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BERLINSKY v. ALCATEL ALSTHOM COMPAGNIE GENERALE D'

July 28, 1997

DANNY BERLINSKY, Plaintiff, against ALCATEL ALSTHOM COMPAGNIE GENERALE D' ELECTRICITE a/k/a ALCATEL ALSTHOM, Defendant.


The opinion of the court was delivered by: MOTLEY

 Counsel for the plaintiff in this previously settled matter seeks an award of $ 2,420,000 as attorney's fees and expenses in connection with his representation of the plaintiff class. For the reasons provided below, this court, using the familiar lodestar method of analysis, awards counsel $ 1,141,133.35 in attorney's fees and $ 168,223.71 in costs.

 BACKGROUND

 The underlying facts of this dispute are set forth in this court's previous decision approving a settlement between the parties and familiarity therewith is assumed. See Berlinsky v. Alcatel Alsthom, 970 F. Supp. 348, 1997 U.S. Dist. LEXIS 10981, 1997 WL 253107 (S.D.N.Y.).

 On September 26, 1996, the parties informed the court at a pretrial conference that they had reached a settlement and that papers to this effect would be sent to the court shortly. The proposed settlement essentially required the defendants to pay $ 8.8 million to a fund out of which the class members would be compensated. In addition, 27.5% of the funds were to be given to plaintiff's counsel as attorney's fees. By order dated January 10, 1997, the court approved the settlement agreement preliminarily and ordered (1) that a settlement hearing be held on April 11, 1997, at which time all class members could voice their objections to the settlement, and (2) that reasonable notice be given to all class members regarding the terms of the settlement so that they could have an opportunity to make objections at the hearing or opt out of the settlement altogether. Though no appearances were made at the settlement hearing, one written objection was made as to the amount of the attorneys fees sought. Given this objection and given that the $ 2.4 million sought as attorney's fees seemed rather high, plaintiff was directed to submit his time records to the court so that the court could better determine the appropriate amount of fees to be awarded.

 DISCUSSION

 I. Common Fund Doctrine

 The common or equitable fund doctrine, upon which plaintiff's counsel relies in making his application for fees, "allows an attorney whose actions have conferred a benefit upon a given group or class of litigants [to] file a claim for reasonable compensation for his efforts." City of Detroit v. Grinnell Corp., 560 F.2d 1093, 1098 (2d Cir. 1977) ("Grinnell II "). In reviewing the propriety of the attorneys fees granted in any particular case, "the critical inquiry . . . is whether the work performed resulted in a benefit to the class." In re Agent Orange Product Liability Litigation, 818 F.2d 226, 237 (2d Cir. 1987).

 II. Method of Determining Fees

 Courts in this circuit have calculated the fees to be awarded in common fund cases using two different methods: the lodestar method and the percentage of fund approach. Compare In re Metropolitan Life Derivative Litigation, 935 F. Supp. 286 (S.D.N.Y. 1996) and In re Boesky Securities Litigation, 888 F. Supp. 551 (S.D.N.Y. 1995)(applying lodestar approach) with Chatelain v. Prudential-Bache Securities, Inc., 805 F. Supp. 209, 215 (S.D.N.Y. 1992) and In re Crazy Eddie Securities Litigation, 824 F. Supp. 320, 327 (E.D.N.Y. 1993)(applying percentage of fund approach). Under the lodestar approach, first articulated by the Third Circuit in the case of Lindy Brothers Builders, Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973) and adopted by the Second Circuit in City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974) ("Grinnell I ") a court calculates counsel's "lodestar" by multiplying the number of hours counsel reasonably expended in the case by the prevailing rates for the services provided. Id. at 470-71. If the district court feels it is warranted, it may then apply a multiplier to account for other, less objective factors such as contingent risk, the magnitude and complexity of the litigation, exceptional results, and extraordinary work. Agent Orange, 818 F.2d at 234; Grinnell I, 495 F.2d at 470-71; Boesky, 888 F. Supp. at 562; In re Ames Dept. Stores, Inc. Debenture Lit., 835 F. Supp. 147, 150 (S.D.N.Y. 1993).

 However, the lodestar approach has recently come under heavy criticism from a number of sources. First of all, the Supreme Court has indicated in dicta in a case involving attorney's fees recovered under a federal fee-shifting statute that "under the 'common fund doctrine' . . . a reasonable attorney's fee is based on a percentage of the fund bestowed on the class." Blum v. Stenson, 465 U.S. 886, 900 n. 16, 104 S. Ct. 1541, 1550 n. 16, 79 L. Ed. 2d 891 (1984).

 In addition, a task force convened by the Third Circuit issued a report asserting that the lodestar approach overtaxed the judicial system, created an illusory sense of mathematical precision, and was easily manipulated by judges applying it. See Court Awarded Attorney Fees: Report of the Third Circuit Task Force, 108 F.R.D. 237, 246-49 (1985). This sentiment has been repeated by this court on numerous occasions as well. See, e.g., Cosgrove v. Sullivan, 759 F. Supp. 166, 168 (S.D.N.Y. 1991); Brown v. Steinberg, 1990 U.S. Dist. LEXIS 13516, 1990 WL 161023 (S.D.N.Y.) (Motley, J.); In re Union Carbide Consumer Products Bus. Sec. Lit., 724 F. Supp. 160 (S.D.N.Y. 1989).

 Finally, at least one prominent commentator has also argued that the percentage of recovery method, unlike the lodestar approach, best aligns the interests of the class and its counsel. John Coffee, Understanding the Plaintiff's Attorney: The Implications of Economic Theory for Private Enforcement of the Law Through Class and Derivative Actions, 86 COLUM. L. REV. 669, 724-25 (1986).

 As was indicated supra, this widespread displeasure with the lodestar method of computing attorney's fees has led to the adoption by various courts of the "percentage of recovery" method of compensation, wherein counsel is compensated at a particular percentage of the amount recovered. Plaintiff's counsel urge that this method be adopted and have suggested a compensation rate of 27.5% of the settlement total of $ 8.8 million dollars. However, while the percentage of recovery method may have much to recommend it and while the defects of the lodestar method are apparent, this court is without authority to do away with the lodestar system absent a clear indication from the Second Circuit that this approach is no longer to be used. The court is mindful that the Supreme Court has in dicta hinted that the percentage of recovery method may be applied, but this is not enough to contravene the clear holding of the Second Circuit in Grinnell I, where a fee award was struck down on the grounds that it ...


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