likely would be insufficient to wholly satisfy such judgment. In
light of the foregoing, the Settlement is certainly fair,
reasonable and adequate.
The Range of Reasonableness of the Settlement Fund in Light of
the Best Possible Recovery and Litigation Risks
Although Plaintiffs and Defendants sharply disputed the amount
of damages allegedly sustained by the Classes, the Settlement
provides a substantial financial recovery. In Grinnell, the
Second Circuit noted that "[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." Grinnell, 495 F.2d at
455. The Court further noted, "there is no reason, at least in
theory, why a satisfactory settlement could not amount to a
hundredth or even a thousandth part of a single percent of the
potential recovery." Id. at 455 n. 2.
In this context, the Court's determination turns on whether the
Settlement falls within a "range of reasonableness."
PaineWebber, 171 F.R.D. at 130 (citations omitted). Recognizing
the "litigation risks" facing the Classes at trial on liability
and damages — particularly factoring in the question of
collectability — the amount of this Settlement is well within
that range. Id. at 131. See also Blech, 2000 WL 661680, at *5
("While additional years of litigation might well have resulted
in a higher settlement or verdict at trial, continued litigation
could also have reduced the amount of insurance coverage
available and not necessarily resulted in a greater recovery.")
The Settlement Negotiations
In assessing a settlement, courts often focus on the
"negotiating process by which the settlement was reached."
Weinberger, 698 F.2d at 74. Courts have looked to ensure that
the settlement resulted from "arm's-length negotiations" between
counsel possessed of "experience and ability necessary to
effective representation of the class's interests." (citation
omitted). Id. See also PaineWebber, 171 F.R.D. at 125 ("[G]reat
weight is accorded to the recommendations of counsel, who are
most closely acquainted with the facts of the underlying
litigation.") (citation omitted); see also Blech, 2000 WL
661680, at *5. The qualified and experienced counsel for all
sides here recommend final approval of the Settlement.
The Settlement negotiations here were extensive, hard fought
and took place over the course of many months at arm's-length
between experienced and skilled attorneys for both Plaintiffs and
the numerous Defendants. ABN's bankruptcy further complicated the
process, in that Plaintiffs' Counsel not only negotiated with
ABN's litigation counsel, but also negotiated with ABN's
bankruptcy counsel, as well as with counsel for the claimants
competing for the estate's assets. Additionally, the Court is
aware of the obstacles presented by Deloitte with respect to the
partial settlement initially reached. After further difficult
negotiations among counsel for all parties, the proposed Global
Settlement was reached. "So long as the integrity of the arm's
length negotiation process is preserved . . . a strong initial
presumption of fairness attaches to the proposed settlement."
PaineWebber, 171 F.R.D. at 125. See also Blech, 2000 WL
661680, at *5. That presumption clearly should attach here.
Plan of Allocation
To participate in the Settlement, members of the Classes must
file acceptable Proofs of Claim to become Authorized Claimants.
Under the proposed Plan of Allocation, described more fully in
the Cappucci Affidavit and in the Notice, the Claims
Administrator shall determine each Authorized Claimant's pro
rata share of the Net Cash Settlement Fund and Net Settlement
Securities based upon each Authorized Claimant's Recognized
Claim. With respect to 84.175% of the Net Cash Settlement Fund,
each Authorized Claimant
shall be allocated a pro rata share based upon his, her, or its
Recognized Claim as compared to the total Recognized Claims of
all Authorized Claimants.*fn5 The remainder of the Net Cash
Settlement Fund shall be distributed only to the members of the
Holographics Class under the Stipulation's Plan of Allocation.
The net shares of Holographics common stock and the
Holographics Common Stock Purchase Warrants will be distributed
only to members of the Holographics Class in proportion to the
Authorized Claimant's Recognized Claim from purchases of
Holographics common stock during the Holographics Class Period as
compared to the total Recognized Claims only from purchases of
Holographics common stock during the Holographics Class Period of
all Authorized Claimants, as determined by the Claims
Administrator. No fractional shares or Warrants shall be issued
and no shares or Warrants shall be issued to any Authorized
Claimant who would not be entitled to receive at least five (5)
shares or five (5) warrants based on the initial proration of
shares and Warrants to Authorized Claimants. No adjustment will
be made in the cash distributions for fractional shares or
Warrants nor for the minimum number of shares or Warrants.
To the extent not previously sold or distributed, the net
shares of ABN common stock and ABN warrants will be distributed
to the members of the Classes in proportion to the Authorized
Claimant's Recognized Claims as determined by the Claims
Administrator. No fractional shares or warrants shall be issued
and no shares or warrants shall be issued to any Authorized
Claimant who would not be entitled to receive at least five (5)
shares or five (5) warrants based on the initial proration of
shares to Authorized Claimants. No adjustment will be made in the
cash distributions for fractional shares or warrants nor for the
minimum number of shares or warrants.
Under the proposed Plan of Allocation, described more fully in
the Cappucci Affidavit, each authorized claimant will receive a
pro rata share of the Net Settlement Fund, less certain fees
and expenses, to be determined by the ratio that such authorized
claimant's Recognized Claim bears to the total allowed claims of
the respective authorized claimants in each Action. Cappucci Aff.
¶¶ 32-38. The Plan of Allocation was formulated by Plaintiffs'
Counsel after extensive consideration of the damages in each of
the Actions and of the strengths and weaknesses of the claims in
The proposed Plan of Allocation is fair and reasonable and
should be approved by the Court.
All aspects of settlement approval, including, but not limited
to, the Plan of Allocation, rest in the sound discretion of the
district court. See, e.g., In re Ivan F. Boesky Securities
Litigation, 948 F.2d 1358, 1368 (2d Cir. 1991); and In re
Prudential Sec. Inc. Ltd. Partnerships Litig., [1995-1996
Transfer Binder] Fed. Sec. L. Rep.(CCH) ¶ 98,978, at 93,759-760
(S.D.N.Y. Nov. 20, 1995). District courts enjoy "broad
supervisory powers over the administration of class-action
settlements to allocate the proceeds among the claiming class
members . . . equitably." Beecher v. Able, 575 F.2d 1010, 1016
(2d Cir. 1978). Accord, e.g., West Virginia v. Chas. Pfizer &
Co., 440 F.2d 1079, 1085 (2d Cir. 1971). Allocation formulas,
including certain discounts for certain securities, are
recognized as an appropriate means to reflect the comparative
strengths and values of different categories of the claim. See,
e.g., Weinberger, 698 F.2d at 78.
An allocation formula need only have a reasonable, rational
if recommended by "experienced and competent" class counsel. See
White v. NFL, 822 F. Supp. 1389, 1420-24 (D.Minn. 1993), aff'd,
41 F.3d 402 (8th Cir. 1994). "The court's principal obligation is
simply to ensure that the fund distribution is fair and
reasonable. . . ."; Walsh v. Great Atlantic & Pacific Tea Co.,
Inc., 726 F.2d 956, 964 (3d Cir. 1983). Accord, e.g., Maywalt
v. Parker & Parsley Petroleum Co., 963 F. Supp. 310 (S.D.N Y
1997), aff'd sub nom., Olick v. Parker & Parsley Petroleum Co.,
145 F.3d 513 (2d Cir. 1998).
As with other aspects of settlement, the opinion of experienced
and informed counsel is entitled to considerable weight. See,
e.g., In re Salomon Inc. Securities Litigation, No. 91 Civ.
5442, 1994 WL 265917, at *13 (S.D.N.Y. June 16, 1994); In re RJR
Nabisco, Inc. Sec. Litig., [1992 Transfer Binder] Fed. Sec. L.
Rep. (CCH) ¶ 96,984, at 94,267 (S.D.N.Y. Aug. 24, 1992). In this
case, the Plan of Allocation was the result of lengthy
discussions among Plaintiffs' Co-Lead Counsel in both the
Holographics Action and the ABN Action, as well as resulting from
detailed assessments of the strengths and weaknesses of the
claims asserted, the applicable damages, and the likelihood of
recovery. Moreover, the lack of any objections suggests that
approval of the Plan of Allocation is warranted.
The Standards Governing The Award of Attorneys' Fees in This
Common Fund Case
Courts have long recognized that where, as in the Actions, a
class plaintiff successfully recovers a fund, the costs of
litigation should be spread among the fund's beneficiaries. Under
this "equitable" or "common fund" doctrine established more than
a century ago in Trustees v. Greenough, 105 U.S. 527, 532-533,
15 Otto 527, 26 L.Ed. 1157 (1881), attorneys who create a common
fund to be shared by a class are entitled to an award of fees and
expenses from that fund as compensation for their work. See,
e.g., Boeing Co. v. Van Gemert, 444 U.S. 472, 478, 100 S.Ct.
745, 62 L.Ed.2d 676 (1980); Mills v. Electric Auto-Lite Co.,
396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970). See also Blum
v. Stenson, 465 U.S. 886, 900 n. 16, 104 S.Ct. 1541, 79 L.Ed.2d
891 (1984) ("under the `common fund doctrine' . . . a reasonable
fee is based on a percentage of the fund bestowed on the class");
Slomovics, 906 F. Supp. 146, 150 (E.D.N.Y. 1995) ("Under the
`equitable fund' doctrine, attorneys for the representative
plaintiffs in a class action litigation may petition the court
for compensation from any benefits which were achieved as a
result of their efforts.") (citations omitted).
The Supreme Court has held consistently that the percentage
approach is the correct method for determining attorneys' fees in
common fund cases. See, e.g., Blum, 465 U.S. 886 at 900 n. 16,
104 S.Ct. 1541, 79 L.Ed.2d 891 (1984); Sprague v. Ticonic Nat'l
Bank, 307 U.S. 161, 164-66, 59 S.Ct. 777, 83 L.Ed. 1184 (1939);
Trustees, 105 U.S. at 533, 15 Otto 527. In contrast to common
fund cases, the Supreme Court always has addressed the lodestar
method in the context of fee shifting cases.
The Private Securities Litigation Reform Act,
15 U.S.C. § 78u-4(a)(6) ("Reform Act"), also provides persuasive support for
applying the percentage method. The Reform Act states "Total
attorneys' fees and expenses awarded by the court to counsel for
the plaintiff class shall not exceed a reasonable percentage of
the amount of any damages and prejudgment interest actually paid
to the class. . . ." (emphasis added). Thus, Congress followed
the Supreme Court's lead and endorsed the efficacy of the
percentage approach to fee awards in common fund cases.
In recent years, a majority of the Circuit courts have approved
the percentage-of-the-fund method. See, e.g., Gwozdzinnsky v.
Sandler Associates, 159 F.3d 1346, 1998 WL 538064, *2 (2d Cir.
1998) (percentage of recovery method may properly be used to
calculate attorneys' fees in common
fund cases); In re Thirteen Appeals Arising Out of San Juan
Dupont Plaza Hotel Fire Litigation, 56 F.3d 295, 307 (1st Cir.
1995); In re General Motors Corp. Pick-Up Truck Fuel-Tank Prods.
Liability Litigation, 55 F.3d 768, 821-22 (3d Cir. 1995), cert.
denied, 516 U.S. 824, 116 S.Ct. 88, 133 L.Ed.2d 45 (1995);
Rawlings v. Prudential-Bache Properties, Inc., 9 F.3d 513,
515-17 (6th Cir. 1993); Florin v. Nationsbank of Ga.,
34 F.3d 560, 564-65 (7th Cir. 1994) (percentage approach is appropriate
in common fund cases); Gottlieb v. Barry, 43 F.3d 474, 487
(10th Cir. 1994) (authorizing percentage approach and holding
that use of lodestar/multiplier method was abuse of discretion);
Camden I Condominium Ass'n. v. Dunkle, 946 F.2d 768, 774 (11th
Cir. 1991) ("Henceforth in this circuit, attorneys' fees awarded
from a common fund shall be based upon a reasonable percentage of
the fund established for the benefit of the class."); and
Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1271 (D.C.Cir.
1993) (percentage of the fund recovered is the appropriate method
of awarding fees in common fund cases).
Although the law in this Circuit has not been uniform, the
trend of the district courts in this Circuit is to use the
percentage of the fund approach to calculate attorneys' fees.
See In re Sumitomo Copper Litigation, 74 F. Supp.2d 393, 397
(S.D.N.Y. 1999) ("Courts increasingly have come to recognize the
shortcomings of the lodestar/multiplier method as a universal
rule for compensation."); In re NASDAQ Market-Makers Antitrust
Litig., 187 F.R.D. 465, 484 (S.D.N.Y. 1998) ("there is strong
support for the percentage approach from district courts in this
Circuit"); Slomovics, 906 F. Supp. at 150 ("It is proper to
compensate counsel based on a percentage of the common settlement
fund in this type of case"); In re Presidential Life
Securities, 857 F. Supp. 331, 334 (S.D.N.Y. 1994) ("Problems
encountered in evaluation of fees utilizing the lodestar approach
. . . have led to rejection of that method in common fund cases .
. . and express approval of the percentage method as an
acceptable alternative."); In re Crazy Eddie Securities
Litigation, 824 F. Supp. 320, 325 (E.D.N.Y. 1993) ("Since at
least the late 1980's, the trend within this Circuit has been
toward the percentage of recovery method."); Chatelain v.
Prudential-Bache Securities, Inc., 805 F. Supp. 209, 215
(S.D.N.Y. 1992) ("This Court declines to apply the lodestar
method, and instead favors the use of the straight percentage of
recovery method."); Breiterman v. Roper Corp., [1989-1990
Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 94,885, at 94,832
(S.D.N.Y. Jan. 12, 1990) ("This Court favors the percentage
approach, and agrees with the critics of the lodestar method that
lodestar awards promote inefficiency and impose unnecessary
burdens on the court.").*fn6 This Court has adopted it in
preference to the more familiar "lodestar" approach in one
instance. (In re Candie's Inc. Securities Litigation, 99 Civ.
3618, bench decision dated on July 12, 2000).
The percentage method is attractive because it directly aligns
the interests of the Class and its counsel and provides a
incentive for the efficient prosecution and early resolution of
litigation, which clearly benefits both litigants and the
Courts in this district have also noted that the percentage
approach is "uniquely the formula that mimics the compensation
system actually used by individual clients to compensate their
attorneys." Sumitomo, 74 F. Supp.2d at 397. In Sumitomo, the
court stressed that the percentage of the recovery formula often
serves as a favorable substitute for more costly judicial
monitoring. Id. Moreover, courts have recognized that the
percentage of the recovery formula can serve as a proxy for the
market in setting counsel fees. See In re Continental Illinois
Securities Litigation, 962 F.2d 566, 568 (7th Cir. 1992)
(explaining that the goal of the fee setting process "is to
determine what the lawyer would receive if he were selling his
services in the market rather than being paid by court order.").
This Court agrees that plaintiffs' counsel have obtained a fine
result for their clients and deserve a substantial fee award. I
also have no difficulty accepting Plaintiffs' Counsel's
suggestion that I adopt the percentage of recovery method to
determine their fees. The harder question is what percentage of
the recovery to award.
Counsel have represented to this Court that they have incurred
almost $3.5 million in time charges prosecuting this case,
representing some 9500 hours worked. At first blush, the number
of hours worked seems excessive, even though I recognize that
both the number of hours expended and the number of counsel who
were forced to play preeminent roles are higher than they
otherwise would have been because of the ABN bankruptcy. For
example, Special Bankruptcy Counsel, whose participation in the
case was not contemplated at the outset, have incurred almost 10%
of the outstanding time charges. The other complicating factors
discussed above required additional lawyer time as well. Thus,
for the major players at least (lead counsel for the two classes
and Special Bankruptcy Counsel), I cannot say that the hours
expended were excessive — although it is a close question. And
the number of hours expended weighs very heavily with this Court
in assessing a fee request.
I also recognize that, were I to apply the so-called "Lodestar"
approach to awarding counsel fees, the fee would exceed the time
charges reflected in Plaintiffs' Counsels' submission. In
lodestar cases, a multiplier is typically applied, in recognition
of the contingency risk and other factors. See Weseley v. Spear,
Leeds & Kellogg, 711 F. Supp. 713, 716 (E.D.N.Y. 1989) ("The most
significant factor in the calculation of an upward adjustment is
the risk of the litigation.") (citation omitted). Here, a
multiplier would be fully justified, and amply supported by the
case law. I am thus not troubled by the fact that a percentage of
recovery fee, at any realistic percentage level, would exceed
counsel's time charges.
What I find it troubling is that the percentage chosen by
Plaintiffs' Counsel (30%) ensures that the lawyers will recover
every penny of their time charges in cash, and then some, 30% of
$14,850,000 being $4,455,000. They will bear no risk of being out
of pocket any money. Only their "kicker" will be a function of
the companies' success in getting back to business. However,
their clients may well have to eat some of their losses,
especially if the paper component of the Settlement turns out to
be less than advertised.
I do recognize that, from the commencement of this litigation
almost two years ago, Plaintiffs' Counsel have been paid nothing
for their substantial and successful efforts because of the
contingent nature of this litigation. The significant outlay of
cash and personnel resources by Plaintiffs' Counsel has been
completely at risk. Payment for Counsels' services was wholly
dependent on obtaining a fair and reasonable recovery for the
ABN's and Holographics' precarious financial situations, and the
diminishing coverage available under the applicable insurance
policies, there was a significant possibility that Plaintiffs'
Counsel would recover nothing for their substantial efforts. I do
believe it appropriate to take this risk into account in
determining the appropriate fee to award. In re "Agent Orange"
Product Liability Litigation, 818 F.2d 226, 236 (2d Cir. 1987);
In re Union Carbide Corp. Consumer Products Business Securities
Litigation, 724 F. Supp. 160, 164 (S.D.N.Y. 1989); Warner, 618
F. Supp. at 747 ("Numerous cases have recognized that the
attorneys' contingent fee risk is an important factor in
determining the fee award.") (citations omitted). And I do not in
any way minimize the result that has been achieved, or suggest
that Plaintiffs' counsel have been anything other than excellent
representatives for their clients' interests. Nonetheless, I
conclude that an appropriate award of attorneys' fees would
require counsel to absorb some of the risk of the paper component
of the settlement.
The best and least cumbersome way to accomplish that result, it
seems to me, is to cut the proposed percentage award. Of course,
I cannot cut it so low that Plaintiffs' Counsel are not
appropriately compensated for their work. And at any realistic
percentage, Plaintiffs' counsel will recover their entire time
charges in cash if I adopt the administratively simple formula of
giving Counsel the same fixed percentage of each component of the
recovery — x% of the cash, x% of the warrants, x% of the
Holographics stock and x% of the ABN Equity Reserve. Given that I
cannot both fairly and simply compensate Plaintiffs' Counsel
without fully compensating them for their time expended in cash,
I conclude that the appropriate percentage of the Settlement that
should be allocated to attorneys' fees is 25%. This will yield a
total fee of approximately $5,250,000 (at the valuation of the
paper component that was proffered to the Court), of which
$3,712,000 — an amount that approximates the time charges — will
be paid in cash.
Plaintiffs' Counsel Should Be Reimbursed for the Out-Of-Pocket
Expenses They Advanced
Plaintiffs' Counsel's request that the Court grant their
application for reimbursement of $280,830.71 in litigation
expenses incurred in connection with the prosecution of this
Action is granted. See TBK Partners, Ltd. v. Warshow, [1977
Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 96, 196, at 92,402
(S.D.N.Y. Oct. 5, 1977) (court noted in securities class action
that "[o]f course, [Plaintiffs' Counsel] are also entitled to
reimbursement for their expenses"). The expenses, which are
described in detail in the accompanying Compendium of Affidavits,
are of the nature of expenses approved in similar actions. They
shall be paid exclusively out of the cash portion of the
This constitutes the decision and order of the Court.