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February 8, 1979

Stella WEISS, a/k/a Stella Ydowitz, Plaintiff,
DREW NATIONAL CORPORATION, Hertz Herson & Company, Harold Aibel, Lawrence Aibel, James Corines, Norman Elson, Murray Gains, Harry L. Goldberg, Herbert Kdrasnow, Lewis C. Leighton, I. H. Plone, Jerry Pressman, Sol Schalman, Seymour Schwartz, Michael J. Maloney and Leigh J. Abrams, Defendants

The opinion of the court was delivered by: SWEET

Plaintiffs and their attorneys in this class action have submitted a petition pursuant to Rule 23(e), Fed.R.Civ.P., and in accordance with Civil Rule 11B of the Local Rules of the Southern District of New York, seeking approval of a proposed settlement, an award of attorney's fees, and reimbursement of expenses.

Plaintiffs alleged violations by the defendants of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. § 240.10b-5, in that defendants made false and misleading statements in various reports and releases issued by Drew National Corporation ("Drew") to its stockholders and the public, and which were filed with the Securities and Exchange Commission. This action is a consolidation of four separate security class actions naming Drew, its directors, and auditor Hertz Herson & Company as defendants, and charging them with making overly optimistic statements as to Drew's earnings and assets while understating its liabilities. *fn1"

 Settlement papers were executed by attorneys for all parties on October 16, 1978, a settlement in principle having been achieved on the eve of trial. On October 22, 1978, this court approved the giving of notice of the proposed settlement to the class by mail and by publication in the Wall Street Journal. Notice was given to all class members who received the notice of pendency of the class action in 1977.

 Approval of a proposed settlement of a class action is given if the settlement is fair, reasonable, and adequate. City of Detroit v. Grinnell Corporation, 356 F. Supp. 1380 (D.C.), Aff'd in part, reversed in part on other grounds, 495 F.2d 448 (2d Cir. 1974). The proponents of the settlement have the initial burden of showing: (1) that the settlement was arrived at through arms' length negotiation and is not collusive; (2) that the proponents are counsel experienced in similar cases; (3) that there has been sufficient discovery to enable counsel to act intelligently; and, (4) that the number of objectants or their relative interest is small. Munsey Trust v. Sycor, Inc., et al., 457 F. Supp. 924 (S.D.N.Y.1978); Burger v. C.P.C. International, Inc., 76 F.R.D. 183 (S.D.N.Y.1977).

 This court is satisfied that the proposed settlement is not the result of collusion, and that counsel with ample experience have evaluated their positions intelligently, following thorough discovery. Moreover, petitioning counsel Arthur Abbey has represented that no written objections to the settlement have been served on petitioner, and that he knows of no one expressing an interest in so objecting. The absence of objectants may itself be taken as evidencing the fairness of the settlement. City of Detroit v. Grinnell Corporation, 495 F.2d 448, 462; Burger v. C.P.C. International, Inc., 76 F.R.D. at 186. In light of the foregoing, therefore, a presumption arises in favor of the settlement, Id.; see also Feder v. Harrington, 58 F.R.D. 171, 174-75 (S.D.N.Y.1972).

 The fairness of the proposed settlement must nonetheless be judged with reference to the strength of the plaintiffs' case, as balanced against the amount offered in the settlement. Protective Committee for Independent Stockholders of TMT Ferry, Inc. v. Anderson, 390 U.S. 414, 88 S. Ct. 1157, 20 L. Ed. 2d 1 (1968); City of Detroit v. Grinnell Corporation, supra; Burger v. C.P.C. International, Inc., supra. Certain of the elements of plaintiffs' Rule 10b-5 action present difficult questions of law and fact, particularly insofar as plaintiffs must prove the materiality of defendants' allegedly false statements and omissions; plaintiffs also bear the burden of proving defendants' scienter. See Munsey Trust v. Sycor, Inc., et al., supra; Burger v. C.P.C. International, Inc., supra.

 While it is unnecessary to " "balance the scales with the nicety of an apothecary'," Glicken v. Bradford, 35 F.R.D. 144, 152 (S.D.N.Y.1964), a proper evaluation normally includes an estimate of the potential recovery, assuming success at trial. See Burger v. C.P.C. International, Inc., 76 F.R.D. at 186-87. While detailing the merits of their claims, the risks of litigation, and the benefits of the settlement, plaintiffs have not given an evaluation of their anticipated recovery at trial: they mention only that the issue of damages presents "troublesome questions." *fn2"

 Despite this omission, the court approves the proposed settlement, while noting the peculiar difficulties in estimating a potential recovery figure in this case. The difficulty at trial in establishing the effects of the alleged misstatements and omissions upon the "true value" of Drew stock is obvious. The present bankrupt status of Drew deepens the problem, as is exemplified by the erratic performance of Drew stock since the initial settlement date. *fn3"

 Plaintiffs have outlined the strengths and weaknesses of their case in sufficient detail to apprise the court of the value of the proposed settlement to all members of the class. The lack of opposition to the settlement indicates that this case is properly the subject of our long-established policy of encouraging the out-of-court resolution of such controversies. See Republic Nat. Life Ins. Co. v. Beasley, 73 F.R.D. 658 (S.D.N.Y.1977); See also, Beecher v. Able, 72 F.R.D. 518 (S.D.N.Y.1976), Modified, 441 F. Supp. 426 (D.C.), Aff'd., 575 F.2d 1010 (2d Cir. 1978).

 The court, therefore, finds that the proposed settlement consisting of $ 1,210,000 in cash, 200,000 shares of Drew stock, and $ 12,500 toward the reimbursement of pre-settlement expenses is fair, adequate, and reasonable.

 Attorneys' Fees and Expenses

 The petitioning attorneys have submitted an application for an award of fees valued at approximately $ 365,000. Of that figure, $ 340,000 is to be paid in cash, with the remainder to be made up through the attorneys' acquisition of 200,000 shares of Drew stock. The stock was valued at $ 50,000 at the time of the initial settlement agreement, but diminished in value to $ 25,000 as of the November, 1978 filing date of this petition. *fn4"

 In recent years the courts have set forth the relevant factors for reviewing attorneys' fee applications. *fn5" Courts must scrutinize fee applications with a jealous regard for the rights of those who are interested in the settlement fund. City of Detroit v. Grinnell Corporation, 495 F.2d at 469. "For the sake of their own integrity, the integrity of the legal profession, and the integrity of Rule 23, it is important that the courts should avoid awarding "windfall fees' and that they should likewise avoid every appearance of having done so." Id.

 With the Second Circuit's admonition in mind, "(it) is now clear that the proper starting point for determining an award of counsel fees is the actual time spent by the attorneys, multiplied by a reasonable hourly rate to which attorneys of like skill in the area would typically be entitled for a comparable type of work." Burger v. C.P.C. International, Inc., 76 F.R.D. at 188, Citing City of Detroit v. Grinnell Corporation, 495 F.2d at 471; See also Barnett v. Pritzker, 73 F.R.D. 430, 431 (S.D.N.Y.1977). The court is mindful that this practice "may at times result in rewarding inefficiency or the luxurious practice of (the) law and penalizing those who are efficient and expeditious in performing their legal tasks," Blank v. Talley Industries, Inc., 390 F. Supp. 1, 5 ...

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