In Re: Cendant Corp Prides Litigation

Opinions of the United

2001 Decisions States Court of Appeals

for the Third Circuit

3-21-2001

In Re: Cendant Corp Prides Litigation

Precedential or Non-Precedential:

Docket 99-5555

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Filed March 21, 2001

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 99-5555

IN RE: CENDANT CORPORATION PRIDES LITIGA TION

WELCH & FORBES, INC., an institutional investment

manager, individually and on behalf of all others

similarly situated,

v.

CENDANT CORPORATION, MERRILL LYNCH & CO.;

CHASE SECURITIES, INC.; HENRY R. SILVERMAN;

WALTER A. FORBES; COSMO CORIGLIANO

JOANNE A. ABOFF FAMILY TRUST,

Appellant

Pursuant to Rule 12a

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civ. No. 98-02819)

District Judge: Honorable William H. W alls

Argued: Friday, December 15, 2000

BEFORE: SCIRICA, FUENTES

and GARTH, Circuit Judges

(Opinion Filed: March 21, 2001)

Howard B. Sirota (argued)

Sirota & Sirota LLP

110 Wall Street, 21st Floor

New York, New York 10005

Counsel for Appellant

Roger Kirby (argued)

Kirby McInerney & Squire LLP

830 Third Avenue, 10th Floor

New York, New York 10022

Counsel for Plaintiffs-Appellees

Samuel Kadet (argued)

Skadden, Arps, Slate, Meagher &

Flom LLP

Four Times Square

New York, New York 10036

Counsel for Defendants-Appellees

OPINION OF THE COURT

GARTH, Circuit Judge:

This appeal arises out of a class action filed on behalf of

investors in Cendant Corporation ("Cendant") after Cendant

disclosed prior "accounting irregularities" on April 15, 1998.1

Several actions were filed as a result of this disclosure,

including an action commenced on June 15, 1998 on

behalf of purchasers of Cendant's Feline PRIDES shares.

The PRIDES litigation was subsequently consolidated with

the other pending Cendant actions. However, on August 4,

1998, the District Court ruled that separate lead plaintiffs

and lead counsel were to represent the interests of the

PRIDES shareholders, as distinct from the rest of the

Cendant class. (JA1300-01.)

The firm of Kirby, McInerney & Squir e, formerly

Kaufman, Malchman, Kirby & Squire, ("Kirby") was

_________________________________________________________________

1. Although there are other defendants, we refer to all the defendants as

Cendant.

2

appointed as lead counsel of the Cendant PRIDES class. On

November 12, 1998, Kirby filed a motion for class

certification, for summary judgment on the claims under

S 11 of the Securities Act, and for injunctive relief. On

behalf of the PRIDES class, Kirby entered into a proposed

settlement agreement with Cendant on Mar ch 17, 1999--

three and a half months after Kirby's motions were filed

and no more than nine months after the action had been

started.

Under the settlement agreement, Cendant agr eed to issue

Rights to new PRIDES, with a stated value of $11.71.

(JA576-79.) Those rights were in trade for existing PRIDES.

The total possible number and amount of Rights to be

distributed pursuant to the agreement was 29,161,474,

with an approximate stated value of $341,500,000. (JA590.)

Regarding Kirby's attorneys' fees, the settlement agreement

provided: "Cendant . . . will take no position on an

application by Lead Counsel for an award of fees and

expenses provided that such application shall not request

fees in excess of 10% percent [sic] of the aggregate Stated

Value of 29,161,474 Rights, which is appr oximately

$341,500,000, plus reasonable expenses incurr ed by Lead

Counsel in connection with this Action." (JA590.)

The Notice of Pendency of Class Action summarized the

proposed settlement of the PRIDES litigation. (JA239-52.)

In connection with "Lead Counsel's fees and expenses," the

Notice stated: "Lead Counsel has notified the other

signatories hereto that it intends to apply to the Court for

an award of fees, in an amount not to exceed 10% of the

aggregate Stated Value of 29,161,474 Rights, or

approximately $34.1 million, plus reasonable expenses."

(JA247.) The Notice went on to explain how the attor neys'

fees would be paid, first out of "Unclaimed Rights,"2 then

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2. "Unclaimed Rights" are defined in the Stipulation and Agreement of

Compromise and Settlement as "Rights as to which a timely and valid

Proof of Claim has not been filed by a Holder ." (JA576.) All Unclaimed

Rights "shall be cancelled and Cendant shall not issue, sell, or

distribute

any further Rights to any other person." (Notice of Proposed Settlement,

JA248.) In addition, the Settlement provided that, though "Merrill Lynch

beneficially owned 738,526 PRIDES as of the close of business on April

15, 1998, Merrill Lynch nevertheless is not a class member and cannot

recover new PRIDES in connection with the Settlement." (JA577.)

3

out of "Opt Out Rights," then out of the rights of class

members with claims.3

The Notice also asserted:

You also should know that the lead counsel

appointment process included a court-mandated

bidding process. This was intend to assur e that the

largest possible portion of any recovery remained with

participating class members, or conversely that

qualified lead counsel took the least possible sums

from the benefits to be obtained by participating class

members. In Lead Counsel's view, under the fee

mechanism proposed by Lead Counsel and described

herein, there is a substantial likelihood that a

substantial part, if not all, of the fees sought will be

obtained from Unclaimed Rights and Opt Out Rights.

As a consequence, in Lead Counsel's view, those Class

Members who become Authorized Claimants will not

have to pay any of Lead Counsel's fees, or if they do,

there is a substantial likelihood that it will be less than

the amount otherwise payable under the bids appr oved

by the Court in the process of appointing lead counsel.

(JA247.)

On May 4, 1999, the Joanne A. Aboff Trust ("Trust") filed

several objections to the notice of settlement, all of which

pertained to Kirby's representation and fee request,4 as well

_________________________________________________________________

3. The settlement consisted of 29,161,474 Rights. After subtracting the

attorneys' fees and expenses for Lead Counsel, 27,308,617 Rights

remained. Proofs of Claim were filed with respect to 26,606,422 Rights,

of which 22,502,782 Rights were validated by the claims administrator

as of August 18, 1999. (Kirby Aff., Ex. L, atP 2.) Pursuant to the

settlement agreement, the unclaimed Rights that were not used to pay

Kirby for its fees and expenses were to be canceled by Cendant. Because

the total amount of Rights requested in the Pr oofs of Claim (26,606,422

Rights) was less than the amount of the settlement, after subtracting the

amount to be given to Kirby (1,650,680 Rights, valued at $19,329,463),

no claiming class members have had or will have their recovery reduced

by the fees and expenses taken by Kirby.

4. The Trust's objections concerned: 1) a "confidential Supplemental

Agreement" between lead plaintiff and Cendant which was included in

4

as a notice of its intention to appear at the settlement

hearing. (JA38-78.) At the settlement hearing on May 18,

1999, lead counsel stated that "[t]her e is no objection to the

settlement," (JA736), and the Trust's attor neys objected

only to selection of class counsel and Kirby's r equest for

attorneys' fees.

On June 15, 1999, the District Court signed an Opinion

and Order approving the settlement, stating: "The Court

considers the settlement to be eminently fair and

reasonable. The class is made completely whole by such

compensation. There are no objections voiced to the

settlement--only to the request for attor ney fees. The

proposed settlement is approved subject to the following

modifications to the attorneys' fees." In re Cendant Corp.

PRIDES Litig., 51 F.Supp.2d 537, 541 (D.N.J. 1999).

The District Court granted Kirby's request for expenses,

finding that the requested expenses of $2,367,493 were

"reasonable and necessary to the prosecution of this

litigation." 51 F.Supp.2d at 542. Then the Court found that,

for attorneys' fees, Kirby should receive a number of Rights

equivalent to 5.7% of the balance of Rights r eceived by the

Class. That percentage amounts to 1,650,680 Rights,

valued at approximately $19,329,463. The District Court

directed "Lead Counsel to seek to satisfy payment of these

awards of expenses and fees from any unclaimed Rights.

Then, and only then, to the extent that such fees and

expenses have not been satisfied by unclaimed Rights, shall

any deficiency be assessed against and bor ne by the class."

51 F.Supp.2d at 542. The Court went on to instruct that

"[a]ny rights unclaimed after authorized class claimants

_________________________________________________________________

the Settlement but not published and apparently contained information

about Cendant's and Lead Plaintiff 's obligations under the Settlement;

and 2) "lead counsel's excessive fee request." (JA39-40.) The Trust

argued, inter alia, that "[t]he combination of this unusual confidential

agreement with Lead Counsel's excessive fee r equest . . . multiplies the

potential that the class and the public will suspect that the settlement

contains a collusive or improper provision by which Lead Plaintiff, Lead

Counsel, and/or Cendant will benefit at the expense of the class."

(JA46.) The text of this "Supplemental Agr eement" does not appear in the

record, nor can we tell if it was discussed in the Notice.

5

and Lead Counsel have been issued their entitled Rights

shall be canceled by Cendant Corporation." 51 F .Supp.2d

at 542.

On June 15, 1999, the District Court entered an Order

and Judgment5 certifying the PRIDES class for settlement,

approving the settlement "and the distribution of Rights

and New PRIDES to Authorized Claimants set forth

therein," dismissing with prejudice all settled claims, and

awarding Lead Counsel 1,650,680 Rights as r easonable

attorneys' fees and 202,177 Rights as r eimbursement of

Lead Counsel's reasonable expenses. (JA728-30.) On the

same date and as part of its opinion, the District Court

denied the Trust's application for attor neys' fees. On July

22, 1999, the Trust timely appealed the District Court's

June 15 Orders and Judgment.

We have jurisdiction over this appeal pursuant to the

final order doctrine of 28 U.S.C. S 1291, and we review the

District Court's award of attorneys' fees for an abuse of

discretion, "which can occur `if the judge fails to apply the

proper legal standard or to follow pr oper procedures in

making the determination, or bases an awar d upon findings

of fact that are clearly erroneous.' " Zolfo, Cooper & Co. v.

Sunbeam-Oster Co., 50 F.3d 253, 257 (3d Cir. 1995)

(quoting Electro-Wire Prods., Inc. v. Sirote & Permutt, P.C. (In

re Prince), 40 F.3d 356, 359 (11th Cir. 1994)).

On August 27, 1999, Kirby filed a Motion in this court to

dismiss the Trust's appeal for lack of standing, as well as

presenting the standing issue in its appellate brief.

I.

Before we consider the merits of the Trust's appeal, a

threshold question must be answered: does the Trust have

standing to challenge the District Court's awar d of

attorneys' fees to Kirby? See Steel Co. v. Citizens for a

Better Env't, 523 U.S. 83, 94-95 (1998) (stating that "[t]he

requirement that jurisdiction be established as a threshold

_________________________________________________________________

5. The District Court judge signed both the Opinion and the Order and

Judgment on June 15, 1999, but the Opinion was filed on June 16,

1999 and the Order and Judgment was filed on June 24, 1999.

6

matter `spring[s] from the natur e and limits of the judicial

power of the United States' and `is inflexible and without

exception' "). Because "the core component of standing is an

essential and unchanging part of the case-or -controversy

requirement of Article III," Lujan v. Defenders of Wildlife,

504 U.S. 555, 560 (1992), we may not hear this appeal if

the Trust does not have standing.

"Ordinarily, only a party aggrieved by a judgment or

order of a district court may exercise the statutory right to

appeal therefrom. A party who receives all that he has

sought generally is not aggrieved by the judgment af fording

the relief and cannot appeal from it." Deposit Guar. Nat'l

Bank v. Roper, 445 U.S. 326, 333 (1980) (emphasis added).

In Ace Heating & Plumbing Co. v. Crane Co., the Third

Circuit explicated the application of this principle to class

actions, holding: "aggrieved class members may appeal any

final order of a district court in pr oceedings held pursuant

to Rule 23. This general proposition holds true even though

such class members have the right to exclude themselves

from the class." 453 F.2d 30, 32 (3d Cir. 1971) (emphasis

added).

The standing question in this case is troublesome,

because it appears as if the PRIDES settlement has

provided the class members with full recovery and because

any reduction in the amount of attorneys' fees to Kirby will

not be distributed among the class members, but instead

those rights will be returned to and canceled by Cendant.

Therefore, Kirby argues, the T rust is not aggrieved by the

award of attorneys' fees and has no standing to appeal.

While this argument admittedly has a superficial

attraction because the PRIDES class members will

seemingly recover a "dollar-for -dollar" return for their

claims and Kirby's fees will not reduce their r ecovery, we

nevertheless hold that the Trust does have standing to

appeal the award of attorneys' fees. 6 We base this holding

on two related concepts: 1) the nature of the relationship

between class plaintiffs, class counsel, and defendants in

_________________________________________________________________

6. Our holding that the Trust has standing to appeal disposes of the

motion made by Kirby on August 27, 1999 to dismiss the Trust's appeal.

We will deny that motion.

7

class actions requires that the "aggrieved" requirement be

construed broadly in class action cases; and 2) the

judiciary's independent authority over the appointment of

class counsel, the grant of attorneys' fees, and the review of

attorneys' fee awards in class actions. In connection with

these two principles, we require that district courts conduct

an extensive analysis and inquiry before deter mining the

amount of fees, because we have an independent inter est in

monitoring district courts' fee awards, particularly those

awards stemming from Rule 23 class actions. See, e.g.,

Zucker v. Occidental Petroleum Corp., 192 F.3d 1323, 1328

(9th Cir. 1999); see generally Advisory Committee's Notes

on Fed. R. Civ. P. 23, 28 U.S.C., Notes following Rule 23

(addressing, inter alia, "the question of the measures that

might be taken during the course of the action to assure

procedural fairness"). Indeed, we ar e in effect third parties

to the fee award process, albeit silent parties for the most

part until the award is finalized and r eviewed.

A.

Ostensibly, lead class counsel represents all class

plaintiffs. However, in attempting to settle a large class

action, class counsel must often spend more time

negotiating with and interacting with the defendants than

with their own clients. This situation presents several

dangers. First, as we observed in Prandini v. National Tea

Co., "a defendant is interested only in disposing of the total

claims asserted against it[, and] the allocation between the

class payment and the attorneys' fees is of little or no

interest to the defense." 557 F.2d 1015, 1020 (3d Cir.

1977). Moreover, the "divergence in [class members' and

class counsel's] financial incentives . . . cr eates the `danger

. . . that the lawyers might urge a class settlement at a low

figure or on a less-than-optimal basis in exchange for red-

carpet treatment for fees.' " In r e General Motors Corp. Pick-

Up Truck Fuel Tank Prod. Liab. Litig. (hereinafter "In re GM

Trucks"), 55 F.3d 768, 820 (3d Cir. 1995) (quoting

Weinberger v. Great Norther n Nekoosa Corp., 925 F.2d 518,

524 (1st Cir. 1991).

This unique relationship among plaintif fs' counsel,

plaintiffs, and defendants in class actions imposes a special

8

responsibility upon appellate courts to hear challenges to

fee awards by class members whose claims may have been

reduced or in some way affected in exchange for large fee

awards. See In re GM Trucks , 55 F.3d at 819-21. This is so

even in this case, where the Trust pr esumably will not

benefit from a reduction in Kirby's attorneys' fees, because

the PRIDES settlement was structured so that any

remaining Rights will be returned to Cendant.

The Ninth Circuit addressed a similar situation in Zucker

v. Occidental Petroleum Corp., 192 F .3d 1323 (9th Cir.

1999), pointing out in its discussion that, even where the

plaintiff "gets the same money whether the fee is cut or not,

. . . a client whose attorney accepts payment, without his

consent, from the defendants he is suing, may have a

remedy, and this remedy may extend to a plaintiff class

whose class attorneys accept payment fr om the defendants

the class is suing." 192 F.3d at 1326.

The Ninth Circuit took this reasoning a step further in

Lobatz v. U.S. West Cellular of Calif., in which the court,

holding that a class member had standing to appeal an

attorneys' fee award "even though that award was payable

independent of the class settlement," stated:

If . . . class counsel agreed to accept excessive fees and

costs to the detriment of class plaintiffs, then class

counsel breached their fiduciary duty to the class[,

and] any excessive award could be consider ed property

of the class plaintiffs, and any injury they suffered

could be at least partially redressed by allocating to

them a portion of that award.

Lobatz, 222 F.3d 1142, 1147 (9th Cir . 2000).

Under the Ninth Circuit's analysis, ther efore, the Trust

need not benefit from a reduction in Kirby's fee to have

standing to appeal. Moreover, the Ninth Circuit suggested

in Zucker that the requirement that class plaintiffs be

aggrieved should be construed broadly, citing Judge

Sneed's observation in his dissent in In r e First Capital

Holdings "that `[a]rguably, a class member always retains

an interest in attorney fees, even when her claims have

been met in full.' " Zucker, 192 F .3d at 1328 (quoting In re

9

First Capital Holdings Corp. Fin. Prods. Sec. Litig., 33 F.3d

29, 31 (9th Cir. 1994) (Sneed, J., dissenting).

As a class member, the Trust was eligible to receive "one

Right, a marketable security freely tradeable until February

14, 2001, having the terms described her ein for each

Income PRIDES and Growth PRIDES ($50.00 face amount)

beneficially owned by Class members at the close of

business on April 15, 1998 if such Class member submits

a valid and timely proof of claim form." (JA239.) The Notice

of the Proposed Settlement stated that "[e]ach Right will be

designed to have a stated or theoretical value of $11.71,"

but acknowledged that "the Rights may trade in the market

at a price below their theoretical value." (JA239.) Moreover,

the Notice stated that "Cendant believes that r ecoverable

damages (if any) per share could be lower or higher than

the per PRIDES damages estimated by lead counsel for the

Class." (JA239.)7

Though Kirby asserts that each class member r eceived

full recovery from this settlement, in which case, it is

contended, the Trust would not be aggrieved by the fee

award, the description of the settlement in the Notice and

its ultimate implementation by class members is uncertain

as to class members' actual recovery. Because class

members received rights which must be traded on the

market to be liquidated, a number of factors could

contribute to class members not receiving the theoretical

$11.71 per Right. It is noteworthy that the settlement

provided class members with no immediate cash payment,

but rather left class members in the position of r elying on

the marketability of their new Rights for reimbursement of

their claims. That reliance, apart from any other market

risks, might itself be chancy in light of Cendant's history of

"accounting irregularities" and in light of the recent market

and economy slow down.

_________________________________________________________________

7. The settlement, as noted above, provides for Rights which are "freely

tradeable until February 14, 2001," which date has passed. The record

does not disclose whether all the claimed Rights have been traded or the

actual value of those Rights. Hence, because the r ecord is silent and the

settlement itself has not been challenged on this appeal, we do no more

than call attention to that aspect of the settlement.

10

Nor does even a "dollar-for-dollar" recovery in cash

undermine our power and jurisdiction and our special

responsibility to review fee awards. Indeed, though the fact

of market fluctuation and its effect on the value of class

members' recovery influences our decision that the Trust

has standing, we are equally convinced of our appellate

jurisdiction over class settlements in which plaintiffs

received a "dollar-for-dollar" recovery in cash. Indeed, it

would be preposterous to hold that, even where a district

court awarded a fee of 75% of the recovery to class counsel,

we would have no power to review such an inappr opriate

and outrageous award in the absence of an objector whose

claims had been directly reduced as a r esult of the award.

Our oversight and supervisory function would necessarily

come into play to correct such a decree. This duty of review

with which we are vested will be discussed in more detail

in the next section.

B.

As indicated above, we are convinced of our obligation to

vacate the District Court's order awarding fees by the

special position of the courts in connection with class

action settlements and attorneys' fee awar ds. As we

observed in In re GM Trucks,"a thorough review of fee

applications is required in all class action settlements." 55

F.3d at 819. Specifically, the danger inher ent in the

relationship among the class, class counsel, and

defendants "generates an especially acute need for close

judicial scrutiny of fee arrangements" in class action

settlements.8 55 F.3d at 820. In discussing this duty of

_________________________________________________________________

8. We should make clear that we do not attribute any motives or designs

to Kirby that would indicate any conflict by Kirby with its responsibility

to the class, nor do we mean to intimate that Kirby acted improperly.

Indeed, as the District Court found and we have no r eason to dispute,

Kirby discharged its function as lead counsel in exemplary fashion. The

cautions we express, which are present in the unique context of class

actions and the fee awards which arise in this context, pertain solely to

the issue of whether, where class members have apparently received

dollar-for-dollar recovery, standing is available for an objector to a fee

award. For all the reasons we express here, we are satisfied that it is.

11

district courts to oversee class settlements in In re GM

Trucks, we explained:

the court's oversight task is considerably complicated

by the fact that these attorney-class conflicts are often

difficult to discern in the class action context, "where

full disclosure and consent are many times difficult

and frequently impractical to obtain." Finally, we

emphasize that the court's oversight function serves

not only to detect instances of "the actual abuse[that

potential attorney-class conflicts] may cause, but also

[the] potential public misunderstandings they may

cultivate in regard to the interests of class counsel."

55 F.3d at 820 (quoting In re Agent Orange Prod. Liab.

Litig., 818 F.2d 216, 224, 225 (2d Cir . 1987)). In other

words, we indicated in In re GM T rucks the importance of

the judicial role in finalizing class action settlements, and

we suggested that this importance derived fr om general

concerns about "potential public misunderstandings" as

much as from a desire to protect the plaintiffs in the

particular class.

In Zucker, in asserting that the district court was

required to review the award of attorneys' fees regardless of

whether anyone had standing to challenge the awar d, the

Ninth Circuit stated:

In a class action, whether the attorneys' fees come

from a common fund or are otherwise paid, the district

court must exercise its inherent authority to assure

that the amount and mode of payment of attor neys'

fees are fair and proper. This duty of the court exists

independently of any objection. Therefor e it exists, a

fortiori, regardless of whether an objector has a

remediable economic stake in the court's decision.

Because the district court had the authority and duty

to pass upon the fairness of the attor neys' fees

settlement independently of whether there was

objection, we need not decide whether the objector had

standing.

192 F.3d at 1328-29.

The court in Zucker further explained that"[n]o Article III

case or controversy is needed with regar d to attorneys' fees

12

as such, because they are but an ancillary matter over

which the district court retains equitable jurisdiction." 192

F.3d at 1329. The Ninth Circuit found support for this

proposition in the reasoning of the Eighth Circuit that

"because `the reasonableness of attor neys' fees is within the

overall supervisory authority' of the court in a class action,

the court did not need to reach the question of whether an

objector has standing." Zucker, 192 F .3d at 1329 (quoting

Grunin v. Int'l House of Pancakes, 513 F .2d 114, 127 n.13

(8th Cir. 1975)).

While the statements in In re GM T rucks and Zucker refer

to the authority of district, not appellate, courts in

connection with class action settlements, the cases make

clear that reviewing courts retain an interest--a most

special and predominant interest--in the fairness of class

action settlements and attorneys' fee awar ds. Accordingly,

our interest as a reviewing court in ensuring that district

courts fulfill their obligations and comply with the

instructions and guidelines in this area bolsters our

determination that the Trust has standing to challenge

Kirby's fee award.

Nor is our responsibility in connection with class action

matters restricted to reviewing the final fee determination

made by the District Court. Our interest and supervisory

role is pervasive and extends not only to thefinal fee award

but also to the manner by which class counsel is selected

and the manner by which attorneys' fee conditions are

established.

Here, the District Court employed a sealed-bid auction to

select class counsel. That process, which occurred virtually

at the inception of the instant class action, is itself fee-

driven. As such, it invites, indeed requir es, judicial

examination and, hence, our jurisdiction. This is so both

because of the unique relationship between class members,

class counsel, and the defendants in class actions and

because of our strong interest in the fair ness of class

settlements and the cost of achieving such settlements.

See, e.g., John C. Coffee, Jr., National Law Journal, Sept.

14, 1998, at B6 (discussing selection of lead counsel

through auctions and "bidding rules").

13

Because it is the district court's function to participate in

the litigation process in this way, as the District Court did

here, and because, as noted, our judicial scrutiny reaches

to all corners of the class action process including the

selection of class counsel--a selection which impacts on the

final fee award and fairness of the settlement--we would be

remiss if we failed to exercise our jurisdiction in this area.

An analogy, albeit one that is far afield fr om class action

fees, is helpful to illustrate and emphasize the court's

interest and the role that our inter est plays in our decision

to hear this appeal. In Powers v. Ohio, a post-Batson case,9

the Supreme Court held that a white criminal defendant

had standing to object to and appeal the exclusion of black

jurors through peremptory challenges, even though the

defendant and the potential jurors were of different races.

499 U.S. 400 (1991). In its discussion of standing, the

Court stated:

The discriminatory use of peremptory challenges by the

prosecution causes a criminal defendant cognizable

injury, and the defendant has a concrete inter est in

challenging the practice. This is not because the

individual jurors dismissed by the prosecution may

have been predisposed to favor the defendant; if that

were true, the jurors might have been excused for

cause. Rather, it is because racial discrimination in the

selection of jurors "casts doubt on the integrity of the

judicial process," and places the fair ness of a criminal

proceeding in doubt.

Powers, 499 U.S. at 411 (internal citations omitted).

Likewise, just as discriminatory selection of jur ors "casts

doubt on the integrity of the judicial process" such that the

defendant in Powers had standing to appeal, the integrity

and fairness of class settlements is thr eatened by excessive

attorneys' fee awards such that class plaintiffs have

_________________________________________________________________

9. In Batson v. Kentucky, 476 U.S. 79 (1986), the Supreme Court "held

that a [black] defendant can raise an equal pr otection challenge to the

use of peremptories at his own trial by showing that the prosecutor used

them for the purpose of excluding members of the defendant's race."

Powers v. Ohio, 499 U.S. at 405 (citing Batson, 476 U.S. at 96).

14

standing to challenge excessive fee awards, even when they

have received dollar-for-dollar r ecovery in the class

settlement.

Because of the possible injury to the Trust as well as

other class members from the fee award in this case and,

more importantly, because of our overar ching interest in

class fee awards, we therefore hold that the Trust has

standing to appeal the fee award. Accor dingly, we now turn

to the fee award that the District Court granted to Kirby

and review that award for an abuse of discretion. See In re

GM Trucks, 55 F.3d 768, 782 (3d Cir . 1995).

II.

There are two primary methods for calculating attorneys'

fees: the percentage-of-recovery method 10 and the lodestar

method.11 "The per centage-of-recovery method is generally

favored in cases involving a common fund,12 and is

designed to allow courts to award fees fr om the fund `in a

manner that rewards counsel for success and penalizes it

for failure.' " In re Prudential, 148 F.3d at 333. "The lodestar

method is more commonly applied in statutory fee-shifting

cases, and is designed to reward counsel for undertaking

_________________________________________________________________

10. This method has been described as follows:"The percentage of

recovery method resembles a contingent fee in that it awards counsel a

variable percentage of the amount recover ed for the class." In re GM

Trucks, 55 F.3d 768, 819 n.38 (3d Cir. 1995).

11. The lodestar method was initially set forth in Lindy Bros. Builder,

Inc.

of Philadelphia v. American Radiator & Standar d Sanitary Corp., 487

F.2d 161 (3d Cir. 1973), appeal following remand, 540 F.2d 102 (3d Cir.

1976). As this court explained in Gunter v. Ridgewood Energy Corp., "[a]

court determines an attorney's lodestar by multiplying the number of

hours he or she reasonably worked on a client's case by a reasonable

hourly billing rate for such services given the geographical area, the

nature of the services provided, and the experience of the lawyer." 223

F.3d 190, 195 n.1 (3d Cir. 2000).

12. "[T]he common-fund doctrine . . . allows a person who maintains a

lawsuit that results in the creation, pr eservation, or increase of a fund

in which others have a common interest, to be r eimbursed from that

fund for litigation expenses incurred." Court Awarded Attorney Fees,

Report of the Third Circuit Task Force, 108 F.R.D. 237, 241 (1985)

(hereinafter "Task Force Report").

15

socially beneficial litigation in cases wher e the expected

relief has a small enough monetary value that a

percentage-of-recovery method would pr ovide inadequate

compensation." 148 F.3d at 333.

The total settlement in this case was valued at

$341,500,000, and the District Court granted attor neys'

fees in the amount of $19,329,463.13 As the District Court

noted, this amount constitutes 5.7% of the class's total

recovery. In connection with the lodestar calculation, the

District Court observed that "Lead Counsel, thr ough its

principal partners, associates, and paralegals expended

approximately 5,600 hours, and its senior partners have a

regular hourly rate of $495." 51 F.Supp.2d at 542. Using

the $495 hourly rate, the lodestar multiplier14 for the

District Court's fee award is 7.15

Two primary principles govern our review of the District

Court's fee award to Kirby: 1) did the District Court provide

sufficient explanation for granting the fee awar d of $19.3

million?; and 2) was the award so unreasonably high that

the District Court abused its discretion in granting that

amount in attorneys' fees?

_________________________________________________________________

13. Kirby's ceiling for fees, as explained in the Notice of Settlement,

was

ten percent of the total settlement. The settlement was calculated at

$341.5 million, ten percent of which would be $34,150,000. That figure

was reduced by the District Court to $19,329,463.

14. The Task Force Report explained that, after the lodestar is

calculated, "[t]he `lodestar' then could be increased or decreased based

upon the contingent nature or risk in the particular case involved and

the quality of the attorney's work. An incr ease or decrease of the

lodestar

amount is referred to as a `multiplier.' " Task Force Report, 108 F.R.D.

237, 243.

15. 5,600 hours x $495 = 2,772,000. $19,329,463 divided by 2,772,000

= 6.97. This multiplier of 7 essentially comports with the information

provided by Kirby after oral argument. In that letter, Kirby stated that

"the blended hourly compensation to ourselves and those law firms who

were working with us was approximately $3,300." (Dec. 19, 2000 Kirby

Letter, at 2.) $3,300 divided by $495 = 6.67, only slightly less than the

6.97 multiplier calculated from the figur es provided by the District

Court.

16

A.

In Gunter v. Ridgewood Energy Corp., we considered a

district court's award of attorneys' fees in a class action

settlement. 223 F.3d 190 (3d Cir. 2000). That case involved

a $9.5 million settlement, out of which the district court

allowed attorneys' fees amounting to 18% of the settlement

fund, significantly less than the one-thir d requested by the

attorneys. 223 F.3d at 191. The district court in Gunter

explained its decision as follows: "The natur e of this

litigation, its resolution at this stage without the necessity

of trial, the nature of the settlement, and its value, convince

the court that it would place a reasonable bur den on the

class to award attorneys' fees of 18% of the Settlement

Fund, or $1,700,000." 223 F.3d at 192 (citing Gunter v.

Ridgewood Energy Corp., Civ. No. 95-438 (WHW), at 3

(D.N.J. Nov. 16, 1999)). The attorneys appealed the district

court's reduction of their fee request.

In reviewing the district court's fee awar d in Gunter, we

stated that "[w]e give [a] great deal of deference to a district

court's decision to set fees." 223 F.3d at 195. However, we

noted, "[n]otwithstanding our deferential standard of

review, it is incumbent upon a district court to make its

reasoning and application of the fee-awar ds jurisprudence

clear, so that we, as a reviewing court, have a sufficient

basis to review for abuse of discretion." 223 F.3d at 196.

Therefore, "if the district court's fee-award opinion is so

terse, vague, or conclusory that we have no basis to review

it, we must vacate the fee-award order and remand for

further proceedings." 223 F.3d at 196. In addition, "if a

district court does not fulfill its duty to apply the relevant

legal precepts to a fee application, it abuses its discretion

by not exercising it." 223 F.3d at 196.

In Gunter, we vacated the district court's fee award

because the district court "dealt with the fee-award issue in

a cursory and conclusory fashion" and did not employ the

factors which this Court has stated that district courts

should consider in awarding fees using the per centage-of-

recovery method in common-fund class actions. See Gunter,

223 F.3d at 196-97. These factors wer e set forth in Gunter

in a footnote:

17

Among other things, these factors include: (1) the size

of the fund created and the number of persons

benefitted; (2) the presence or absence of substantial

objections by members of the class to the settlement

terms and/or fees requested by counsel; (3) the skill

and efficiency of the attorneys involved; (4) the

complexity and duration of the litigation; (5) the risk of

nonpayment; (6) the amount of time devoted to the

case by plaintiffs' counsel; and (7) the awar ds in

similar cases.

Gunter, 223 F.3d at 195 n.1 (citing In re Prudential, 148

F.3d 283, 336-40 (3d Cir. 1998); In re GM Trucks, 55 F.3d

768, 819-22 (3d Cir. 1995)).

As in Gunter, the District Court's fee opinion in this case

was too cursory for us to "have a sufficient basis to review

for abuse of discretion." Gunter, 223 F.3d at 196. The

District Court did not even specify whether it was using the

percentage-of-recovery method or the lodestar method to

set attorneys' fees. Nor, if the District Court intended to

utilize the lodestar method, did it calculate the lodestar

multiplier. Rather, the District Court, in a conclusory

paragraph bereft of analysis, stated:

This Court has examined the time expended by Lead

Counsel and the regular hourly rates of its services.

Lead Counsel, through its principal partners,

associates, and paralegals expended approximately

5,600 hours, and its senior partners have a r egular

hourly rate of $495. This represents significant effort.

But the Court is more impressed by the quality of

result than the quantity of effort. The class will receive

its full entitlement. And resolution of this matter was

greatly accelerated by the creative dynamism of

counsel. For this, counsel should not be penalized by

a slavish application of the lodestar. W e have seen the

gifted execution of responsibilities by a lead counsel.

51 F.Supp.2d at 542. Despite the District Court's obvious

dissatisfaction with the lodestar method, the court did not

even address the percentage-of-recovery method, except to

the extent that it calculated that the fee awar d constituted

5.7% of the total class recovery.

18

The percentage-of-recovery method has long been used in

this Circuit in common-fund cases. Indeed, in the 1985

Third Circuit Task Force r eport entitled Court Awarded

Attorney Fees, the Task Force discussed the problems with

the lodestar method in detail. "Accordingly, the Task Force

recommend[ed] that in the traditional common-fund

situation . . . , the district court . . . should attempt to

establish a percentage fee arrangement." Task Force Report,

108 F.R.D. 237, 255 (1985). Since that time, we have

several times reaffirmed that application of a percentage-of-

recovery method is appropriate in common-fund cases. See,

e.g., Gunter v. Ridgewood Energy Corp. , 223 F.3d 190, 195

n.1 (3d Cir. 2000); Brytus v. Spang & Co. , 203 F.3d 238,

243 (3d Cir. 2000); In re Prudential, 148 F.3d 283, 333-34

(3d Cir. 1998); In re GM Trucks, 55 F.3d 768, 821 (3d Cir.

1995).

Though this is not a traditional common-fund case,

because the unclaimed portion of the settlement fund is

returned to Cendant and because the plaintiffs who recover

may not be affected by the attorneys' fee award (depending

on the number of plaintiffs who recover rights from the

fund), use of the percentage-of-recovery method is

appropriate in this case. Since the District Court

highlighted the inadequacy of the lodestar method, it can

be assumed that that court also perceived that the

percentage method was a better method of calculating

attorneys' fees in this case. This is consistent with the

District Court's opinion awarding attor neys' fees in the

larger and separate Cendant settlement, in which it did

declare, "[f]ollowing established Thir d Circuit law . . . , the

Court will award fees by a percentage-of-r ecovery method."

In re Cendant Corp. Litig., 109 F .Supp.2d 285, 298 (D.N.J.

2000).16

_________________________________________________________________

16. By referring to the District Court's method of calculating attorneys'

fees in the separate Cendant case (see text at p. 2, supra, where we

noted that the PRIDES shareholders were to be represented separately

from the primary Cendant class), we by no means indicate that the fees

awarded to the primary Cendant class wer e a proper exercise of the

District Court's discretion. We leave that determination to the panel of

this court assigned to review that fee awar d.

19

As discussed above, we have articulated at least seven

factors to be considered by district courts in setting

percentage fee awards in common fund cases. See Gunter,

223 F.3d 190, 195 n.1 (3d Cir. 2000). The District Court,

however, did not explicitly consider any of these factors.17 In

addition to rejecting the lodestar method, the District Court

stated: "The Court appreciates Lead Counsel's verve and

the eminently satisfactory results it obtained for the class.

There are no objections to the settlement agreement." 51

F.Supp.2d at 541. In addition, the District Court mentioned

the initial sealed bidding process and r eferred to the

resulting bid to which Kirby agreed "as a benchmark of

reasonableness." 51 F.Supp.2d at 542 (quoting In re

Cendant Corp., 182 F.R.D. 144, 152 (D.N.J. 1998).

However, when it came to setting the fee awar d, the District

Court said simply, "[t]he Court deter mines that counsel fees

of 5.7% of this net balance [of the total awar d less Lead

Counsel's expenses of $2,367,493] are r easonable." 51

F.Supp.2d at 542.

It could be argued that, in the few terse statements

quoted above, the District Court took into account three of

the seven Gunter factors: "the pr esence or absence of

substantial objections by members of the class to the

settlement terms and/or fees requested by counsel"; "the

skill and efficiency of the attorneys involved"; and "the

amount of time devoted to the case by plaintif fs' counsel."

Gunter, 223 F.3d at 195 n.1. However , the District Court

brushed over our required analysis of those factors in

setting the attorneys' fees.

Significantly, the District Court did not consider at all the

other factors which we deem to be more important in this

case, namely "the complexity and duration of the litigation"

and "the [range of] awards in similar cases." 223 F.3d at

_________________________________________________________________

17. We recognize that our decision in Gunter was issued after the District

Court ruled on the settlement and fee application in this case and that,

therefore, the District Court could not have been informed in its decision

by our holding in Gunter. However, all of the principles enunciated in

Gunter have been announced by this court befor e, in cases predating the

District Court's decision on appeal here. See, e.g., In re Prudential, 148

F.3d 283, 336-40 (3d Cir. 1998); In re GM Trucks, 55 F.3d 768, 819-22

(3d Cir. 1995)

20

195 n.1 (emphasis added). Nor does it appear that the

District Court "cross-check[ed] the percentage award . . .

against the `lodestar' award method," which is "suggested"

practice for district courts setting fee awar ds by the

percentage-of-recovery method. Gunter , 223 F.3d at 195

n.1. Further, the District Court did not"make its reasoning

and application of the fee-awards jurisprudence clear."

Gunter, 223 F.3d at 196.18

B.

Because the District Court failed to consider the Gunter

factors that we deem essential to a proper exer cise of

discretion and to an appropriate consideration of attorneys'

fee awards, we will discuss those factors her e.

1. Complexity and Duration of Litigation

In April 1998, Cendant announced past accounting

irregularities and stated that its financial statements for

certain past years would be restated. 51 F .Supp.2d at 539.

On behalf of the Cendant PRIDES class, Kirby filed an

Amended and Consolidated Class Action Complaint on

November 11, 1998, accompanied by a motion for class

certification, a motion for summary judgment, and a motion

for preliminary injunctive relief. Less than two months

later, on January 7, 1999, the parties announced that they

had reached "an agreement in principal[sic]," and the

parties presented a proposed settlement agreement to the

District Court on March 17, 1999. 51 F.Supp.2d at 540.

As the District Court observed, "[t]his stage of the

_________________________________________________________________

18. The District Court did indicate in its opinion that it was using the

bid to which Kirby had agreed "as a benchmark of reasonableness" in

setting the fee. 51 F.Supp.2d at 541. However , a preliminary bidding

process cannot replace subsequent analysis of the factors listed in

Gunter. The circumstances and progression of every case are different,

and these unique factors must be taken into account by district courts

awarding attorneys' fees. Therefor e, though the result of a bidding

process may be of use to a district court in awarding fees at the end of

the case, it cannot supplant post-settlement analysis to determine a

reasonable fee.

21

litigation, notwithstanding that Lead Counsel has moved for

summary judgment, is what would be normally the

discovery period, very early on in the litigation." 51

F.Supp.2d at 541. The District Court also noted that Kirby

spent approximately 5,600 hours on this action.

In setting Kirby's fee award, the District Court apparently

turned a blind eye to the following factors: 1) the case was

relatively simple in terms of proof, in that Cendant had

conceded liability and no risks pertaining to liability or

collection were pertinent; 2) the case was settled at a very

early stage of the litigation, with an agreement being

announced two months after Kirby filed for class

certification and a proposed settlement being submitted to

the District Court two months after that; 3) ther e was a

minimal amount of motion practice in this case--before

settlement, Kirby submitted only the Complaint and three

motions, all on the same day; 4) discovery was virtually

nonexistent--indeed the District Court did not mention any

depositions taken or document review conducted by Kirby;

and 5) Kirby spent a relatively small amount of time on this

case compared to the amount of time expended in most

other large class actions.

2. Range of Awards

Before reviewing specific awards in other large class

settlements, we will review generally the range of attorneys'

fee awards in common fund settlements of class actions. In

In re GM Trucks, we observed that "[o]ne court has noted

that the fee awards have ranged from nineteen percent to

forty-five percent of the settlement fund." 55 F.3d 768, 822

(3d Cir. 1995) (citing In re Smithkline Beckman Corp. Sec.

Litig., 751 F. Supp. 525, 533 (E.D. Pa. 1990)). We also

noted in In re Prudential that "[t]he district court . . .

examined the fee awards in class actions with r ecoveries

exceeding $100 million and found the fee per centages

ranged from 4.1% to 17.92%." 148 F.3d 283, 339 (3d Cir.

1998).

However, recently two district courts in this Circuit have

declined to follow this court's statement of the range in In

re Prudential, stating that "the cases cited in [In re

22

Prudential] were all decided at least thirteen years ago." In

re Ikon Office Solutions, Inc. Sec. Litig. , 194 F.R.D. 166, 196

(E.D. Pa. 2000); In re Orthopedic Bone Screw Prod. Liab.

Litig., 2000 WL 1622741, at 7 (E.D. Pa. Oct. 23, 2000).

Indeed, in another Cendant opinion dealing with attorneys'

fees, this same District Court stated that, in cases surveyed

by lead counsel, "[a]wards . . . ranged from a low of 20% in

the case with a $200 million recovery to a high of 33.3% for

cases with recoveries of $77.5 million and $110 million." In

re Cendant Corp. Sec. Litig., 109 F .Supp.2d 285, 290

(D.N.J. 2000). These varying ranges of attor neys' fees

confirm that a district court may not r ely on a formulaic

application of the appropriate range in awar ding fees but

must consider the relevant circumstances of the particular

case.

One important consideration is the size of the settlement.

The Task Force Report stated, with r eference to fee awards

in common fund cases: "The negotiated fee, and the

procedure for arriving at it, should be left to the court's

discretion. In most instances, it will involve a sliding scale

dependent upon the ultimate recovery, the expectation

being that, absent unusual circumstances, the percentage

will decrease as the size of the fund incr eases." 108 F.R.D.

237, 256 (1985). We called attention to this statement in In

re Prudential, explaining that "[t]he basis for this inverse

relationship is the belief that `[i]n many instances the

increase [in recovery] is mer ely a factor of the size of the

class and has no direct relationship to the efforts of

counsel.' " In re Prudential, 148 F.3d at 339 (quoting In re

First Fidelity Bancorporation Sec. Litig., 750 F . Supp. 160,

164 n. 1 (D.N.J. 1990)). Accordingly, district courts setting

attorneys' fees in cases involving lar ge settlements must

avoid basing their awards on percentages derived from

cases where the settlement amounts were much smaller.

3. Other Awards

The District Court did not undertake to review the fees

granted in other class action settlement cases, particularly

in other large settlement cases, i.e., cases in which the

common fund exceeded $100 million.19 Had it conducted

_________________________________________________________________

19. A district court in this Circuit noted that "[c]ourts have generally

decreased the percentage awarded as the amount recovered increases,

23

such a review, the District Court should have looked

specifically at cases in which the percentage-of-recovery

method, not the lodestar method, was employed to set the

fee award, and it should have examined the r easoning

behind the district courts' fee awards in cases of similar

size.

Below, we have set forth a chart of fee awar ds given in

federal courts since 198520 in class actions in which the

settlement fund exceeded $100 million21 and in which the

percentage of recovery method was used. 22 We have

_________________________________________________________________

and $100 million seems to be the informal marker of a `very large'

settlement." In re Orthopedic Bone Scr ew Prod. Liab. Litig., 2000 WL

1622741, at 7 (E.D. Pa. Oct. 23, 2000).

20. In 1984, the Supreme Court observed in Blum v. Stenson that "[in]

the calculation of attorney's fees under the`common fund doctrine,' . . .

a reasonable fee is based on a percentage of the fund bestowed on the

class." 465 U.S. 886, 900 n.16 (1984). Subsequently, the Third Circuit

Task Force Report in 1985 outlined the pr oblems with the lodestar

method and recommended that courts use the per centage-of-recovery

method instead of the lodestar method in common fund cases. After this

instruction from the Supreme Court and the release of the Task Force

Report, courts across the country regularly employed the percentage

method to set fees in common fund cases.

21. Although we have emphasized the seven-factor analysis required in

class action fee cases set forth in Gunter v. Ridgewood Energy Corp., 223

F.3d 190, 195 n.1 (3d Cir. 2000), Gunter is not listed in this chart

because the settlement in that case was less than $100 million.

22. In several cases, the class settlement exceeded $100 million but the

lodestar method was used to determine attor neys' fees. See, e.g.,

McLendon v. Continental Group, Inc., 872 F. Supp. 142 (D.N.J. 1994)

(settlement was for more than $400 million, and lodestar multiplier of

1.5 was used to award attorneys' fees); In re Shell Oil Refinery Litig.,

155

F.R.D. 552 (E.D. La. 1993) ($170 million settlement and $31.8 million in

fees, which represented a 3.25 lodestar multiplier and approximately

18% of the total settlement); In re W ashington Public Power Supply Sys.

Sec. Litig., 779 F. Supp. 1056 (D. Ariz. 1991) ($687 million settlement,

$32 million in attorneys' fees, 1.2 lodestar multiplier, and attorneys'

fees

were 4.7% of total settlement); In r e Baldwin-United Corp. Litig., 1986

WL

12195 (S.D.N.Y. June 27, 1986) ($183.8 million settlement, $7.5 million

in attorneys' fees, lodestar multiplier of 2, and fees were 4.1% of total

settlement); In re "Agent Orange" Pr

od. Liab. Litig., 611 F. Supp. 1296

24

outlined the amount of settlement, the percentage of the

settlement that made up the attorneys' fee award and the

lodestar multiplier.

Case Settlement Fees as %

Lodestar

of Recovery

Multiplier

In re Cendant Corp. PRIDES Litig., $341.5 million 5.7%

7-10

51 F. Supp. 2d 537 (D.N.J. 1999) ($19.3 mil.)

The instant case under review here.

In re Cendant Corp. Litig., $3.16 billion 8.275%

32.7

109 F.Supp.2d 285 (D.N.J. 2000) ($262 mil.)

In re Auction Houses Antitrust Litig., $512 million 5.2%

Inf. not

2001 WL 170792 (S.D.N.Y. Feb. 22, ($27 mil.)

available

2001)

In re Orthopedic Bone Screw $100 million 12%

Inf. not

Prod. Liab. Litig., 2000 WL 1622741

available

(E.D. Pa. Oct. 23, 2000)

In re Prudential, $1.8 billion 5%

2.13

106 F.Supp.2d 721 (D.N.J. 2000)23 ($90 mil.)

In re Ikon Office Solutions, Inc. Sec. $111 million 30%

2.7

Litig., 194 F.R.D. 166 (E.D. Pa. 2000)

Shaw v. Toshiba America Inf. Sys., $2.1 billion 7%

Inf. not

Inc., 91 F.Supp.2d 942 (E.D. Tex. 2000) ($147 mil.)

available

In re Sumitomo Copper Litig., $116 million 27.5%

2.5

74 F.Supp.2d 393 (S.D.N.Y. 1999) ($32 mil.)

_________________________________________________________________

(E.D.N.Y. 1985), aff 'd in part 818 F.2d 226 (2d Cir. 1987) ($180 million

settlement, $10.7 million in attorneys' fees, lodestar multiplier of 1.25

to

1.75, and fees were 6% of settlement).

Additionally, it should be noted that the chart includes a substantial

number of the post-1985 cases involving large settlements and fees

granted as a percentage of the total settlement, but the chart is not

comprehensive. We feel that the selection of cases in the chart are

representative of the range of cases r elevant to the District Court's

analysis of Kirby's fee application in this case.

23. The district court originally awarded attorneys' fees in this case in

1997, see In re Prudential, 962 F . Supp. 572 (D.N.J. 1997), which

decision was vacated and remanded by the Thir d Circuit. See In re

Prudential, 148 F.3d 283 (3d Cir . 1998). Those decisions are discussed

infra.

25

Case Settlement Fees as %

Lodestar

of Recovery

Multiplier

Kurzweil v. Philip Morris Co., 1999 WL $123.8 million 30%

2.46

1076105 (S.D.N.Y. Nov. 30, 1999) ($37.1 mil.)

In re Lease Oil Antitrust Litig., $190 million 25%

1.35

186 F.R.D. 403 (S.D. Tex. 1999)

In re Copley Pharm., Inc., $150 million 13%

2

1 F.Supp.2d 1407 (D. Wyo. 1998) ($19.5 mil.)

In re PaineWebber Ltd. P'ships Litig. , $200 million 13%

1.4

999 F. Supp. 719 (S.D.N.Y. 1998) ($25.9 mil.)

Walco Investments, Inc. v. Thenen, $141 million 15%

1.8

975 F. Supp. 1468 (S.D. Fla. 1997) ($21 mil.)

In re Combustion Inc., $127 million 36%

2.99

968 F. Supp. 1116 (W.D. La. 1997)

Local 56, United Food & Commercial $114.5 million 2.8%

2.39

Workers Union v. Campbell Soup Co., ($3 mil.)

954 F. Supp. 1000 (D.N.J. 1997)

Bowling v. Pfizer, Inc., 922 F. Supp. $102.5 million 10%

Inf. not

1261 (S.D. Ohio 1996), aff 'd ($10.2 mil.)

available

102 F.3d 777 (6th Cir. 1996)

In re Domestic Air Transportation $305 million 5.25%

Inf. not

Antitrust Litig., 148 F.R.D. 297 ($14.3 mil.)

available

(N.D. Ga. 1993)

In re MGM Grand Hotel Fire Litig., $205 million 7%

1-2.95

660 F. Supp. 522 (D. Nev. 1987)

In the charted cases, the attorneys' fee awards ranged

from 2.8% to 36% of the total settlement fund. Looking at

the percentage of recovery in this case (5.7%), it appears

that it is in line with the other cases and even at the low

end of the range. However, a brief review of the facts and

posture of these other cases makes clear that, when

examined through the seven-factor lens of Gunter, the

higher fees awarded in the other cases wer e far more

justified than the high award in this case. Accordingly, the

District Court should have learned from those cases that

extensive time and effort exerted by the attorneys and the

existence of complex legal and factual issues warranted

higher fee awards than the fee award that would have been

appropriate for Kirby.

The district court in In re Auction Houses relied on a pre-

settlement bidding process in awarding attorneys' fees. The

26

bidding process in that case differed from the process

employed by the District Court in this case, but it raised

similar problems. However, regar dless of the arguable flaws

in the method by which the district court awarded fees in

In re Auction Houses, that case was far more complex than

the instant case and, as such, is distinguishable. Indeed,

the comments of interim lead counsel, excerpted in the

district court's opinion, are telling:

Mr. Furth, on behalf of all of the interim lead counsel,

said that he "never in [his] fondest dreams . . . believed

that these defendants would pay $512 million" and

that this settlement "is the most outstanding r esult I

have ever heard of in the history of the antitrust laws."

Another of the interim lead counsel noted that he and

his colleagues had been negotiating with defendants

prior to the appointment of plaintiffs' lead counsel, that

they "had really good hard solid numbers from

[defendants], and we didn't think we could have

accomplished what Mr. Boies did."

In re Auction Houses Antitrust Litig., 2001 WL 170792, at 6

(S.D.N.Y. Feb. 22, 2001).

In In re Orthopedic Bone Screw, the district court

described the case as "nothing less than an uninterrupted,

hard-fought, `antagonistic' legal battle," in which the

attorneys seeking fees had "conducted substantial,

widespread and extensive discovery" including reviewing

more than 1,500,000 pages of documents, and had

"defended a variety of pleadings and discovery matters and

`litigated a plethora of motions,' " which resulted in the

court issuing nearly 2,000 Pretrial Orders. 2000 WL

1622741, at 6.

In In re Ikon Office Solutions, the district court granted

the 30% fee request because, inter alia, "Counsel expended

more than 45,000 hours on this case and paid out

expenses of more than $3 million with no guarantee of

recovery," the case presented "the legal obstacles of

establishing scienter, damages, causation, and the like,"

and "derivative counsel fees will be taken fr om this

amount." 194 F.R.D. at 194.

27

In Shaw v. Toshiba, the district court noted the

protracted schedule of the case, because of which "it has

been necessary to prosecute this action continuously,

around the clock, seven days a week, workdays and

holidays alike." 91 F.Supp.2d at 969. Other factors that

made litigation of Shaw difficult included the two million

pages of documents reviewed by class counsel, the fact that

defendant's corporate headquarters were located in Tokyo,

Japan, as well as the additional burden of having to

translate many documents and much of the testimony from

Japanese to English. Even with these numerous procedural

difficulties, the district court only awarded 7% of the

settlement in attorneys' fees.

The attorneys in Sumitomo spent mor e than 43,000

hours on the case and inspected 11 million pages of

documents, and the case had legal and factual complexities

including "the existence and analysis of the relationships

between and among more than thirty Comex futures

contracts, more than 500 LME contracts, literally hundreds

of physical contracts, and millions of tons involved in the

copper futures, the copper options and the copper

derivative contracts." Sumitomo, 74 F .Supp.2d at 398.

In Kurzweil, the district court noted that, before the

settlement, "[t]here had been no lar ge settlements in

tobacco litigation generally, and no successful action had

yet been brought against a tobacco company based on

allegations of addictiveness of nicotine." 1999 WL 1076105,

at 1. In addition, the attorneys encountered several

obstacles, including that the action was originally

dismissed, and the attorneys reviewed millions of

documents and tens of thousands of deposition and trial

transcripts and conducted numerous depositions. 1999 WL

1076105, at 1.

In In re Lease Oil, the district court explained:

As well as being novel, this litigation was highly

complex and thus required a great deal of lawyering

skill. As just explained, the task of simply compiling

the evidence was an unusually difficult task, r equiring

the assistance of experts and the investment of many

hours.24 Also, being novel, the legal issues raised in the

litigation required skilled attorneys to handle them.

_________________________________________________________________

24. With respect to gathering evidence, the court asserted:

Godfrey and others had to create their own databases, compiling

28

186 F.R.D. at 445.

The district court in Copley, in granting the 13% fee

award, observed that, "[d]uring expedited discovery, class

counsel reviewed and analyzed more than 125,000 pages of

documents and deposed roughly one hundr ed witnesses." 1

F.Supp.2d at 1408. The case also included 42 days of trial,

and class counsel spent 48,794 hours on the case. Finally,

the legal questions involved in Copley wer e both novel and

complex. As the court explained: "not only was the

certification of this class a complex question, but this was

also the first and only mass tort class action to go to trial,

and the case presented complex medical and scientific

issues of causation." 1 F.Supp.2d at 1413.

PaineWebber too had many featur es that would dictate a

high fee award. Class counsel conducted "extensive,

coordinated discovery," including "coor dinating discovery of

hundreds of boxes of documents through the use of

sophisticated computer databases, and deposing many key

witnesses." 999 F. Supp. at 722. In mor e than two years of

litigation, counsel spent "approximately 70,000 hours in

heretofore uncompensated legal work in pursuit of factual

investigation, drafting of documents, brief writing,

document analysis, depositions, trial preparation,

settlement negotiation and other tasks." 999 F . Supp. at

723. Finally, the legal issues in PaineW ebber were complex,

and class counsel "faced significant substantive and

procedural defenses." 999 F. Supp. at 724.

Walco Investments was described by the district court as

comprising "four years of bitterly-contested litigation." 975

F. Supp. at 1470. The case involved multiple defendants,

and the claims were only loosely related, making class

litigation exceedingly complicated, because "claims raised

_________________________________________________________________

posted prices, NYMEX prices, transportation costs, grade and

weight

differentials and so forth simply to determine whether or not a

cause of action might exist. And, in order tofirst articulate

their

claims, class counsel had to hire experts to r esearch their

allegation

that the NYMEX trading center method is a reasonable way of

determining market price at the lease.

In re Lease Oil, 186 F.R.D. at 445.

29

against each category of defendants presented separate

issues of fact and law and involved differing theories of

recovery." 975 F. Supp. at 1471. These circumstances

encouraged the court to award 15% in attor neys' fees to

attorneys from fourteen differ ent firms representing class

plaintiffs.

The action in In re Combustion was eleven years old at

the time of settlement and the attorneys had spent over

50,000 hours on the case. In the litigation, ther e had been

"roughly 160 complaints filed, 1140 answers, 1922

motions, with almost 1000 memoranda in support of or in

opposition to these motions, 285 depositions . . . , 90

hearings, at least one oral argument per month since the

case was removed to federal court, and endless numbers of

settlement conferences," as well as "thr ee fairness hearings,

the first one lasting one week, and the other two lasting

approximately one day each" and "one Daubert hearing

lasting a total of two weeks." In re Combustion, 968 F.

Supp. at 1136.

In Local 56, the court acknowledged "the complexity of

the issues in this case, the significant attendant risks of

proceeding with litigation, and the tenacity and vigor with

which all counsel represented their clients' interests," in

this class action which lasted for four years. 954 F . Supp.

at 1005. Even so, class counsel's fees amounted to only

2.8% of the total settlement, a far smaller per centage than

the fee awarded to Kirby by the District Court.

In Bowling, the district court averr ed that "[t]he Court's

choice of a percentage . . . will be heavily informed by the

value of the services rendered by Counsel." 922 F. Supp. at

1280. The court observed that "Counsel wer e confronted

with myriad complex legal and factual questions in bringing

this action and in negotiating the settlement." 922 F. Supp.

at 1280.

Domestic Air involved a class action against several

airline companies claiming a conspiracy to fix prices. The

court observed:

Counsel negotiated a significant settlement for the

class in light of the precarious financial position of

most of the defendants and over defendants' insistence

30

that they could not provide a larger cash settlement.

Were it not for the considerable skill and effort of

plaintiffs' counsel, the action would never have been

certified as a class action and members of the class

would receive nothing in return for their claims against

defendants.

148 F.R.D. 297, 351-52 (N.D. Ga. 1993). In other words,

the action in Domestic Air involved fundamental procedural

obstacles that could easily have resulted in no recovery at

all. Accordingly, class counsel was rewar ded significantly

for negotiating such a large settlement.

Finally, in In re MGM Grand Hotel, the court considered

"the particular and unique circumstances of this case,"

including the fact that the attorneys had r ecovered over

6,000 objects from the fire site and had conducted over

1,400 depositions, in granting the 7% fee awar d. 660 F.

Supp. at 526.

Indeed, in case after case, the same factors r ecur:

complex and/or novel legal issues, extensive discovery,

acrimonious litigation, and tens of thousands of hours

spent on the case by class counsel. Because none of these

factors which increase the complexity of class litigation was

present here, it makes sense that the fee awarded in this

case should be far lower than those awarded in the charted

cases, which fees ranged from 2.8% to 36% of the total

settlement.

Also relevant to the District Court's analysis in this case

is our holding in In re Prudential r emanding the case to the

district court. In that case, we rejected an award of 6.7% of

the settlement fund in a case with a fund of $1 billion to $2

billion because the district court had failed to explain

adequately why it had applied such a high per centage to

the settlement figure and because the court had not

explained why the 5.1 lodestar multiplier was justified. We

also warned in In re Prudential against overemphasizing

counsel's role in recovery, in the context of our criticism of

the district court's assumption that counsel had been a

catalyst for a plan authored by the Multi-State Life

Insurance Task Force, which facilitated the class action

settlement in that it established Prudential's liability. We

31

explained that "[a]llowing private counsel to receive fees

based on the benefits created by public agencies would

undermine the equitable principles which underlie the

concept of the common fund, and would create an incentive

for plaintiffs attorneys to `minimize the costs of failure . . .

by free riding on the monitoring efforts of others.' " In re

Prudential, 148 F.3d at 337. Similarly, as we have

consistently observed, Cendant's liability and consequent

collectability had been conceded at the outset of the

PRIDES controversy, and that fact should have been given

major consideration by the District Court when setting

Kirby's attorneys' fees.

Our review of the lack of complexity of this case and of

awards in other large class action settlements, all of which

involved more complex issues, more time invested by the

attorneys, and, with only a few exceptions, smaller total

settlements, leads us to the conclusion that the District

Court abused its discretion in granting a 5.7% attorneys'

fee award in this case.25

4. Checking Against Lodestar

The District Court's abuse of discretion in this case is

magnified when one looks at the lodestar multiplier. As we

stated above, "we have . . . suggested that district courts

cross-check the percentage award at which they arrive

against the `lodestar' award method." Gunter v. Ridgewood

Energy Corp., 223 F.3d 190, 195 n.1 (3d Cir. 2000); see

also In re Prudential, 148 F.3d at 333 (stating that " `it is

sensible for a court to use a second method of fee approval

to cross check' its initial fee calculation"). Even when the

lodestar method is used only as a cross-check,"courts

must take care to explain how the application of a

multiplier is justified by the facts of a particular case."26 In

re Prudential, 148 F.3d at 340-41.

_________________________________________________________________

25. We should note that the award actually amounted to more than 5.7%

of the total recovery. The fund had a value of $341.5 million, but any

unclaimed portion of the fund returned to Cendant. As of August 1999,

only 22,502,782 Rights, with a monetary value of $263.5 million, were

claimed. Taking this amount as the total r ecovery, Kirby's attorneys'

fees

constituted 7.3% of the total fund.

26. We observed in In re GM Trucks that "[t]he Supreme Court . . . has

rejected the use of multipliers to enhance the lodestar's hourly rate

32

In this case, the lodestar multiplier is 7 at a minimum

(using Kirby's senior partner rate as the rate for all hours),

and the Trust calculates the lodestar multiplier as 10.27

Either of these multipliers (Kirby's multiplier of 7 or the

Trust's multiplier of 10) is substantially higher than any of

the multipliers in the cases charted above, which range

from 1.35 to 2.99, and is also significantly higher than the

"large" 5.1 multiplier in In r e Prudential, which we

questioned because "the court offer[ed] little explanation as

to why a multiplier was necessary or appropriate." 148 F.3d

at 340-41. In allowing such a high multiplier in this case

without even calculating it, much less explaining how it is

justified, the District Court strayed from all responsible

discretionary parameters in the awarding of Kirby's

attorneys' fees.

In all the cases in which high percentages wer e applied

to arrive at attorneys' fees, the courts explained the

extensive amount of work that the attorneys had put into

the case, and appropriately the lodestar multiplier in those

cases never exceeded 2.99. This range is consistent with

the principle that " `[m]ultiples ranging from one to four are

frequently awarded in common fund cases when the

lodestar method is applied.' " In r e Prudential, 148 F.3d 283,

341 (3d Cir. 1998) (quoting 3 Herbert Newber g & Alba

Conte, Newberg on Class Actions, S 14.03 at 14-5 (3d ed.

1992)). In this case, the District Court judge made clear

that he wanted to reward Kirby for Kirby's quick and

beneficial settlement of the case, and that may be a good

reason for the fee award to exceed the lodestar, but not to

the exclusion of all other factors. On remand of this case to

the District Court, we strongly suggest that a lodestar

multiplier of 3 (the highest multiplier of the cases reviewed

above) is the appropriate ceiling for a fee award, although

_________________________________________________________________

amount." 55 F.3d 768, 822 (3d Cir. 1995) (citing City of Burlington v.

Dague, 505 U.S. 557 (1992)). However, as stated above, calculation of

the lodestar multiplier is still appropriate when used to cross-check the

reasonableness of a percentage-of-r ecovery fee award.

27. The Trust calculates the lodestar multiplier as 10 because it assesses

the appropriate lodestar fee as $1.9 million, 1/10 of the $19.3 million

awarded. (See Trust's Brief at 25-26.)

33

a lower multiplier may be applied in the District Court's

discretion. The 3 multiplier would result in an award of no

more than $8.3 million for Kirby (calculating the lodestar at

$495/hour).

5.

We are seriously troubled by the District Court's award of

attorneys' fees constituting 5.7% to 7.3% of the total

settlement. As discussed above, this case was neither

legally nor factually complex and did not require significant

motion practice or discovery by Kirby, and the entir e

duration of the case from the filing of the Amended

Complaint to the submission of a Settlement Agr eement to

the District Court was only four months. Other cases in

which higher percentages were awar ded are so dissimilar

factually and legally from this case that they cannot be

relied upon to support the 5.7% award made in this case.

In addition, our discussion and holding in In r e Prudential

requires a holding here that the District Court's award was

an abuse of its discretion, particularly wher e the District

Court appeared to be attributing more r esponsibility to

Kirby for the quality of the settlement than may legitimately

be warranted. Accordingly, we will vacate the District

Court's fee award to Kirby and remand the issue of Kirby's

attorneys' fees to the District Court for a more thorough

and thoughtful evaluation, including an analysis of, and

compliance with, the factors enunciated by us in Gunter

and in this opinion.

III.

Finally, the Trust argues that the District Court erred in

not granting attorneys' fees to the Trust's attorneys for

suggesting a bidding process to choose Lead Counsel and

for objecting to Lead Counsel's fee application.

The Second Circuit stated in White v. Auerbach:

it is well settled that objectors have a valuable and

important role to perform in pr eventing collusive or

otherwise unfavorable settlements, and that, as the

district court recognized, they are entitled to an

34

allowance as compensation for attorneys' fees and

expenses where a proper showing has been made that

the settlement was improved as a result of their efforts.

Ordinarily the trial judge has broad discr etion in

deciding whether, and in what amount, attor neys' fees

should be awarded, since he is in the best position to

determine whether the participation of objectors

assisted the court and enhanced the recovery.

500 F.2d 822, 828 (2d Cir. 1974).

In this case, the District Court judge exercised his "broad

discretion" in finding that the Trust's attorneys had not

made the "proper showing . . . that the settlement was

improved as a result of their efforts." The District Court

judge made clear that he had considered the idea of a

bidding process before the Trust's attorneys suggested that

procedure, stating: "Walker's opinions have been out there

since 1993 at least28 . . . Why do you think that the door

was only opened by your key?" (JA 766.) He also asserted

that "my last year's clerk and I actually had br ooded this

idea of an auction long before you came down the pike."

(JA767.)

With respect to the Trust's claim that its attorneys'

objections to the fee application resulted in a reduction of

the fee award from $34.15 million to appr oximately $19

million, the District Court gave no indication that the

objections were the reason for the r eduction and even

stated, "if I find that what Mr. Kirby wants is excessive, I'm

not dependent upon you . . ." (JA765.) Hence, because the

Trust had not demonstrated that it had been r esponsible

for the procedure utilized by the District Court or that its

actions had resulted in a reduction of Kirby's fees from $34

million to $19 million--findings which are not clearly

erroneous--we will sustain the District Court in its rulings

on these points.

_________________________________________________________________

28. Judge Vaughn Walker actually implemented the bidding process in In

re Oracle Sec. Litig. in 1990. 131 F.R.D. 688 (N.D. Cal. 1990). Judge

Walker's process differed significantly from the bidding process here in

that it was not a sealed-bid process.

35

However, our review of the District Court's attorneys' fee

award to Kirby would not have come about had it not been

for the Trust's appeal. As the Ninth Cir cuit observed in

Zucker v. Occidental Petroleum Corp., to which we have

earlier adverted, "[t]he contribution [a particular class

member's] attorney made, by providing an adversarial

context in which the district court could evaluate the

fairness of attorneys' fees, was substantial." 192 F.3d 1323,

1329 (9th Cir. 1999).

Recognizing this fact, that it was the Trust which called

our attention to the many aspects of Kirby's fee award

which we have discussed and which we have found

requires reconsideration by the District Court, we would be

remiss if we did not acknowledge this benefit 29 and remand

the Trust's claims for its own attorneys' fees to the District

Court for reconsideration together with Kirby's fee

application. Of course, this will requir e the necessary

submissions by the Trust's attorneys to comply with

normal fee procedures. Under these circumstances, we

think it appropriate for the District Court to evaluate the

value of the benefit of the Trust's contribution to the

ultimate fee (to be decided by the District Court on remand)

and to compensate the Trust to that extent. 30

In so holding, we are fully aware that Cendant had

agreed not to contest the award of fees as part of its

_________________________________________________________________

29. It bears mention that the Trust's appellate brief urged that Kirby's

fees be reduced from $19 million to $7.6 million, (see Appellant's Brief,

at 30), a similar figure to the one at which we arrived independently.

30. In its appellate brief, Kirby suggests that the Trust may not have

standing to appeal the District Court's denial of the fee request because

it was the Trust's counsel, not the Trust itself, that made that request

in the District Court. This jurisdictional ar gument, though not without

merit, need not concern us for two reasons. First, the District Court's

decision denying fees to the Trust's counsel stands insofar as it related

to the argument raised by counsel befor e the District Court. We remand

the issue of the Trust's counsel's fee r equest to the District Court only

with respect to the Trust's effect on the settlement through this appeal.

Second, we have repeatedly emphasized in this opinion the importance

of the court's role in reviewing counsel's fees in class actions, and we

believe this role extends to the District Court hearing a fee application

by

the Trust's counsel at this point.

36

settlement agreement. We also acknowledge that the return

to Cendant of any unclaimed rights may well enhance the

value of Cendant's rights to its shareholders and rights

beneficiaries.

IV.

Although we will not disturb the settlement itself which

has not been challenged on appeal, we will vacate the

award of attorneys' fees to Kirby and r emand this case to

the District Court for a reevaluation of the amount of

attorneys' fees, both because the District Court did not

adequately explain its reason for the fee awar d and because

the fee award does not comply with the r equirements of our

jurisprudence. We will also vacate the District Court's order

denying attorneys' fees to the Trust and remand for

reconsideration in light of the foregoing discussion and

opinion.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

37