The Goldilocks Problem

How can a court determine what amount of attorneys’ fees is “just right”? DPL, Inc. and their former accountants, PricewaterhouseCooopers, settled the securities class action against them in the S.D. of Ohio (as well as related state court derivative actions) for $145.5 million. The class action portion of the settlement was $110 million and plaintiffs’ counsel requested that the court award them 35%, or $38.5 million, in attorney’s fees and costs.

In a decision issued last month (but only recently appearing online), the court rejected this fees request after members of the class objected. See In re DPL, Inc. Sec. Litig., 2004 WL 473472 (S.D. Ohio March 8, 2004). The court found that plaintiffs’ counsel had achieved an “outstanding” result in the case. According to an affidavit of an economist submitted by plaintiffs’ counsel, $110 million represented “between about 62% and 145% of the losses suffered by the members of the class.” The court also noted that “a review of the Defendants’ motions seeking dismissal of the litigation, motions which were not ruled upon due to the settlement, reveals that it is by no means certain that the claims of the Plaintiffs and the class they represent would have survived rulings on such.” Under these circumstances, the court found that the percentage of fund method for calculating the attorneys’ fees, with its emphasis on rewarding good results, was more appropriate than the lodestar method (which is based on the number of hours reasonably expended, at a reasonable hourly rate, adjusted by a multiplier).

When it came to the actual percentage to award, however, the court balked at 35%. The court determined that plaintiffs’ counsel had done relatively little work to obtain the settlement (primarily briefing the motion to dismiss) and that “an attorney compensated at the hourly rate of $350, an overly generous rate for this part of the world, would have to work 110,000 hours to generate such a fee.” The court then concluded that a reasonable award was 20% of the common fund, or $22 million. Notably, the court offered no rationale for selecting 20% as the right amount, as compared to 19%, 21%, or any other percentage below what was requested.

Holding: Sustaining in part and overruling in part the application for attorneys’ fees.

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