Approximately two months ago the U.S. District Court for the Southern District of New York approved an amended settlement in a long-standing securities class action suit named In re IMAX Securities Litigation, No. 06 Civ. 6128 (S.D.N.Y. 8/1/12). However, it reserved decision on the requested attorneys’ fees and expenses pending further briefing on the issues from lead counsel for plaintiff, Abbey Spanier Rodd & Abrams, LLP. In the meantime the court received supplemental submissions from plaintiffs’ former lead counsel, Robbins Geller Rudman & Dowd, LLP.
Abbey Spanier seeks an award of $3,000,000 in legal fees and reimbursement of expenses totaling close to $1.8 million, for a requested reimbursement totaling almost $5 million. This represents over 39% of the $12,000,000 available to be paid to the settling shareholders of IMAX Corporation.
After careful deliberation, the court decided to award close to $4 million (plus interest), or 33% of the settlement amount, which is to be divided amongst counsel and to be apportioned between an award of attorneys’ fees and the reimbursement of expenses in such manner as lead counsel (Abbey Spanier) determines is fair and reasonable.
Abbey Spanier gave certain limited responsibilities to two other law firms in the case. After filing a consolidated class action complaint, Abbey Spanier successfully opposed a motion to dismiss. Due to problems involving the standing of the chosen lead plaintiff, Abbey Spanier was removed as lead counsel (and its client was removed as lead plaintiff) and it was replaced by Robbins Geller (and a different lead plaintiff). Robbins Geller served as lead plaintiff’s counsel for eighteen months. However, the court subsequently refused to grant lead plaintiff’s motion for class certification. The court subsequently appointed a different plaintiff as lead plaintiff (The Merger Fund), and the court reappointed Abbey Spanier as lead plaintiff’s counsel. The court refused Robbins Geller’s request to serve as lead counsel or co-lead counsel because of its failure to disclose a key piece of information to the court.
Fees and Expenses
The class action litigation spanned almost six years, and counsel expended enormous amounts of time on the matter and incurred enormous expenses relative to the settlement amount. Abbey Spanier reported that eighteen of its partners, associates and paralegals expended over 5,200 hours in prosecuting this case. Using a weighted average billing rate per hour of $588, Abbey Spanier calculates its lodestar fee at a little under $3.1 million. Abbey Spanier was involved in all aspects of the case, engaging in discovery; drafting the consolidated class action complaint; briefing two motions for class certification; and preparing two successful motions to be appointed lead plaintiff, and one motion to dismiss; negotiating a settlement; and actively monitoring the parallel litigation currently going on in Canada. Abbey Spanier also claims to have incurred expenses of over $1 million and to have paid a little over $900,000. The expenses include accounting and financial experts, investigators, legal research, and experts and counsel connected to the Canadian counsel.
Robbins Geller, which served as lead plaintiff’s counsel for eighteen months before being replaced by Abbey Spanier, claims that twenty-one of its partners, associates, counsel and internal accountants as well as investigators and paralegals expended over 3,750 hours in prosecuting this case. Applying a weighted average billing rate per hour of over $451.00 , their lodestar fee totals almost $1.7 million. Robbins Geller also engaged in discovery, briefed one motion for class certification and one motion to be appointed lead counsel, and it helped negotiate the settlement. Robbins Geller also claims that it incurred expenses totaling over $600,000; it has already paid a substantial portion of it. Their expenditures include paying for financial experts, legal research, travel and other miscellaneous items.
Another law firm, Berger & Montague, claims that seventeen of its legal staff expended over 840 hours in prosecuting the case. At a weighted average per hour rate of over $495.00, its lodestar fee comes to over $420,000. It incurred miscellaneous expenses totaling a little over $6,000.00.
Another law firm, Cohen Millstein, which only discussed class issues with Abbey Spanier, as well as the prospect of one of its clients serving as an additional class representative, claims that five members of its legal staff spent almost eighty hours on the case, which at a weighted average billing rate of over $388 per hour gives them a lodestar fee of close to $31,000. It claims to have incurred expenses of over $2,300.
The combined lodestar fee of all counsel is over $5.2 million with a weighted average billing rate of over $527 per hour. The combined expenses are over $1.7 million. 65% of such expenses are related to financial and accounting expenses. Abbey Spanier recognized that the claimed amounts were excessive and consequently reduced its request for an award of fees to $3,000,000, or only 25% of the full settlement amount. However, it still sought reimbursement of the full amount of its incurred expenses.
Courts are allowed to award reasonable attorneys’ fees and nontaxable costs authorized by law in class action suits. What is considered reasonable is left up to the discretion of the district court. Courts are allowed to employ two methods for awarding attorneys’ fees-the lodestar method and the percentage method. Second Circuit courts primarily use the percentage method, but use the lodestar method to cross-check the reasonableness of the requested percentage. The following factors are of overriding concern when determining the award of attorneys’ fees:
(1) the time and labor expended by counsel; (2) the magnitude and complexities of the litigation; (3) the risk of the litigation; (4) the quality of representation; (5) the requested fee in relation to the settlement; and (6) public policy considerations.
Expenses are usually awarded as a matter of course. However, according to the Private Securities Litigation Reform Act of 1995, the “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.” 15 U.S.C.§ 78u-4(a)(6) (Emphasis added).
Hence, the total amount requested-regardless of whether it is classified as legal fees or expenses- must be a reasonable percentage of the amount of any damages paid to the plaintiff class. Usually the expenses seeking to be reimbursed represent a smaller portion of the total settlement amount and a smaller percentage of the awarded fees. That is not the case here where the expenses sought to be reimbursed represent 14% of the total settlement amount and 57% of the requested award of fees. Even awarding Abbey Spanier’s reduced requested attorneys’ fees of $3,000,000 does not ameliorate the problem because once adding in the more than $1 million in expenses to the award, the total figure represents over 39% of the settlement amount which is not reasonable at all. The court refused to consider the fees and expenses in isolation of each other given the sizeable percentage of the overall award that they represented. The court instead concluded that an award of $3.96 million in fees and expenses was reasonable under the circumstances. It represented 33% of the total settlement amount.
The court pointed out that counsel should have noted (and indeed lead counsel did concede) that the case, given its inherent flaws, should not have resulted in so much time being put into it and so many expenses being incurred. Given that fatal flaw, the court opined that counsel must share in the burden of paying for those expenses, noting that the responsibility for properly controlling expenses belongs to counsel.