In re Citigroup Inc. Securities Litigation
2013 U.S. Dist. LEXIS 108115
S.D.N.Y.2013Background
- Securities-fraud consolidated class action alleging Citigroup misled investors about CDO/RMBS exposure, covering purchases of Citigroup common stock from Feb 26, 2007 to Apr 18, 2008. Plaintiffs claimed market-price inflation caused loss; surviving claims concerned CDO-related exposure after partial dismissal.
- Parties negotiated a global settlement of $590 million after mediation by retired judge Layn R. Phillips; court preliminarily certified the settlement class and approved notice.
- Class notice reached ~2.4 million potential members; only eleven written objections and 134 valid exclusion requests were received.
- Lead counsel (Kirby McInerney) sought $97.5 million (16.5%) in fees and ~$2.84 million in expenses; objectors challenged the fee lodestar, particularly contract-attorney hours and rates.
- The court held a fairness hearing, approved the settlement and plan of allocation (with a clarification for employee stock-purchase plan participants), but reduced counsel’s lodestar and awarded a lower fee: $70.8 million (12% of fund) and $2,842,841.59 in expenses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the $590M settlement is fair, reasonable, and adequate | Settlement is the product of arm’s-length mediation, substantial recovery given risks, extensive discovery supports informed decision | Settlement appropriate; defendants agreed after mediation (defendants did not oppose approval) | Approved: settlement is procedurally and substantively fair under Rule 23(e) and Grinnell factors |
| Adequacy of class notice and class certification for settlement purposes | Combined notice complied with Rule 23(c)(2)(B) and (e); individualized notice to identifiable members | No colorable challenge to adequacy of notice | Held: notice satisfied Rule 23 and due process; class certified for settlement purposes |
| Plan of allocation — treatment of employee stock-purchase plan (FA CAP) purchases | Plaintiffs originally applied allocation to award dates; argued awards during class period control | FA CAP participants argued purchases occurred monthly (payroll deductions & monthly price inputs) and should be compensated monthly | Held: adopt substance-over-form approach — treat FA CAP purchases as monthly installments; plan amended accordingly |
| Reasonableness of attorneys’ fees and lodestar cross-check (contract-attorney hours/rates; other deductions) | Counsel sought $97.5M (16.5%); submitted lodestar ~$51.4M and blended contract-attorney rate $466/hr | Objectors argued inflated hours, post‑settlement document review unjustified, and contract-attorney market rate far lower | Held: court struck $4M (pre-appointment unsuccessful lead-counsel work), $7.5M (post-settlement document-review hours), reduced contract-attorney rate to $200/hr (cut ~ $12M), applied 10% efficiency reduction; resulting lodestar $25.1M; awarded $70.8M (12% of fund; 2.8x lodestar) and expenses $2,842,841.59 |
Key Cases Cited
- Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96 (2d Cir. 2005) (standard for approving class settlements; scrutiny of negotiating process and terms)
- Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000) (factors for assessing reasonableness of fee awards and lodestar cross-check)
- City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974) (nine-factor test for substantive fairness of class settlements)
- Weinberger v. Kendrick, 698 F.2d 61 (2d Cir. 1982) (policy favoring settlements but requiring judicial scrutiny)
- D'Amato v. Deutsche Bank, 236 F.3d 78 (2d Cir. 2001) (heightened scrutiny when settlement negotiated prior to class certification)
- In re PaineWebber Ltd. P'ships Litig., 171 F.R.D. 104 (S.D.N.Y. 1997) (presumption of fairness for arm's-length settlements after meaningful discovery)