Fresno Cnty. Employees' Ret. Ass'n v. Isaacson/Weaver Family Trust
925 F.3d 63
2d Cir.2019Background
- Securities class action against BioScrip, Inc. settled for a $10.9 million common fund; Lead Counsel (Bernstein Litowitz) sought 25% ($2,725,000) plus expenses from the fund.
- Isaacson/Weaver Family Trust, a class member, objected, arguing that because claims arose under statutes with fee-shifting provisions, counsel’s fee should be limited to the unenhanced lodestar.
- District court approved the settlement and awarded the requested percentage fee from the common fund; Objector appealed the fee ruling.
- Second Circuit considered whether fee-shifting presumptions (lodestar baseline, no contingency multiplier) control when a settlement creates a common fund.
- Court affirmed: when a settlement produces a common fund for the class, equitable common-fund principles govern fee allocation and the court may award either an unenhanced lodestar or a percentage-of-the-fund fee.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether fee-shifting statutes limit fees to unenhanced lodestar when settlement creates a common fund | Lead Counsel: common-fund doctrine governs; court may use lodestar or percent-of-fund | Objector: fee-shifting presumptively limits recovery to unenhanced lodestar even if common fund created | Common-fund doctrine controls; court may award either lodestar or percentage fee despite fee-shifting statutes |
| Whether percentage fees improperly shift contingency risk to defendants | Lead Counsel: defendant cares only about total payout; allocation irrelevant to defendant | Objector: percentage fee forces defendants to subsidize counsel’s contingency risk | Court: distinguishing perspective — in common-fund settlements, class (not defendant) bears fee, so accounting for contingency risk is permissible |
| Whether percentage method incentivizes premature or collusive settlements | Lead Counsel: percentage aligns counsel’s interest with maximizing settlement value; court oversight prevents abuse | Objector: percentage encourages early sell-out to secure fee | Court: district court oversight, Rule 23(e) fairness review, and lodestar cross-check mitigate incentive problems |
| Standard of review for fee-allocation choice | Lead Counsel: district court has discretion to choose method and evaluate reasonableness | Objector: legal error if fee-shifting principles were not applied | Court: reviews legal rulings de novo and discretionary choice for abuse of discretion; here, no abuse of discretion |
Key Cases Cited
- Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240 (recognizing equitable common-fund doctrine)
- Boeing Co. v. Van Gemert, 444 U.S. 472 (equitable rule preventing unjust enrichment of beneficiaries of a fund)
- Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (lodestar yields presumptively reasonable fee under statutory fee-shifting)
- Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir.) (district courts may use lodestar or percentage methods in common-fund cases)
- Staton v. Boeing Co., 327 F.3d 938 (9th Cir.) (common-fund doctrine applies even if fee-shifting statutes could apply)
- Florin v. Nationsbank of Ga., N.A., 34 F.3d 560 (7th Cir.) (distinguishing who should bear contingency risk; appropriate to charge class in common-fund cases)
- McDaniel v. County of Schenectady, 595 F.3d 411 (2d Cir.) (district court discretion and need for searching assessment of fee awards)