In an interesting decision from earlier this month, the U.S. Court of Appeals for the Third Circuit has held that deference should be given to a lead plaintiff’s decision not to compensate non-lead counsel. The case stems from the $3.2 billion settlement in the Cendant Corp. securities litigation. Lead counsel for the plaintiffs obtained $52 million in legal fees, which it shared with twelve other law firms that had been authorized to work on the case. An additional forty-five firms that represented individual plaintiffs, however, were frozen out of any fees. Three of these firms appealed the lower court’s rejection of their fee applications.
In In re Cendant Corp. Sec. Litig., 2005 WL 820592 (3rd Cir. April 11, 2005), the Third Circuit held that the PSLRA “significantly restricts the ability of plaintiffs’ attorneys to interpose themselves as representatives of a class and expect compensation for their work on behalf of that class.” As a result, the lead plaintiff’s “refusal to compensate non-lead counsel will generally be entitled to a presumption of correctness.” The court did find that non-lead counsel can ask the court to compensate them for work done before the appointment of a lead plaintiff, but they must “demonstrate that their work actually benefited the class.”
The Legal Intelligencer has an article (via law.com – free regist. req’d) on the decision.
Quote of note: “After the lead plaintiff is appointed, however, the PSLRA grants that lead plaintiff primary responsibility for selecting and supervising the attorneys who work on behalf of the class. We conclude that this mandate should be put into effect by granting a presumption of correctness to the lead plaintiff’s decision not to compensate non-lead counsel for work done after the appointment of the lead plaintiff. Non-lead counsel may refute the presumption of correctness only by showing that lead plaintiff violated its fiduciary duties by refusing compensation, or by clearly demonstrating that counsel reasonably performed work that independently increased the recovery of the class.”
The 10b-5 Daily 