Court Opinion

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Opinions of the United
2006 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

7-20-2006

In Re: AT&T
Precedential or Non-Precedential: Precedential

Docket No. 05-2727

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                          PRECEDENTIAL
  UNITED STATES COURT OF APPEALS
       FOR THE THIRD CIRCUIT

           Nos. 05-2727 & 05-2728

       IN RE: AT&T CORPORATION
         SECURITIES LITIGATION

             MARION WASHBURN
             and WILLIAM A. HOFFMANN, III,
             Class Members and Objectors,
                        Appellants at No. 05-2727

             JACQUELYNN D. FRAME
             and DONALD J. FRAME,
             Class Members and Objectors,
                        Appellants at No. 05-2728

On Appeal from the United States District Court
         for the District of New Jersey
             MDL Docket No.1399
 D.C. Civil Action Master File No. 00-cv-5364
       (Honorable Garrett E. Brown, Jr.)

            Argued April 24, 2006
         Before: SCIRICA, Chief Judge,
  NYGAARD, Circuit Judge, and YOHN, District Judge*

                    (Filed July 20, 2006)

EDWARD F. SIEGEL, ESQUIRE (ARGUED)
5910 Landerbrook Drive, Suite 200
Corporate Center II
Cleveland, Ohio 44124

STEPHEN TSAI, ESQUIRE
941 East Main Street
Bridgewater, New Jersey 08807
      Attorneys for Appellants,
      Marion Washburn, William A. Hoffmann, III,
      Jacquelynn D. Frame and Donald J. Frame

KENNETH E. NELSON, ESQUIRE
2900 City Center Square
1100 Main Street
Kansas City, Missouri 64105
      Attorney for Appellants,
      Marion Washburn and William A. Hoffmann, III

  *
    The Honorable William H. Yohn Jr., United States District
Judge for the Eastern District of Pennsylvania, sitting by
designation.

                             2
ROY B. THOMPSON, ESQUIRE
Thompson & Bogran
15938 Southwest Quarry Road, Suite B-6
Lake Oswego, Oregon 97035
      Attorney for Appellants,
      Jacquelynn D. Frame and Donald J. Frame

SANFORD SVETCOV, ESQUIRE (ARGUED)
Lerach, Coughlin, Stoia, Geller, Rudman & Robbins
100 Pine Street, Suite 2600
San Francisco, California 94111
      Attorney for Appellees,
      International Brotherhood of Electrical Workers
      of America, Local 98, The New Hampshire Retirement
      System, Robert Baker, Mohammed Karkanawi,
      Mauline Karkanawi, and Secure Holdings, Inc.

RACHEL B. NIEWOEHNER, ESQUIRE (ARGUED)
DAVID F. GRAHAM, ESQUIRE
Sidley Austin
One South Dearborn Street
Chicago, Illinois 60603
       Attorneys for Appellees,
       AT&T Corporation and C. Michael Armstrong

                           3
                 OPINION OF THE COURT

SCIRICA, Chief Judge.

        This is a consolidated appeal by four objectors to an
award of attorneys’ fees in the settlement of a securities fraud
class action. The District Court approved the settlement
agreement, including the attorneys’ fees provisions. We will
affirm.
                               I.
       On October 27, 2000, several plaintiffs filed federal
securities fraud actions, alleging the AT&T Corporation and its
principal executives violated Securities and Exchange
Commission Rule 10b-5 and §§ 10(b) and 20(a) of the Securities
Exchange Act of 1934. They alleged defendants made
knowingly false statements between October 25, 1999, and May
1, 2000, about AT&T’s anticipated performance for the year
2000 to artificially inflate the company’s stock price. The
District Court appointed the New Hampshire Retirement
System, Secure Holdings, Inc., Robert Baker, Mohammed
Karkanawi, and Mauline Coon as lead plaintiffs,1 and approved

   1
    The International Brotherhood of Electrical Workers Local
98 Pension Fund was later appointed as an additional lead
plaintiff.

                               4
their retained counsel as lead counsel. Plaintiffs filed a
consolidated complaint on February 14, 2001.
       Defendants filed a motion to dismiss. On January 30,
2002, the District Court denied the motion with respect to the §
10(b) claims against AT&T and its Chief Executive Officer and
Board Chairman, C. Michael Armstrong, granted the motion
with respect to all claims against other individual defendants,
and certified a class. After two years of discovery, including 80
depositions, the District Court granted partial summary
judgment for defendants, but concluded a disputed issue of fact
existed with respect to whether Armstrong’s statements made at
a December 6, 1999 analyst conference—projecting 9% to 11%
revenue growth for AT&T’s Business Services Unit in
2000—were made with actual knowledge of their falsity.
        Trial began on October 5, 2004. The jury was selected
and impaneled, the parties gave opening statements, and
plaintiffs called eleven witnesses. After eight days of jury trial,
at the suggestion of the District Judge, the parties began
discussing settlement options. Negotiations were successful and
the parties entered a tentative settlement agreement. Under the
agreement, AT&T agreed to pay the class $100 million by May
1, 2005, in return for complete release of the class’s claims. As
soon as the funds were deposited into escrow, attorneys’ fees
and expenses would be paid to class counsel in an amount equal
to 21.25% of the settlement fund ($21.25 million), in addition to
costs and expenses of $5,465,996.79. The 21.25% fee resulted
from a sliding scale formula negotiated between lead counsel

                                5
and the lead plaintiff New Hampshire Retirement Systems at the
beginning of the case. The formula provided attorneys’ fees
would equal 15% of any settlement amount up to $25 million,
20% of any settlement amount between $25 million and $50
million, and 25% of any settlement amount over $50 million.
The plan of allocation required class members to submit claim
forms by March 9, 2005. Neither the settlement agreement nor
the plan of allocation specified a timeline for payments to class
members. Class members have not yet been paid.
       On October 26, 2004, the District Court granted
preliminary approval of the settlement agreement. Notice was
mailed to more than one million potential class members, eight
of whom filed objections, including appellants Marion
Washburn, William A. Hoffman III, Jacquelynn D. Frame, and
Donald J. Frame. The objections related to the attorneys’ fees
provisions, the form of notice, and certain ERISA claims. There
were no objections to the settlement amount. On February 28,
2005, the District Court held a fairness hearing and on April 25,
2005, issued a memorandum opinion granting final approval of
the settlement agreement, including the attorneys’ fees
provisions. The District Court denied objectors’ motion for
reconsideration.

                               6
        Washburn, Hoffman, and the Frames now appeal,2
contending the award of attorneys’ fees and expenses is unfair
and unreasonable because (1) it is excessive, (2) it employs a
sliding scale that provides for the fee percentage to increase
rather than decrease as the settlement amount increases, and (3)
it provides for payment of the full amount of attorneys’ fees
before class members will receive payment. Objectors ask that
fees be reduced to 15% of the settlement fund, in addition to
requested costs and expenses, and that the pay-out be staged,
with the final installment withheld until class members have
been paid.
                                II.
       The District Court exercised jurisdiction over this federal
securities fraud action under 28 U.S.C. § 1331. We have
jurisdiction to review the District Court’s decision under 28
U.S.C. § 1291.
       We review a district court’s award of attorneys’ fees in
a securities class action for abuse of discretion. In re Rite Aid
Corp. Sec. Litig., 396 F.3d 294, 299 (3d Cir. 2005). “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

    2
     Of the other four original objectors, two withdrew their
objections prior to the District Court’s decision, and two do not
appeal.

                                7
of fact not clearly erroneous.’” Id. (quoting Pub. Interest
Research Group of N.J., Inc. v. Windall, 51 F.3d 1179, 1184 (3d
Cir. 1995)). We require 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.” Rite Aid, 396 F.3d at 301.
                               III.
                                A.
       Attorneys’ fees are typically assessed through the
percentage-of-recovery method or through the lodestar method.
See id. at 300. The percentage-of-recovery method applies a
certain percentage to the settlement fund. See In re Cendant
Corp. PRIDES Litig., 243 F.3d 722, 732 n.10 (3d Cir. 2001).
The lodestar method multiplies the number of hours class
counsel worked on a case by a reasonable hourly billing rate for
such services.3 See id. at 732 n.11.
       In common fund cases such as this one, the percentage-
of-recovery method is generally favored because “it allows
courts to award fees from the fund ‘in a manner that rewards
counsel for success and penalizes it for failure.’” Rite Aid, 396

     3
      The billing rate should be a blended billing rate of all
attorneys who worked on the matter, In re Rite Aid Corp. Sec.
Litig., 396 F.3d 294, 306 (3d Cir. 2005), and should be
reasonable in light of “the given geographical area, the nature of
the services provided, and the experience of the attorneys.” Id.
at 305.

                                8
F.3d. at 300 (quoting In re The Prudential Ins. Co. of Am., 148
F.3d 283, 333 (3d Cir. 1998)). But we have recommended that
district courts use the lodestar method to cross-check the
reasonableness of a percentage-of-recovery fee award. See Rite
Aid, 396 F.3d at 305; Prudential, 148 F.3d at 333. The cross-
check is performed by dividing the proposed fee award by the
lodestar calculation, resulting in a lodestar multiplier.4 “[W]hen
the multiplier is too great, the court should reconsider its

   4
    “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.” Rite Aid, 396 F.3d at 305–06
(footnote omitted). Accordingly, when used as a cross-check in
a common fund case, the lodestar calculation can be adjusted to
account for particular circumstances, such as the quality of
representation, the benefit obtained for the class, the complexity
and novelty of the issues presented, and the risks involved. See
Gunter v. Ridgewood Energy Corp., 223 F.3d 190, 195 n.1 (3d
Cir. 2000). In statutory fee-shifting cases, “the Supreme Court
has held that courts may not increase the lodestar amount in
consideration of the attorney’s contingent risk when calculating
a fee.” Brytus v. Spang, 203 F.3d 238, 243 (3d Cir. 2000).
“‘Although upward adjustments of the lodestar figure are still
permissible, such modifications are proper only in certain rare
and exceptional cases, supported by both specific evidence on
the record and detailed findings by the lower courts.’” Id.
(quoting Pennsylvania v. De. Valley Citizens’ Council for Clear
Air, 478 U.S. 565 (1986)).

                                9
calculation under the percentage-of-recovery method, with an
eye toward reducing the award.” Rite Aid, 396 F.3d at 306. The
lodestar cross-check, while useful, should not displace a district
court’s primary reliance on the percentage-of-recovery method.
See id. at 307.
        In Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975), we set
forth factors a district court should consider when reviewing a
proposed class action settlement. 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.
Rite Aid, 396 F.3d at 301 n.9 (citing Girsh, 521 F.2d at 157).
       The Girsh factors do not provide an exhaustive list of
factors to be considered when reviewing a proposed settlement.
In Prudential, we held because of a “sea-change in the nature of
class actions” since Girsh was decided in 1975, district courts

                                10
should also consider other potentially relevant and appropriate
factors, including, among others:
      [T]he maturity of the underlying substantive
      issues, as measured by the experience in
      adjudicating individual actions, the development
      of scientific knowledge, the extent of discovery
      on the merits, and other factors that bear on the
      ability to assess the probable outcome of a trial on
      the merits of liability and individual damages; the
      existence and probable outcome of claims by
      other classes and subclasses; the comparison
      between the results achieved by the settlement for
      individual class or subclass members and the
      results achieved—or likely to be achieved—for
      other claimants; whether class or subclass
      members are accorded the right to opt out of the
      settlement; whether any provisions for attorneys’
      fees are reasonable; and whether the procedure for
      processing individual claims under the settlement
      is fair and reasonable.
Prudential, 148 F.3d at 323 (citing Edward H. Cooper, Mass
Torts Model, prepared for the Conference on Mass Torts, Mass
Torts Working Group, Philadelphia, Pa. (May 1998)); see also
id. at 324 n.73 (citing Judge William Schwarzer, Settlement of
Mass Tort Class Actions: Order Out of Chaos, 80 Cornell L.
Rev. 837, 843–44 (May 1995) and listing other potentially
relevant factors).

                              11
        When analyzing a fee award in a common fund case, a
district court considers several factors, many of which are
similar to the Girsh factors. See Rite Aid, 396 F.3d at 301 n.9.
These include:
       (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 301 (quoting Gunter, 223 F.3d at 195 n.1). This list was
not intended to be exhaustive. See Gunter, 223 F.3d at 195 n.1
(prefacing the list by stating “[a]mong other things, these factors
include . . .”). In Prudential, we noted three other factors that
may be relevant and important to consider: (1) the value of
benefits accruing to class members attributable to the efforts of
class counsel as opposed to the efforts of other groups, such as
government agencies conducting investigations, Prudential, 148
F.3d at 338; (2) the percentage fee that would have been
negotiated had the case been subject to a private contingent fee
agreement at the time counsel was retained, id. at 340; and (3)
any “innovative” terms of settlement, id. at 339. We stated that
whenever a district court awards attorneys’ fees in class action

                                12
cases, “[w]hat is important is that the district court evaluate what
class counsel actually did and how it benefitted the class.” Id.
at 342.
        In reviewing an attorneys’ fees award in a class action
settlement, a district court should consider the Gunter factors,
the Prudential factors, and any other factors that are useful and
relevant with respect to the particular facts of the case. 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.” Rite Aid, 396 F.3d at
301 (quoting Gunter, 223 F.3d at 195 n.1). In cases involving
extremely large settlement awards, district courts may give some
of these factors less weight in evaluating a fee award. See In re
Cendant Corp. Litig., 264 F.3d 201, 283 (3d Cir. 2001);
Prudential, 148 F.3d at 339. What is important is that in all
cases, the district court “engage in robust assessments of the fee
award reasonableness factors,” Rite Aid, 396 F.3d at 302,
recognizing “an especially acute need for close judicial scrutiny
of fee arrangements in class action settlements.” Cendant
PRIDES, 243 F.3d at 730 (internal quotations omitted).
        In its memorandum opinion dated April 25, 2005, the
District Court explained in detail its reasons for approving the
settlement and attorneys’ fees award, providing us with an
adequate and sufficient basis for review. See Rite Aid, 396 F.3d
at 301 (requiring 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.”). The court first analyzed the

                                13
overall settlement in terms of the nine Girsh factors. Its
subsequent discussion of the attorneys’ fees provisions
incorporates this analysis by reference. Accordingly, even
though objectors challenge only the attorneys’ fees award, we
begin by reviewing the District Court’s analysis of the
settlement as a whole.5
        The District Court concluded none of the Girsch factors
weighed against approval of the settlement and factors one
through five weighed “overwhelmingly” in favor of approval.
(App. 4.) Under the first factor, the court noted “from its
inception, the case involved complex legal and factual issues.”
(App. 5.) Though partial summary judgment had narrowed the
issues, the remaining factual issue was not “straightforward or
simple” as plaintiffs were left with the “formidable task” of
proving defendants had actual knowledge their statement was
false or misleading. (Id.) Furthermore, plaintiffs had the burden
of proving loss causation and damages, which would “likely
involve conceptually difficult economic theories and complex

    5
      Defendants AT&T and Armstrong submitted a brief “to
clarify that the appeal does not concern the fairness,
reasonableness or adequacy of the Settlement . . . but addresses
only the distinct issue of the District Court’s approval of the
attorneys’ fees award, which was accomplished by separate
order.” (Br. of AT&T and Armstrong 5–6.) Because we affirm
the attorneys’ fees award, we need not reach the question of
whether a decision reversing the judgment of the District Court
would disrupt the settlement as a whole.

                               14
calculations” based on experts with “diametrically opposed
opinions.” (Id.) The court noted uncertainty as to whether the
report and testimony of plaintiffs’ damages expert would be
admissible at trial, a question it reserved for the damages phase
of trial. The court concluded the first factor weighed strongly in
favor of approval.
        Under the second Girsh factor, the court noted that out of
more than one million class members notified of the proposed
settlement, only eight objected. None of the objections opposed
the settlement amount, and only four opposed the attorneys’ fees
award. No objections were filed by institutional investors, those
with the greatest financial stake in the settlement. The District
Court characterized this low level of objection as rare and
concluded the second factor weighed in favor of approval.
       Under the third Girsh factor, the District Court observed
that because the case had been “vigorously litigated for over
four years,” (App. 7), class counsel had “a thorough and
exhaustive appreciation for the merits of the case prior to
settlement,” (App. 8). The court noted the extent of discovery:
       Plaintiffs reviewed and analyzed over 4.5 million
       pages from Defendants’ document production,
       and over 380,000 additional pages from forty-
       eight non-party witnesses. Plaintiffs conducted
       numerous informal interviews, deposed more than
       eighty fact witnesses, and produced over 3,000
       pages of documents in response to Defendants’
       requests.

                               15
(App. 8.) The Court noted the filing of several motions,
including motions to dismiss, complex discovery motions, a
motion for class certification, and a motion for summary
judgment. Furthermore, the case went to trial, which proceeded
for two weeks before settlement. The court concluded class
counsel had a thorough appreciation of the merits of the case
prior to settlement and that the third factor weighed in favor of
approval of the settlement.
        The District Court noted high risks involved in
establishing both liability and damages under the fourth and fifth
Girsch factors. To succeed at trial, plaintiffs would have to
prove the December 6, 1999 statement was made with actual
knowledge of its falsity. The District Court noted the difficulty
of this task, given that defendants “vehemently denied any
wrongdoing,” asserted a “reasonable basis existed” for the
statement, and “intended to call key witnesses . . . who would
support this assertion.” (App. 8.) The court concluded that
“whether the jury would have returned a favorable verdict for
the Class remains uncertain.” (App 9.) As for the risk of
establishing damages, the court again noted the likelihood of a
battle of the experts, and the possibility of plaintiffs’ damages
expert being excluded from trial.
       The court concluded Girsch factors six through nine
weighed “slightly or moderately in favor of approval.” (App. 4.)
It noted risks that the class would be narrowed and that a larger
settlement would force AT&T into bankruptcy. It also noted the
reasonableness of the settlement fund in light of the risks of

                               16
establishing liability. The court concluded the settlement
“represents an excellent result for the Class considering the
substantial risks Plaintiffs faced, and the absence of any
guarantee of a favorable verdict.” (App. 11.)
        Having concluded the overall settlement warranted
approval under the Girsch factors, the District Court turned to
the issue of attorneys’ fees and expenses, explicitly
acknowledging its duty to engage in a “robust assessment” of
the fee award reasonableness factors. (App. 13 (citing Rite Aid,
396 F.3d at 302).) It cited Cendant for the “proper standard”
that should be applied in class action lawsuits brought under the
Private Securities Law Reform Act. This standard entailed
“afford[ing] a presumption of reasonableness to fee requests
submitted pursuant to an agreement between a properly-selected
lead plaintiff and properly-selected lead counsel,” a presumption
that would “be rebutted when a district court finds the fee to be
(prima facie) clearly excessive.” (App. 13–14 (quoting
Cendant, 264 F.3d at 220).) The District Court noted the
21.25% fee resulted from a sliding scale formula negotiated by
lead counsel and lead plaintiff New Hampshire Retirement
Systems at the beginning of the case, and had been subsequently
approved by each court-appointed lead plaintiff. The court
concluded the requested fee was presumptively reasonable and
“the relevant inquiry for the district court is whether this
presumption has been rebutted.” (App. 14.)
       The presumption of reasonableness set forth in Cendant
was intended to “take into account the changes wrought by the

                               17
Reform Act.” Cendant, 264 F.3d at 220. Prior to the Private
Securities Law Reform Act, lead counsel were often
instrumental in selecting lead plaintiffs. Under the PSLRA, the
court appoints as lead plaintiff the plaintiff it determines is most
capable of adequately representing the class’s interests. The
plaintiff with the largest financial stake in the action is
presumptively the most adequate representative.                Once
appointed, the lead plaintiff is responsible for selecting and
retaining lead counsel, subject to court approval.
         But the PSLRA has not eliminated all difficulties with
establishing fair and reasonable attorneys’ fees in class action
suits. As objectors note, the adversarial process is often
“diluted” or entirely “suspended” during fee proceedings, and
fee requests often go unchallenged. (Appellants’ Br. 19–20
(quoting Goldberger v. Integrated Res. Inc., 209 F.3d 43, 52
(2nd Cir. 2000)).) Lead plaintiffs, having previously negotiated
a fee arrangement with lead counsel, will rarely oppose a fee
request. Class members may have little incentive to oppose a
fee request, since any reduction will only result in a minor
increase in their share of the settlement. And defendants have
little incentive to oppose a fee request, since usually they are not
impacted by the way in which the settlement fund is distributed.
        Even more problematic are 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. In
these instances, the relationship between lead plaintiff and lead

                                18
counsel may entail conflicts of interest. These arrangements
have been noted in law review articles, see John J. Coffee, Jr.,
The Attorney as Gatekeeper: An Agenda for the SEC, 103
Colum. L. Rev. 1293, 1315 n.61 (2003); in newspaper articles,
see Daniel Fisher, Bedfellows, Forbes, Feb. 13, 2006, at 102;
Karen Donavan, Legal Reform Turns a Steward into an Activist,
N.Y. Times, April 16, 2005, at C1; Daniel Fisher and Neil
Weinberg, The Class Action Industrial Complex, Forbes, Sept.
20, 2004, at 150; Kevin McCoy, Campaign Contributions or
Conflicts of Interest?, USA Today, Sept. 11, 2001, at B1; and
even in congressional testimony, see Outlook for U.S. Capital
Markets, Transcript of cong. testimony of James R. Copland,
Director, Manhattan Institute, before the Comm. on H. Financial
Services, Subcomm. on Capital Markets, Insurance and
Government Sponsored Enterprises, 2006 WLNR 7026076
(Apr. 26, 2006).
        We recognized this problem in Cendant, noting that
“district courts should be particularly attuned to the risk of pay-
to-play,” a development “Congress may not have contemplated
when it enacted the PSLRA.” 264 F.3d at 270 n.49. Yet we did
not specifically discuss the problem in relation to the
presumption of reasonableness. We only noted, in general
terms, “an arguable tension between the general schema of the
PSLRA on the one hand and its overarching provision that
requires the court to insure that counsel fees not exceed a
reasonable amount, on the other.” Id. at 220 (internal citation
omitted). We acknowledged the court’s “independent obligation
to ensure the reasonableness of any fee request.” Id. at 281–82.

                                19
       We now emphasize that the presumption of
reasonableness set forth in Cendant does not diminish a court’s
responsibility to closely scrutinize all fee arrangements to ensure
fees do not exceed a reasonable amount. We caution against
affording the presumption too much weight at the expense of the
court’s duty to act as “a fiduciary guarding the rights of absent
class members.” Id. at 231.
        After noting the presumption, the District Court reviewed
the fee award reasonableness factors and explained “[g]iven the
similarity and overlap of the Girsh factors with the factors the
Court must consider here, the Court incorporates by reference
the reasons given for approval of the settlement.” (App. 14.)
The court then addressed “additional reasons that support
approval of attorneys’ fees in this matter.” (Id.) These included
the absence of substantial objections to the requested attorneys’
fees, the “excellent, sizeable” settlement amount, the number of
persons who would benefit from the settlement, the skill and
efficiency of the attorneys, and the “substantial amount of time
and effort” invested by lead counsel. (App. 14–17). The
District Court concluded the fee award was both fair and
reasonable under the fee award reasonableness factors.
        The District Court cross-checked the percentage fee
award using the lodestar method, comparing the $21.25 million
award to a $16.6 million lodestar calculation (based on the hours
submitted by counsel multiplied by the blended billing rates of
all attorneys and paraprofessionals who worked on the case).

                                20
The court concluded the corresponding multiplier of 1.286
indicated a “truly reasonable fee award.” (App. 19.) Finally,
the District Court approved class counsel’s request for
reimbursement of expenses in the amount of $5,465,996.79,
finding “these expenses were reasonably and appropriately
incurred during the prosecution of this case, and sufficiently
documented in the declarations.” (App. 20.)

   6
    On appeal, objectors contend the 1.28 lodestar multiplier is
misleading because it reflects time class counsel spent on a
contested lead plaintiff motion. They contend class counsel
should not be compensated for efforts expended before they
began representing the entire class. At oral argument, objectors’
counsel suggested district courts should require class counsel to
submit their time sheets, partly to ensure time spent becoming
class counsel is not included in the lodestar calculation. These
issues were not raised before the District Court. Regardless, we
have noted the lodestar cross-check calculation need not entail
“mathematical precision” or “bean-counting,” Rite Aid, 396 F.3d
at 306, and is “‘not a full-blown lodestar inquiry,’” id. at 307,
n.16 (quoting Report of the Third Circuit Task Force, Selection
of Class Counsel, 208 F.R.D. 340, 423 (2002)). District judges
have the authority to request time sheets, subject to their sound
discretion whether or not to do so. Here, we are satisfied with
the District Court’s conclusion that the lodestar calculation was
based on an appropriate number of hours, as supported by
declarations submitted by the parties.

                               21
        The District Court’s analysis and discussion demonstrates
it considered the fee award reasonableness factors relevant to the
facts of the case—directly in its discussion of fees and indirectly
in its discussion of the Girsh factors. A review of these factors
demonstrates the District Court did not abuse its discretion in
approving the attorneys’ fees award.
       The District Court addressed the first fee award
reasonableness factor directly, stating “[w]ith regard to the size
and nature of the common fund and the number of persons
benefitted by the settlement . . . Lead Counsel were able to
obtain an excellent, sizeable result on behalf of the Class despite
the substantial risks they faced in establishing liability.” (App.
16.) The court noted that many thousands of people would
likely participate in settlement, given that notice of the
settlement was sent to over a million potential class members.
       Objectors contend the size of the settlement amount is
misleading, since relative to the size of the class, $100 million
dollars is not such a large fund. They also note it represents
only 4% recovery of the total damages claimed. At oral
argument, class counsel contended the 4% figure was
misleading. They noted the class’s original damages claim of
$2.9 billion—of which the settlement amount represents
approximately 4%—was asserted long before the class’s
position was severely weakened by the grant of partial summary
judgment for the defendants. Based on a defense expert’s
estimate of damages after summary judgment of $1.88/share,

                                22
class counsel contends the settlement amount ($.44/share)
represents approximately 25% recovery.
        As the District Court noted in its discussion of the eighth
Girsch factor, “‘[t]he fact that a proposed settlement may only
amount to a fraction of the potential recovery does not, in and of
itself, mean that the proposed settlement is grossly inadequate
and should be disapproved.’” (App. 10 (quoting In re Cendant
Corp. Sec. Litig., 109 F. Supp. 2d 235, 263 (D.N.J. 2000)).)
Rather, the percentage recovery, “must represent a material
percentage recovery to plaintiff in light of all the risks
considered under Girsh.’” Id. The District Court did not abuse
its discretion in concluding that in light of the risks of
establishing liability and damages, the $100 million settlement
was an “excellent” result, weighing in favor of approval of the
attorneys’ fees award. (App. 16–17.)
        The District Court addressed the second fee award
reasonableness factor both in its discussion of the second Girsch
factor and its discussion of attorneys’ fees, concluding that “the
absence of substantial objections by class members to the fees
requested by counsel strongly supports approval.” (App. 14.)
The court noted that out of one million potential class members
to whom notice was sent, only eight objected. The District
Court did not abuse its discretion by characterizing this low
level of objection as rare. See Rite Aid, 396 F.3d at 305
(characterizing two objections, after notice of a settlement and
fee request was mailed to 300,000 class members, as “a low

                                23
level of objection” that was a “rare phenomenon”) (internal
quotations omitted).
       The third fee award reasonableness factor—the skill and
efficiency of the attorneys prosecuting this action—was
addressed under the third Girsh factor and in the discussion of
attorneys’ fees. In concluding this factor favored approval of
the award, the court observed, “Lead Counsel displayed
excellent lawyering skills through their consistent preparedness
during court proceedings, arguments and the trial, and their
well-written and thoroughly researched submissions to the
Court.” (App. 17.) Given the length of the case and the
difficulty of the issues involved, we do not think the District
Court abused its discretion in concluding this factor weighed in
favor of approval of the attorneys’ fees.
        The District Court addressed the fourth fee award
reasonableness factor—the complexity and duration of the
litigation—in its discussion of attorneys’ fees and in its analysis
under the first Girsh factor. In both places, it noted the
substantial risks plaintiffs faced in establishing liability and
damages. In Rite Aid, we emphasized the difficulty of proving
actual knowledge under § 10(b) of the Securities Exchange Act,
and concluded this factor weighed in favor of approval of the fee
request. See Rite Aid, 396 F.3d at 304. Here, too, plaintiffs
faced the difficult task of proving defendants had actual
knowledge of the falsity of the statement made on December 6,
1999. We do not believe the District Court abused its discretion

                                24
in concluding the potential difficulty of this task weighed in
favor of approval of both the settlement and the fee award.
       The District Court addressed the fifth fee award
reasonableness factor, “the risk of nonpayment,” under its
analysis of the seventh Girsh factor. The court noted plaintiffs’
contention that AT&T may not have been able to withstand a
multi-million or billion dollar judgment, and cited Cendant for
the proposition that “the possibility of bankruptcy is quite real
when the settlement or judgment numbers sufficiently increase.”
(App. 10 (quoting Cendant, 264 F.3d at 241).) We think the
chances of AT&T going bankrupt are small, but we do not think
the District Court abused its discretion in concluding that
because of a minor risk in this regard, the risk of nonpayment
“weigh[ed] in favor, albeit only slightly, of approval” of the
settlement and by implication, of the fee award. (App. 10.)
        The sixth fee award reasonableness factor—the amount
of time devoted to the case by plaintiffs’ counsel—overlaps with
the third. As noted, the District Court repeatedly emphasized
that class counsel’s efforts in achieving this settlement were
substantial.    The court stated, “[h]aving accepted the
responsibility of prosecuting this class action on a contingent fee
basis and without any guarantee of success or award, Lead
Counsel nonetheless maintained vigor and dedication
throughout.” (App. 17.) Considering the number of pre-trial
motions class counsel litigated, the extent of discovery, and the
two weeks of trial, we conclude the District Court did not abuse

                                25
its discretion in concluding class counsel’s efforts weighed in
favor of approval.
       The District Court addressed the seventh fee award
reasonableness factor—awards in similar cases—in addressing
the objections that were made to the amount of attorneys’ fees
under its discussion of the second fee award reasonableness
factor. The court acknowledged a 2003 study, cited by
objectors, concluding 15.1% was the average percentage for fee
awards in class actions resulting in settlements over $100
million. But the District Court noted “this lawsuit may be
characterized as anything but average,” and objectors had not
cited “controlling authority that would require this Court to
make a downward adjustment.” (App. 15.) The court concluded
objectors had failed to present evidence sufficient to rebut the
presumption of reasonableness.7
       Other than the size of the settlement fund, this last
factor—awards in similar cases—is the only one that objectors
address on appeal. They contend the fee arrangement was not
adequately negotiated or contested because the lead plaintiff
who originally negotiated the fee arrangement, New Hampshire
Retirement Systems, was no longer a lead plaintiff at the time of
settlement. They contend there is no evidence that any
subsequently appointed lead plaintiff “engaged in any rigorous
negotiation, revisited the agreement, or did anything other than

     7
     We again caution courts to refrain from granting this
presumption too much weight.

                               26
to ‘rubber stamp’ the deal.” (Appellants’ Br. 11.) In Cendant,
we stated the presumption of reasonableness would likely be
“abrogated entirely” by a showing that unusual and unexpected
factual and/or legal developments “materially altered” the
original premises of the negotiated agreement. Cendant, 264
F.3d at 282–283. Were it the case that New Hampshire
Retirement Systems was no longer a lead plaintiff at the time of
settlement, and that subsequent lead plaintiffs had not carefully
reviewed the fee arrangement, we “could be justified in holding
that the presumption of reasonableness had been abrogated.” Id.
at 283. We would then “review the fee request using the
traditional standards.” Id. But New Hampshire Retirement
Systems was a lead plaintiff at the time of settlement. (See App.
609–13.) And even under “traditional standards,” in the absence
of a presumption, we would conclude the District Court had not
abused its discretion in declining to reduce the fee award.
        Objectors contend “courts are increasingly finding that
class counsel can be reasonably compensated by a fee award
that is substantially less than 20% of the settlement fund.”
(Appellants’ Br. 14.) They cite a study, which they cited to the
District Court, concluding the average award for fees and costs
in class action cases whose settlements were valued over $100
million was 15.1%, and the average award for fees and costs in
all cases was 18.4%. See Stuart J. Logan, Jack Moshman, and
Beverly C. Moore, Jr., Attorney Fee Awards in Common Fund
Class Actions, 24 Class Action Rep. 169 (2003). They also cite
several cases awarding percentages lower than what class
counsel received here, allegedly “demonstrat[ing] that the 26.7%

                               27
awarded to Class Counsel is excessive and unreasonable.”8
(Appellants’ Br. 10.) See e.g., Cendant, 243 F. Supp. 2d 166,
174 (D.N.J. 2003), on remand from 264 F.3d 201 (3d Cir. 2001)
(reducing initial fee award of $262 million, about 8.275% of
settlement, to $55 million); Goldberger v. Integrated Res., Inc.,
209 F.3d 43, 45 (2nd Cir. 2000) (upholding fee of 4% of
settlement); In re Interpublic Sec. Litig., 2004 US Dist. LEXIS
21429 (S.D.N.Y. Oct. 27, 2004) (awarding fee of 12% of
settlement amount); In re Infospace, Inc. Sec. Litig., 330 F.
Supp. 2d 1203, 1216 (W.D. Wash. 2004) (awarding fee
representing approximately 12% of settlement amount); In re
Cylink Sec. Litig., 274 F. Supp. 2d 1109, 1116 (N.D. Cal. 2003)
(concluding fee award of 16% award was fair, adequate and
reasonable); In re Bankamerica Corp. Sec. Litig., 228 F. Supp.
2d 1061, 1064 (E.D. Mo. 2002) (awarding fees of 18% of
settlement amount rather than the requested 25%).
      Class counsel contends the cases cited by objectors as
supporting a lower fee award can be distinguished on two

  8
    Objectors repeatedly refer to the percentage award as being
26.7%. But the attorneys’ fee award was 21.25% of the
settlement fund. Expenses are generally considered and
reimbursed separately from attorneys’ fees, and it is accordingly
misleading to compare the 26.7% figure against the percentage
fee awards granted in other cases.

                               28
grounds. First, they lack the extent of litigation involved here,9
which entailed four years of litigation and two weeks of trial,
leading to a total of 48,000 hours spent by lead counsel in
discovery, motion practice, and trial. Second, the cited cases
involved significant disparities between the originally requested
fee award and the lodestar cross-check. For example, lead
counsel in Goldberger sought a $13.5 million fee, but its
lodestar was $1.3 million, leading to a lodestar multiplier of ten.
Here, the lodestar cross-check produced a multiplier of 1.28.
We have noted that the lodestar multiplier “need not fall within
any pre-defined range, provided that the District Court’s
analysis justifies the award.” Rite Aid, 396 F.3d at 307. But we
think a multiplier of 1.28 is well within a reasonable range,
particularly given the District Court’s emphasis on the
significant time and effort devoted to the case by class counsel.
        As a comparison, we approved of a lodestar multiplier of
2.99 in Cendant PRIDES, in a case we stated “was neither
legally nor factually complex.” 243 F.3d at 742. The case
lasted only four months, “discovery was virtually nonexistent”
id. at 736, and counsel spent an estimated total of 5,600 hours on

  9
   In re Bankamerica Corp. Securities Litigation, 228 F. Supp.
2d 1061 (E.D. Mo. 2002), is the one exception, involving
substantial amounts of time and litigation. But in BankAmerica,
there was a significant disparity between the requested
percentage fee award of 25% and the lodestar cross-check,
leading to an approximate lodestar multiplier of four. Id. Here,
the 1.28 multiplier does not indicate a need to reduce the fees.

                                29
the case, id. at 735. We noted, “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. If
a lodestar of 2.99 was reasonable in a short and “relatively
simple” case, we believe the District Court did not abuse its
discretion in concluding a lodestar of 1.28 was reasonable in this
lengthy, relatively complex case.
       Furthermore, class counsel in this case was not aided by
a government investigation. In Prudential, we noted this as a
significant factor for district courts to consider. There, we
remanded the fee award for the district court’s further
consideration after determining the court had failed to
distinguish between benefits created by class counsel and those
created by a multi-state life insurance task force, organized to
investigate allegations against the defendant. See Prudential,
148 F.3d at 338. We concluded the district court had improperly
“credited class counsel with creating the entire value of the
settlement.” Id. Here, class counsel was not aided by the efforts
of any governmental group, and the entire value of the benefits
accruing to class members is properly attributable to the efforts
of class counsel. This strengthens the District Court’s
conclusion that the fee award was fair and reasonable.
       Objectors acknowledge that “[b]oth Class Counsel and
Objector’s counsel have cited numerous cases supporting their
view of the reasonableness of attorney fees,” and concede that
“[e]ach could ‘string-cite’ many more cases supporting its
position.” (Reply Br. 5.) They contend that “at the very least,

                                30
the mere fact that some courts have awarded high fees in the
past ought not to be considered a justification for awarding the
fee requested in the face of ever-increasing evidence that class
counsel can be reasonably compensated at rates far less than
those that might have prevailed in the past.” (Appellants’ Br.
14.) But the District Court did not justify its approval of the fee
by reference to high fees in the past. It justified its approval by
demonstrating this case was not an average case. The District
Court “consider[ed] the relevant circumstances of the particular
case,” Cendant PRIDES, 243 F.3d at 736, and concluded the fee
was not excessive. In light of its analysis under the fee award
reasonableness factors and the reasonable lodestar multiplier,
the District Court did not abuse its discretion in concluding the
fee award was not excessive.
                                B.
        Objectors also contend the fee arrangement, which
provided for the fee percentage to increase with the size of the
settlement fund, was unfair and unreasonable. They cite
Goldberger v. Integrated Resources, Inc., for the proposition
that “[o]bviously, it is not ten times as difficult to prepare, and
try or settle a 10-million-dollar case as it is to try a 1-million-
dollar case.” (Appellants’ Br. 20 (quoting Goldberger, 209 F.3d
at 52).) Based on this logic, they contend the District Court
should have required the fee percentage to be based on a sliding
scale that bears an inverse relationship to the size of the
settlement.

                                31
        We have recognized that “it may be appropriate for
percentage fees awarded in large recovery cases to be smaller in
percentage terms that those with smaller recoveries.” Rite Aid,
396 F.3d at 302. In Prudential, we agreed with the district
court’s reduction of a percentage award in a case where the
settlement fund was going to be at least $410 million, 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); see also
Cendant, 264 F.3d at 284 n.55 (“[O]rdinarily, the percentage of
a recovery devoted to attorneys fees should decrease as the size
of the overall settlement or recovery increases.”).10 But while it
may be appropriate in some circumstances for fee percentages
in large recovery cases to be smaller than those in smaller
recovery cases, “there is no rule that a district court must apply
a declining percentage reduction in every settlement involving
a sizable fund.” Rite Aid, 396 F.3d at 303. In RiteAid, we held
the district court did not abuse its discretion in declining to
apply a percentage fee scale that decreased as the size of the
settlement increased, concluding “the declining percentage
concept does not trump the fact-intensive Prudential/Gunter

   10
     In Cendant, we also recognized the declining percentage
principle is “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.” In re
Cendant Corp. Litig., 264 F.3d 201, 284 n.55 (3d Cir. 2001).

                                 32
analysis.” Id. We distinguished Prudential, which we
concluded “does not mandate application of the declining
percentage sliding scale.” Id. In Prudential, in vacating a fee
award of $90 million on a settlement estimated at $1 billion,
much of our concern was case-specific. 148 F.3d at 338–340.
We questioned such a significant fee award when “much of the
settlement was achieved by [a multi-state insurance task force],
and other enhancements resulted from the separate negotiations
of state regulators.” Id. at 342. Here, the District Court did not
abuse its discretion in concluding the sliding scale was fair and
reasonable in light of the size of the settlement fund, the
difficulty and length of the litigation, and the fact that all
benefits accruing to class members are properly credited to the
efforts of class counsel.
                               C.
       Nor did the District Court abuse its discretion in
approving a single payment of attorneys’ fees and expenses.
Objectors contend a portion of the attorneys’ fees should be
withheld pending payment of claims to class members. They
contend payments should be staggered, and class counsel should
be required to file periodic and final reports to prove class
members are receiving relief. Otherwise, they fear class counsel
will abandon the class as soon as their fees are paid.
       The District Court noted there was no indication class
counsel would stop working diligently on behalf of the class,
“having witnessed [class counsel] vigorously prosecute this
action for four years without any guarantee of success.” (App.

                               33
16.) We see no evidence on the record that lead counsel has
ever abandoned a class, or is likely to do so in this case. Class
counsel notes that one of the objectors, Washburn, admitted he
was “not challenging the ability or integrity” of class counsel
who, he acknowledged, were “the best in the business” and
“should get paid for what they’ve done.” (Appellees’ Br. 21.)
        Objectors cite certain cases in which staggered fee
payments have been applied in class action settlements. See,
e.g., In re Prudential Ins. Co. of Am., 962 F. Supp. 450 (D.N.J.
1997), aff’d in part (class certification and settlement) and
vacated and remanded in part (attorneys’ fees), 148 F.3d 283
(3d Cir. 1998). Prudential was an “‘atypical common fund
case’ involving an uncapped, ‘future fund’ whose ultimate value
[was] dependent on the final number of claims remediated under
the settlement.” Prudential, 148 F.3d at 334 (quoting In re
Prudential Ins. Co. of Am. (Fee Opinion), 962 F. Supp. 572, 583
(D.N.J. 1997)). We remanded the fee award for the district
court’s further consideration, but we approved its two-part
structure. The first part of the award would be calculated as a
percentage of the guaranteed minimum settlement amount and
the second would be calculated as a percentage of the future
payments. We concluded this bifurcated structure “obviate[d]
the need to guesstimate the value of the settlement.” Id. at 333
(quoting Fee Opinion, 962 F. Supp. at 589). Here, the
settlement amount of $100 million is fixed, and there is no need
to stage the payout to ensure attorneys’ fees are in the correct
amount.

                               34
        Moreover, the District Court here retained jurisdiction,
and stated it “will be available to Class members for final
resolution of any dispute that may arise.” (App. 16.) We have
noted that “[u]nder Rule 23(e), the District Court acts as a
fiduciary guarding the rights of absent class members.”
Cendant, 264 F.3d at 231; see also Fed. R. Civ. P. 23(h)
advisory committee’s notes (2003) (“Active judicial
involvement in measuring fee awards is singularly important to
the proper operation of the class-action process”). Given the
District Court’s obligation to thoroughly review the settlement
and its attorneys’ fees provisions to ensure fairness and
reasonableness, see Rite Aid, 396 F.3d at 299, we are confident
in this case that should objectors’ fears regarding class counsel
be realized, the court will be available to ensure proper
administration of the settlement. See also Report of the Third
Circuit Task Force, Court Awarded Attorneys Fees, 108 F.R.D.
237, 255 (1985) (explaining 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”).
                              IV.
       For the reasons set forth, we will affirm the judgment of
the District Court.

                               35