In 2003, KPMG settled the claims against it in the Rite Aid securities litigation for $125 million. As reported in The 10b-5 Daily, a class member objected to the payment of 25% of that sum (i.e., $31 million) in attorneys’ fees. The district court approved the settlement terms despite the objection and an appeal followed.
According to an article (via law.com – free regist. req’d) in the Legal Intelligencer, the U.S. Court of Appeals for the Third Circuit has held that the district court should reconsider its fee award. The district court correctly applied the percentage-of-recovery approach, but erred in its application of a lodestar ‘crosscheck’ by focusing only on the hourly rates for the top lawyers handling the case, making the fee award appear more reasonable. The court found: “Had the hourly rates been properly blended, taking into account the approximate hourly billing rates of the partners and associates who worked on the case, the multiplier would have been a higher figure, alerting the trial court to reconsider the propriety of its fee award.”
It is important to note, however, that the court also rejected the argument that courts should be required to apply a sliding scale and reduce the percentage of a settlement going to attorneys’ fees based on the size of the fund. The opinion can be found here.