In Re Namenda Direct Purchaser Antitrust Litigation

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

In re Namenda Direct Purchaser Antitrust Litigation No. 15 Civ. 7488 (CM)

OPINION AND ORDER REGARDING PLAINTIFFS’ MOTION FOR

ATTORNEYS’ FEES, EXPENSES, AND INCENTIVE AWARDS

McMahon, C.J.:

Following this Court’s preliminary approval of a settlement in this pharmaceutical direct

purchaser antitrust class action for $750,000,000 (Dkt. No. 947), Class counsel made a timely

motion for fees, expenses and incentive awards. (ECF Nos. 925-28.) Class counsel originally

sought 27.5% of the common fund (or an award of X), reimbursement of expenses of

$5,823,928.91, and incentive awards of $150,000 for each representative plaintiff. After

negotiations with an objector, class counsel reduced the request to 21% of the common fund, or

$157,500,000; the rest of the proposal remains the same.

For the following reasons, Class counsel’s motion for a fee award is granted, but the

amount awarded is lower than requested.

FACTUAL BACKGROUND

In order to prosecute this antitrust case based on the Defendants’ alleged abuse of the

generic pharmaceutical approval process under the Hatch-Waxman Act, Class counsel was

required to understand: (a) various complexities of patent law, in order to show that Mylan

would have prevailed in showing that the ’703 patent was not infringed, and that Forest’s patent

claims as well as the patent term extension were invalid, and to rebut Forest’s arguments to the

contrary; (b) the biopharmaceutical aspects of NMDA receptor antagonism; (c) the relevant

aspects of FDA and CMS drug regulation, including: (i) FDA regulations regarding approval of

transfers of manufacturing technology (for Lexapro) from one site to another; and (ii) CMS

regulations governing the Medicaid rebate liability consequences of selling an authorized generic

(Lexapro) in various ways. Class counsel then applied their knowledge of those regulations to a

forensic examination of Forest’s deal valuation spreadsheets, developed a multi-input economic

model to determine the earlier entry date a reverse-payment-free settlement between Forest and

Mylan would have borne, determined the most likely market entry dates from ANDA approval

and manufacturing capacity points of view for a host of generic companies and Forest’s

“authorized generic” “but for” the reverse payment deal between Forest and Mylan, and

developed economic modeling of the complicated interaction between the delay of generic

Namenda IR entry from the reverse payment (on the one hand) and the hard switch product

conversion enabled by that delay (on the other hand), which were interdependent sources of

overcharges for direct purchasers. (See Dkt. No. 927, Gerstein Declaration, at ¶ 32.) Class

counsel also had to determine the quantum of damages based on various assumptions (see id. at ¶

67), and combine all this evidence into a trial presentation that would be comprehensible to a

jury (id. at ¶¶ 42-47). Of course, the law or the regulations were not new to class counsel; as

they have advised the court repeatedly, they litigate “pay to delay” cases as their bread and butter

and have filed dozens of them over the past two decades.

The case settled on the eve of trial, October 28, 2019.

On December 24, 2019, Class counsel filed a fully executed version of the Settlement

Agreement with the Court (ECF No. 919-1), and a Motion for Preliminary Approval (ECF No.

917) requesting that the Court preliminarily approve the Settlement, approve the form and

manner of notice to the Class, and set a schedule leading up to and including a Fairness Hearing.

On January 6, 2020, this Court concluded that the Settlement between the Class and

Forest was arrived at by arm’s-length negotiations by highly experienced counsel after years of

litigation and fell within the range of possibly approvable settlements, and preliminarily

approved it. (ECF No. 920, at ¶ 6.) Concurrently, the Court appointed an escrow agent and

claims administrator, approved the form and manner of notice to the Class, and set a schedule.

(Id. at ¶¶ 7-18.) Thereafter, Forest deposited the settlement fund into an escrow account that is

earning interest for the benefit of the Class. (ECF No. 927 at ¶ 56.)

Pursuant to the Preliminary Approval Order, Class members had until March 30, 2020 to

object to the Settlement and/or Class counsel’s fee request. (ECF No. 920 at ¶¶ 14, 15.) On

March 17, 2020, Forest filed a response to the fee request, stating it took no position on the

motion, but reemphasizing its position that Plaintiffs had not “succeeded in proving that Forest

was liable for the alleged conduct or that Forest’s actions were actually found to be unlawful and

anti- competitive.” (ECF No. 929, at 1.)

On March 30, 2020, the National Wholesalers filed an objection to Class counsel’s

requested fee, sought more time to take discovery on Class counsel’s lodestar and submit an

expert report and an additional brief on fees, and requested that the issue of attorneys’ fees be

bifurcated from the issue of final review and approval of the Settlement. (ECF Nos. 932-33.) The

National Wholesalers did not object to the Settlement nor dispute the requested expense

reimbursement or incentive awards to the named Class representatives. (See ECF No. 932 at 1, 2

n.1, ¶ 5.)

On April 1, 2020, the Court denied the National Wholesalers’ bifurcation request and

stated that it was not inclined to permit expert testimony on the proposed fee or postpone the

final fairness hearing scheduled for May 27, 2020. (ECF No. 935.) Thereafter, Class counsel and

the National Wholesalers resolved the Objection. The National Wholesalers have agreed to

withdraw their Objection and support Class counsel’s requested fee of 21% of the gross

Settlement amount.

DISCUSSION

I. Class counsel’s Costs and Expenses Are Reasonable and Were Necessary to the

Result.

There has been no objection to Class counsel’s request for reimbursement of costs and

expenses of $5,823,928.91. These expenses were itemized by category for the Court’s

convenience. (See ECF Nos. 926 at 24; 927 at ¶¶ 71-72.) Class counsel’s motion for an award of

expenses in that amount is, therefore, GRANTED.

II. A Reasonable Incentive Awards for the Class Representatives

Is $75,000

There was no objection to the incentive awards of $150,000 for each of the two

representative plaintiffs, and I cannot deny that like amounts have been awarded in in similar

cases. But frankly, this was attorney-driven litigation. All the class representatives really did was

sit for a deposition. (See ECF Nos. 926 at 24-25; 927 at ¶¶ 75-81.) As far as the court is

concerned, they made only a minimal contribution to the prosecution of the case.

An incentive award of $75,000 to each class representative is reasonable in this case.

III. The Proposed Award of Attorneys’ Fees Is Not Fair and Reasonable.

Class counsel’s request for an award of attorneys’ fees in the amount of $157,500,000

(plus proportionate accrued interest) -- i.e., 21% of the gross settlement amount -- is neither fair

nor reasonable.

I start from the proposition that class counsel have earned a “reasonable” attorney’s fee.

The word “reasonable” means “as much as is appropriate” or “fair.” A subsidiary definition of

the word is “moderate.” By that definition, the requested fee award is, in the opinion of the

Court, unreasonable. For it is anything but moderate.

The fee award is requested on behalf of six law firms, who apparently operate in tandem

on “pay for delay” cases, regardless of who is appointed lead counsel. The six firms, and the total

billable hours for each firm, are as follows: (a) Berger & Montague, P.C. (12,470 hours); (b)

Faruqi & Faruqi LLP (9,699.5 hours); (c) Garwin Gerstein & Fisher LLP (9,268.15 hours); (d)

Heim Payne & Chorush LLP (4,243.8 hours); (e) Odom & Des Roches (10,135.6 hours); and (f)

Smith Segura & Raphael LLP (6,294 hours).

This makes up the “lodestar” amount of $34,769,008.35 in per hour billings.

Class counsel did not send time records along with their motion, instead submitting

extremely general affidavits that summarized, in no level of detail whatever, the work done by

each firm (not each lawyer from each firm) on the case. (Dkt. No. 927, Gerstein Decl., ¶ 70 &

Exs. A-F.) Without having contemporaneous time records, the Court had no way to determine

whether two or three lawyers at any firm were doing the work of one; or whether lawyers were

billing time for monitoring aspects of the case for which they were not responsible or for

attending meetings and depositions at which their presence was not required. Counsel did offer,

in a throwaway line, to supply time records if the court wanted to see them. I cannot imagine

why counsel would have thought that the court did not want to see them. It would have been

irresponsible to decide the motion without having time records.

Therefore, at the May 27, 2020 hearing finally approving the settlement, I asked for

production of the time records, so that I could evaluate the reasonableness of the lodestar. Each

of the firms representing the Class then made their detailed billing records available to the Court

on an in camera basis.

Those records show that, as the court suspected, lawyers from more than one firm

repeatedly engaged in duplicative work - or, in some cases triplicative or quadruplicative work –

which inflated the lodestar. For example, three of the six firms prosecuting this case attended the

deposition of Forest’s 30(b)(6) witness, David Solomon, with the four of the six billing more

than $10,000 in preparing for it. The bills demonstrate the same sort of inefficiency in

connection with the other depositions.

Billable hours valued in the hundreds of thousands of dollars were devoted to litigating

and relitigating an issue often raised in reverse-payment pharmaceutical antitrust cases: whether

brand-name drug producers like Forest can rely on the attorney-client privilege to shield

discovery of their subjective beliefs regarding the strength of the underlying patent case. This

basic issue had been settled in previous pay-for-delay cases involving the same law firms, so the

learning curve was not steep. See, e.g., FTC v. Actavis, 570 U.S. 136, 133 S.Ct. 2223, 186

L.Ed.2d 343 (2013); In re Lidoderm Antitrust Litigation, No. 14-md-2521, 2016 WL 4191612

(N.D. Cal. Aug. 9, 2016)). Relying on those recent precedents, Magistrate Judge James Francis

(now retired) made clear that any contention by Forest that it could submit its subjective beliefs

into evidence without waiving its attorney-client privilege would be judged “based on the

guidelines applied in Lidoderm and similar cases.” (Dkt. No. 249, at 15.) In Lidoderm, Judge

William H. Orrick of the Northern District of California had ruled that defendants in a reverse-

settlement antitrust case waive privilege over their attorneys’ views of the strength of the

underlying patent case “if defendants choose to rely on a subjective belief.” Lidoderm, 2016 WL

4191612, at *6.

Yet, in spite of Judge Francis’s decision that the Lidoderm rule would apply in this case,

figuring out how Forest’s decision not to waive attorney-client privilege would impact the

production of documents led to an inordinate number of discovery disputes, which played out

before Judge Francis and, on occasion, this court. Class counsel did not keep the cost of

litigating these disputes down. For instance, on May 18, 2017, after fully briefing a motion to

compel based on Forest’s purported privilege waiver, Class counsel sent three attorneys from

Garwin Gerstein & Fisher, as well as one from Smith Segura, to an oral argument before Judge

Francis on a discovery motion -- a gratuitous outlay of manpower that contributed approximately

$10,000 to the lodestar. Moreover, despite that show of force, Plaintiffs were unsuccessful; the

motion was denied on the grounds that it failed to identify specific documents over which the

Plaintiffs believed that Forest had waived privilege. (Dkt. No. 348, at 12.) In his opinion and

order denying the motion, Judge Francis admonished the parties for their “failure to engage in a

meaningful process of meeting and conferring prior to requesting court intervention . . . which

confuses the issues and wastes judicial resources.” (Id. at 11.) After filing another motion to

compel, one that narrowed the scope of Forest’s purported waiver, Plaintiffs obtained an order

compelling Forest to produce….. five documents. (Dkt. No. 387.)

But that was not the end of the waiver fight: Class counsel also filed a motion in limine

that essentially called for relitigation of an issue already resolved by the Magistrate Judge, as to

which there was no further need of briefing. (See Dkt. Nos. 724, 739.) That motion, too, was

denied. (Dkt. No. 859 at 13.) It was a waste of time and resources, of both counsel and the

court.

Ideally, this Court could simply omit the inefficient hours from the lodestar when

calculating the fee award. See Luciano v. Olsten Corp., 109 F.3d 111, 117 (2d Cir. 1997) (“[A]

district court can exclude excessive and unreasonable hours from its fee computation by making

an across-the-board reduction in the amount of hours.”). However, the scope of that exercise is

prohibitive for a court with a busy docket. Additionally, class counsel’s time sheets lack

sufficient granularity to separate the productive hours from the wasted ones. For example, some

attorneys have block billed entire days both to depositions that multiple firms attended and

depositions that only one firm attended; that alone warrants a reduction of the lodestar. See

Kortright Captial Partners L.P. v. Investcorp Investment Advisers Ltd., 392 F. Supp. 3d 382, 409

(S.D.N.Y. 2019) (reducing lodestar by 15% due to “inefficiencies and billing deficiencies”).

Suffice it to say that this Court has uncovered enough inefficiency in the records provided

to conclude that the $34 million lodestar could and should have been lower.

I note also that the underlying legal issues raised by this case were settled in other cases

litigated over the past two decades. I do not mean to suggest the case was not complex – it was

certainly complex for this court, which has not spent the past two decades immersed in pay-to-

delay issues. But it was far less complex to lawyers who have litigated those issues repeatedly

over that same period. One might even say that it was a routine case for these lawyers, albeit one

with a few unusual twists.

The principal such twist, an issue unique to this case, was the collateral estoppel impact

of an early ruling by my predecessor, Judge Sweet, involving the so-called “hard stop.” I

concede that this issue is not ordinarily presented in a pay-for-delay case. But it did not consume

the lion’s share of $34 million in billings.

Rather than undertake the arduous task of going time record by time record with the

attorneys explaining what they did and why, courts may exercise their discretion “to deduct a

reasonable percentage of the number of hours as a practical means of trimming the fat from a fee

application.” Kirsch v. Fleet Street, Ltd., 148 F.3d 149, 173 (2d Cir. 1998) (internal quotation

marks omitted). Courts can and often do deal with inflated lodestars by reducing them by a fixed

percentage, cutting the proposed multiplier, or both. See, e.g., Sea Spray Holdings, Ltd. V. Pali

Fin. Group, Inc., 277 F. Supp. 2d 323, 326 (S.D.N.Y. 2003) (reducing lodestar by 15%); In re

Petrobras Securities Litig., 317 F. Supp. 3d 858, 876 (S.D.N.Y. 2018) (reducing requested

multiplier from 2.7 to 1.78 where class counsel stood to receive “very large amounts of money in

absolute terms . . . under any analysis”). I have concluded that the best course is to leave the

lodestar alone but cut the multiplier. The question is, by how much.

Were I simply to award the lodestar plus expenses actually incurred (a verifiable number

and, given the number of experts in the case and its duration, not out of line), I would consider

the fee award generous and proportionate to the work done (whether or not all that work was

necessary – and some of it manifestly was not). Such an award qualifies as a “very large

amount[] of money in absolute terms.”

However, I do believe that some bump above lodestar is appropriate, given the size of the

settlement.

I fully understand why Forest settled this case for a large number. Its downside was huge;

this was a “bet the company” case. Of course, the risk that the class would lose was also

significant; the “hard stop” case was going to be an uphill climb, given that Judge Sweet had

enjoined it; and Forest had arguments about the reasonableness of the Mylan settlement under

Actavis that this Court considered quite viable, even though the case could not be resolved on a

motion for summary judgment. The danger of an adverse verdict, however, was real, and Forest

paid dearly to avoid that risk. The class has made out very well indeed. And when a class makes

out very well indeed, courts usually award a success fee, in the form of a bump over lodestar.

This Court does not accept class counsel’s argument that an unprecedentedly large

settlement warrants a commensurately unprecedentedly large fee award. (See, e.g., Dkt. No. 939,

Reply Br., at 6-12.) Rather, in my view, the larger the settlement value, the less the need for a

multiplier to nudge the plaintiffs’ bar to pursue large class actions like this one. Where class

counsel reaches a settlement for hundreds of millions of dollars, a four-or-five times multiplier

strikes me as both unseemly and unnecessary to protect the interests of the class.

I am absolutely unmoved – indeed, I am offended -- by the argument that class counsel

deserves a humongous fee award in this case because “the winning cases must help pay for the

losing ones.” (Id. at 11 (quoting Union Carbide Corp. Consumer Prod. Bus. Sec. Litig., 724 F.

Supp. 160, 168 (S.D.N.Y. 1989).) The reasonableness of a fee award must be considered on a

case by case basis, not in the context of lead counsel’s entire body of work. Each case must pay

for itself, and if counsel bring meritless cases, neither Forest nor their class client in this case has

any duty to mitigate their lawyers; past losses.

To help guide this Court’s analysis of a reasonable multiplier, Class counsel have

prepared a chart showing the large number of pay-to-delay cases in which courts have awarded

fees ranging between 27.5% and 33.33% of the common fund. I take note of several things about

the chart.

First, it is heavily loaded with cases brought prior to 2013 (which is to say, pre-Actavis

cases).

Second, the settlements in the few more recently filed cases were substantially less than

the settlement in this case, so the reasonableness of the fee award as a percentage of the common

fund is less questionable – again, in the opinion of this court, the larger the settlement, the lower

the percentage of the common fund represents a reasonable fee award.

Third, there is nothing in these charts that compares the fee award to the lodestar. I have

found a number of recent pay to delay case fee awards (albeit in some very old cases) -- some

involving these very law firms – which would counsel against a fee award in the range sought by

Class Counsel here. For example, I am aware of a fee award in a pay-to-delay case that was

33.33% of the common fund but less than lodestar. See In re Prograf Antitrust Indirect

Purchaser Litigation, No. 11-mdl-2242 (D. Mass. May 20, 2015) (Dkt. No. 677) (awarding $20

million, which was 33.33% of the common fund but just .772 of lodestar). The largest multiplier

we located in a recent case was 2.3 times lodestar, and the fee amount was less than a quarter of

what plaintiffs are asking here – and that case, like this one, settled on the eve of trial, which

means trial preparation had been completed. See Vista Healthplan, Inc., et al. v. Cephalon, Inc.,

et al., 2020 WL 1922029 at *26 (E.D. Pa, Apr. 21, 2020) (awarding $32 million, which was

33.33% of the common fund, but just 2.3 times lodestar, in connection with a settlement on the

eve of trial);

Especially notable is Lidoderm, No. 14-md-2421, 2018 WL 4620695 (N.D. Cal, Sept. 20,

2018) – a case that, like this one, took about four years to litigate, and in which many of the same

issues were raised. There, Judge Orrick awarded counsel $34 million (equivalent to lodestar in

this case), which was 33.33% of the common fund but just a 1.37 times multiplier over lodestar.

As far as I can tell, the principal difference between our case and Lidoderm is that counsel did

not have to prepare for trial in Lidoderm, though that is conjecture on my part. They did,

however, have to litigate certain post-Actavis legal issues for the first time. The same cannot be

said of this case.

Given the sheer magnitude of the numbers, I am not prepared to award anything like the

4.5 times lodestar requested by class counsel — even if that number is only 21% of the common

fund. Because I believe the lodestar to be inflated for the reasons stated, I have decided to award

twice the lodestar as a “success fee,” which brings the counsel award to $69,538,016.70,

representing approximately 9.3% of the common fund. It is still a handsome payday for counsel.

CONCLUSION

For the reasons set for above, the Court grants the motion for fees, expenses and

incentive awards on part, approving awards in the following amounts:

Class counsel shall be reimbursed for its expenses of $5,823,928.91.

Each class representative shall receive an incentive award of $75,000.

Class counsel shall collect an attorney’s fees award of $69,538,016.70 out of the common

settlement fund.

The Clerk of Court is directed to close the motion at Docket Number 925. This shall

constitute the written opinion of the Court.

Dated: June 15, 2020

New York, New York

ChiefJudge

BY ECF TO ALL PARTIES