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KLEIN v. SALVI

United States District Court, S.D. New York


March 26, 2004.

TERRY KLEIN, Derivatively on behalf of SICOR INC., Plaintiff, -against- CARLO SALVI, RAKEPOLL FINANCE N.V., KARBONA INDUSTRIES LTD., BIO-RAKEPOLL N.V., MICHAEL D. CANNON, Defendant -and- SICOR, INC., Nominal Defendant

The opinion of the court was delivered by: ALVIN HELLERSTEIN, District Judge

OPINION AND ORDER REGULATING FEES AND ALLOWANCES
Plaintiff's counsel, having produced a settlement recovery of $10,750,000 for the corporation on whose behalf they brought this derivative lawsuit, seek compensation for their efforts and the benefit they produced. The settlement has been paid by defendants who were alleged in the complaint to have made $28,704,750 in short swing profits, in violation of section 16(b) of the Securities Exchange Act, 15 U.S.C. § 78p(b). In the settlement agreement, defendants agreed to pay the settlement amount without admitting wrongdoing on their part. The corporation, SICOR, Inc., of which defendants were principal stockholders, executives and directors and for whose benefit plaintiff brought his lawsuit, agreed under the settlement to pay the fee and expenses of plaintiff's counsel, up to $3,580,000, to the extent allowed by me. At a hearing held November 12, 2003, I approved the settlement as fair and reasonable to SICOR, Inc., after notice had been duly given to the stockholders of SICOR, Inc. through publication in national Page 2 newspapers and posting on SICOR's internet web page. I reserved decision as to the fees and allowances to be paid to counsel for the derivative plaintiff. I now decide that issue, and order the case closed.

THE UNDERLYING FACTS AND PRIOR PROCEEDINGS

  In March of 2002, Plaintiff Terry Klein filed suit derivatively on behalf of SICOR alleging violations of section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). Section 16(b) confers liability on a corporate insider who, within a six-month period, purchases and then sells, or sells and then purchases, securities of the corporation of which he is an insider. Pursuant to section 16(b), and regardless of the insider's intent, any profit realized by such a person is to "inure to and be recoverable by the issuer." Certain exceptions apply: as relevant here, a safe harbor for transactions approved by the corporation's board of directors or by a specifically defined committee of the board of directors. SEC Rule 16b-3, 17 C.F.R. § 240 § 16b-3. Successful plaintiffs in section 16(b) suits are not personally entitled to receive any portion of the recovered damages. Their counsel, however, in recognition of the benefit conferred on the issuer, may be entitled to reasonable attorney's fees and reimbursement of expenses incurred in prosecuting the litigation. See Smolowe v. Delendo Corporation, 136 F.2d 231, 241 (2d Cir. 1943).

  The transaction upon which suit was brought was complicated. It originated with the acquisition by certain of SICOR's insiders, in or around September 2000, of Biofa A.B., a Lithuanian manufacturer of generic drugs marketed and distributed in Eastern Europe and Russia. Biofa, to be made profitable, had to be reorganized and modernized so that its products could satisfy the stricter regulatory requirements of the Western European countries and the United States.

  SICOR's board of directors, according to the parties, was not itself interested in the transaction, and authorized its chief executive officer, president, director and controlling Page 3 stockholder — defendant Carlo Salvi — and its executive vice president — defendant Michael D. Cannon — to purchase Biofa. Salvi and Cannon made the purchase through Salvi's controlled affiliated companies chartered in Nassau Bahamas and Curacao, the other defendants named in the caption, issuing 1,500,000 shares of one of these companies, Rakepoll Finance N.V., to Biofa's owners.*fn1 He financed the transaction through a $30,000,000 loan from an Italian bank, Banco. del Gottardo, to Rakepoll Finance, Salvi's controlled company.

  Ten months later, on July 25, 2001, SICOR decided to purchase the assets that it had declined to purchase in September of 2000. SICOR purchased Biotechna, the owner of Biofa, for a consideration that appeared substantially greater than Salvi's purchase in September 2000, but which Salvi argued was the equivalent. SICOR issued 1,500,000 shares of its common stock to Salvi and his companies,*fn2 assumed the $30,000,000 loan from the Italian bank to Salvi's affiliate, issued warrants to the bank entitling it to purchase 150,000 shares of SICOR's stock at $3.50 per share plus $10,000, and assumed Biotechna's short and long term indebtedness — almost another $30,000,000 of debt. Following these transaction, Salvi and companies he controlled owned approximately 65 percent of SICOR's capital stock. The stock issued to Salvi's companies was restricted, meaning that the shares could not be sold except by SEC registration and public offering or an appropriate SEC exemption, but such a registration and public offering quickly followed. Page 4

  At the time of the transaction, Biotechna had but $700,000 in product sales in the three months ending September 30, 2001, a negative cash flow and no earnings. Its ability to satisfy Western European regulators was untested; its technology did not comply with Western commercial practice; and it was in need of substantial additional investment. However, SICOR's directors received a fairness opinion from an outside expert that the transaction with Salvi and his companies was fair to SICOR, and a committee of the two independent directors (those not financially involved with or controlled by Salvi) approved SICOR's purchase of Biotechna.

  SICOR's purchase of Biotechna closed July 25, 2001. Four months later, on October 16, 2001, SICOR and defendant Rakepoll Finance N.V. (Salvi's company) registered with the SEC and sold in a public offering 11,500,000 shares of SICOR's common stock, at a price of $17.715 per share. The sale included the 1,500,000 shares that SICOR had paid to Rakepoll Finance to acquire Biotechna. The sale occurred within a six-month period of Rakepoll Finance's purchase of the 1,500,000 shares, as consideration for Rakepoll Finance's sale of Biotechna to SICOR.*fn3

  Plaintiff alleged that SICOR's issuance of 1,500,000 shares of its stock to Salvi's controlled company on July 25, 2001 constituted a purchase by Salvi on that date of those shares, and that Salvi's purchase should be matched against Salvi's sales to the public and issuance of warrants to Banco. del Gottardo, on October 16, 2001. According to plaintiff, the transactions fell within the proscriptions of section 16(b) of the Securities Exchange Act, as purchases and sales "within any period of less than six months." Plaintiff alleged that the 1,500,000 shares issued by SICOR to Salvi and his companies on July 25, 2001 to purchase Biotechna, worth $28,704,750, Cannon, Aug. 28, 2003, Ex. A at 19. Page 5 should "inure to and be recoverable by the issuer," SICOR, since the consideration gained by SICOR, the ownership of Biotechna, plaintiffs alleged, was essentially valueless.

  Plaintiff's demand to SICOR's Board of Directors, and suit against defendants Carlo Salvi and Michael D. Cannon, and Salvi's companies, defendants Rakepoll Finance N.V., Karbona Industries Ltd. and Bio-Rakepoll NV (collectively, the "Settling Defendants"), followed. Plaintiff alleged that defendants violated section 16(b) of the Securities Exchange Act by profiting from short-swing purchases and sales of SICOR common stock, on July 25, 2001 and October 16, 2001, respectively. The Settling Defendants denied liability, and alleged that Biotechna was a valuable asset when sold to SICOR, that no profits resulted, and that the transactions, having been approved for fairness by a committee of the independent directors of SICOR's board of directors, were exempt under safe harbor provisions of section 16(b) and of SEC Rule 16b-3 thereunder.

  Section 16(b) authorizes the SEC to exempt from liability "any transaction . . . as not comprehended within the purpose" of the statute. Rules 16b-3(a) and (d) exempt transactions between issuers and officers or directors that are approved either by "the affirmative votes of the holders of a majority of the securities of the issuer," or of the board's "disinterested directors." 17 C.F.R. § 240.16b-3(a), (d). Defendants allege that a committee of independent directors, that is, the two independent directors, Donald E. Panoz and Carlo Ruggieri, of the ten directors of SICOR, functioned with legal and accounting help between October 2000 and April 2001 to review the transactions, and recommended on April 9, 2001 that they be approved, and that SICOR's board of directors thereupon voted to approve the transactions effected July 25, 2001.

  THE SETTLEMENT

  Following discovery, defendants moved for summary judgment. Plaintiff opposed, and both sides filed briefs. Before the date for argument, however, the parties asked to be referred Page 6 to a Magistrate Judge, and agreed to settle before the Magistrate Judge. The parties filed a stipulation of settlement on July 14, 2003, the terms of which provided that the Settling Defendants would pay SICOR $10,750,000, while continuing to maintain that no wrongdoing had occurred and that the settlement was made to avoid litigation costs and to resolve the matter expeditiously. The parties argued that, at approximately 38 percent of maximum alleged recovery, the settlement was in SICOR's best interest.

  At my request, the parties supplemented their submissions to provide additional supporting information for the settlement. After considering the extensive legal memoranda, reports of experts and affidavits submitted by plaintiff and defendants, and after hearing the parties on September 8, 2003, I gave my preliminary approval to the Proposed Settlement. By Order dated September 23, 2003,1 directed the parties to provide notice to the owners of SICOR's securities. The parties initially resisted providing notice, but I held that since the case involved allegations of insider trading by those who owned a substantial portion of SICOR's issued and outstanding stock, and important issues of public responsibility were involved, SICOR's shareholders should evaluate the settlement and have the right to express objections in response to a publicly disseminated notice. I divided the costs of providing notice equally between the Settling Defendants and SICOR. The parties gave proper notice, by publication in national financial newspapers and on SICOR's web page and, at a hearing held November 12, 2003, and after considering two objections, I approved the proposed settlement as fair, reasonable and adequate. I reserved decision on Plaintiff's motion for fees and allowances to plaintiff's attorneys.

  PLAINTIFF'S LAWYERS

  The derivative plaintiff has been represented in these proceedings by two sets of lawyers: Paul D. Wexler of Bragar Wexler Eagel & Morgenstern, and Glenn Ostrager of Ostrager Page 7 Chong & Flaherty (collectively, Counsel). Counsel ask me to award them one-third of the recovery they obtained for SICOR, or $3.58 million, inclusive of expenses. At my request, Counsel submitted declarations detailing the time spent by lawyers and paralegals and the expenses incurred incident to the litigation. Counsel have shown:

1. For Bragar Wexler Eagel & Morgenstern:
Paul D. Wexler, 446.40 hours at $550 per hour, or $245,520. Paralegal, 5.0 hours at $75 per hour, or $375. Total for Bragar Wexler Eagel & Morgenstern: $245,895.
2. For Ostrager Chong & Flaherty:
Glenn F. Ostrager, 528.35 hours at $525 per hour, or $277,383.75. Joshua S. Broitman, 57.20 hours at $450 per hour, or $25,740.00. Roberta Gomez, 24.75 hours at $350 per hour, or $8,662.50 Eric A. Lerner, 80.90 hours at $285 per hour, or $23,056.50 Milagros A. Cepeda, 6.30 hours at $450 per hour, or $2,835.00 Paralegal, 15.20 hours at $125 per hour, or $1,900.00 Total for Ostrager Chong & Flaherty: $339,577.75.
3. Total hourly services for both firms: $585,472.75.
Total expenses were shown as follows:
1. For Bragar Wexler Eagel & Morgenstern: $16,822.69
2. For Ostrager Chong & Flaherty: $13,791.11
3. Total expenses, both firms $30,613.80.
Total billable hours and expenses: $616,086.55.
  Counsel argue that a fee based on percentage of the Settlement Fund would recognize the quality of the settlement, their skill in bringing it about, their sophistication in "16(b)" litigation and the risk inherent in contingent fee representations. The fee they request, one-third of Page 8 the settlement amount, or $3,580,000 (inclusive of expenses), would reflect a 600 percent multiple of the time value of their services. ($3,580,000 — $30,613.80 of expenses, divided by $585,472.75 of hourly time charges, equals 6.0624.) Plaintiff provides no factual support to justify such a multiple and, as I discuss below, I find that it would be an inappropriate windfall. I hold, upon analyzing the appropriate criteria, that Counsel should be awarded $850,000 in fees, and their expenses.

  DISCUSSION

  Our civil justice system typically requires each party to pay its own fees. An exception exists, however, for an attorney who creates a common fund from which others share. Goldberger v. Integrated Resources, 209 F.3d 43, 47 (2d Cir. 2000) (citing Trustees v. Greenough, 105 U.S. 527, 533 (1881)). The exception is equitable, averting unjust enrichment of those who benefit by a common fund without sharing the costs of creating the fund. Id. Fee awards are particularly appropriate for "16(b)" recoveries, since Congress provided for enforcement of its provisions by derivative lawsuits, and private attorneys would likely not spend the time and effort to identify and successfully prosecute such lawsuits unless they could anticipate reasonable recoveries of their fees and expenses.

  As in cases of quantum meruit, courts have the task to determine the amount of fees and expenses that reasonably should be awarded to attorneys who produced the benefit to the corporation in whose right they brought derivative suit. In determining reasonableness, courts typically calculate the time and hourly rates that it took to produce the result (the "lodestar" method), and, in order to recognize certain additional qualities of the lawyer's services, add a multiple considered appropriate and fair. Blum v. Stenson, 465 U.S. 886, 900 n.16 (1984); Goldberger, 209 F.3d at 47, 50. This approach is consistent with evaluating reasonableness of fees Page 9 pursuant to the New York Code of Professional Responsibility. 22 NYCRR § 1200.11 (2004) (DR 2-106 Fee for Legal Services).

  The approach of compensating according to reasonable time values in the community is consistent with quantum meruit recoveries generally. Typically, compensation is awarded in relation to such time values, and not the benefit an attorney claims was conferred. See Goldberger, 209 F.3d at 53.

  In certain types of quantum meruit recoveries, for example real estate brokers and business finders, compensation is typically awarded in relation to the value of the property, or business, which the broker, or finder, has brought to a willing buyer and seller. PKG Associates, Inc., et al. v. Michael Dubb, 760 N.Y.S.2d 681, 682 (App. Div. 2003). There tends to be a recognized compensation rate, graduated accordingly to the value of the property or business that was sold, with the rate often diminishing in inverse proportion to the size of the deal.

  Lawyers who produce a result for a class in the nature of a common fund are often compensated by a percentage of the common fund their litigation produced. See Goldberger, 209 F.3d at 47. Presumably, the percentage methodology, different from quantum meruit recoveries generally, is traceable to contingent fee retainers associated with the prosecution of personal injury and wrongful death cases. See, e.g., N.Y. App. Div., 1st Dep't § 603.7(e). Early derivative litigations frequently allowed such recoveries as well, and the practice began to carry over to class action litigations. George D. Hornstein, The Counsel Fee in Stockholder's Derivative Suits, 39 Colum. L. Rev. 784, 789, 793, 810-815 (1939). "The doctrine rests on the perception that persons who obtain the benefit of a lawsuit without contributing to its cost are unjustly enriched at the successful litigant's expense," Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980). This theory of unjust enrichment differs from quantum meruit in that "A claim for quantum meruit requires Page 10 plaintiff to show that it expected compensation; a claim for unjust enrichment does not." Gidatex, S.r.L. v. Campaniello Imps., Ltd., 49 F. Supp.2d 298, 303 (S.D.N.Y. 1999).

  In time, the increasing magnitude of percentage awards came to be criticized for being out of proportion to the lawyer's recoverable time charges. See City of Detroit v. Grinnell Corp., 495 F.2d 448, 468, 469 (2d Cir. 1974) (Grinnell I); City of Detroit v. Grinnell Corp., 560 F.2d 1093, 1095, 1103 (2d Cir. 1977) (Grinnell II). The practice also tended to encourage settlements that could be made too quickly and too cheaply in relation to the real merits of a case and the result that could be achieved by a longer and more rigorous prosecution. The lodestar method addressed these criticisms. See Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161 (3rd Cir. 1973). Certain lawyers in the class action field also began to be retained by institutional clients for a much smaller contingent fee, and performed their services according to instructions from clients, consistent with a traditional lawyer-client relationship.

  The lodestar method entailed, first, a determination of the reasonable number of hours expended on a case and a reasonable hourly charge for each attorney (or paralegal) providing services and, second and to the extent appropriate, a multiplier to account for other factors, particularly difficulties and challenges experienced in prosecuting the case, excellent quality of services, the results achieved, and other criteria set out in professional ethics codes for evaluating a reasonable attorney's fee. See generally Lindy Bros., 487 F.2d at 168-69. The lodestar method, however, was also subject to criticism, for it could motivate attorneys to do too much work and to work inefficiently, and it discouraged early settlements. District judges also disliked the time and effort that it took to review the time charges submitted to them, and often considered it inappropriate to second-guess what should, and should not, have been done in prosecuting a case. Page 11 See Goldberger, 209 F.3d at 48-49 (discussing cases involving such perceived abuses).*fn4

  Since Goldberger, district judges have often compensated class action attorneys by awarding a fee based on a moderate percentage of the common fund recovery. See e.g., In re Indep. Energy Holdings PLC Sec. Litig., 2003 U.S. Dist. LEXIS 17090, at *31-32 (S.D.N.Y., 2003) (20% net of expenses); In re Twinlab Corp. Sec. Litig., 187 F. Supp.2d 80, 87 (E.D.N.Y., 2002) (12% of common fund); In re Dreyfus Aggressive Growth Mutual Fund Litig., 2001 U.S. Dist. LEXIS 8418, at *25 (S.D.N.Y. 2001) (15% of common fund); In re Amer. Bank Note Holographies, Inc., Sec. Litig., 127 F. Supp.2d 418, 431-33 (S.D.N.Y. 2001) (25% of settlement); In re Arakis Energy Corp. Sec. Litig., 2001 U.S. Dist. LEXIS 19873, at *49 (E.D.N.Y. 2001) (25% of settlement). But determining the proper fee upon a recovery requires judgment and discretion in relation to all the criteria set out in Goldberger, and not only the size of the recovery or the proper percentage to be applied to such recovery. See 209 F.3d at 50.

  Counsel argue that their request for a fee of one-third of recovery is reasonable and not objected to by SICOR, and they submit a supporting declaration by Professor Geoffrey P. Miller, discussing relevant case law and referring to several empirical studies. However, an expert is not needed to discuss the law; that is a task for counsel. I therefore reject Professor Miller's brief as inappropriate for an expert. See LinkCo, Inc. v. Fujitsu Ltd., 2002 U.S. Dist. LEXIS 12975, at *7 (S.D.N.Y. 2002). Furthermore, Professor Miller's data largely predate Goldberger, and his conclusions are therefore based on results that the courts have considered inappropriate and which, Page 12 since Goldberger, they have rejected. See, e.g., Herbert M. Kritzer, Investing in Contingency Fee Cases, Wisconsin Lawyer 11 (August 1997); Thomas E. Willging, et al., Empirical Study of Class Actions in Four Federal District Courts: Final Report to the Advisory Committee on Civil Rules 4 (1996); and James S. Kaklik, et. al., Costs of Asbestos Litigation Table S.2 (Rand ICJ 1983). His citations to more recent awards also are distinguishable, for they arise in situations where a lodestar methodology would have brought about unreasonable and inequitable results. See, e.g., RMED Int'l, Inc. v. Sloan's Supermarkets, Inc., 2003 U.S. Dist. LEXIS 8239, at *6 (S.D.N.Y., 2003) (33 1/3% of the settlement where it equaled an hourly rate of $160); Strougo v. Bassini, 258 F. Supp.2d 254, 262 (S.D.N.Y., 2003) (33 1/3% where lodestar amount exceeded the total settlement amount); Baffa v. Donaldson Lufkin & Jenrette Sec. Corp., 2002 U.S. Dist. LEXIS 10732, at *8-9 (S.D.N.Y., 2002) (30% awarded where lodestar was 79% of settlement amount); In re Blech Sec. Litig., 2002 U.S. Dist. LEXIS 23170, at *5 (S.D.N.Y. 2002) (33 1/3% award totaling $919,666,67 where lodestar was $5.4 million); Maley v. Del Global Techs. Corp., 186 F. Supp.2d 358, 367 (S.D.N.Y., 2002) (33 1/3% where only 18% was in cash and the attorney's bore the same risks regarding the paper as the class did); Steiner v. Williams, 2001 U.S. Dist. LEXIS 7097 (S.D.N.Y., 2001) (30% where counsel took an unusually large risk in taking the case). Professor Miller's view, when analyzed, supports the approach developed in my discussion that no single method can be conclusive; a reasonable fee award requires all relevant criteria to be evaluated. See generally, NYCRR § 1200.11.

  Clearly, there is no magic formula to determine the reasonableness of a lawyer's fee. Some lawyers work according to time rates; some work according to percentages of recovery. But clients can negotiate ceilings in aggregate payments to lawyers or reduced time-rates, if fee payments based on time become unacceptably high, and clients can negotiate converting a Page 13 contingent fee-percentage to a time-rate or vice-versa, according to the potential size of an anticipated recovery or settlement. The ability of lawyer and client to negotiate with one another is the best determinant of reasonableness.

  In class and derivative litigation, there generally is no opportunity for clients and lawyers to negotiate a fee. A derivative lawsuit is brought on behalf of a corporation that has declined the opportunity to file a lawsuit, frequently because of substantial identities between the corporation's management and the defendants who are to be sued. In a class setting, the client seeking to recover damages generally lacks a sufficiently substantial interest to justify the risk and expense of a lawsuit. It is the lawyer-specialist who brings the lawsuit and who will seek his compensation, not from the nominal client in whose name the suit is brought, but from a court's allowance from the recovery that the lawyer is able to produce.

  Thus, the district judge must emulate the position of a client and determine, from the perspective of a client, a reasonable method of compensation and an aggregate fee that would be reasonable in the circumstances. And, unlike the cases and controversies that come before the judge for decision, the decision of reasonableness must be made without the contentions and careful and skeptical outlooks of adverse parties. A conspiracy of silence between the settling parties gives the judge no help in reviewing a petition seeking an award of fees and allowances. See Levy v. General Electric Capital Corp., 2002 U.S. Dist. LEXIS 10051, *6-8 (SDNY, 2002).*fn5 Page 14

  The district judge's perspective must be based both on market values (to the extent such values can be ascertained after a case has been completed, rather than before a case has been brought), see Matter of Continental III. Sec. Litig., 962 F.2d 566 (7th Cir., 1992); Levy v. General Electric Capital Corp., 2002 U.S. Dist. LEXIS 10051, *8 (SDNY, 2002), and criteria established in relevant case law, including: (1) the risks of pursuing a case; (2) the complexity and uniqueness of the litigation; (3) the quality of the representation; (4) counsel's time and effort; (5) the percentage that a fee will represent in relation to the settlement amount; and (6) public policy considerations. Goldberger, 209 F.3d at 50.

  Applying these criteria, the application of plaintiff's counsel for a fee of $3,580,000, reflecting a multiplier of 606% of the time that Plaintiff's counsel expended, far exceeds reasonableness.

  The first criterion of Goldberger, the risk in pursuing the case, is considered most important. Goldberger, 209 F.3d. at 54 (quoting Grinnell I, 495 F.2d at 471). Although most securities cases settle, and some may think that the risk is less real than theoretic, id. at 52 (citation omitted), practitioners know that each case, at inception, is fraught with its own unique set of risks. In the case at hand, plaintiff's counsel was concerned with difficult problems regarding the valuation of unique assets at a certain point in time. The crux of plaintiff's case required experts' valuation of the business and assets of Biotechna, a privately held, Lithuanian, biotech company. Valuation of a business is generally complex and often subjective, and even more so when, as with Biotechna, it involves nonpublic financial information regarding an unsteady foreign industry with unproven products that cannot be marketed without government approval that, until then, it did not have.

  The typical "16(b)" case involves a comparison of stock prices, purchased relatively Page 15 low and sold relatively high within a six-month, short-swing period. Plaintiff's case depended on there being little or no value to Biotechna when Salvi's company sold it to SICOR on July 25, 2001, as matched against the October 16, 2001 sale of 1,500,000 shares at $17.175 per share. Proof to that effect depended on how the trier of facts would evaluate the conflicting testimony of experts, and predictions of such evaluations are necessarily difficult and often unreliable.

  The state of "16(b)" law presented another formidable risk. In policy and regulations, the SEC was evolving to a position that enabled issuers to conduct transactions with insiders without giving rise to "16(b)" forfeiture of profits. Ownership Reports and Trading by Officers, Directors and Principal Security Holders, Exchange Act Release No. 37260, [1996-1997 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 85,810 at 88,059 (May 31, 1996). The theory was that issuers did not affect the public market by such transactions, and thus did not profit at public expense. Id. As long as the disinterested directors of a company approved a transaction, the officers, directors and controlling stockholders of a corporation were given a "safe harbor" to effect transactions, even short-swing transactions, with the corporation of which they were "insiders." 17 C.F.R. § 240.16b-3(a), (d). Gryl v. Shine Pharmaceutical Group Plc, 298 F.3d 136, 145-46 (2d Cir. 2002); but cf., Levy v. Sterling Holding Co., 314 F.3d 106 (3d Cir. 2002) (limiting SEC exemption to compensation related transactions for executives); Peter J. Romeo and Alan L. Dye, Comprehensive Section 16 Outline, 313-14 (2001).

  Thus, plaintiff's counsel faced a formidable set of risks when they decided to file the case.

  The lawsuit also presented complexity and uniqueness — the second criterion — for much the same reasons as those I discussed above in the context of the first criterion.

  The third and fourth criteria require me to consider the quality of Plaintiff's Page 16 counsels' representation and the quality and quantity of time and effort they devoted to the litigation.

  Plaintiff's counsel chose to confront the issue of valuation head on. The submission of their experts showed good quality of craftsmanship. But, predictably, so did the submissions of defendants' experts. Thus, plaintiff's counsel followed a high-risk strategy with unpredictable outcome.

  There was another strategy, however, that plaintiff's counsel appear to have missed, a strategy focused on the antecedent transaction between Salvi and Biofa, and testing the sufficiency of the review that the independent directors should have pursued with regard to the transactions. The coincidence in time of the two transactions, Salvi's purchase of Biofa, followed by Salvi's sale of Biofa to SICOR, and the excuse that SICOR was not able to make the purchase (entirely financed by outside parties) when, nine months later, it suddenly found the capacity to do so, might have been more fully exploited in discovery. The two independent directors, Donald E. Panoz and Carlo Ruggieri, might also have been tested more aggressively as to their freedom from entwining relationships with Salvi, and the rigor of their examinations and evaluations of the two sets of transactions.*fn6 Salvi's argument, that he bought Biofa at his expense and risk solely to hold it for SICOR, and that 1,500,000 shares of SICOR's stock in October 2000 was worth the same as 1,500,000 shares of Rakepoll Finance's stock nine months earlier, seems more a pretextual rationale than a real equivalence. Furthermore, SEC literature relating to section 16(b) lawsuits makes Page 17 specific reference to accompanying derivative lawsuits for waste of corporate opportunities, see Ownership Reports and Trading by Officers, Directors and Principal Security Holders, Exchange Act Release No. 37260, [1996-1997 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 85,066 (May 31, 1996), and that opportunity seems to have been neglected in this lawsuit.

  Two lawyer-specialists in "16(b)" lawsuits, Glenn F. Ostrager of Ostrager Chong & Flaherty LLP, and Paul D. Wexler of Bragar Wexler Eagel & Morganstern LLP represented plaintiff. Mr. Ostrager's firm billed a total of 712.7 hours, and Mr. Wexler's firm billed a total of 451.40 hours, mostly at the time-rates of the two senior partners: $525 and $550 per hour, respectively. The services of Mr. Ostrager and Mr. Wexler overlapped to a considerable degree. Both senior lawyers performed apparently duplicative work and both attended the same depositions. Each submitted time charges showing equivalent hours for preparing for, taking and reviewing the depositions of defendants Salvi and Cannon, expert witness Taylor, and independent director Ruggieri. The deposition of the second independent director, Donald E. Panoz, was not taken. Plaintiff's counsels' questioning, in anticipating or seeking to overcome the expected defenses was average. The expert witness, Taylor, does not appear to have been confronted with the assumptions on which he based his analyses and opinions: why projected income streams from generic products that, until then, could not satisfy Western European and American regulators could suddenly be considered sufficiently reliable to sustain opinions of high asset values; or why replacement values in Western markets could be considered a reliable indicia of value equivalent to the obsolescent and deficient nature of the Biofa assets, etc.

  Possibly, the information on which I remark was elicited, and possibly the depositions show that plaintiff's counsel were not able to obtain information that could support their Page 18 case. But none of their submissions discussed any of this, and I infer from their silence that these avenues were not pursued well. The absence of such pursuits is a comment on the thoroughness and quality of Plaintiff's counsels' representation.

  Having reviewed the details of the services by both Plaintiff's firms, I find a duplication of effort by the lead counsel, inadequate delegation of work to younger lawyers of tasks commonly performed by younger lawyers at lower rates, and too much work being performed at relatively higher hourly rates than should have been the case. The senior lawyers, Paul D. Wexler and Glenn F. Ostrager performed the great bulk of the work investigating the facts and merits of the case, researching the law before filing the complaint, and in drafting the complaint at $550 and $525 per hour respectively. Only six of the approximately 178 hours reported for those tasks were performed by younger lawyers, and most of those six hours were legal research performed at $350 an hour, much too high a rate for the work assigned. Six depositions were taken and, for each of the six, the senior lawyers, again, did the same preparatory and review tasks, and both appeared at each deposition. Plaintiff's counsel argue that their involvement produced certain efficiencies, but one may well question that, for it seems, in the interest of efficiency and economy, there should have been more division of effort, more delegation to younger and less expensive lawyers, and more intelligent supervision.

  The total value of the time charges relating to the services performed by Plaintiff's counsel adds to $585,472.75. In my judgment, and from the perspective of a client looking at the duplication of services and the failure to relate hourly rates to the nature of the particular services performed, the value of the time charges may have over-valued the fair time value of the services rendered. In a case of quantum meruit that might have resulted in a discounted payment. With Page 19 regard to lawyers' fees, however, the court must also consider other factors, including, in particular, the value of the benefit conferred, that is, the amount of the settlement.

  Thus, plaintiff's counsel argue that they should be compensated, more for the good settlement that they produced, than for the time they expended. Plaintiff's counsel argue that they produced a settlement of $10,750,000 payable to SICOR in cash (less fees and allowances) that is large in the aggregate and in relation (38 percent) to the maximum damage claim of $28,704,750, and that SICOR would not have gained that amount without the lawsuit that they initialed.

  Clearly, the settlement plaintiff's counsel produced was substantial, and clearly SICOR itself would not have sued its dominant principal, Carlo Salvi, or his controlled companies and colleagues to recover the insider profits that they gained from short-swing trading. I approved that settlement as fair and reasonable to SICOR, and plaintiff's counsel clearly are entitled to reasonable compensation for producing that settlement. And, although I criticize certain aspects of the efforts and services of plaintiff's counsel and reason that more could and should have been obtained, it is unquestionable that a substantial amount was obtained for SICOR, and that without plaintiff's counsels' efforts nothing would have been obtained.

  The sixth criterion of Goldberger requires that a proposed fee allowance should be evaluated in relation also to public policy considerations. Congress left enforcement of section 16(b) cases to shareholders and consequently to the attorneys who find such cases and represent the shareholders who consent to be plaintiffs. The SEC was given no role in enforcing section 16(b). Thus, section 16(b) can be enforced, and the market's integrity can be protected, only if attorneys are willing to invest the time and energy, and assume the risk, that is involved in investigating numerous SEC filings in the search to uncover insiders who make improper short-swing profits, and filing lawsuits against those unwilling to return such profits. Reasonable, even liberal, Page 20 compensation to the attorneys who investigate, identify and prosecute such cases is consistent with the statutory plan and necessary for its implementation and enforcement. See John C. Coffee, Jr., Understanding the Plaintiff's Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions, 86 Colum. L. Rev. 669 (1986) (treating the issue of compensation generally for attorneys successfully prosecuting class and derivative lawsuits). The criticisms of counsel for being motivated by the fees they might earn, rather than the good they might do, are misplaced. See Goldberger, 209 F.3d at 53; cf., Michael H. Dessent, Weapons to Fight Insider Trading in the 21st Century: A Call for the Repeal of Section 16(b), 33 Akron L. Rev. 481 (2000). The critics have no sound data of public injury, or burden to corporations for whose benefit such actions are brought and recoveries are obtained, or improper imposition on insiders whose transactions attract lawsuits. The arguments of "overenforcement and opportunism by attorneys," allegedly creating "a negative image of the legal profession in the mind of the public," Id. at 502, reflects the rhetoric of critics, not sound judgment based on empirical studies.

  Counsel argue that considerations of public policy, such as those mentioned above, support awards of compensation, not only for the work they performed and the results they obtained in the instant case, but also for pursuing investigative leads that do not result in cases filed, and for the risks of losing cases and going uncompensated. They contend that numerous potential cases must be examined for every one that is eventually deemed to have merit and that acting in such a watchdog capacity helps to protect the market's integrity and advance the public interest. But plaintiff's counsel furnishes no documentation of the extent of their investigative work or what proportion such work may have in relation to profitable work. Plaintiff's counsel may be entitled to a bonus over their time charges but, without quantification, the amount has to have some reasonable Page 21 relation to their time charges. A lawyer's fee should not be likened to a case of salvage, where reward is given to the successful finder, often with little regard to how much or how little effort the finder expended.

  In sum, evaluating the six factors of Goldberger, I should compensate plaintiff's counsel in a manner to recognize (1) the risks they undertook to prosecute this case (2) of uncommon complexity, while recognizing, however, that (3) the quality of representation was ordinary and the (4) time and effort they devoted was duplicative and, to a degree, inefficient. The first and second consideration above, and the consideration of public policy (the sixth factor) suggest a bonus over time charges. Thus, I hold that plaintiff's counsel's fee should be fixed at $850,000, approximately 145 percent of time charges and eight percent (the fifth factor) of the settlement of $10,750,000. In addition, I order reimbursement to plaintiff's counsel of their expenses and disbursements in the amount of $30,613.80.

  CONCLUSION

  For the reasons stated, plaintiff's counsel are entitled to fees of $850,000, to be divided between them either as agreed or in proportion to their reported time charges, and to reimbursements of their expenses in the aggregate amount of $30,613.80.

  The clerk will now close the file.

  SO ORDERED.


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