While it may seem that courts pretty much rubber stamp settlements agreed to by the parties in excessive fee suits, a federal judge has reviewed—and made some modifications to this one.
The settlement agreement in this case—struck just three weeks before a trial date earlier this year—was for $9.65 million (about a third of the potential damages “based on Defendants’ own fund performance benchmarks), a “cut” for the plaintiffs’ attorneys of $2,798,500, as well as reimbursement of $641,557.58 in litigation expenses advanced by them, and “service awards” in the amount of $15,000 to each of the Named Plaintiffs as Class Representatives.
‘Presumptively Reasonable Benchmark’
Now, while Judge Haywood S. Gilliam Jr. of the U.S. District Court for the Northern District of California acknowledged that the attorneys’ fees (29% of the settlement amount) were “higher than the presumptively reasonable benchmark amount of 25%,” he nonetheless held that that differential was justified in this case.
He noted (Baird v. BlackRock Institutional Tr. Co., 2021 BL 423025, N.D. Cal., No. 4:17-cv-01892, settlement approval order 11/3/21) that in cases like this, the court may choose either (1) the lodestar method or (2) the percentage-of-the-fund to calculate reasonable attorneys' fees.[i] The former is a pretty straightforward calculation—you just take the number of hours the prevailing party reasonably expended on the litigation (as supported by adequate documentation) by a reasonable hourly rate for the region and for the experience of the lawyer.
Lodestar ‘Look’
Judge Gilliam then pulled out his calculator, and noted that “Class Counsel’s various hourly rates multiplied by the 17,733 attorney and paralegal hours billed to date results in approximately $10,586,183.75 in billable hours,” though acknowledging that “further hours will be spent in the final settlement and disbursement process.” He found that the hourly rates were “reasonable given Class Counsel’s experience,” and that as to the number of hours billed, he concluded that the fee request of $2,798,500.00 amounts to only approximately 26% of the $10,586,183.75 lodestar—particularly in view of “the substantial risks of litigation, and the financial burden assumed…” Those attorneys, by the way, are Feinberg Jackson Worthman & Wasow LLP and Cohen Milstein Sellers & Toll PLLC.
Judge Gilliam also found the request for cost reimbursement to be reasonable. He noted that much of the $641,557.58 in costs and expenses incurred in connection with the litigation was $414,988.75 dedicated to expert witness and consultant fees, and that the remaining expenses “…include costs associated with depositions and court hearings, online legal research, document database hosting, travel, mediation fees, court fees, telephone, postage, meals, and printing.” He went on to note that that request did not include the “Administrative Expenses” defined in the Settlement Agreement, which include, among other things, the costs of the Settlement Administrator and the Independent Fiduciary (the former to request an amount not to exceed $60,000 to reimburse costs associated with issuing Class Notice and distributing funds, and that the Class will only bear the cost of the Independent Fiduciary's fee up to $25,000.
‘Service’ Stations
Then there was the matter of “service awards”—cash payment to the individuals who were not only named in the suit, but who serve as the face of the suit itself, and act as a resource to the Class Counsel. The settlement agreement here had asked for $15,000 each. These are, as the decision reminds us “intended to compensate class representatives for work done on behalf of the class, to make up for financial or reputational risk undertaken in bringing the action, and, sometimes, to recognize their willingness to act as a private attorney general.”
Judge Gilliam, citing case precedents, noted that district courts “must evaluate [the service] awards individually, using ‘relevant factors including the actions the plaintiff has taken to protect the interests of the class, the degree to which the class has benefitted from those actions, the amount of time and effort the plaintiff expended in pursuing the litigation and reasonable fears of [ ] retaliation.’”
He continued that here, “Class Counsel maintain that the two named class plaintiffs, Charles Baird and Lauren Slayton, both expended diligent effort over four years to protect the interests of the Class.” Judge Gilliam went on to acknowledge that, “…among other things, both spent time communicating with counsel and responding to discovery requests.” He went on to note that “at the hearing on Plaintiffs’ motion for final approval, the Court directed Plaintiffs to file a supplemental declaration from each named plaintiff detailing the approximate number of hours they spent per task on this case,” and that these supplemental declarations state that Baird and Slayton spent approximately 61 and 51.25 hours, respectively, on tasks regarding this case.
“The declarations also detail the reputational risk both undertook to participate in a lawsuit against their prior employer and colleagues”—and indeed, Judge Gilliam notes that “…although both spent the bulk of their careers in the financial industry, they have not found work in the financial industry since involving themselves with this case, and they are understandably concerned that their ability to return to work in the financial industry is now impaired.”
That notwithstanding, Judge Gilliam concluded that “after reviewing Plaintiffs' declarations, and considering the circumstances of this lengthy ERISA case, the Court finds that a $10,000 service award is reasonable to compensate Plaintiffs for their efforts”—rather than the $15,000 requested.
In sum then, Judge Gilliam approved the settlement as follows:
- the settlement amount of $9,650,000;
- an award of attorneys’ fees in the amount of $2,798,500.00 to Class Counsel;
- a reimbursement of $641,557.58 in litigation expenses advanced by Class Counsel; and
- service awards in the amount of $10,000 to each of the Named Plaintiffs as Class Representatives.
[i] Judge Gilliam quickly checked the box here, noting that “Class Members will receive a substantial amount in settlement funds with no reversion to Defendant, and each class members' recovery is proportional to the magnitude of their injury based on the size of their investment. Moreover, no Class Member objected to the settlement and none have requested exclusion, suggesting support for the settlement’s outcome.” He went on to explain that the settlement amount was reasonable “because this complex case, settled on the eve of trial after more than four years of extensive litigation, demanded a substantial amount of motion practice, investigation, discovery, and mediation. Further, Class Counsel ran the risk of receiving nothing if the case was unsuccessful because they operated on a contingent-fee basis and advanced all litigation costs. And finally, the Court notes that Class Counsel are experienced ERISA practitioners who performed their work here competently, shepherding this complicated case through summary judgment before reaching settlement.”
