3d 201, 283 (3d Cir.
2001). 9

      These fee award factors “need not be applied in a
formulaic way . . . . and in certain cases, one factor may

       9
         In Cendant PRIDES, we explained “the principles
enunciated in Gunter have been announced by this court before”
in Prudential and GMC. Cendant PRIDES, 243 F.3d at 735
n.17. The fee award factors are similar to the factors established
in Girsh, 521 F.2d 153, that we use to assess class action
settlements. The Girsh factors are: (1) the complexity, expense
and likely duration of the litigation; (2) the reaction of the class
to the settlement; (3) the stage of the proceedings and the
amount of discovery completed; (4) the risks of establishing
liability; (5) the risks of establishing damages; (6) the risks of
maintaining a class action through the trial; (7) the ability of
defendants to withstand a greater judgment; (8) the range of
reasonableness of the settlement fund in light of the best
recovery; and (9) the range of reasonableness of the settlement
fund to a possible recovery in light of all the attendant risks of
litigation. Id. at 157.

                                15
outweigh the rest.” Gunter, 223 F.3d at 195 n.1. In cases
involving extremely large settlement awards, district courts may
give these factors less weight. See Prudential, 148 F.3d at 339;
Cendant, 264 F.3d at 283. In Cendant PRIDES, 243 F.3d 722,
we held that on the facts of that case, the most important factors
were the “awards in similar cases” and the “complexity and
duration” of the litigation. Id. at 735.10

       In making its fee determination, the District Court
analyzed the requested fees under the factors outlined in
Prudential and Gunter. Rite Aid II, 269 F. Supp. 2d at 610-11.
But its fee analysis was somewhat abbreviated, undoubtedly
because the District Court addressed similar issues in its
examination of the settlement’s fairness under the Girsh factors
in Rite Aid II, id. at 607-09, and previously, in a similar fee
award analysis in Rite Aid I, 146 F. Supp. 2d at 734-36. Though
concise, the District Court’s analysis nonetheless provides a
sufficient basis for us to adequately review its award. That said,
we remind the trial courts to engage in robust assessments of the
fee award reasonableness factors when evaluating a fee request.
See Prudential, 148 F.3d at 340 (remanding fee award
determination “[b]ecause the district court’s basis for, and

    10
      In Cendant, 264 F.3d 201, w e noted, under the Private
Securities Litigation Reform Act, the aim of the fee award
analysis “is not to assess whether the fee request is reasonable,”
but “to determine whether the presumption of reasonableness
has been rebutted.” Cendant, 264 F.3d at 284.

                               16
calculation of, the appropriate fee percentage was unclear in
light of the facts and cases it referenced, and because it should
set forth a reasoned basis and conclusion regarding the proper
percentage”); Gunter, 223 F.3d at 196 (stating “if the district
court’s fee-award opinion is so terse, vague, or conclusory that
we have no basis to review it, we must vacate the fee-award
order and remand for further proceedings”); Cendant PRIDES,
243 F.3d at 735 (remanding for reevaluation of fee award where
the district court “brushed over our required analysis” of the fee
award factors and failed to make “its reasoning and application
of the fee-awards jurisprudence clear”) (internal quotations
omitted). We reiterate that the proper standard of review is
abuse of discretion.

        A. Size of the Fund

       The District Court found the size of the fund weighed in
favor of approving the requested attorneys’ fees.11 In discussing

   11
      Kaufmann contends we should assess the aggregate $334
million settlement fund created by the Rite Aid I and Rite Aid II
settlements. Class counsel respond we should consider only the
$126.6 million from the Rite Aid II settlement. Even though the
settlement in Rite Aid II resulted in the termination of the Rite
Aid I appeal, these are separate settlements, involving distinct
legal issues and risks with which class counsel had to contend.
The Rite Aid I settlement resulted in a recovery of $193 million
with a fee award of $48.25 million. That fee award is not under
review. Accordingly, we will not conflate the two distinct

                               17
the settlement agreement’s merits in its Girsh analysis, the court
noted this was a “rich settlement as measured against the many
others involving auditors” and recognized the settlement to be
the third largest ever obtained from an accounting firm in a
securities class action. Rite Aid II, 269 F. Supp. 2d at 609.

        Kaufmann, however, argues the District Court
overemphasized the importance of the fund’s size, ignoring that
the “size of the fund” factor should receive less weight in “mega
fund” cases. Kaufmann contends the court should have applied
a declining percentage “sliding scale” reduction in which fee
awards decrease with the size of the settlement. He cites
Prudential, in which we agreed with the district court’s
reduction of the percentage due to the size of the fund,
explaining “[t]he basis for this inverse relationship is the belief
that in many instances the increase [in recovery] is merely a
factor of the size of the class and has no direct relationship to
the efforts of counsel.” 148 F.3d at 339 (internal quotations
omitted).

        Our jurisprudence confirms that it may be appropriate for
percentage fees awarded in large recovery cases to be smaller in
percentage terms than those with smaller recoveries. See
Cendant, 264 F.3d at 284 (noting “several of [our] cases have
stated that, ordinarily, the percentage of a recovery devoted to
attorneys fees should decrease as the size of the overall

settlements and will consider only the reasonableness of the
attorneys’ fees based on the Rite Aid II settlement.

                                18
settlement or recovery increases”). 12 But there is no rule that a
district court must apply a declining percentage reduction in
every settlement involving a sizable fund. Put simply, the
declining percentage concept does not trump the fact-intensive
Prudential/Gunter analysis. We have generally cautioned
against overly formulaic approaches in assessing and
determining the amounts and reasonableness of attorneys’ fees.
See Cendant PRIDES, 243 F.3d at 736 (“[A] district court may
not rely on a formulaic application of the appropriate range in
awarding fees but must consider the relevant circumstances of
the particular case.”).

        Moreover, Prudential does not mandate application of
the declining percentage sliding scale. In Prudential, we stated
the reason courts apply the declining percentage principle “is the
belief that in many instances the increase [in recovery] is merely
a factor of the size of the class and has no direct relationship to

   12
     We have recognized criticism of the declining percentage
principle:
       Th[e] position [that the percentage of a recovery
       devoted to attorneys fees should decrease as the
       size of the overall settlement or recovery
       increases] . . . has been criticized by respected
       courts and commentators, who contend that such
       a fee scale often gives counsel an incentive to
       settle cases too early and too cheaply.
Cendant, 264 F.3d at 284 n.55.

                                19
the efforts of counsel.” 148 F.3d at 339 (internal quotations
omitted). In vacating the fee award of $90 million on a
settlement estimated at $1 billion, id. at 338-40, much of our
concern was case specific. In particular, we questioned such a
sizable fee award when much of the settlement apparently
resulted from the work of state regulators and a multi-state
insurance task force. See id. at 342. Here, in contrast, the
District Court found class counsel’s “extraordinarily deft and
efficient” handling of this complex § 10(b) matter resulted in a
“rich settlement.” Rite Aid II, 269 F. Supp. 2d at 609-11. In
short, the court found class counsel’s efforts played a significant
role in augmenting and obtaining an immense fund. The court
did not abuse its discretion in declining to apply a “sliding
scale” reduction, nor in viewing the size of the fund to be a
factor weighing in favor of approval of the fee request.

       B. Awards in Similar Cases

        In comparing this fee request to awards in similar cases,
the District Court found persuasive three studies referenced by
Professor Coffee: one study of securities class action settlements
over $10 million that found an average percentage fee recovery
of 31%; a second study by the Federal Judicial Center of all
class actions resolved or settled over a four-year period that
found a median percentage recovery range of 27-30%; and a
third study of class action settlements between $100 million and
$200 million that found recoveries in the 25-30% range were
“fairly standard.” Id. at 610. We see no abuse of discretion in
the District Court’s reliance on these studies.

                                20
       Kaufmann cites to certain decisions in which courts have
found lower percentages or ratios in large fund cases. But most
of the cases identified by Kaufmann are easily distinguishable.
Citing Cendant PRIDES, he points out that our suggested
lodestar multiplier of 3 – a multiplier tied to the facts of that
case – falls below the cross-check lodestar multiplier here of
4.07. Cendant PRIDES, however, “was neither legally nor
factually complex” and the “duration of the case from the filing
of the Amended Complaint to the submission of a Settlement
Agreement to the District Court was only four months.” 243
F.3d at 742-43.

         In Cendant PRIDES, the attorneys for the plaintiffs’ class
filed a complaint “accompanied by a motion for class
certification, a motion for summary judgment, and a motion for
preliminary injunctive relief” and “[l]ess than two months later
. . . the parties announced that they had reached” an agreement
in principle. 243 F.3d at 735. Because this occurred “very early
on in the litigation,” “discovery was virtually nonexistent” and
counsel only spent approximately 5,600 hours on the action. Id.
at 735-36. In addition, “the case was relatively simple in terms
of proof, in that Cendant had conceded liability and no risks
pertaining to liability or collection were pertinent[.]” Id. at 735.
Moreover, “there was a minimal amount of motion practice” in
Cendant PRIDES – “before settlement, [counsel] submitted only
the Complaint and three motions, all on the same day[.]” Id. at
735-36. These factors are absent in this case. We find no abuse

                                21
of discretion in the District Court’s comparison of this fee
request to awards in other cases.

       C. Risk of Nonpayment

        In assessing the risk of non-payment in its fee award
analysis, the District Court stated that while KPMG was “in far
better financial health” than Rite Aid, “the collapse of Arthur
Andersen demonstrates that . . . auditors can go out of business.”
Rite Aid II, 269 F. Supp. 2d at 611 (internal quotations omitted).
Moreover, the District Court made several significant findings
in assessing the “risks of establishing liability” under the Girsh
analysis that affect the risk of non-recovery. Because § 10(b)
requires proof that an accounting professional acted with
knowledge and/or recklessness, the court noted “a successful
outcome can never be regarded as a sure thing.” Id. at 608. The
court explained “a jury might well find that KPMG was itself
misled by Rite Aid’s former management”—a finding supported
by the fact “the Government has not indicted the firm, but
indictments have been returned against Grass and Bergonzi.”
Id. The court did not abuse its discretion in finding there were
significant risks of non-payment or non-recovery, which weighs
in favor of approving the fee request.

       D. Class Counsel’s Skill and Efficiency

        The District Court, which supervised the litigation since
its inception and was intimately familiar with class counsel’s
performance, found the skill and competence of the attorneys
weighed in favor of approving the requested fee award, noting

                               22
class counsel “were extraordinarily deft and efficient in handling
this most complex matter.” Id. at 611. Specifically, the court
stated:

       [T]hey were at least eighteen months ahead of the
       United States Department of Justice in ferreting
       out the conduct that ultimately resulted in the
       write-down of over $1.6 billion in previously
       reported Rite Aid earnings. Their attention to
       detail was such that when Rite Aid’s financial
       concerns led to its willingness to consider
       renegotiating the non-cash portion of the Rite Aid
       I settlement, counsel—aided by investment
       advisors Wilber Ross and Bear
       Stearn s— ultimately monetized the entire
       settlement and gained the class interest of
       $14,435,104 when interest rates were the lowest
       they have been in over forty years. In short, it
       would be hard to equal the skill class counsel
       demonstrated here.

Id.

       Kaufmann contends attributing to class counsel the skill
which enabled the class to obtain cash instead of securities and
to receive a higher than money market rate of interest on the
recovery, overlooks the role played by the expert investment
advisors. But class counsel deserve credit for the role they
played in directing the financial advisors. Kaufmann also

                               23
contends the government investigation, as opposed to any action
by class counsel, ultimately caused KPMG to settle. But the
government’s investigations never resulted in criminal or civil
charges against KPMG and, as class counsel note, this may have
hardened KPMG’s bargaining position. We see no abuse of
discretion in the District Court’s findings and its weighing this
factor in favor of approving the requested fee percentage.

       E. Complexity, Duration, and Time-Consuming Nature
       of the Litigation

        In assessing the “complexity, expense and likely duration
of the litigation” under the Girsh factors, the District Court
found the “litigation presented layers of factual and legal
complexity which assured that, absent a global settlement, these
disputes would take on Dickensian dimensions.” Id. at 608.
The court noted class counsel “incurred many hours reviewing
and analyzing hundreds of thousands of pages of documents
produced by Rite Aid and KPMG, and dissecting Rite Aid’s
financials and the results of internal investigations.” Id.
(internal quotations omitted). Furthermore, the court noted “the
moving target nature of Rite Aid’s financial saga resulted in
plaintiffs’ counsel preparing no less than four amended
complaints.” Id. at 607. Moreover, the court noted the litigation
took several years, and the stipulation of settlement came about
only with the assistance of mediation. Id. at 606. Also
significant was the § 10(b) scienter requirement, which the
District Court recognized may have been difficult to prove
against outside auditors. See id. at 608.

                               24
       Given the complexity of the accounting matters at issue,
the volume of documents, the shifting factual sands that required
several amended complaints, the difficulties in proving scienter
against an outside auditor, the duration of the litigation, and the
necessity of resorting to mediation to reach a final settlement,
we see no abuse of discretion in the District Court’s finding the
matter was a complex one.

       F. Absence of Substantial Objections by Class Members

        The class’s reaction to the fee request supports approval
of the requested fees. Notice of the fee request and the terms of
the settlement were mailed to 300,000 class members, and only
two objected. We agree with the District Court such a low level
of objection is a “rare phenomenon.” Id. at 610. Moreover, as
the court noted, a significant number of investors in the class
were “sophisticated” institutional investors that had considerable
financial incentive to object had they believed the requested fees
were excessive. Id. at 608 and n.5. The District Court did not
abuse its discretion in finding the absence of substantial
objections by class members to the fee requests weighed in favor
of approving the fee request.

       G. Lodestar Cross-Check

      In addition to the percentage-of-recovery approach, we
have suggested it is “sensible” for district courts to “cross-
check” the percentage fee award against the “lodestar” method.
Prudential, 148 F.3d at 333. Here, it was proper for the District
Court to apply the percentage-of-recovery method, with an

                                25
abridged lodestar analysis serving as a cross-check. 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 multiplier13 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. See, e.g., Report of
the Third Circuit Task Force, Court Awarded Attorney Fees,
108 F.R.D. 237, 243 (1985). 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. Even when used as a cross-check, courts should
“explain how the application of a multiplier is justified by the
facts of a particular case.” Prudential, 148 F.3d at 340-41.

       Here, the District Court approved a lodestar cross-check
multiplier of 4.07, using an average hourly billing rate of $605,
the combined hourly rates of the senior-most partners at lead co-
counsel firms, and 12,906 billed hours from the time the first
appeal was filed in Rite Aid I. Rite Aid II, 269 F. Supp. 2d at
611 and n.10. Kaufmann contends the District Court improperly
applied the billing rates of only the most senior partners of

  13
    See generally Report of the Third Circuit Task Force, Court
Awarded Attorney Fees, 108 F.R.D. at 243 (defining a multiplier
as “[a]n increase or decrease of the lodestar amount”).

                                26
plaintiffs’ co-lead counsel, resulting in an artificially low
multiplier. On this point, we agree. In performing the lodestar
cross-check, the district courts should apply blended billing rates
that approximate the fee structure of all the attorneys who
worked on the matter.14 That did not occur here. Had the hourly
rates been properly blended, taking into account the approximate
hourly billing rates of the partners and associates who worked
on the case,15 the multiplier would have been a higher figure,

  14
     Gunter and Cendant PRIDES noted that a reasonable hourly
billing rate takes account of the “nature of the services
provided” and “the experience of the lawyer.” Gunter, 223 F.3d
at 195 n.1; Cendant PRIDES, 243 F.3d at 732 n.11. Both cases
support the conclusion that the hourly fee of only the senior-
most partners does not constitute a reasonable hourly billing
rate.
       15
       When applying the lodestar cross-check, certain district
courts have applied a blended rate of partners and associates.
See, e.g., O’Keefe v. Mercedes-Benz USA, LLC, 214 F.R.D. 266,
310 (E.D. Pa. 2003) (using an approximate rate of $425 per hour
in the lodestar cross-check, which took into account the different
billing rates of the attorneys) and In re AremisSoft Corp. Sec.
Litig., 210 F.R.D. 109, 135 (D.N.J. 2002) (taking into account
different rates for partners and associates in the lodestar cross-
check). See also The Manual for Complex Litigation (Fourth)
§ 21.724 (2004) (“a statement of the hourly rates for all
attorneys and paralegals who worked on the litigation . . . . can

                                27
alerting the trial court to reconsider the propriety of its fee
award. Failure to apply a blended rate, we believe, is
inconsistent with the exercise of sound discretion and requires
vacating and remanding for further consideration.

       At the same time, we reiterate that the percentage of
common fund approach is the proper method of awarding
attorneys’ fees. The lodestar cross-check calculation need entail
neither mathematical precision nor bean-counting.16 The district

serve as a ‘cross-check’ on the determination of the percentage
of the common fund that should be awarded to counsel”)
(emphasis added).
   16
     The 2002 Third Circuit Task Force On Selection of Class
Counsel supports this view. It states that the lodestar cross-
check is “not a full-blown lodestar inquiry” and a court “should
be satisfied with a summary of the hours expended by all
counsel at various stages with less detailed breakdown than
would be required in a lodestar jurisdiction.” Report of the
Third Circuit Task Force, Selection of Class Counsel, 208
F.R.D. at 423. The cross-check would “enable the court to make
a judgment as to whether the percentage appears too high or low
given the time required to handle the case.” Id. Even so, the
Task Force cautioned courts to “be aware that lawyers have an
incentive to increase their hours for cross-check purposes just as
they have an incentive to maximize them when seeking lodestar
compensation[.]” Id.

                               28
courts may rely on summaries submitted by the attorneys and
need not review actual billing records. See Prudential, 148 F.3d
at 342 (finding no abuse of discretion where district court
“reli[ed] on time summaries, rather than detailed time records”).
Furthermore, the resulting multiplier need not fall within any
pre-defined range, provided that the District Court’s analysis
justifies the award.17 Lodestar multipliers are relevant to the
abuse of discretion analysis. But the lodestar cross-check does
not trump the primary reliance on the percentage of common
fund method.

                               IV.

       According to Kaufmann, class counsel’s fee request
created a conflict of interest with the class that violated the
adequacy of representation protections of the Fifth
Amendment’s Due Process clause and Fed. R. Civ. P. 23.18
Kaufmann contends the District Court erred by failing to appoint

  17
    Consideration of multipliers used in comparable cases may
be appropriate. See Gunter, 223 F.3d at 195 n.1 (“courts should
consider several factors in setting a fee award . . . . [including]
awards in similar cases”).
  18
     Class counsel contend Kaufmann waived this argument by
not raising it before the District Court. But in his colloquy with
the District Court during the May 30, 2003 hearing, Kaufmann
stated “the Class should have an expert paid for by the Class
fund.”

                                29
an independent expert or class guardian to counter the expert
declaration submitted by class counsel in support of their fee
request.     Kaufmann presented no expert of his own.
Nonetheless, he contends that given the small stake individual
class members have in the outcome, they cannot be expected to
invest their own financial resources to retain an expert to advise
the court on the excessiveness of the fee requests.

       The determination of attorneys’ fees in class action
settlements is fraught with the potential for a conflict of interest
between the class and class counsel. See Cendant, 264 F.3d at
254-55 (explaining that because clients seek to maximize
recovery and lawyers seek to maximize fees, “there is often a
conflict between the economic interests of clients and their
lawyers, and this fact creates reason to fear that class counsel
will be highly imperfect agents for the class”); Cendant
PRIDES, 243 F.3d at 730 (discussing “the danger inherent in the
relationship among the class, class counsel, and defendants” and
recognizing “an especially acute need for close judicial scrutiny
of fee arrangements in class action settlements”) (internal
quotations omitted); Fed. R. Civ. P. 23(h), 2003 Advisory
Committee Notes (“Active judicial involvement in measuring
fee awards is singularly important to the proper operation of the
class-action process.”).

       The appointment of a guardian, master, fee examiner, or
independent expert can aid district courts in navigating the
shoals of attorney fee determinations. See Prudential, 148 F.3d
at 330 (noting that the district court appointed an independent

                                30
fee examiner to assist with its fee determination.). Nevertheless,
whether to appoint an outside party to ensure the class receives
adequate scrutiny of the fee determination is a matter properly
committed to the sound discretion of the trial court.

        At the fee determination stage, the district judge must
protect the class’s interest by acting as a fiduciary for the class.
See Cendant, 264 F.3d at 231 (“[T]he District Court acts as a
fiduciary guarding the rights of absent class members[.]”);
Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277, 280-81 (7th
Cir. 2002) (“We and other courts have gone so far as to term the
district judge in the settlement phase of a class action suit a
fiduciary of the class, who is subject therefore to the high duty
of care that the law requires of fiduciaries.”); Report of the Third
Circuit Task Force, Court Awarded Attorneys Fees, 108 F.R.D.
237, 251 (1985) (The court “must monitor the disbursement of
the fund and act as a fiduciary for those who are supposed to
benefit from it, since typically no one else is available to
perform that function.”); cf. Cendant, 264 F.3d at 255 (“[A]n
agent must be located to oversee the relationship between the
class and its lawyers,” and “[t]raditionally, that agent has been
the court.”).

        Though some courts have noted potential problems with
district judges serving in this role,19 we entrust these matters to

  19
   See In re Cendant Corp. Litig., 182 F.R.D. 144, 150 (D.N.J.
1998) (“It is no insult to the judiciary to admit that a court’s
expertise is rarely at its most formidable in the evaluation of

                                31
the sound discretion of Article III trial judges to know when
they can adequately protect the class’s fiduciary interest or when
they need an outsider to aid them in that role. See Gunter, 223
F.3d at 201 n.6 (“[A] district court that suspects that the
plaintiffs’ rights in a particular case are not being adequately
vindicated may appoint counsel, a special master, or an expert
to review or challenge the fee application[.]”) (emphasis added);
In re Wash. Pub. Power Supply Sys. Secs. Litig., 19 F.3d 1291,
1297 (9th Cir. 1994) (The district court has “the discretion to
appoint counsel to represent Class Plaintiffs[.]”) (emphasis
added); Fed. R. Civ. P. 23(h)(4) (“The court may refer issues

counsel fees[.]”); In re Oracle Secs. Litig., 136 F.R.D. 639, 645
(N.D. Cal. 1991) (“Class counsel’s fee application is presented
to the court with the enthusiastic endorsement, or at least
acquiescence, of the lawyers on both sides of the litigation, a
situation virtually designed to conceal any problems with the
settlement not in the interests of the lawyers to disclose.”);
Kamilewicz v. Bank of Boston Corp., 100 F.3d 1348, 1352 (7th
Cir. 1996) (Easterbrook, J., dissenting) (“[T]he court can’t
vindicate the class’s rights because the friendly presentation
means that it lacks essential information.”); Hallet v. Li & Fung,
Ltd., No. 95 Civ. 8917, 1998 WL 698354, at *1 (S.D.N.Y. Oct.
6, 1998) (“This role as fiduciary for the class members places
the Court in the uncomfortable position of appearing to act as an
adversary of plaintiffs’ counsel for whom the Court has great
respect and who undertook this case when there was no
assurance that there would be any recovery.”).

                               32
related to the amount of the award to a special master or to a
magistrate judge[.]”) (emphasis added).

        There is no indication the able District Judge failed to act
properly in his fiduciary capacity during the fee proceedings or
that he abused his discretion in finding it unnecessary to appoint
a guardian or expert to safeguard the class’s interest in the fee
award.

                                V.

      For the foregoing reasons, we will vacate the District
Court’s order awarding fees and costs, and remand for further
proceedings consistent with this opinion.

                                33