Two weeks ago, the D. of N.J. approved the settlement of the Lucent Technologies, Inc. securities litigation for over $600 million, the third-largest securities settlement ever. The settlement calls for claimants to receive $315 million in stock; $24 million in the stock of Lucent spin-off Avaya Inc.; $148 million in cash from the Lucent’s directors-and-officers insurance; and 200 million warrants. Now comes the battle over attorneys fees.
Co-lead counsel for the main securities class action on behalf of Lucent’s common shareholders (there are four other cases on behalf of other classes of investors that are also being settled) are asking for 17% of the $517 million those investors will be awarded: about $88 million. They also seek $3.5 million in expenses for the case, which was litigated for almost four years.
The New Jersey Law Journal has a lengthy article (via law.com – free regist. req’d) exploring the arguments for and against this fee award. The objectors suggest that the fees are excessive compared with the payout to investors, which amounts to no more than 15 cents a share. Plaintiffs’ counsel, however, notes that the warrants may make the value of the settlement increase dramatically if Lucent’s stock price rises (thereby lowering the percentage of the recovery going to attorneys fees). To bolster their fee request, plaintiffs’ counsel retained Columbia Law School Professor John Coffee to submit a supporting certification to the court.
Quote of note: “Typical was T. Tucker Hobgood, who bought 100 shares at $74 a week before it dove to the mid-50s, at which point he bought another 50 shares. All told, Lucent dropped from almost $80 in 1999 to 55 cents by the fall of 2002 after disclosures of inflated revenue reports and accounting shenanigans. ‘I’ll get $15, with the plaintiffs’ lawyers making about $4.50 off me and getting reimbursed another $1.50. Not to unduly hammer only one side of the equation. The company I still own part of paid untold sums to its lawyers to grind the plaintiffs under their feet,’ Hobgood wrote to [District Judge] Pisano. ‘I lost virtually my entire investment of $10,000. There is nothing fair about this process or this settlement to me. It is a complete waste of time to recover less than one-fifth of one percent of a loss,’ he continued.”
Quote of note: “[Professor Coffee] listed the 22 largest fee awards for class actions, which showed that 17 were above the 17 percent being sought in the Lucent case, with only five falling below that figure. However, most of those cases that garnered more than 17 percent were significantly smaller than the Lucent payout. Five of the class actions produced fees amounting to 30 percent, but those settlements ranged from $104 million to $185 million. The closest settlement in size to Lucent’s, the $687 million in the Washington Public Power Supply Systems case in 1990, resulted in a fee award of just 7.3 percent. Moreover, the $457 million settlement in this year’s Waste Management Inc. class action generated a fee amounting to only 7.9 percent. Another so-called megafund class action, brought against Bankamerica Corp., led to a $490 million settlement along with a fee of 18 percent for lead counsel.”
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