Friday, February 02, 2007

2nd Circuit Analyzes the Proper Calculation of Attorneys' Fees

Per Masters v. Wilhelmina Model Agency, Inc., --- F.3d ----, 2007 WL 28983 (2nd Cir. Jan. 4, 2007):

Plaintiffs-appellants, members of a class of present and former professional models, and their counsel appeal from two orders entered in the United States District Court for the Southern District of New York (Baer, J.) approving settlements and awarding attorneys' fees in a class action brought against defendant modeling agencies for conspiracy to fix commissions charged to members of plaintiff class, in violation of the Sherman Act. . . . The appellants contend that the District Court erred in . . . (3) applying the wrong standard in awarding counsel fees, with the result that the fee allowance to counsel for plaintiffs-appellants is inadequate. For the reasons that follow, we vacate the orders appealed from insofar as they relate to the distribution of settlement proceeds and the award of counsel fees and remand the case to the District Court for reconsideration of those matters; and we affirm the orders in all other respects.

. . .

In determining a reasonable attorneys' fee, the District Court considered several factors, including (1) the time and labor expended by counsel; (2) the magnitude of the litigation; (3) the risk of litigation; and (4) the quality of representation. In examining the time and labor factor, the District Court reviewed the hours spent and rates charged by each of the law firms representing the plaintiffs in computing their lodestar claims. Because, as will be seen, the District Court ultimately resolved the fee issue by awarding fees on the basis of a percentage of “claims made,” the District Court determined that “the lodestar calculation is primarily for crosscheck purposes.” Id. at *6. . . . In deciding to award fees on the basis of funds claimed rather than on the basis of the Settlement Fund created, the District Court recognized a split in authority, with the Supreme Court yet to weigh in on the issue. In declining to award fees on the basis of the total Fund available, the court noted that “court authorization of what can be analogized as a windfall to the attorneys would violate ··· the Second Circuit's clear intention to avoid such awards.” Id. at *4. The District Court also found support for its position in the Private Securities Litigation Reform Act of 1995, Pub.L. No. 104-67, 109 Stat. 737 (Dec. 22, 1995) (“PSLRA”) and in the Class Action Fairness Act of 2005, Pub.L. No. 109-2, 199 Stat. 4 (Feb. 18, 2005) (“CAFA”). See id. (examining Congressional intent).

The District Court properly utilized the “percentage of the fund” method in calculating counsel fees, applying the lodestar method “as a ‘cross check’ on the reasonableness of the requested percentage.” Goldberger v. Integrated Res., Inc., 209 F.3d 43, 49-50 (2d Cir.2000). Of course, courts may continue to use the lodestar approach alone in calculating attorneys fees in common fund cases. See Wal-Mart Stores, Inc. v. Visa, USA, Inc., 396 F.3d 96, 121 (2d Cir.2005). Whatever method is used, the reasonableness of a common fund fee award is governed by the so-called Goldberger factors: (1) counsel's time and labor; (2) the litigation's complexities and magnitude; (3) the litigation risks; (4) quality of representation; (5) the relationship of the requested fee to the settlement; and (6) considerations of public policy. Id. at 121. We recognize that “courts have traditionally awarded fees for common fund cases in the lower range of what is reasonable.” Id. at 122. In this case, the District Court calculated the percentage of the Fund on the basis of the claims made against the Fund, rather than on the entire Fund created by the efforts of counsel. We hold that this was error. We also hold, on the record before us, that it was error for the District Court to take into account, in setting the percentage fee, the conduct for which counsel already was sanctioned. The Magistrate Judge assessed a substantial fine and ordered the exclusion of certain time charges from the fee petition, and it would be unfair to “double count” for the sanctioned conduct.

In computing the fees on the basis of claims made against the Fund rather than on the basis of the entire Fund, the District Court recognized a split of authority on the subject. See generally 7B Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1803.1 (2d ed.2004). In siding with courts that compute fees as a percentage of claims made, the District Court saw the alternative procedure as creating a “windfall” for the attorneys. We disagree. The entire Fund, and not some portion thereof, is created through the efforts of counsel at the instigation of the entire class. An allocation of fees by percentage should therefore be awarded on the basis of the total funds made available, whether claimed or not. We side with the circuits that take this approach. See Waters v. Int'l Precious Metals Corp., 190 F.3d 1291, 1295 (11th Cir.1999); Williams v. MGM-Pathe Commc'ns Co., 129 F.3d 1026, 1027 (9th Cir.1997). Our own cases refer to “percentage of the fund,” Wal-Mart Stores, 396 F.3d at 121 (emphasis supplied), and “percentage of the recovery,” Goldberger, 209 F.3d at 47 (emphasis supplied). We take these references to be to the whole of the Fund. Use of the entire Fund as a basis for the computation does not necessarily result in a “windfall” because the court may always adjust the percentage awarded in order to come up with a fee it deems reasonable in light of the Goldberger factors. Accordingly, we have held that a “district court did not abuse its discretion in awarding plaintiffs' counsel a generous fee based on a somewhat low percentage of the fund.” Wal-Mart Stores, 396 F.3d at 123.

In support of its decision that counsel fees should be computed on the basis of funds claimed by class members, the District Court referred to the PSLRA provision entitled “Restriction on Payment of Attorneys' Fees and Expenses.” Fears, 2005 WL 1041134, at *4. . . . But the PSLRA is not applicable to antitrust class actions such as the one before us. . . . The fee restrictions described in the PSLRA do not apply in any context other than securities class actions, and, even if they did, it is not clear how they would apply. . . . The District Court's reliance on the CAFA is also misplaced. The CAFA recites as its purpose the following: “To amend the procedures that apply to consideration of interstate class actions to assure fairer outcomes for class members and defendants, and for other purposes.” Class Action Fairness Act, Pub.L. No. 109-2, 119 Stat. 4 (2005). However, the only mention of fees to be allowed to class counsel deals with the award of fees in coupon settlement cases. See 28 U.S.C. § 1712(a)-(c).


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