Both the Federal Rules of Civil Procedure and the PSLRA provide that plaintiffs’ counsel in a securities class action may be awarded a “reasonable” fee as determined by the court. Courts generally agree that it is appropriate to cross-check a proposed percentage fee award using the lodestar method (take the reasonable hours expended times a reasonable hourly rate and enhance with a multiplier), but there is no uniformity as to what are the appropriate hours, rates, and multiplier to use.
In an interesting decision, Chief Judge Vaughn Walker of the N.D. of Cal. (who is no stranger to controversy on the subject of attorneys’ fees) attempts to establish a more rigorous method of assessing the reasonableness of a proposed fee. The court’s exhaustive lodestar analysis in In re HPL Technologies, Inc. Sec. Litig., 2005 WL 941586 (N.D. Cal. April 22, 2005) includes adjusting the value of the common stock portion of the settlement because of its illiquidity, lowering the hourly rates cited by the attorneys based on national standards, and creating hypothetical scenarios to establish a reasonable multiplier range. Although the court ultimately reduces the proposed percentage fee from 15% to 11% based on the lodestar crosscheck, it concedes that its “excursion has led it to take up legal issues that have not been briefed by counsel” and expressly grants leave for lead counsel to move for relief from the judgment. The 10b-5 Daily will keep an eye on further developments.
Quote of note: “The court can envision no defensible normative reason in this case–or indeed in common fund cases generally–that the amount of the fee ought to depend on the method used to compute it. Both methods should result in a ‘reasonable’ fee, and reasonableness cannot logically depend on whether the fee is expressed as a percentage of the recovery or the product of hours and rates.”