15-3011(L)
In Re: Tremont Securities Law, State Law and Insurance Litigation
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER
FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY
ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX
OR AN ELECTRONIC DATABASE (WITH THE NOTATION ASUMMARY ORDER@). A PARTY CITING A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
1 At a stated term of the United States Court of Appeals for
2 the Second Circuit, held at the Thurgood Marshall United States
3 Courthouse, 40 Foley Square, in the City of New York, on the
4 26th day of June, two thousand seventeen.
5
6 PRESENT: DENNIS JACOBS,
7 CHRISTOPHER F. DRONEY,
8 Circuit Judges,
9 TIMOTHY C. STANCEU,
10 Chief Judge, U.S. Court of Int’l Trade.
11
12 - - - - - - - - - - - - - - - - - - - -X
13
14 IN RE: TREMONT SECURITIES LAW, STATE 15-3011 (L)
15 LAW AND INSURANCE LITIGATION 15-3241 (Con)
16 15-3251 (Con)
17 - - - - - - - - - - - - - - - - - - - -X
18
19 FOR APPELLANTS GEORGE VINCENT T. GRESHAM, Law
20 TURNER, BINDLER LIVING Office of Vincent T. Gresham,
21 TRUST, MADELYN HAINES, Atlanta, GA.
22 JOHN JOHNSON, WILLIAM J.
23 MILLARD TRUST, STELLA
Judge Timothy C. Stanceu, Chief Judge of the United States
Court of International Trade, sitting by designation.
1
1 RUGGIANO TRUST, WEST
2 TRUST, PAUL ZAMROWSKI:
3
4 FOR APPELLANT MARY JOSHUA FRUCHTER, Wohl &
5 CATHERINE MARTIN, as the Fruchter LLP, New York, NY.
6 personal representative of
7 the estate of Michael S. Gary S. Graifman, Kantrowitz,
8 Martin: Goldhamer & Graifman, P.C.,
9 Chestnut Ridge, NY.
10
11 FOR APPELLANT RICHARD G. HADDAD, Otterbourg
12 PHILADELPHIA FINANCIAL P.C., New York, NY.
13 LIFE ASSURANCE COMPANY:
14
15 FOR APPELLEES ARTHUR E. ANDREW J. ENTWISTLE (Arthur
16 LANGE REVOCABLE TRUST, V. Nealon, Robert N.
17 ARTHUR C. LANGE, NEAL Cappucci, on the brief),
18 J. POLAN, EASTHAM Entwistle & Cappucci LLP, New
19 CAPITAL APPRECIATION York, NY.
20 FUND LP, NPV POSITIVE
21 CORP., and all others Reed R. Kathrein, Lee M.
22 similarly situated: Gordon, Hagens Berman Sobol
23 Shapiro LLP, Berkeley, CA.
24
25 FOR APPELLEES ARTHUR M. Jeffrey M. Haber, Stephanie
26 BRAINSON, YVETTE M. Beige, Bernstein Liebhard
27 FINKELSTEIN, GROUP DEFINED LLP, New York, NY.
28 PENSION PLAN & TRUST, and
29 all others similarly
30 situated:
31
32 FOR APPELLEES DOLOS X IRWIN WARREN (Adam J.
33 LLC, DOLOS XI LLC, DOLOS Bookman, Matthew S. Connors,
34 XII LLC: on the brief), Weil, Gotshal
35 & Manges LLP, New York, NY.
36
37 FOR APPELLEE SPCP GROUP, Walter Rieman, Paul, Weiss,
38 LLC: Rifkind, Wharton & Garrison
39 LLP, New York, NY.
40
41 FOR APPELLEE HSBC BANK Thomas J. Moloney, Joaquin P.
42 PLC: Terceño, Cleary Gottlieb
2
1 Steen & Hamilton LLP, New
2 York, NY.
3
4 FOR APPELLEE THE ROYAL Michael S. Feldberg, Allen &
5 BANK OF SCOTLAND N.V.: Overy LLP, New York, NY.
6
7 FOR APPELLEES NEW YORK JOHN M. VASSOS (Mary C.
8 LIFE INSURANCE AND ANNUITY Pennisi, on the brief),
9 CORPORATION, METROPOLITAN Morgan, Lewis & Bockius LLP,
10 LIFE INSURANCE COMPANY, New York, NY.
11 GENERAL AMERICAN LIFE
12 INSURANCE COMPANY, NEW
13 ENGLAND LIFE INSURANCE
14 COMPANY, JOHN HANCOCK LIFE
15 INSURANCE COMPANY (U.S.A.),
16 PACIFIC LIFE INSURANCE
17 COMPANY, SECURITY LIFE OF
18 DENVER, DELAWARE LIFE
19 INSURANCE COMPANY, PRUCO
20 LIFE INSURANCE COMPANY,
21 NATIONWIDE LIFE INSURANCE
22 COMPANY:
23
24 Appeal from a judgment of the United States District Court
25 for the Southern District of New York (Griesa, J.).
26 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED AND
27 DECREED that the judgment of the district court be AFFIRMED IN
28 PART AND VACATED AND REMANDED IN PART.
29 Appellants, investors in various hedge funds managed by
30 Tremont Group Holdings, Inc. and its affiliates, appeal from
31 a judgment of the United States District Court for the Southern
32 District of New York (Griesa, J.), approving a post-settlement
33 plan to allocate the liquidated assets of certain funds (the
34 “Plan of Allocation,” or “POA”) and awarding attorneys’ fees.
35 For the reasons stated below, we affirm the district court’s
36 approval of the POA, but vacate and remand for a reduction of
37 the fee award consistent with this order.
3
1 We assume the parties’ familiarity with the underlying
2 facts, the procedural history, and the issues presented for
3 review.
4 Tremont Group Holdings and its affiliates managed two
5 groups of hedge funds. The first, known as the “Rye Funds,”
6 invested all of their assets either with Bernard L. Madoff
7 Investment Securities (“BLMIS”) or, in the case of Rye Select
8 Broad Market XL Fund, L.P. (“Rye XL”), in synthetic derivatives
9 intended to mirror the returns of BLMIS. The Rye Funds include
10 Rye Select Broad Market Fund, L.P. (“Rye Onshore”), Rye Select
11 Broad Market Portfolio Limited (“Rye Offshore”), Rye Select
12 Broad Market Insurance Fund, L.P. (“Rye Insurance”), Rye Select
13 Broad Market Prime Fund, L.P. (“Rye Prime”), and Rye XL. Three
14 of these (Rye Onshore, Rye Offshore, and Rye Insurance) invested
15 directly with BLMIS and were “net losers,” meaning they invested
16 more money with BLMIS than they withdrew.
17 The second group of hedge funds, the “Tremont Funds,” were
18 “funds of funds,” investing a portion of their assets in the
19 Rye Funds (and therefore indirectly with BLMIS) and the rest
20 in investments unrelated to BLMIS. Appellants largely
21 invested in Tremont Funds.
22 When BLMIS collapsed in December 2008, investors in the Rye
23 and Tremont Funds filed several putative class actions and
24 derivative complaints against various entities and individuals
25 responsible for the investment of fund assets with BLMIS.
26 These actions were consolidated in 2009, with counsel (referred
27 to herein as “Lead Counsel”) appointed to represent all settling
28 investors.
29 The parties to these consolidated actions settled in
30 February 2011. That “Investor Settlement” created two
31 separate escrow accounts: (1) the Net Settlement Fund (“NSF”),
32 containing $100 million paid by the defendants in exchange for
33 the release of all claims against them1; and (2) the Fund
34 Distribution Account (“FDA”), containing all the assets that
35 remained in the liquidated Rye Funds after claims by and against
1
The NSF has already been distributed and is not at issue in
this appeal.
4
1 the trustee of the BLMIS bankruptcy estate (the “Trustee”) were
2 resolved in separate litigation (the “Trustee Litigation”).
3 In the Trustee Litigation, the three net-loser Rye Funds
4 filed approximately $2.2 billion in claims against the Trustee
5 under the Securities Investor Protection Act (“SIPA”). The
6 Trustee, in turn, sought to claw back approximately $2.1 billion
7 in avoidable transfers made to the Rye and Tremont Funds. In
8 July 2011, a settlement (the “Trustee Settlement”) was reached:
9 the Rye and Tremont Funds collectively paid the Trustee $1
10 billion in cash; in exchange, the Trustee withdrew its avoidance
11 claims against each of them and granted the net-loser Rye Funds
12 roughly $2.2 billion in claims plus a claim for the return of
13 eighty percent ($800 million) of the $1 billion payment pursuant
14 to section 502(h) of the Bankruptcy Code. Thus, after the funds
15 paid the Trustee $1 billion to settle the clawback claims
16 against them,2 the net-loser Rye Funds received claims totaling
17 roughly $3 billion.
18 The FDA is composed almost entirely of those $3 billion in
19 claims. It also includes $32.4 million in cash remaining in
20 Rye XL (a Rye Fund that did not have to contribute to the $1
21 billion Trustee Settlement). It is expected that a total of
22 around $1.45 billion will eventually flow into the FDA from the
23 Trustee.3
24 The allocation of the FDA was not part of the Investor
25 Settlement. Nevertheless, the parties agreed that a “plan of
26 allocation [would] be approved by the [District] Court,” J.A.
2
The $1 billion payment by the funds to the Trustee was
collected as follows: the three net-loser Rye Funds contributed
a combined $212 million of their own money plus $650 million
they borrowed from Fortress Investment Group, LLC (“Fortress”);
the Tremont Funds and one of the net-winner Rye Funds (Rye Prime)
contributed the remaining $138 million.
3
As of September 2015, approximately $650 million had already
poured into the FDA. Another $650 million was recovered from
the Trustee and never reached the FDA because it was used to
repay the Fortress loan.
5
1 285, and the court explicitly retained jurisdiction over the
2 FDA’s allocation.
3 In its 2011 final judgment approving the Investor
4 Settlement, the district court tasked Lead Counsel with
5 responsibility for proposing a plan of allocation. In April
6 2014, Lead Counsel solicited proposed plans from interested
7 parties and notified them of mediation to resolve the allocation
8 issue. After more than a year of mediation among numerous
9 parties (including multiple appellants), a consensus plan of
10 allocation (the “POA”) emerged.
11 Under the POA -- which is supported by investors holding
12 approximately ninety-seven percent of the net equity in the
13 funds -- FDA assets are distributed as follows.
14 First, the $32.4 million that Rye XL contributed to the FDA
15 is returned to Rye XL investors.
16 Next, the funds are awarded equal priority to the balance
17 of the FDA using a simple formula: (1) each net-loser Rye Fund
18 has a claim (referred to as a “SIPC Claim”) equal to its portion
19 of the $3 billion Trustee Settlement; (2) each Tremont and
20 net-winner Rye Fund that contributed cash to the Trustee
21 Settlement has a “Virtual SIPC Claim” equal to eighty percent
22 of its Trustee Settlement contribution.
23 Finally, once the money is allocated to the appropriate
24 funds using the formula described above, each fund’s investors
25 will receive a pro rata share of the fund’s allocation according
26 to the investor’s net equity (i.e., amount lost) in that fund.
27 In other words, only investors who lost money in a given fund
28 due to that fund’s investment in BLMIS are entitled to recover
29 anything from the fund. Thus, net-loser investors in any fund
30 will recover a share of that fund’s SIPC or Virtual SIPC Claim;
31 and net-loser investors in any net-loser fund will recover a
32 share of that fund’s cross-investment in each Rye Fund in which
33 it was invested.
34 In September 2015, after a three-hour hearing regarding
35 allocation of the FDA, the district court issued a written
36 opinion approving the POA, rejecting an alternative plan
37 proposed by appellant Michael S. Martin, granting Lead
6
1 Counsel’s motion for attorneys’ fees, and overruling all
2 objections. Appellants appeal the court’s approval of the POA
3 and award of attorneys’ fees.
4 We review a district court’s allocation of settlement funds
5 and award of attorneys’ fees for abuse of discretion. See In
6 re “Agent Orange” Prod. Liab. Litig., 818 F.2d 179, 181 (2d Cir.
7 1987) (settlement funds); Goldberger v. Integrated Res., Inc.,
8 209 F.3d 43, 47 (2d Cir. 2000) (attorneys’ fees).
9 1. There are unusual features to this appeal. We are
10 reviewing an allocation of assets that were obtained in
11 unrelated litigation and that are being held in an account
12 created for the purpose of allocation by a settlement that is
13 not being challenged. Further complicating matters, those
14 assets represent the liquidated remains of a group of hedge
15 funds (the Rye Funds) that imploded after Madoff’s Ponzi scheme
16 was revealed. Unlike a typical settlement fund distribution
17 plan, the POA is separate from the underlying settlement,
18 involves assets that are already earmarked for the potential
19 recipients (the investors in the liquidated hedge funds), and
20 is the product of mediation between those recipients. These
21 circumstances, however, do not disturb the traditional
22 deference we owe to the district court’s equitable allocation
23 of settlement-related funds.4
24 The district court did not abuse its discretion in
25 approving the POA. The POA is fair and reasonable, as was the
26 mediation process that produced it. See In re PaineWebber Ltd.
27 P’ships Litig., 171 F.R.D. 104, 133 (S.D.N.Y. 1997), aff’d, 117
28 F.3d 721 (2d Cir. 1997) (per curiam) (“As a general rule, the
29 adequacy of an allocation plan turns on whether counsel has
30 properly apprised itself of the merits of all claims, and
4
Nor does this peculiar procedural posture deprive the district
court of jurisdiction over the FDA’s allocation. Although the
Investor Settlement did not include a plan of allocation, it
authorized the court to adopt such a plan, and the court
explicitly retained jurisdiction over “all matters relating to”
the Investor Litigation, including allocation of the FDA. J.A.
642.
7
1 whether the proposed apportionment is fair and reasonable in
2 light of that information.”).
3 First, the POA reflects the net-loser Rye Funds’ superior
4 claim to the proceeds of the Trustee Settlement. See In re
5 Corrugated Container Antitrust Litig., 643 F.2d 195, 220 (5th
6 Cir. 1981) (“It is self-evident that if the settlement’s
7 adequacy rests on the value of one set of claims, distribution
8 of the settlement should be weighed heavily in favor of
9 plaintiffs whose claims comprise that set.”). That settlement
10 granted roughly $3 billion in claims exclusively to these three
11 funds because only they were net-loser BLMIS customers. See
12 In re Bernard L. Madoff Inv. Secs. LLC, 654 F.3d 229, 238 (2d
13 Cir. 2011) (limiting SIPA recovery to net-loser BLMIS
14 customers). To be sure, the Tremont and net-winner Rye Funds
15 contributed $138 million to the Trustee Settlement, and that
16 contribution helped enable the net-loser Rye Funds to receive
17 their $800 million section 502(h) claim. But the Tremont and
18 net-winner Rye Funds’ $138 million contribution was not
19 selfless: the payment settled the clawback claims against them.
20 And, in any event, that contribution is recognized by the
21 allowance of Virtual SIPC Claims, which are calculated on the
22 same eighty-percent basis as the net-loser Rye Funds’ section
23 502(h) claim.
24 Second, the POA reflects the net-loser Rye Funds’ greater
25 victimization by BLMIS. Unlike the other funds, they invested
26 their entire portfolio with BLMIS and incurred enormous losses.
27 Third, the Tremont Funds were exposed to Madoff’s fraud
28 only through their cross-investments in Rye Funds. Under the
29 POA, Tremont Funds, like all Rye Fund investors, are compensated
30 for their Madoff losses.
31 Fourth, the POA adopts the net equity principle of
32 allocation that this Court has previously endorsed with respect
33 to Madoff’s Ponzi scheme. This principle holds that, because
34 net winners were given money stolen from net losers, only net
35 losers have an equitable right to recovery. See id. at 235,
36 238.
37 Fifth, the POA respects the separate legal status of the
38 funds. Rather than pool all of the Trustee Settlement proceeds
8
1 into one pot for distribution directly to the individual
2 investors -- as the rejected plan proposed by Martin would do
3 -- the POA first allocates the proceeds according to the claims
4 held by the funds. This is appropriate given that the FDA
5 arises from the derivative claims brought on behalf of the funds
6 in the Investor Litigation.
7 Finally, the POA provides for the priority distribution of
8 $32.4 million to Rye XL’s investors in recognition of Rye XL’s
9 direct cash contribution to the FDA in that amount.
10 Thus, in sum, the POA is based on fair and equitable
11 principles. It is the product of protracted, contentious
12 mediation in which numerous Rye and Tremont Fund investors with
13 diverse interests participated through counsel.5 Attorneys
14 for two of the appellants (Martin and Philadelphia Financial
15 Life Assurance Company) took part in the mediation and advocated
16 on their clients’ behalf. The retired federal judge who served
17 as the mediator attested to the inclusive and hard-fought nature
18 of the negotiations, the numerous compromises made, the
19 opportunity for all parties to advance their positions, and the
20 fairness of the POA. And the district court provided ample
21 opportunity for appellants and other interested parties to
22 voice their concerns and submit competing proposals before it
23 decided to allocate the FDA according to the POA.
24 Given these facts, and the fair terms of the POA (including
25 significant concessions to Tremont and net-winner Rye Fund
26 investors in the form of Virtual SIPC Claims), the district
27 court did not abuse its discretion in concluding that
28 appellants’ interests were adequately represented and
29 protected.6 See In re Literary Works in Elec. Databases
5
The Tremont Funds’ interests were represented at mediation not
only by the several Tremont Fund investors who attended, but
also by: (1) Rye Fund investors, who, like the Tremont Funds,
were exposed to Madoff’s fraud through their investments in the
Rye Funds; and (2) investors in Rye Prime, which, like the
Tremont Funds, contributed cash to the Trustee Settlement
without receiving a claim in return.
6
Accordingly, the district court’s denial of Martin’s 2015
motion to certify a subclass of Tremont Fund investors pursuant
9
1 Copyright Litig., 654 F.3d 242, 252 (2d Cir. 2011) (“The Supreme
2 Court’s decision in Amchem . . . allows courts, in assessing
3 the adequacy of representation, to examine a settlement’s
4 substance for evidence of prejudice to the interests of a subset
5 of plaintiffs.”).
6 2. The POA allows a recovery only to investors who
7 suffered a net loss in the Madoff Ponzi scheme. Appellants
8 argue that this conflicts with the Investor Settlement, which
9 they claim entitles every investor to recover. Appellants’
10 argument rests on ¶ 1.18 of the Investor Settlement, which
11 defines “Fund Distribution Claimant” as “any limited partner
12 or shareholder in any of the Settling Funds . . . , each of which
13 shall be entitled to receive a disbursement from the [FDA].”
14 J.A. 263-64 (emphasis added).
15 Paragraph 1.18 of the Investor Settlement does not impugn
16 the POA. The Investor Settlement explicitly stated that
17 allocation of the FDA would be decided separately. It is
18 implausible that the parties intended to drastically limit the
19 terms of that allocation through a vague reference to
20 entitlement buried in the definitional section of the
21 settlement.
22 Viewed in context, ¶ 1.18 is more naturally read as a
23 statement of eligibility, rather than a guarantee of recovery.
24 See Huertas v. East River Hous. Corp., 992 F.2d 1263, 1267 (2d
25 Cir. 1993) (“[A] court may look to certain aids, such as the
26 circumstances surrounding a settlement agreement’s formation,
27 when construing it for enforcement purposes.”).
28 3. Philadelphia Financial contends that the POA should be
29 rejected because it conflicts with the funds’ governing
30 documents. Many of the funds are limited partnerships whose
31 partnership agreements dictate the allocation of assets,
32 including upon liquidation. The partnership agreements
33 generally require that assets of the fund be distributed
to Federal Rule of Civil Procedure 23 was not an abuse of
discretion. Moreover, because the POA was a mechanism to
resolve the derivative (rather than class action) claims in this
litigation, Rule 23 is arguably inapplicable.
10
1 proportionally according to the value of each investor’s
2 capital account, whereas the POA distributes FDA assets based
3 on an investor’s net equity in a given fund.
4 However, the Investor Settlement rendered the funds’
5 governing documents irrelevant for purposes of allocation.
6 When the funds and their investors signed the Investor
7 Settlement, all assets flowing into the FDA became subject to
8 equitable distribution by the district court. See J.A. 285,
9 ¶ 2.23 (explaining that the FDA will be disbursed to the funds’
10 limited partners and shareholders pursuant to a plan of
11 allocation approved by the district court). In other words,
12 because the POA determines how the FDA is distributed to
13 investors, the funds’ partnership agreements do not control.
14 And because the partnership agreements would not allocate
15 assets more fairly than the POA (and would risk giving effect
16 to Madoff’s fictitious account statements), the district court
17 did not abuse its discretion in ignoring them.
18 4. Martin claims that the mediation was tainted by secret,
19 collusive side-deals, and that the district court erred in
20 denying his motion for disclosure of all agreements reached
21 during the mediation process. Martin relies on Federal Rule
22 of Civil Procedure (“Rule”) 23(e)(3), which requires that
23 parties seeking approval of a proposed class action settlement
24 “file a statement identifying any agreement made in connection
25 with the proposal.” Fed. R. Civ. P. 23(e)(3).
26 As an initial matter, Rule 23, which governs class actions,
27 is arguably not controlling here. The FDA, unlike the NSF,
28 resolves the non-class derivative claims in this litigation.
29 In any event, all mediation attendees signed a
30 confidentiality agreement which covered “all statements of the
31 parties, counsel, and mediators, as well as the materials
32 generated solely for purposes of the mediation.” J.A. 1691.
33 Attendees also orally agreed “that the entire mediation process
34 and all communications, negotiations and agreements pursuant
35 thereto were covered with a complete cloak of confidentiality
36 and must remain confidential, including in particular, being
37 off limits from discovery, court papers, arguments or other
11
1 Court proceedings, absent further agreement by the parties.”
2 J.A. 2178.
3 Rule 23 does not require disclosure of all agreements made
4 during confidential mediation. As we have observed:
5 A party seeking disclosure of confidential mediation
6 communications must demonstrate (1) a special need for
7 the confidential material, (2) resulting unfairness
8 from a lack of discovery, and (3) that the need for
9 the evidence outweighs the interest in maintaining
10 confidentiality. All three factors are necessary to
11 warrant disclosure of otherwise non-discoverable
12 documents.
13 Savage & Assocs. P.C. v. K&L Gates LLP (In re Teligent, Inc.),
14 640 F.3d 53, 58 (2d Cir. 2011) (citations omitted).
15 The district court found that there was no reason to believe
16 that any agreements reached during mediation were collusive,
17 and that the need for confidentiality outweighed the need for
18 disclosure. Given the importance of encouraging mediation in
19 this tangled matter, the mediator’s testimony regarding the
20 fairness of the negotiations and the evident fairness of the
21 POA, the district court did not err in denying Martin’s motion
22 to revoke confidentiality. See id. at 59-60 (“Were courts to
23 cavalierly set aside confidentiality restrictions on
24 disclosure of communications made in the context of mediation,
25 parties might be less frank and forthcoming during the mediation
26 process or might even limit their use of mediation
27 altogether.”).
28 5. Appellants (with the exception of Martin) argue that
29 the district court erred in awarding Lead Counsel a fee equal
30 to three percent of the FDA,7 capped at two-and-a-half times the
31 “lodestar” of counsel’s hourly rate multiplied by hours worked.8
32 If, as the parties anticipate, the Trustee pays approximately
7
The three percent is not applied against Rye XL’s $32.4 million
priority distribution.
8
The district court also awarded Lead Counsel nearly $1 million
in expenses.
12
1 $1.45 billion into the FDA, this cap will likely be triggered
2 and Lead Counsel will receive in excess of $40 million.
3 “We review a district court’s award of attorney’s fees for
4 abuse of discretion, which occurs when (1) the court’s decision
5 rests on an error of law (such as application of the wrong legal
6 principle) or clearly erroneous factual finding, or (2) its
7 decision -- though not necessarily the product of a legal error
8 or a clearly erroneous factual finding -- cannot be located
9 within the range of permissible decisions.” McDaniel v. Cty.
10 of Schenectady, 595 F.3d 411, 416 (2d Cir. 2010) (internal
11 citation, quotation marks, and brackets omitted).
12 In absolute terms, an award of three percent of a common
13 fund is not excessive, as numerous opinions confirm.9 However,
14 the calculation is guided by several (non-exclusive) factors:
15 “(1) the time and labor expended by counsel; (2) the magnitude
16 and complexities of the litigation; (3) the risk of the
17 litigation; (4) the quality of representation; (5) the
18 requested fee in relation to the settlement; and (6) public
19 policy considerations.” Goldberger, 209 F.3d at 50
20 (alterations and quotation marks omitted). Further, fee
21 awards should be approached “with an eye to moderation,” and
22 “should be assessed based on scrutiny of the unique
23 circumstances of each case, and a jealous regard to the rights
24 of those who are interested in the fund.” Id. at 53 (internal
25 quotation marks omitted).
9
See, e.g., In re Nortel Networks Corp. Secs. Litig., 539 F.3d
129, 134 (2d Cir. 2008) (affirming fee award equal to 3% of $438
million fund and acknowledging that fee was “toward the lower
end of reasonable fee awards”); Wal-Mart Stores, Inc. v. Visa
U.S.A. Inc., 396 F.3d 96, 123 (2d Cir. 2005) (affirming fee award
equal to 6.5% of $3.38 billion common fund); Goldberger, 209
F.3d at 52 (observing that “empirical analyses demonstrate that
in cases like this one, with recoveries of between $50 and $75
million, courts have traditionally accounted for these
economies of scale by awarding fees in the lower range of about
11% to 19%”); Carlson v. Xerox Corp., 596 F. Supp. 2d 400, 414
(D. Conn. 2009), aff’d, 355 F. App’x 523 (2d Cir. 2009) (summary
order) (awarding fee equal to 16% of $750 million common fund).
13
1 The district court concluded that the Goldberger factors
2 supported Lead Counsel’s requested fee, stating in relevant
3 part:
4 In its work on the FDA, [Lead] Counsel has
5 unquestionably put forth great labor. Furthermore,
6 the litigation has been highly complex, involving a
7 great deal of unsettled law, many parties, and a
8 voluminous case history. [Lead] Counsel has
9 displayed great skill in managing these challenges.
10 Objectors uncharitably characterize [Lead] Counsel as
11 mere “administrators” of the FDA. In fact, [Lead]
12 Counsel’s driving role in structuring the FDA as part
13 of the [Investor] Settlement, and thereafter working
14 to mediate conflicts and effect a fair and expedient
15 distribution of the funds, has gone well beyond rote
16 administration. In short, the allocation and
17 distribution of the FDA is a complex matter of great
18 importance to many parties, and [Lead] Counsel has
19 performed admirably. . . . [T]his litigation
20 involved unique practical and legal challenges. The
21 outcome of [Lead] Counsel’s labor was never certain.
22 In re Tremont Sec. Law, State Law & Ins. Litig., No. 08-CV-11117,
23 2015 WL 5333494, at *10, 2015 U.S. Dist. LEXIS 122204, at *36-38
24 (S.D.N.Y. Sept. 14, 2015).
25 We do not question the district court’s characterization
26 of Lead Counsel’s performance or the complexity or importance
27 of this matter. However, we think the court gave insufficient
28 consideration to the lack of contingency risk, and that factor
29 is generally the most important in determining whether to award
30 a lodestar multiplier. Goldberger, 209 F.3d at 54 (“We have
31 historically labeled the risk of success as perhaps the foremost
32 factor to be considered in determining whether to award an
33 enhancement.” (internal quotation marks omitted)).
34 The district court identified two risks Lead Counsel
35 supposedly faced. Neither supports Lead Counsel’s requested
36 2.5 lodestar multiplier.
37 The first identified risk was “in bringing the derivative
38 claims that gave rise to the inclusion of the FDA as part of
14
1 the [Investor] Settlement.” In re Tremont, 2015 WL 5333494,
2 at *9, 2015 U.S. Dist. LEXIS 122204, at *34. This is not a
3 proper consideration in relation to this particular fee award.
4 First, Lead Counsel was already compensated for the risk in
5 bringing the derivative (i.e., state law) claims in the fee
6 award for the August 2011 Investor Settlement. See J.A. 617
7 (stating that the 2011 fee award compensated Lead Counsel for
8 “their respective contributions in the prosecution of the State
9 Law Actions and the Securities Actions”); J.A. 619 (finding that
10 had Lead Counsel “not achieved the Settlement, a significant
11 risk would remain that State Law and Securities Plaintiffs and
12 the State Law and Securities Subclasses may have recovered less
13 or nothing”).
14 Second, Lead Counsel is requesting fees for work completed
15 only after the district court approved the Investor Settlement
16 in August 2011.10 It does not do to multiply the fee award here
17 -- which is based on hours worked after the Investor Settlement
18 -- in order to compensate a risk that dissipated when the court
19 approved that settlement.
20 Third, the hundreds of millions of dollars that have been
21 flowing into the FDA were essentially guaranteed by the July
22 2011 settlement in the Trustee Litigation, a separate case led
23 by separate counsel (who already took their cut) involving money
24 obtained by the Trustee (who is also being compensated). There
25 is no reason to award Lead Counsel a lodestar multiple based
26 on the size of a recovery they did not secure.11 Nor was there
27 ever a real possibility that the FDA would be so insignificant
10
More specifically, Lead Counsel is seeking fees for work
completed from May 2011 through August 2015. The district
court approved the Investor Settlement and the initial fee award
in August 2011. However, Lead Counsel submitted the initial
fee request in May 2011, which explains why they are now seeking
fees from May 2011 to August 2011 in addition to fees for work
involving the FDA POA after approval of the settlement.
11
Although Lead Counsel was responsible for securing the $100
million NSF, they were paid a thirty-percent fee for that.
15
1 that Lead Counsel might be deprived of rich compensation for
2 their work relating to it.
3 The second risk identified by the district court was the
4 “risk[] in defending the Plan of Allocation against objectors.”
5 In re Tremont, 2015 WL 5333494, at *9, 2015 U.S. Dist. LEXIS
6 122204, at *35. However, Lead Counsel’s fee award is not tied
7 to any particular plan of allocation; rather, it is dependent
8 on the size of the FDA (which is a product of the Trustee’s
9 efforts) and the lodestar -- which only increased as the number
10 of objections to the POA (and thus Lead Counsel’s hours spent
11 defending it) grew. Accordingly, there appears to have been
12 little (if any) risk in defending the POA against objectors,
13 except for the remote possibility that the district court would
14 refuse to approve any plan of allocation submitted by Lead
15 Counsel.
16 Given the lack of contingency risk, a lodestar multiplier
17 cap of 2.5 “cannot be located within the range of permissible
18 decisions.” McDaniel, 595 F.3d at 416; see also City of Detroit
19 v. Grinnell Corp., 495 F.2d 448, 471 (2d Cir. 1974), abrogated
20 on unrelated grounds by Goldberger, 209 F.3d at 49-50 (“The
21 greater the probability of success, of either ultimate victory
22 on the merits or of settlement, the less this consideration
23 should serve to amplify the basic hourly fee.”). A lodestar
24 multiplier of 2.5 would be considered high for a standard common
25 fund case in this Circuit.12 At the same time, virtually all
26 the cases that feature a multiplier are those in which, unlike
12
See, e.g., In re Citigroup Inc. Secs. Litig., 965 F. Supp.
2d 369, 401 (S.D.N.Y. 2013) (citing data regarding lodestar
multipliers in securities class action settlements and
observing that a multiplier of 2.8 is “high”); In re Merrill
Lynch & Co. Research Reports Secs. Litig., No. 02 MD 1484, 2007
WL 313474, at *23, 2007 U.S. Dist. LEXIS 9450, at *75 (S.D.N.Y.
Feb. 1, 2007) (ruling that “an award that equates to a multiplier
of 2.43 of the lodestar is excessive”); In re Twinlab Corp. Secs.
Litig., 187 F. Supp. 2d 80, 87 (E.D.N.Y. 2002) (describing
counsel’s requested multiplier of 3.58 as “inconsistent with
post-Goldberger courts which have generally refused
multipliers as high as 2.03”).
16
1 here, the fund was collected by the efforts of counsel with an
2 inherent risk that the litigation would yield less or none.
3 We therefore remand so that the district court can revise
4 the cap to reflect counsel’s limited risk.13 The specific
5 recalculation, of course, remains subject to the district
6 court’s sound discretion. Although a cap of 2.5 times the
7 lodestar is excessive, one equal to the lodestar is not
8 necessarily required.
13
Appellants George Turner, Bindler Living Trust, Madelyn
Haines, John Johnson, William J. Millard Trust, Stella Ruggiano
Trust, West Trust, and Paul Zamrowski challenge the lodestar
multiplier cap on the additional grounds that the district court
relied on time summaries (rather than contemporaneous time
records) and Lead Counsel’s hourly rates. With respect to time
records, although they are ordinarily required, see Scott v.
City of New York, 626 F.3d 130, 133-34 (2d Cir. 2010) (per
curiam), the district court may rely on summaries that are based
on voluminous contemporaneous records. See Cruz v. Local Union
No. 3 of Int’l Bhd. of Elec. Workers, 34 F.3d 1148, 1160 (2d
Cir. 1994) (“A review of the submissions made by [counsel] shows
that they made contemporaneous entries as the work was
completed, and that their billing [summary] was based on these
contemporaneous records. We believe this falls sufficiently
within the meaning of ‘contemporaneous’ . . . .”). However,
the sparse summaries provided by Lead Counsel are of doubtful
adequacy. Therefore, on remand, the district court should
require the submission of more detailed summaries that, at the
very least, break down the hours worked by year and task. With
respect to the district court’s use of counsel’s hourly rates
to calculate the lodestar, we find no abuse of discretion.
Given the skill and experience required in this complex
securities litigation, we cannot conclude that those rates were
unreasonable.
17
1 Accordingly, and finding no merit in appellants’ other
2 arguments, we hereby AFFIRM the judgment of the district court
3 with respect to the plan of allocation and VACATE AND REMAND
4 with respect to the fee award.
5 FOR THE COURT:
6 CATHERINE O’HAGAN WOLFE, CLERK
18