was submitted by the SEC -- and nearly 57,000 Class Members have submitted valid Proofs of Claim for consideration by the Claims Administrator pursuant to the terms of the Settlement Agreement.
In support of its petition Class Counsel has submitted affidavits from all counsel, detailing the fees and expenses incurred in furtherance of this litigation. These affidavits set forth the number of attorney and paralegal hours expended in this litigation by each individual at each firm involved, as well as the hourly rates charged by the firms for such services, with a breakdown by type of task performed. Class Counsel have spent approximately 70,000 hours in heretofore uncompensated legal work in pursuit of factual investigation, drafting of documents, brief writing, document analysis, depositions, trial preparation, settlement negotiation and other tasks. Given the non-contingent hourly rates involved, Class Counsel's lodestar is $ 18,536,147. The "lodestar" is comprised of the number of hours devoted by counsel multiplied by counsel's normal, non-contingent hourly billing rates. The fees requested by Class Counsel -- 27.5% of the $ 125 million cash settlement fund (with accrued interest), plus 27.5% of any cash distributed pursuant to the "Additional Benefits" provision of the Settlement Agreement -- represent, roughly, a 2.0 multiplier of their lodestar figure. Of course, at least some of the work for which Counsel is requesting compensation is necessarily prospective: the structure of the "Additional Benefits" is such that the Classes will likely be receiving benefits from the Settlement until the year 2007, requiring future attorney time to monitor and implement later distributions. This bifurcation of the fee request makes translation between a "lodestar plus multiplier" figure and a "percentage of recovery" figure difficult.
The affidavits also detail the $ 3,687,577 requested by Class Counsel as reimbursement for litigation expenses, which include, among other costs, expert witness fees, a computerized document database, travel expenses, court reporting services, research charges, and reproduction expenses through May 31, 1997. The Court, after reviewing the submissions by Class Counsel, finds that the $ 3,687,577 was appropriately incurred and documented by the various counsel in this litigation and, accordingly, hereby awards Class Counsel $ 3,687,577 in expenses.
A. Common Fund Doctrine
"The common or equitable fund doctrine . . . '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.'" Berlinsky v. Alcatel Alsthom Compagnie Generale D'Electricite, 970 F. Supp. 348, 349 (S.D.N.Y. 1997) (quoting City of Detroit v. Grinnell Corp., 560 F.2d 1093, 1098 (2d Cir. 1977) ("Grinnell II ")). In reviewing the reasonableness of a fee request pursuant to this doctrine, the critical inquiry is whether the fees represent "fair and just compensation for [counsel's] respective efforts." In re Agent Orange Prod. Liab. Litig., 818 F.2d 226, 232 (2d Cir. 1987) (citation omitted).
B. Fee Determination
"To provide counsel with such compensation and, at the same time, temper these awards to prevent windfalls, [this Circuit has] adopted a lodestar formula for calculating fees in equitable fund . . . cases." Id. Although a few district courts in this circuit have used the "percentage of fund" approach advanced by Class Counsel,
and while that approach has found increasing favor of late in other circuits,
the Second Circuit has counseled against undue reliance on "the contingent fee syndrome" implicit in the "percentage of fund" approach and has held the lodestar method to be the proper basis for assigning fees in common fund cases. City of Detroit v. Grinnell Corp., 495 F.2d 448, 468, 470 (2d Cir. 1974) ("Grinnell I ") ("the starting point of every fee award . . . must be calculation of the attorney's services in terms of the time he [or she] has expended on the case."). Accordingly, this Court will apply the lodestar method.
As noted above, the lodestar is calculated by multiplying the number of hours reasonably billed by the hourly rate normally charged for equivalent work by similarly-skilled attorneys in the area. Grinnell II, 560 F.2d at 1098. After a review of the time records and affidavits of counsel, the Court finds the amount of time claimed for each attorney and paralegal to be reasonable. Moreover, the hourly billing rates employed by the experienced counsel involved in this litigation correspond to the rates normally charged for similar work by attorneys of like caliber. Thus, the $ 18,536,147 lodestar figure is reasonable.
Calculation of the lodestar, however, is the beginning of the analysis. See In re Prudential Sec. Inc. Ltd. Partnerships Litig., 912 F. Supp. 97, 102 (S.D.N.Y. 1996); In re Warner Communications Sec. Litig., 618 F. Supp. 735, 747 (S.D.N.Y. 1985), aff'd, 798 F.2d 35 (2d Cir. 1986). The Court, after calculating the lodestar, has discretion to adjust this amount based on a number of "less objective factors," while remaining conscious of its role as a fiduciary who must protect the rights of absent class members. Grinnell I, 495 F.2d at 471; Grinnell II, 560 F.2d at 1099. "Perhaps the foremost of these factors is the attorney's 'risk of litigation,' i.e., the fact that, despite the most vigorous and competent of efforts, success is never guaranteed." Grinnell I, 495 F.2d at 471. Among the questions a court should ask to determine the "risk of litigation" are: (1) whether the legal and factual issues involved were "novel and complex or straightforward and well worn"; and (2) whether "a relevant government action [has] been instituted or, perhaps, even successfully concluded against the defendant." Id. Both of these questions, and their answers, bear heavily in the Court's analysis of the risks faced by Class Counsel in this case.
As noted in PaineWebber I, Class Counsel faced significant litigation risk in bringing these actions. The issues involved were complex, see PaineWebber I, at *74-75, and the RICO and fraud claims faced significant substantive and procedural defenses: most notably, a defense based on the applicable statute of limitations for the RICO claims, and a defense based on the "bespeaks caution" doctrine with respect to the fraud claims. See id. at *79-85. Thus, Class Counsel was by no means faced with certain recovery in these actions.
Tempering these risks, however, was the SEC's contemporaneous investigation of PaineWebber. The SEC, as amicus curiae, has filed an objection to Class Counsel's request for attorneys' fees, largely premised on its belief that the SEC investigation reduced Class Counsel's risk in filing and pursuing this matter. In response, Class Counsel asserts that its litigation and ultimate settlement with PaineWebber were conducted independently of the SEC investigation and settlement, even going so far as to contend that its attempts at settlement were "actually made more difficult by the SEC Action because [they] arguably were competing (on parallel tracks but without knowing it) for limited dollars." (Plfs' Mem. at 105). The Court disagrees with Class Counsel's position.
First, Class Counsel made early use of the SEC Action, even referring to the SEC investigation in the Federal Action's Amended Complaint. (See SEC Objection Mem. at 11-12). Second, and relatedly, knowledge of the SEC Action, and public reports of settlement discussions between PaineWebber and the SEC, would have given Class Counsel strong reason to believe that PaineWebber perceived that it faced substantial exposure to liability for claims arising from its sale of the relevant partnerships. This recognition was made all the more tangible when, in July 1995, PaineWebber publicly announced that it was sustaining a $ 200 million charge to earnings to cover anticipated costs to resolve claims brought by the SEC and private parties. (See id. at 12). Finally, the SEC Order, entered on January 17, 1996, put palpable pressure on PaineWebber to settle the pending Federal and Texas Actions by providing, in essence, that by not settling, PaineWebber would be required to enhance the SEC claims fund by the $ 125 million ultimately paid to a fund for Class Members, without obtaining a release of liability from the Class. In short, while Class Counsel did not necessarily piggyback on the SEC's efforts from the beginning of these actions, their risk in litigating Class Members' claims was substantially reduced by pressure placed on PaineWebber in the SEC Order. Largely for this reason, the Court declines to award Class Counsel the doubling of its lodestar that they seek.
Other factors that the Court considers in determining a reasonable award of attorneys' fees include the quality of the representation and the amount recovered for the Class. See Grinnell I, 495 F.2d at 470. The Court, having had the opportunity to observe first hand the quality of Class Counsel's representation during this litigation, finds that Class Counsel's representation of the Class has been of high caliber in conferences, in oral arguments and in work product. In addition, few could blink at the substantial results achieved in this litigation for the Class, totaling an estimated $ 200 million, plus interest.
Assessing these competing factors and exercising its discretion, the Court finds that an adjustment of 1.4 times the reported lodestar is appropriate, and awards a fee of $ 25,950,605, plus interest thereon from the date of the deposit of the cash settlement fund. In addition, as noted above, Class Counsel may be required to expend additional resources over time in implementing and monitoring the "Additional Benefits" provision of the Settlement Agreement. Accordingly, the Court will award Class Counsel reasonable fees incurred over time in that pursuit. Those future fees will also be upwardly adjusted by a 1.4 multiplier to account for the fact that any future benefits received by the Class will have been the result of the efforts and risk previously undertaken by Class Counsel in commencing and pursuing these actions. Class Counsel is ordered to submit to the Court and to the Claims Administrator, on a semi-annual basis, time records detailing the attorney and paralegal fees incurred in the course of recovering the cash portion of any "Additional Benefits."
Accordingly, petitioners' request for an award of attorneys' fees and for reimbursement of expenses is granted to the extent that Class Counsel is awarded $ 25,950,605 (plus interest) in attorneys' fees and $ 3,687,577 in expenses. In addition, Class Counsel will receive over time reasonable attorneys' fees, based on a multiplier of 1.4 to the lodestar figure, to compensate for future work expended in monitoring and implementing the cash portion of "Additional Benefits" received, subject to the approval of the Court.
Dated: New York, New York
March 27, 1998
Sidney H. Stein, U.S.D.J.