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awarding 8.45% of a $40M settlement
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00 Civ. 9806 (SHS).
March 30, 2007
OPINION ORDER
Presently before the Court is the Joint Petition for Attorneys' Fees and Reimbursement of Expenses submitted by counsel for the plaintiff class ("Class Counsel") in the above-captioned class action. The settlement reached by Class Counsel on behalf of the plaintiff Class with defendants Jay Mazur, Ronald Alman, Edgar Romney, the International Ladies' Garment Workers' Union ("ILGWU" or "the Union"), and the ILGWU Death Benefit Fund (together, the "Settling Defendants") results in the allocation of approximately $40 million towards an increase in the death benefit for participants and beneficiaries of the ILGWU Death Benefit Fund and a payment of approximately $1 million to the Fund from the Settling Defendants' fiduciary duty insurer. See Opinion dated March 27, 2007 at 10-11. In addition, a majority of any remaining actuarial surplus in the Death Benefit Fund over the next seven years — as specified by the terms of the Settlement Agreement — will be allocated to additional future increases of the death benefit. Id. Class Counsel seeks $4.5 million in attorneys' fees, which Class Counsel contends is equivalent to approximately 10% of the benefit conferred on the plaintiff class, plus expenses incurred. For the reasons that follow, this Court awards Class Counsel fees in the amount of $3.38 million and expenses in the amount of $74,501.83.
Defendant 21st Century ILGWU Heritage Fund ("Heritage Fund") did not join the Settlement Agreement and the litigation between the plaintiff class and the Heritage Fund is ongoing.
I. HISTORY OF THE LITIGATION
The history of this litigation and the details of the Settlement Agreement are set forth in full measure in this Court's Opinion dated March 27, 2007 granting final approval to the partial settlement of this action among all parties except the Heritage Fund. In brief, this class action arose from the allegedly improper dissolution of the Death Benefit Fund, the simultaneous transfer of $77.5 million in actuarial surplus from the Death Benefit Fund to the Union and approximately one year later the transfer of $12.5 million from the Union to the Heritage Fund, a newly formed not-for-profit corporation. Edward Banyai and Judith Zinn brought this litigation seeking the restoration of $77.5 million to the Death Benefit Fund. After the Court certified a class consisting of Death Benefit Fund participants and beneficiaries and appointed Class Counsel, the parties engaged in extensive negotiations for more than a year, which resulted in a proposed partial settlement (the "Settlement Agreement"). After holding a fairness hearing, considering the substance of the few objections raised by members of the plaintiff Class, and providing the parties with additional time to attempt to reach a global settlement with the Heritage Fund, the Court by an Opinion and Order dated March 27, 2007 approved the Settlement Agreement pursuant to Fed.R.Civ.P. 23(e), finding that its terms were fair, reasonable and adequate and in the best interest of the plaintiff Class.
II. EFFORTS OF CLASS COUNSEL
Class Counsel undertook this litigation on a contingent basis and filed the initial complaint — based on ERISA statutory arguments and without access to most of the relevant underlying documents — in the last week of December 2000. After initiating the litigation, Class Counsel gained access to extensive documentation — including the operative documents governing the Death Benefit Fund — that extended back as far as 1937. (See Memorandum of Law in Support of Class Counsel's Joint Petition for Attorneys' Fees and Reimbursement of Expenses ("Mem. Sup.") at 5, 13-14; Decl. of Mark I. Machiz in Sup. of Pet. for Attorneys' Fees dated Nov. 3, 2005 ("Machiz Decl."), at ¶¶ 16-17.) In the course of its representation. Class Counsel conducted significant document review, leading it to twice amend the complaint. (Mem. Sup. at 3-4.) Class Counsel conducted numerous depositions involving the witnesses in the case and also prepared the motion for class certification. In addition, Class Counsel subsequently worked with defendants to develop a detailed Joint Statement of Facts, after which the parties fully briefed cross-motions for summary judgment. (Id. at 5-6.) Those motions were subsequently dismissed without prejudice in order to facilitate progress in ongoing settlement negotiations. Class Counsel expended substantial resources towards those settlement talks, which were "long and contentious." (Id. at 14.) After the parties arrived at a proposed partial settlement, Class Counsel and the Settling Defendants moved for final approval of the settlement and submitted memoranda in support of the motion.
In support of its petition for fees, Class Counsel has submitted affidavits from Marc I. Machiz of Cohen, Milstein, Hausfield Toll, P.L.L.C. ("CMHT") and David S. Preminger of Rosen Preminger Bloom LLP ("RP B") — lead counsel from the two firms that together represented the plaintiff Class — detailing the fees and expenses incurred in furtherance of this litigation. The affidavits set forth the number of attorney and paralegal hours expended in this litigation by each individual at each firm, as well as the hourly rates charged by the relevant lawyers and paralegals, with a breakdown by type of task performed. Attachments to those affidavits contain daily time sheets completed by the lawyers and paralegals involved. CMHT lawyers recorded approximately 2,115 hours and RP B lawyers recorded approximately 937 hours in heretofore uncompensated legal work consisting of factual investigation, drafting of documents. legal research brief writing, document analysis depositions. settlement negotiation, and other tasks. Class Counsel has spent 3,020.5 hours on this litigation. Given the non-contingent hourly rates involved, Class Counsel's lodestar — the number of hours devoted by Class Counsel multiplied by those firms' normal, non-contingent hourly billing rates — is approximately $1.41 million.
Class Counsel originally submitted a total of 3,042 hours, but has since reduced that total by 21.5 hours that were used to prepare the fee petition and which were inadvertently included in the calculation. See Mem. Reply to Opp. Class Counsel's Pet. for Attorneys' Fees and Reimbursement of Expenses, at 9 n. 11.
The affidavits also detail the $74,501.83 requested by Class Counsel as reimbursement for litigation expenses, which include, among other costs, court reporting services and transcripts, travel, document reproduction, research, and telephone charges.
III. DISCUSSION
A. Common Fund Doctrine
Pursuant to Fed.R.Civ.P. 23(h), the Court "may award reasonable attorney fees and nontaxable costs authorized by law" in an action certified as a class action. Applicable to this case, "[t]he 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)). See also Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 47 (2d Cir. 2000). In this Circuit, "either the lodestar or percentage of recovery methods may properly be used to calculate fees in common funds cases,"Goldberger, 209 F.3d at 45, but "whether calculated pursuant to the lodestar or the percentage method, the fees awarded in common fund cases may not exceed what is reasonable under the circumstances." Id. at 47 (internal quotation omitted). See also In re Agent Orange Prod. Liab. Litig., 818 F.2d 226, 232 (2d Cir. 1987) (critical inquiry is whether the fees represent "fair and just compensation for [counsel's] respective efforts"). What constitutes a reasonable fee is properly committed to the sound discretion of the district court. See M. Herman v. Davis Acoustical Corp., 196 F.3d 354, 356 (2d Cir. 1999); Kirsch v. Fleet Street, Ltd., 148 F.3d 149, 172 (2d Cir. 1998).
"[T]he trend in this Circuit is toward the percentage method, which directly aligns the interests of the class and its counsel and provides a powerful incentive for the efficient prosecution and early resolution of litigation." Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 121-22 (2d Cir. 2005) (citations and internal quotations omitted). The second method is the lodestar method, "under which the district court scrutinizes the fee petition to ascertain the number of hours reasonably billed to the class and then multiplies that figure by the appropriate hourly rate." Goldberger, 209 F.3d at 47. "In determining the number of hours reasonably expended for purposes of calculating the lodestar, the district court should exclude excessive, redundant or otherwise unnecessary hours." Quaratino v. Tiffany Co., 166 F.3d 422, 425 (2d Cir. 1999) (citingHensley v. Eckerhart, 461 U.S. 424, 433-35 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983)). "Once that initial computation has been made, the district court may, in its discretion, increase the lodestar by applying a multiplier based on `other less objective factors,' such as the risk of the litigation and the performance of the attorneys," including the results achieved. Goldberger, 209 F.3d at 47 (quoting Savoie v. Merchants Bank, 166 F.3d 456, 460 (2d Cir. 1999)).
In the past the U.S. Court of Appeals for 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. See City of Detroit v. Grinnell Corp., 495 F.2d 448, 468, 470 (2d Cir. 1974) ("[T]he 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."). More recently, however, the Second Circuit has explained that in some cases, the lodestar method "creates an unanticipated disincentive to early settlements, tempts lawyers to run up their hours, and compels district courts to engage in a gimlet-eyed review of line-item audits." Wal-Mart, 396 F.3d at 122 (citations and internal quotations omitted). As such, "both the lodestar and percentage of the fund methods are available to district judges in calculating attorneys' fees in common fund cases." Goldberger, 209 F.3d at 50. With the reasonableness of the fees as its polestar, the Court will determine what a reasonable fee is by utilizing both the lodestar and the percentage of fund methods. See Wal-Mart, 396 F.3d at 123 (lodestar method serves as a "cross-check" to a percentage award); Goldberger, 209 F.3d at 50 (lodestar is a useful "baseline" even if the percentage method is chosen).
B. Determination of Fees
To determine how much to award in fees, the Court examines Class Counsel's request in light of the "Goldberger factors," which "irrespective of [the] method . . . used . . . ultimately determine the reasonableness of a common fund fee." Wal-Mart, 396 F.3d at 122. Those factors are:
(1) the time and labor expended by counsel;
(2) the magnitude and complexities of the litigation;
(3) the risk of the litigation.
(4) the quanty of representation;
(5) the requested fee in relation to the settlement; and
(6) public policy considerations.Id. (quoting Goldberger, 209 F.3d at 50).
First, Class Counsel asserts that it reviewed extensive documentation dating back to 1937 which had to be located and evaluated in order to develop the factual basis for pursuing plaintiffs' claims. Accordingly, Class Counsel conducted significant document review to develop those claims, expended time on the motions for class certification and preliminary and final approval of the partial settlement, conducted depositions, and, as noted above, engaged in protracted and contentious settlement discussions under the supervision of a Magistrate Judge that consumed more than one year. Class Counsel also spent time communicating with members of the Class. The Court does not question Class Counsel's representations that this litigation incurred significant time and resources over a period of several years.
Second, the magnitude and complexity of this litigation has been substantial. The Class consists of approximately 100,000 members and the underlying factual history required a review of ILGWU procedures and intentions dating back to the 1930s. The legal issues facing the parties regarding the interpretation and application of various provisions of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., were complex — involving several difficult legal issues — and the Settlement Agreement is a sophisticated document that required creativity and compromise among the settling parties.
Third, there was a not insubstantial risk that the plaintiff Class might not prevail on the merits or rean any direct monetary benefit from this lawsuit As the Court reiterated in its Opinion approving the Settlement Agreement, there were "important issues of material fact in dispute, including the crucial question of whether the governing documents permitted the Death Benefit Fund to be terminated," a point on which the plan documents are "ambiguous and cannot be resolved as a matter of law." Opinion dated Mar. 27, 2007, at 15. See also id. at 17-20; Transcript dated Sept. 28, 2005 of August 30, 2005 Order. In addition, the Court concluded — and Class Counsel and the Settling Defendants agreed — that "even were plaintiffs to prevail at trial, they would not be entitled to require an increase in benefits." Opinion dated Mar. 27, 2007 at 15. As noted above, despite that risk, the Settlement Agreement provides for an immediate benefit increase and the potential for additional increases over the next seven years. These factors compel a finding that Class Counsel took on a significant risk that this litigation would not necessarily lead to a successful outcome for the plaintiff Class, let alone a direct monetary benefit to Class members.
Fourth, the quality and experience of Class Counsel's representation supports a significant fee award. Lead counsel — Mr. Mark I. Machiz and Mr. David S. Preminger — for the law firms acting as Class Counsel are seasoned class action litigators with considerable ERISA experience. For twelve years, Mr. Machiz served as the U.S. Department of Labor's chief ERISA lawyer and was responsible for all enforcement litigation brought by the Secretary of Labor pursuant to ERISA. (Machiz Decl. ¶ 7.) Since returning to private practice in 2000, Mr. Machiz has litigated numerous ERISA class action lawsuits involving a variety of subjects regulated by ERISA, including illegal pension plan investments and plan terminations. (Id. ¶ 10-11.) Mr. Preminger has been actively litigating employee benefit cases since 1972. has served as co-chair of American Bar Association subcommittees relating to ERISA, and has authored law review articles and edits a treatise on employee benefits. (Decl. of David S. Preminger in Sup. of Pet. for Attorneys' Fees dated Nov. 3, 2005 ("Preminger Decl."), at ¶ 3, 6.) Mr. Preminger has served as sole counsel or co-counsel in a substantial number of class action employee benefit litigations. (Id. at ¶ 9.)
More importantly, Class Counsel advocated vigorously on behalf of the best interests of the plaintiff Class throughout the litigation, despite losing the support of the named representatives of the plaintiff Class in the course of settlement negotiations.
The fifth Goldberger factor requires the Court to examine the requested fee in relation to the settlement. As noted above, the settlement provides that approximately $40 million of the actuarial surplus in the Death Benefit Fund — an estimated increase of $825 per beneficiary (Settlement Agreement at ¶ 4(a)) — will go to increase plaintiffs' death benefits. These are funds to which the plaintiff Class otherwise had no legal entitlement and which — but for this lawsuit and the partial settlement — might instead arguably have been transferred to the Union or used for other purposes.
However, the Court also notes that pursuant to the Settlement Agreement, the fee this Court awards to Class Counsel will come out of the additional actuarial surplus in the Death Benefit Fund that is not allocated to funding the initial increase. (Settlement Agreement at ¶ 12.) Therefore, to the extent future benefit increases provided for in the Settlement Agreement are based on a percentage of the actuarial surplus in the Fund at the time of those potential benefit increases, any amount awarded to Class Counsel for fees will result in a somewhat smaller benefit increase than would otherwise be possible.
With those factors in mind, a fee of 8.45% of the common fund is reasonable, particularly in light of other percentage-of-fund awards that have been significantly higher in the context of ERISA litigation. See, e.g., Spann v. AOL Time Warner, Inc., No. 02 Civ. 8238, 2005 U.S. Dist. LEXIS 10848, at *27 (S.D.N.Y. June 7, 2005) ($966,666.66 fee award from $2.9 million settlement fund, or approximately 33%); In re Global Crossing Sec. ERISA Litig., 225 F.R.D. 436, 468-69 (S.D.N.Y. 2004) ($10.8 million fee award from $78 million fund, or approximately 15%); In re Xcel Energy, Inc., Sec. Derivatives FRISA Litig 364 F.Supp. 2d 980 1005 (D Minn. 2005) (25% fee award out of $8 million common fund); Berger v. Xerox Corp. Ret. Income Guarantee Plant, No. 00-584, 2004 WL 287902, at *2 (S.D. Ill. Jan. 22, 2004) (fee award of 29% of $300 million common fund); Millsap v. McDonnell Douglas Corp., No. 94-CV-633, 2003 WL 21277124, at *15 (N.D. Okla. May 28, 2003) (fee award of 25% of $36 million fund).
As described above, the common fund established by Class Counsel — that is, the amount of actuarial surplus that will be used to fund the initial benefit increase — is approximately $40 million. Accordingly, the Court applies the percentage-of-fund figure against that total, and does not include the amount of the fee award itself in the common fund.
When cross-checked against Class Counsel's lodestar, a fee award of 8.45% of the common fund — or $3.38 million — is reasonable. As noted above, the lodestar — based on the number of hours billed at current billing rates — equals $1,409,341. A fee award of $3.38 million therefore represents a multiplier of 2.4, which is fair considering the attendant risks of taking on this litigation, as described above. See, e.g., In re Global Crossing, 225 F.R.D. at 436 (2.16 multiplier "falls comfortably within the range of lodestar multipliers and implied lodestar multipliers used for cross-check purposes in common fund cases in the Southern District of New York"); see also Welch Forbes, Inc. v. Cendant Corp. (In re Cendant Corp. Prides Litig.), 243 F.3d 722, 742 (3d Cir. 2001).
Sixth, public policy considerations require that "[t]he fees awarded must be reasonable, but they must also serve as an inducement for lawyers to make similar efforts in the future." In re Visa Check/Mastermoney Antitrust Litig., 297 F. Supp. 2d 503, 524 (E.D.N.Y. 2003). A $3.38 million fee — or a 2.4 multiplier of the lodestar — is within the range of reasonableness in view of the benefits achieved — and concessions made — in the Settlement Agreement. Furthermore, a multiplier of 2.4 provides an adequate incentive to counsel to undertake the risks required by a contingency arrangement. See Wal-Mart Stores, Inc., 396 F.3d at 123.
Accordingly, a full review of the Goldberger factors suggests that a $3.38 million fee is reasonable and appropriate based on the information submitted to the Court in Class Counsel's petition and the Court's own evaluation of this litigation.
C. Objections by the Settling Defendants
The Settling Defendants raise several objections to Class Counsel's lodestar calculation. First, the Settling Defendants assert that time spent on this litigation was inextricably intertwined with time spent by Class Counsel pursuing plaintiffs' claim against the Heritage Fund. Because Heritage Fund received $12.5 million — or 16% — of the $77.5 million transfer from the Death Benefit Fund to the Union, the Settling Defendants contend that Class Counsel's hours should be reduced by 16%.
Class Counsel responds that "[all] of the work" documented in its petition to the Court "was work which had to be performed in the case in order to achieve" the Settlement Agreement. (Mem. Sup. at 9.) The Court agrees that it would be impractical to attempt to dissect the time undertaken by Class Counsel which pertains to activities that relate to claims against all of the defendants, and sees no merit to the proposition by Settling Defendants that a 16% reduction is merited.
Accordingly, the Court will not reduce Class Counsel's lodestar simply because its work benefited the Class not only in the claims against the Settling Defendants but also in the claims against the Heritage Fund, which is not a settling defendant. See, e.g., McDonald v. Pension Plan of NYSA-ILA Pension Trust Fund, No. 99 Civ. 9054, 2002 WL 1974054, at *2 (S.D.N.Y. Aug. 27, 2002) ("Hours expended working on . . . closely-related claims, or those that became moot during the litigation, should not be excluded from [counsel's] fee award.") However, Class Counsel's efforts which were solely undertaken to pursue plaintiffs' claims against the Heritage Fund — such as the cross-motions for summary judgment that were addressed by the Court's August 30, 2005 decision — are not included.
Second, the Settling Defendants contend that documentation of Class Counsel's hours is insufficient and that a 15% reduction in hours is warranted. See In re Painewebber Ltd. P'Ships Litig., No. 94 Civ. 8574, 2003 WL 21787410 (S.D.N.Y. Aug. 4, 2003). Class Counsel responds that unlike the parties seeking attorneys' fees in Painewebber, they have submitted detailed time records — including narratives — which provide details of the work performed on a daily basis. The Court agrees that the documentation is adequate. First, Class Counsel has submitted summary tables documenting each member of their firms who performed work on the case, as well as the total hours recorded and relevant billing rates. Second, the daily time sheets submitted to the Court indicate the attorney, the date, the hours recorded, the billing rate of that attorney, and a description of the work performed on that date.
Third, the Settling Defendants assert that Class Counsel's hourly rates for partners and associates are not consistent with the rates charged by firms of similar sizes and therefore should be reduced. In particular, the Settling Defendants seek to reduce the hourly rate charged by Mr. Machiz and Mr. Preminger from $550 to $350. In addition, the Settling Defendants assert that hours should be calculated at their historic rates, rather than the rates charged at the time that the petition for fees was filed. In response, Class Counsel contends that the $550 hourly rate is consistent with the rates charged by Mr. Machiz and Mr. Preminger in other cases and professional engagements. The Court is satisfied that Class Counsel's billing rates are consistent with the "prevailing market rates" for attorneys of their experience that should be used to calculate the lodestar. See Kirsch. 148 F.3d at 172 (quoting Blum v. Stenson, 465 U.S. 886, 895, 104 S. Ct. 1541, 79 L. Ed.2d 891 (1984)). Furthermore, the Court notes that this litigation began at the end of 2000, slightly more than six years ago, and that a lodestar calculated based on current billing rates provides an appropriate means of compensating counsel for the delay between when the work was performed and the date of the partial resolution of the litigation. See Gierlinger v. Gleason, 160 F.3d 858, 882 (2d Cir. 1998).
Accordingly, the Court finds no reason to adjust its determination of a $3.38 million fee based on the objections raised by the Settling Defendants.
D. Reimbursement of Expenses
In addition, the Court has reviewed the expenses incurred by Class Counsel. The expenses — which include the costs of service of process, travel, legal research, expenses relating to witnesses, and document production — are "the type for which `the paying, arms' length market' reimburses attorneys." In re Global Crossing, 225 F.R.D. at 468. The Court finds that the $74,501.83 claimed were reasonable expenses, and, accordingly, the Court awards Class Counsel that amount.
IV. CONCLUSION
Having reviewed the factors set forth in Goldberger to determine a reasonable fee award under the circumstances of this particular case the Court finds that a $3.38 million fee — or 8.45% of the $40 million common fund and 2.4 times the lodestar — is reasonable given the efforts and experience of the lawyers involved, the risks undertaken, and the benefits achieved for the Class in the Settlement Agreement. In addition, the request for reimbursement of expenses in the amount of $74,501.83 is granted.
SO ORDERED: