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IN RE PAINEWEBBER LTD. PARTNERSHIPS LITIG. v. GEOD

March 27, 1998

IN RE PAINEWEBBER LIMITED PARTNERSHIPS LITIGATION; THIS DOCUMENT RELATES TO: ALL ACTIONS; THIS DOCUMENT ALSO RELATES TO (BUT IS NOT FILED IN) THE COORDINATED ACTION NEIDICH ET AL.
v.
GEODYNE RESOURCES INC., ET AL., NO. 94-052860, PENDING IN THE DISTRICT COURT OF HARRIS COUNTY, TEXAS.



The opinion of the court was delivered by: STEIN

 SIDNEY H. STEIN, U.S. DISTRICT JUDGE.

 Presently before the Court is the Joint Fee Petition submitted by counsel for the plaintiff class ("Class Counsel") in the above-captioned consolidated class action. Class Counsel's efforts have resulted in the establishment of a $ 125,000,000 fund for the benefit of the Class, plus contingent "Additional Benefits," which the parties have valued at $ 75,000,000. Class Counsel seeks a fee of 27.5% of the cash settlement fund, plus interest thereon from the date of the deposit of the funds, plus 27.5% of any monies ultimately paid as "Additional Benefits" to the Class, for an award that could approximate $ 55 million in fees. In addition, petitioners seek $ 3,687,577 in litigation expenses. For the reasons that follow, this Court awards counsel: a multiplier of 1.4 on its lodestar, payable out of the $ 125,000,000 cash settlement fund (plus interest thereon from the date of deposit), plus reasonable fees incurred in the future to implement the payment of "Additional Benefits" to the Class at the same multiplier, subject to the approval of the Court, and $ 3,687,577 in litigation expenses.

 I. History of the Litigation

 The history of this litigation and the details of the Settlement Agreement reached by the parties are set forth in full measure in this Court's Opinion and Order dated March 20, 1997, In re PaineWebber Ltd. Partnerships Litig., 171 F.R.D. 104, 1997 U.S. Dist. LEXIS 3254 (S.D.N.Y.) ("PaineWebber I "), aff'd 117 F.3d 721 (2d Cir. 1997). Only those facts relevant to the disposition of the pending petition are presented here.

 By late 1994, individual plaintiffs had filed two lawsuits in Texas state court (the "Texas Actions") alleging state law fraud and breach of fiduciary duty claims against PaineWebber and others in connection with the sale of oil and gas limited public partnerships the "Geodyne Partnerships") encompassed by the Federal Action. See id. at *13-14. (See also Objection of the Securities and Exchange Commission, Amicus Curiae, to Request for Attorneys' Fees ("SEC Objection Mem."), at 3-4). The Texas Actions were consolidated on April 26, 1995, under the caption Neidich, et al. v. Geodyne Resources, Inc., et al., No. 94-052860, and an Executive Committee of plaintiffs' counsel was appointed. See PaineWebber I, at *14.

 In May of 1995, the plaintiffs in the Texas Actions filed a Consolidated and Amended Petition in state court against PaineWebber and other defendants, charging defendants with substantially the same course of conduct set forth in the Federal Action. The following month, the Consolidated Petition was certified as a class action pursuant to Rule 42(b)(4) of the Texas Rule of Civil Procedure. See id.

 In late May and early June of 1995, orders were issued in the Federal and Texas Actions to coordinate the actions in Federal Court for pretrial purposes. The Texas Class agreed to be bound by the Federal Court's final determination of the legal and factual issues concerning the partnership units involved, and to coordinate with the Federal Class all pleadings and pretrial motion practice, as well as investigation and discovery. On June 7, 1995, a joint Notice of Pendency of the Class Action was mailed to all class members, and within 10 days of this mailing, a summary version of the Notice was printed in major newspapers. See id. at *16-17.

 One day before the first federal complaint was filed in this Court, and nearly one month after the first state court action was filed in Texas, a November 22, 1994 Wall St. Journal article reported the existence of a previously non-public investigation by the Securities and Exchange Commission ("SEC") into PaineWebber's sale of the Geodyne Partnerships that were the subject of the Texas and Federal Actions. See id. at *35-36.

 After extensive, coordinated discovery by Class Counsel in the summer and fall of 1995, Class Counsel and defendants executed a Memorandum of Understanding ("MOU"), which provided the outlines of a settlement agreement, including payment by PaineWebber of $ 125 million in cash, and certain "Additional Benefits" valued at $ 75 million. Pursuant to the MOU, PaineWebber deposited $ 125 million into an interest-bearing escrow account on January 18, 1996. See id. at *30.

 During the course of discovery, and before the MOU was signed, the SEC investigation was ongoing. Class Counsel were not privy to that investigation, nor were they informed that the SEC had been engaged in preliminary settlement talks with PaineWebber. On July 27, 1995, however, PaineWebber publicly reported that it was taking a $ 200 million charge against earnings to cover potential liabilities arising from its marketing and sale of the limited partnerships, including liability resulting from any judgments, settlements, fees and costs incurred in connection with a possible SEC action and the private actions. The company also announced that it had entered settlement negotiations with the SEC. See id. at *35-36.

 On January 17, 1996, the SEC issued an order ("SEC Order"), finding extensive federal securities law violations and imposing sanctions. The SEC Order was filed in this Court on January 18, 1996, contemporaneously with the MOU in the Federal and Texas Actions. PaineWebber agreed in the SEC Order to pay a total of $ 292.5 million for the benefit of investors in the limited partnerships. Included in this amount was $ 40 million for a special claims fund ("SEC Fund") to be allocated among eligible claimants by a court-appointed claims administrator, a $ 5 million civil penalty, and credit for the $ 125 million it was to pay in settlement of the Federal and Texas Actions; however, if settlement of the Class Actions were not approved by January 27, 1997 (subject to a three-month extension), the $ 125 million was to be transferred to the SEC Fund that was established as part of the SEC Action. See id. at *36-38. As a result of the SEC Order -- to which PaineWebber consented without admitting or denying the SEC's findings -- PaineWebber had a significant financial incentive to settle the Class Actions and to do so promptly.

 Following execution of the MOU, and pursuant to its terms, the parties proceeded with the negotiation of "Additional Benefits," the purpose of which was to confer approximately $ 75 million in economic value to the Class without an immediate cash outlay by PaineWebber. The "Additional Benefits" became part of a final settlement agreement ("Settlement Agreement") which the parties concluded on July 11, 1996, and which this Court preliminarily approved on July 17, 1996. After class members were given notice of the Settlement Agreement in August of 1996 (via mailing and publication in national newspapers), *fn1" ...


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