There is nothing unusual about a court reducing the requested attorneys’ fees as part of its approval of a securities class action settlement. That said, it is rarely accompanied by the written fireworks found in the recent opinion in the UnitedHealth Group options backdating case.
The case settled last year for $895 million (later increased by payments from individual defendants to a combined class fund of $925.5 million). In In re UnitedHealth Group PSLRA Litig., 2009 WL 2482029 (D. Minn. Aug. 11, 2009), Judge James Rosenbaum granted final approval to the settlement, but reduced the requested attorneys’ fees from $110 million (11.92% of common fund) to $64.785 million (7% of common fund).
The court was sharply critical of lead counsel’s reliance on the fee agreement with its client, which (a) had been entered into after the denial of the motion to dismiss, (b) was not the product of competitive bidding, and (c) had an escalating schedule that increased the percentage paid in attorneys’ fees as the recovery increased. The court found that it was not bound by the agreement and “any risk that declining percentages will force class action counsel to settle ‘too early and too cheaply’ is overstated.”
As for the lodestar check, the court rejected lead counsel’s calculation of its expended fees, finding that “the submissions reflect rates far beyond those charged in the Twin Cities market, as well as considerable time billed by staff which is properly counted as overhead.” Based on the court’s recalculation, the awarded fees resulted in a 6.5 multiplier. The court did graciously note in a footnote, however, that if lead plaintiff wished “to divide its aliquot portion of the recovery between itself and its lawyers as provided in their fee agreement, this Opinion should not be read to suggest any opposition.”
Thanks to Securities Docket for the link to the opinion.
Quote of note: “[Lead counsel] supports its request with the expert report of Professor Charles Silver, who asks, ‘Can judges do better than lead plaintiffs when it comes to setting fees?’ He believes not, because ‘[j]udges have neither better information, better access to markets, nor better incentives.’ His argument rests on Adam Smith’s premise that the self-regulated market knows best, and ‘prices are best set by buyers and sellers bargaining in a competitive environment.’ Seldom have the groves of academe and the ivory towers sheltered within their leafy bowers seemed farther from reality. A lecture on the virtues of the unrestrained free market sounds a bit hollow in light of the parties’, this Nation’s, and indeed the world’s, experiences with the beauties of self-regulated financial markets during a period remarkably coterminous with the existence of this case. The Court rejects the proffered expert’s opinion.”