Lead Counsel, the law firms of Bernstein Litowitz Berger & Grossman LLP (“BLBG”) and Barrack, Rodos & Bacine (“BRB”), petition the Court for an award of attorneys’ fees in the amount of 8.275% of the total settlement fund (after deducting costs and expenses of litigation); a total fee award of $262,468,857. One of three co-Lead Plaintiffs, the New York City Pension Fund (“NYCPF”), and three other class members object to the request. The requested fee is awarded and expenses in the amount of $14,623,806 are allowed.
A. Background
On April 15, 1998, Cendant announced that it had discovered accounting irregularities in a former CUC business unit and that Cendant’s financial statements for 1997, and possibly earlier years, would be restated. Thereafter, a number of purchasers of Cendant securities filed class actions against Cendant and other defendants. On May 29, 1998, this Court consolidated all of the actions then pending against Cendant under In re Cendant Corporation [Securities] Litigation, Civ. No. 98-1664(WHW).
On August 4, 1998, the Court appointed the New York State Common Retirement Fund (“NYSCRF”), the California Public Employees’ Retirement System (“Cal-PERS”), and NYCPF as co-Lead Plaintiffs for the class action against Cendant Corporation filed by those who held Cendant stock other than PRIDES, another form of security issued by Cendant.
At that time, this Court announced the procedure it would use to select lead counsel to represent the plaintiff class. The Private Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. §§ 77k, 77i, 77&-1, 77z-2, 78j-l, 78t, 78u, 78u-4, & 78u-5, attempts to protect the plaintiff class to ensure that total attorneys’ fees and expenses awarded by a court to counsel for the plaintiff class do not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class. 15 U.S.C. §§ 77z-1(a)(6); § 78u-4(a)(6). To implement the objectives of the PSLRA, this Court determined that the selection of counsel should be the subject of competitive, adversarial bidding. In re Cendant Corp. Litig., 182 F.R.D. 144 (D.N.J.1998).
The Court invited any attorney who wanted to be lead counsel for the class of shareholders excluding the PRIDES-holders to submit a sealed bid to the Court. 1 Fifteen law firms from around the country submitted twelve separate bids which, among other requirements, described their professional qualifications and ability to undertake and maintain all costs of the litigation. The Court reserved the right to reject any bid which it deemed not to have been made in good faith or which was contrary to the interests of either plaintiff class. Id. Recognizing that the PSLRA gives Lead Plaintiffs the statutory opportunity to choose their counsel, subject to Court approval, the Court gave Lead Plaintiffs’ original counsel the right of first refusal: if plaintiffs’ original counsel was qualified and had not submitted the lowest qualified bid, it would be given the opportunity to agree to the terms of what the Court had found to be the lowest qualified bid. Bidders BLBG and BRB, the original counsel for co-Lead Plaintiffs, exercised that right and accepted the terms and fee bid schedule which the Court had determined to be the lowest qualified bid to represent the class. On October 13, 1998, the Court appointed BLBG and BRB as Lead Counsel for the class.
Lead Counsel assert that the 8.275% request “adheres precisely to the market-established fee grid, which the Court de *289 termined was the lowest qualified bid.” Lead Counsel seek fees under the second column of the fee grid, because settlement was reached during discovery — after motions to dismiss and before the summary judgment stage. They further seek the sum of $14,623,806 (plus interest) as reimbursement of costs and expenses incurred during prosecution. The amount includes a $13,208,151 fee of Lazard Fréres & Co., an investment banking firm hired by Lead Counsel for its expertise; $271,560 charged by the damages expert, Forensic Economics, Inc.; $349,881 to compensate an accounting firm, Marks Paneth & Schron LLP; $250,000 to another investment banking expert, Arthur S. Ainsberg; and $528,812 in law firm expenses.
B. Lead Counsel’s Analysis of Fees in Large Class Actions
Lead Counsel state “[t]he Supreme Court has ... consistently held that the percentage [of settlement fund] approach is the correct method for determining attorneys’ fees in common fund cases.” LC Brf. at 9 (citing
Blum v. Stenson,
that in the traditional common-fund situation and in those statutory fee cases that are likely to result in a settlement fund from which adequate counsel fees can be paid, the district court, on motion or its own initiative and at the earliest practicable moment, should attempt to establish a percentage fee arrangement agreeable to the Bench and to plaintiffs counsel....
In 1995, the Third Circuit expressly determined that a percentage of recovery approach was the most appropriate method of fee calculation in common fund cases.
See In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig.,
Importantly, Congress, by the PSLRA, adopted the percentage of recovery method. 15 U.S.C. § 78u-4(a)(6) states: “Total attorneys’ fees and expenses awarded by the court to counsel shall not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class.” This admonition was recognized by this Court at the time it adopted the auction process — “To seek the requisite reasonableness of costs for such talent which is to be borne by the entire plaintiffs group in this case in the event of recovery, it is my judgment that legal fees also be the subject of adversarial competition.” Transcript of August 4, 1998 Hearing at 109-114 (emphasis added).
Lead Counsel ask the Court to adhere to the bid resulting from the auction. They quote from the transcript of the August 4; 1998 Hearing and the Court’s “auction opinions” issued September 8, 1998 and October 2,1998. Then the Court said that the lowest qualified bid would be the “benchmark of reasonableness” for determining an eventual award of fees. As to *290 lodestar, the Court declared “under no circumstances will I permit lodestar to be used in this litigation.” Tr. at 26. It continued, “I have known people who, given a problem, could solve it in 45 minutes. Whereas I might take two hours. And some other person might take two and a half hours. And in that sense I’m an elitist because I feel as though the person who is able to settle the case, settle the problem in 40 minutes should not be penalized.” Tr. at 44-45. This reasoning was later clarified at the fairness hearing of June 28, 2000. See Fairness Hearing Tr. at 143 (June 28, 2000), quoted in n.9.
The “lowest qualified bid,” determined by the Court, provides for fees ranging from 2%-9% of recovery. As the recovery rises, the fee percentage increases. Lead Counsel support this methodology and refer to Professor John C. Coffee, Jr.’s declaration submitted to the Court in August 1998:
My point is that the first dollars in any settlement are easy, while the marginal dollars become progressively harder. An optimal fee formula should reward the attorney for working harder and gaining more for the class. This does not mean that the attorneys will necessarily receive more money. A fee formula that starts low (at 5% to 10% and ascends to 25%) may produce the same (or lesser) compensation as one that starts at 25% and then descends to 5% — but it will clearly work better to discourage “cheap” early settlements....
Coffee Decl. at ¶ 18. Lead Counsel further assert that the structure adopted by auction should not now be “renegotiated.”
Lead Counsel argue that irrespective of the auction process, 8.275% of the recovery, net of expenses, is reasonable in relation to other awards in class action cases. The
General Motors
court noted that “fee awards have ranged from nineteen percent to forty-five percent of the settlement fund.”
Lead Counsel focus first on fees awarded in larger securities class actions — cases where the class recoveries ranged from $62-$220 million. Awards for these cases 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. Brf. at 24-25 (chart).
They also survey recoveries in what they label “mega-fund” cases — billion dollar plus recoveries:
In re NASDAQ Market-Makers Antitrust Litigation,
As additional support that the fee is justified, counsel rely on many of the arguments offered in favor of settlement — such *291 as the risks of establishing liability and damages and other Girsh factors. See Companion Opinion, No. 98-1664, slip. op. at 34-49 (D.N.J. August 2000) (evaluating settlement).
C. Objectors:
NYC
Co-Lead Plaintiff, NYCPF (“the city”), objects to the fee request. This objection arises from events of June 1998. The fund alleges that during that month, it, together with co-Lead Plaintiffs CalPERS and NYSCRF, entered into a detailed retainer agreement with BLBG and BRB. The fourth section of that agreement contains a fee grid. Fees were based on a percentage of the amount recovered with the fee percentage decreasing as the recovery increased. The percentages set in this agreement were maximum awards or “fee caps”: “The fee will be a function of both the timing and size of the recovery but, unless agreed to by the Funds, will, in no event exceed the following: ...” Retainer at 2 (emphasis added). The agreement further states: “In any event [Lead Counsel] will not submit any fee application to the Court without the prior approval of the Funds.... ” Retainer at 2.
At the hearing on August 4, 1998, Max Berger of BLBG referenced the retainer agreement to argue that Lead Plaintiffs rightly and responsibly selected BLBG and BRB as counsel — “not only did they [plaintiffs] engage in an extensive process in the selection of best counsel ... but in addition, your Honor, have negotiated the best fee probably ever negotiated in advance .... the hardest bargain ever driven in a security fraud class action case.” Tr. at 8, 12. On August 4, the three funds were appointed co-Lead Plaintiffs and the auction was instituted. The Court stated “[s]uch [auction] will probably result in reduced costs for the entire group or groups.” Tr. at 110. (The city now argues that the anticipated “reduced costs” were not realized but rather resulted in “an increased cost to the class of $76 million.” Brf. at 5.)
According to the city, “Lead Plaintiffs were extremely disturbed by [the auction]” and “even discussed pulling out of the case.” Pugh Decl. at ¶ 15. The city now argues that it wrote to the Court on August 17, 1998 to suggest “several considerations that we believe are crucial to obtaining the best representation at the lowest price.” Letter at 1. In a footnote they added “we recommend that any numbers/percentages in the grid be established as fee caps only, with the actual fee subject to approval by Lead Plaintiffs before submission to the Court.”
As noted, BLBG and BRB, although bidders, were not the lowest bidders, but agreed to match the lowest bid of a qualified bidder. 3 The city has since reviewed the bids placed and maintains that “[i]t does not appear that lead counsel bid the same percentages as the mileposts it had agreed to in the Retainer.” Brf. at 6; Pugh Decl. ¶¶ 10, 19. It is clear that the city’s fee grid decreased the percentage-of-recovery allocated as fees as the recovery increased, while the auction-set fee increases with the size of recovery. The city now alleges that post-auction it made an off-the-record objection to the use of the Court’s fee schedule because of the existing retainer agreement. Pugh. Deck ¶ 19. “To the best of Mr. Pugh’s [the Assistant Corporation Counsel, City of New York] recollection, the Court agreed that the Retainer was in full force and effect except as to the grid for which the results of the auction would take precedence. The Court acknowledged that the grid represented a cap.” Brf. at 7. The Court denies that recollection of Mr. Pugh. When asked by Mr. Pugh, who, with others, was walking out of chambers at the time, if the auction bid prevented Lead Plaintiffs from negotiating a lower fee in the future, the *292 Court remarked “go ahead, if you can.” (And Mr. Pugh never reported back to the Court.) That is altogether different from Court approval of a retainer agreement made before the auction, the details of which had not been revealed.
The city now asks the Court to reject the fee sought and set a “reasonable” fee; or to hold an evidentiary hearing to determine the appropriate fee; or to reinstate the retainer agreement and ask Lead Counsel to negotiate a fee with Lead Plaintiffs pursuant to the terms of the retainer.
The city states that it agrees with the percentage-of-recovery fee method of fee calculation but argues that
In re Prudential Insurance Co. of America Sales Practices Litigation,
The city also claims that lodestar must be used as a “cross-check” on the reasonableness of a percentage fee in common fund cases. It contends that Lead Counsel’s lodestar indicates that an 8.275% recovery is clearly unreasonable. Here, according to the city, the requested fee is 32.7 times lodestar or $10,861 per hour. “The highest multiplier the City Pension Funds have been able to find in the Third Circuit is 9.3 times lodestar.” Brf. at 14 (citing
In re Prudential,
The city contends that such a high fee award/lodestar multiplier is also unreasonable where, as here, “[ljiability ... was a foregone conclusion.” They cite to the (recently unsealed) bid opinion of October 1998 which states: “Basic liability in this case has been conceded by the major corporate defendant. No one needs to be reminded that it was Cendant’s public admission on April 15, 1998 that spawned this litigation.”
In re Cendant Corp. Litig.,
The city then argues that the results of the auction are not set in stone: “There is nothing in the Court’s orders that requires lead counsel to apply for fees in accordance with the Court’s auction grid and we would have expected our attorneys to hon- or the terms of the Retainer and to have sought our approval before submitting their fee application.”.
See
The city addresses the auction process. “[A]nother way of looking at the Court’s non-binding auction is to view it as a process to determine which counsel will work for the lowest fee; and not as establishing precisely what that fee will be. As it turned out, the counsel chosen by lead plaintiffs agreed to work at the fee determined by the Court to be the ‘lowest’ fee. We now know that the ‘lowest’ fee is that specified in the Retainer.”
Finally, the city argues that the auction was an unnecessary intrusion into the rights and duties of Lead Plaintiffs under the PSLRA. The PSLRA specifies that the party “most capable of adequately representing the interests of class members” should serve as Lead Plaintiff. 15 U.S.C. §§ 77z-l(a)(3)(B)(i), 78u-4(a)(3)(B)(i). Usually this means the party or parties with the largest financial stake in the litigation. §§ 77z-l(a)(3)(B)(iii)(I)(bb), 78u-4(a)(3)(B)(iii)(I)(bb). The act further provides that “the most adequate plaintiff shall, subject to the approval of the court, select and retain counsel to represent the class.” §§ 77z-l(a)(3)(B)(v); 78u-4(a)(3)(B)(v). The city reads this to mean that “the only time lead counsel’s right to choose class counsel should be interfered with is when the court deems that choice adverse to the interests of the plaintiff class.”
See In re Milestone Scientific Securities Litig.,
In conclusion, “[b]y substituting an auction and its own fee grid, the court, in effect, nullified lead plaintiffs arm’s-length negotiations .... [i]n doing so the Court not only unnecessarily interfered with lead plaintiffs attorney-client relationship with lead counsel ... but ran counter to the policies at the heart of the Reform Act.”
Abojf/Sirota
The- Joanne A. Aboff Family Trust (“the trust”), represented by the law firm of Sirota & Sirota, LLP, objects to the fee request on the grounds that “it is grossly excessive and seeks unprecedented compensation.”
First, the trust argues that the settlement documents do not contained sufficient information regarding the lodestar figure — “based on the information provided, class members have no way to compare the fee with the amount of work actually performed since the number of hours worked was not stated in the [Settlement] Notice or in the fee application.” (The trust estimates that the fee sought is 33 times lodestar.)
Second, the trust contends that it should have been provided with information on competing bids in order to make an informed objection to the fee request.
Third, the trust argues that the fee is “excessive” and “outrageous.” The trust cites to
In re Prudential
that percentage of recovery fee awards should
decrease
as the size of the recovery increases.
*294 The trust further argues that once the fee request is cross-checked against lodestar, the “magnitude of the windfall sought by lead counsel becomes clear.” Aboff Brf. at 9.
Schonbrun
Lawrence Schonbrun objects to the fee request on behalf of his 80-year-old aunt. He asks that before awarding attorneys’ fees, the Court (1) require class counsel to file their complete time records and (2) appoint a legal auditor to review the records. Schon. Brf. at 2. He remarks that Professor Coffee, one of plaintiffs’ experts, recommends that lodestar records be part of the evidentiary record of all fee determinations, even where a percentage-of-recovery approach is used.
He also takes issue with the statement in the Notice of Settlement that the fee requested “is well below the 25-33% that is customarily sought” as misleading. According to him, many large-fund cases award fees below 30%. He further asks the Court to consider the concept of economies of scale inherent in class actions with many plaintiffs — “Obviously it is not 10 times as difficult to prepare, try, or settle, a $10 million case as it is to try a $1 million case.” In re Union Carbide Corp. Consumer Prods. Bus. Securities Litig., 724 F.Supp. 160 (S.D.N.Y.1989). He, like the city and the Aboff trust, relies heavily on the Third Circuit’s In re Prudential decision.
Throenle
This objector relies primarily on the argument that, compared to lodestar, Lead Counsel’s fee represents a “windfall.”
D. Response
Lead Counsel respond to the objections first by stating “[ejach of the fee objectors asks this Court to conduct precisely the type of post hoc fee determination that the Court sought to avoid in setting a percentage-based fee at the outset of the case.” Fee Reply at 3. They then address two arguments common to all objectors: (1) given the recovery in the case, the percentage sought is “excessive” and (2) the Court should employ a lodestar “crosscheck” to evaluate the reasonableness of the fee request.
Lead Counsel refer to arguments presented in their initial brief, now supported by the declarations of Professors John C. Coffee, Jr., Arthur R. Miller (Reporter for the Third Circuit Task Force on Court-Awarded Attorneys’ Fees) and Samuel Is-sacharoff. Counsel maintain that the requested fee is reasonable compared to other fees awarded in large class action settlements, particularly securities settlements. The NERA
5
study, for example, found that total fees and expenses awarded in securities class eases averaged 34.74% of settlement amounts.
See
Coffee Decl. ¶¶ 20-23; Miller Deck ¶¶ 41-44. An additional study by the Law and Economics Consulting Center conducted between 1993 and 1996 found that average fee awards to counsel in securities cases was 32% of recovery.
See
Coffee Deck ¶ 27 (citing Vincent E. O’Brien,
A Study of Class Action Securities Fraud
Cases). Lead Counsel also cite one of the most recent large securities class action settlement in this circuit,
In re Ikon Office Solutions, Inc. Securities Litigation,
It is difficult to discern any consistent principle in reducing large awards other than an inchoate feeling that it is simply inappropriate to award attorneys’ fees above some unspecified dollar amount, even if all of the other factors ordinarily considered relevant in determining the percentage would support a higher percentage. Such an approach also fails to appreciate the immense risks undertaken by attorneys in prosecuting complex cases in which there is a great risk of no *295 recovery. Nor does it give sufficient weight to the fact that “large attorneys’ fees serve to motivate capable counsel to undertake these actions.”
Id. at 196. Judge Katz also distinguished the unapproved fee request of 6.7% in In re Prudential, a case heavily relied on by objectors here:
In re Prudential does not require a contrary result. The district court there awarded $90 million in attorneys’ fees on a settlement estimated to be worth more than $1 billion. While the Third Circuit’s decision reversing this award did note that larger settlements usually receive smaller attorneys’ fees percentages, much of its concern was case specific. In particular, the court questioned such a large fee when much of the settlement resulted from a Task Force and the work of state regulators. See In re Prudential,148 F.3d at 342 .
Id. at 205 n. 35; see also Miller Decl. ¶ 50.
Lead Counsel contend that there is no merit to the objectors’ arguments that the fee should be reduced based on lodestar evaluation. They maintain that injecting lodestar at this stage would result in an unnecessary “renegotiation” of the counsel fee.
See
Miller Decl. ¶ 45; Task Force Rep.,
Professors Coffee and Miller also criticize the policies behind lodestar-based fee analyses. Professor Miller states the a pre-determined fee gives the attorney “an incentive to press for the best recovery for the class” as early as possible. Miller Decl. ¶ 51-54. As discussed by the Third Circuit Task Force, lodestar: (1) wastes judicial resources on billable hour calculations; (2) creates a risk of inflated billings; (3) increases conflict between attorney and client; and (4) maximizes unpredictability.
See generally
Professor Coffee premises his argument on then Judge, now Chief Judge Posner’s theory that:
The object in awarding a reasonable attorney’s fee, as we have been at pains to stress, is to give the lawyer what he would have gotten in the way of a fee in an arm’s length negotiation, had one been feasible. In other words the object is to simulate the market ivhere a direct market determination is infeasible. ... A recent study finds that “the federal courts appear to have applied, at least implicitly, principles parallel to the market’s in determining and awarding attorney fees” in class actions. William J. Lynk, “The Courts and the Market: An Economic Analysis of Contingent Fees in Class-Action Litigation,” 19 J. Legal Stud. 247, 260 (1990).
In re Continental Illinois Securities Litig.,
Professor Coffee builds on this analysis: “By definition, the successful bidder has already offered the lowest price in a competitive market; thus to further reduce its return will frequently be to impose a below-market, uneconomic price on it that it would not have accepted in advance.” Decl. at ¶ 43. He adds that the lodestar analysis and the market-based analysis are “fundamentally antithetical.” While the auction approach is a market mechanism that works ex ante to induce competing teams of attorneys to charge the lowest fee that will return them an acceptable profit, the lodestar formula is an ex post mechanism of judicial review.
*296 Counsel next justify this Court’s imposition of a fee grid that provides for an increasing percentage of recovery as the size of the recovery increases as opposed to setting a decreasing percentage. Aboff and the city suggest that the decreasing fee grid is preferable.
Lead Counsel respond that the increased percentage “properly incentivized” them to seek the largest recovery possible. Professor Issacharoff adds “[in] every settlement, it is always the easiest dollars that come first.” He adds that the American Bar Association Rules (“ABA Rules”) allow percentages to remain constant or increase as the recovery grows:
[M]any would say that this [increasing percentage] form of contingent fee agreement more closely rewards the effort and ability the lawyer brings to the engagement than does a straight percentage fee arrangement, since everyone would agree that it is the last dollars ... of recovery that require the greatest effort and/or ability on the part of the lawyer.
ABA, Formal Opinion 91-889 § J; see also John C. Coffee, Jr., Understanding the Plaintiffs Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions, 86 Colum. L.Rev. 669, 725-26 (1986) (suggesting “the use of an increasing percentage of the recovery fee formula”). Judge Katz, in Ikon, while awarding a flat percentage recovery of 30%, also criticized decreasing percentage scales:
[T]he court is well aware that most decisions addressing similar settlement amounts have adopted some variant of a sliding fee scale, by which counsel is awarded ever diminishing percentages of ever increasing common funds. This court respectfully concludes that such an approach tends to penalize attorneys who recover large settlements.
In re Ikon,
Lead Counsel state that objectors’ reliance on cases which use or suggest decreasing fee percentages,
see In re First Fidelity Bancorp. Sec. Litig.,
Lead Counsel recognize “[w]hile the outcome of the auction was designed to serve as the benchmark of reasonableness for counsel’s fee request, the auction does not obviate the Court’s final review of fees and costs pursuant to Rule 23(e) and or 15 U.S.C. § 77z-1(a)(6).”
See In re Cendant Corp. Litig.,
E. Responses to Specific Objectors
Aboff
Lead Counsel argue that the Aboff trust’s objections should be disregarded in light of its counsel’s prior involvement in the case. First, Aboffs counsel wrote to the Court in June 1998 and offered to represent the class for a fee “not to exceed 15% of the first $100 million and 10% of any amount recovered in excess of $100 million plus costs.” Second, that same counsel, by letter dated June 15, 1998, approved of an auction process. He wrote, *297 “[a] court employing competitive bidding will not be presented with the oft-derided Herculean task of retrospectively setting ‘fair’ compensation for class counsel” and added “a determination of attorneys’ fees after the resolution of litigation disserves the class.”
In the interests of completeness, this Court must disclose that Mr. Sirota’s original offer of a 10%-15% fee was replaced by his auction bid which ranged between
1%
and 2% of recovery, and rejected by the Court because Sirota’s proposed fee schedule was “unrealistic and against the interests of the class.”
6
And because “the circumstance of [the firm] having accused a lead plaintiff of wrongdoing, if not criminal activity” might present an ethical problem.
7
In re Cendant Corp. Litig.,
Lead Counsel also reply to the trust’s objections to the adequacy of notice: lodestar need not be required in a settlement notice, the PSLRA only requires a statement of the fees and expenses sought by counsel and an explanation in support of the application. 15 U.S.C. §§ 77z-1(a)(7)(C), 78u-4(a)(7)(C). Nor does the objector provide support for its allegation that losing bids should have been disclosed in the notice.
That said, because Aboffs objections echo those of the other objectors, the Court will discuss them below.
The City
Lead Counsel argue that the City’s own submissions and the text of the retainer agreement demonstrate that the fee set at auction should stand:
• Roger Pugh’s declaration, ¶ 19, concedes that the city was informed that the Retainer Agreement “was in full force and effect except as to the grid, for which [the Court] would substitute the results of the court auction.”
• Only after the proposed settlement was negotiated (Fall 1999) did the city seek to re-impose the fee terms of the Retainer Agreement on Lead Counsel. *298 Goodman Decl. ¶ 3. It was at this time that it became clear that because of the extraordinary recovery that Lead Counsel had obtained for the Class, the fee under the Court’s grid exceeded the fee that would have been allowed under the retainer agreement.
• The city failed to seek any appellate review of the bid process or the fee set by auction. Professors Coffee and Is-sacharoff opine that this is because the city anticipated a settlement only in the low $1 billion range, which would have resulted in a higher fee under the retainer agreement than the auction grid. For support, Professor Issacha-roff (¶ 40) relies on a November 1998 e-mail sent by City Counsel Roger Pugh to Class Counsel which suggested they aim for a recovery of $1.2-1.3 billion, half stock half cash. (A recovery below $1.2 million results in a lower fee under the auction grid; a recovery above that amount yields a lower fee under the retainer agreement.)
• The city admits that it “underestimated the possible recovery,” Pugh Decl. ¶ 21, and “only in hindsight do we know that the Court’s grid did not produce the lowest fee structure.” Pugh Decl. ¶ 23.
• Only the city, out of three co-Lead Plaintiffs, opposes the fee. The Retainer Agreement provided that the prosecution was to proceed “on an equal basis.” Professor Coffee hypothesizes that this phrase established a joint venture, where decisions are controlled by the majority. Here, two out of three do not object. Coffee Decl. ¶¶ 72-77.
F. Analysis of Fee Request and Objections
Before analysis of the fee and objections, the Court notes the updated status of
In re Prudential,
relied upon by both Lead Counsel and objectors. The Third Circuit had vacated and remanded the fee request to the district court after it rejected the 6.7% fee — or, at the time, $90 million.
See
The Fee
To iterate, the fee sought represents 8.275% of the net class action settlement (expenses deducted) or approximately $262 million.
Following established Third Circuit law and the directive of the PSLRA, the Court will award fees by a percentage-of-recovery method.
See In re Prudential,
To evaluate the fee requires a valuation of the benefit to the class.
See In re Prudential,
Before proceeding to the Girsh factors, General Motors directs the Court to determine the value of the settlement to the class. The element of uncertainty in the valuation of the Cendant settlement is the contingent payments to the class by Cendant and the HFS directors from any recovery against E & Y. The Court previously refused to rule the HFS contribution “illusory” or “de minimis” but placed no concrete value on it. In their *299 action against E & Y, the HFS directors claim losses of over $1 billion. Lead Plaintiffs state that these two potential contributions “may prove significant given the extent of damages Cendant and the Individual HFS Defendants are seeking to recover against E & Y.” The Court recognizes that this recovery is inchoate but once again affirms that it is not “illusory.” This does not mean that valuation is impossible, but only difficult.
Because of this difficulty, the Court used a total settlement amount of $3,186,500.00.
8
See
Settlement Opinion, slip. op. at 33-34 (citations omitted). This value will similarly be used to evaluate the fee request. From this amount, the requested expenses of $14,623,806,
see
Section G below, are deducted, leaving a settlement valued at $3,171,876,194.
See In re Cendant,
The Court must then determine what portion of this recovery should be allocated to the efforts of class counsel.
See In re Prudential,
Nevertheless, the Court cannot award counsel a percentage of the full recovery unless their efforts were “a material factor in bringing about the entire settlement.”
In re Prudential,
Unlike
In re Prudential,
where the Third Circuit opined that a portion of the settlement may have been brought about by a state task force rather than class counsel’s efforts, there is no other catalyst for the present settlement than the work of Lead Counsel.
See In re Prudential,
Appropriate Percentage
The Court looks to a number of factors to evaluate whether the fee requested is an appropriate percentage of recovery. First is “what the market pays in similar cases.”
In re RJR Nabisco, Inc. Securities Litig.,
No. 88-7905,
Here this Court need not speculate as to what fee percentage the relevant market would have set for a case of this size. No “simulation” of the market is necessary when the open legal market has actually defined the lowest responsible fee: 8.275% of the settlement. Twelve auction bids, most from law firms national in practice and prominent in the field, reflected the force of market activity to determine appropriate costs. The lowest qualified bid is the result of that market competition. Such result will be accorded weight by this Court as a “benchmark of reasonableness” where a large number of firms, some fifteen- — -many national in practice and reputation — bid to provide legal services to the class. In the absence of demonstrated collusion, or even a hint of it, among these bidders, the Court has no reluctance to accept and find the auction’s lowest qualified bid as representative of the market.
Another factor considered is the quality of representation, a shorthand reference to “the quality of the result achieved, the difficulties faced, the speed and efficiency of the recovery, the standing, experience and expertise of the counsel, the skill and professionalism with which counsel prosecuted the case and the performance and quality of opposing counsel.” In re
Ikon,
The quality of result, measured by the size of settlement, is very high.
See, e.g., In re NASDAQ,
Counsel also faced risks of establishing liability and damages against all parties. These risks are discussed in detail in the companion opinion assessing the settlement. They include: establishing liability for Section 10(b) violations against all settling parties, especially E & Y; establishing liability for Section 11 violations against all defendants with due diligence defenses; apportioning liability among Cendant, E & Y, the 28 individual defen
*301
dants, and other non-defendants; and establishing the amount of damages in the aggregate.
See
Companion Opinion,
The settlement was achieved expeditiously, within the one-year unofficial deadline suggested by this Court when it met with all counsel after Lead Counsel had been appointed. Also, Lead Counsel negotiated this settlement in the face of the government’s attempt to stay the entire civil action.
Finally, “the standing, experience and expertise of the counsel, the skill and professionalism with which counsel prosecuted the case and the performance and quality of opposing counsel” were and are high in this action. Lead Counsel are experienced securities litigators who ably prosecuted the action: submitted an amended class action complaint, defended the complaint against motions to dismiss, certified the class, noticed the class of pendency of the action, conducted official and unofficial discovery, negotiated settlement, hired and supervised experts, and have defended the settlement. Similarly, defense counsel lived up to their established reputations and vigorously defended their respective clients. As Judge Katz observed hi Ikon:
Of particular note in assessing the quality of representation is the professionalism with which all parties comported themselves. The submissions were of consistently high quality, and class counsel has been notably diligent in preparing filings in a timely manner even when under tight deadlines. This professionalism was also displayed in class counsel’s willingness to cooperate with other counsel when appropriate.... This cooperation enabled the parties to focus their disputes on issues that mattered most and to avoid pointless bickering over more minor matters.
Id. at 194.
Another method of analysis looks to fees awarded in similar cases. Judge Katz wrote “[a] recent Third Circuit discussion suggested that very large recoveries have generally yielded fees from 4.1 percent to 17.92 percent, but the cases cited in that decision were all decided at least thirteen years ago.” He instead followed a more recent analysis of mega-fund recoveries contained in the
Toshiba
decision.
The Court does not find compelling reliance on
In re Prudential
to support an argument that mega-fund fees “ought to be” between 4 and 6% of recovery.
In re Prudential
has been appropriately distinguished by Lead Counsel: When decided by the Third Circuit, both the aggregate recovery and the amount of recovery attributable to class counsel’s efforts were unknown.
Instead, this Court is impressed by the surveys of securities class action settlements; Third Circuit settlements, particularly
Ikon;
and mega-fund settlements contained in Lead Counsel’s supporting papers. Securities settlements average 32% of settlement,
see, e.g., Recent Trends IV: What Explains Filings and Settlements in Shareholder and Class Actions, supra,
at 7; settlements in the Third Circuit between 30% and 35% of settlement,
see, e.g.,
cases cited in Lead Counsel’s Brf. at 23 & 23 n.8; and mega-fund settlements range from the low of 4.1% — the lodestar-based award in
In re Baldwin-United Corp. Litig.,
This Court finds from the factors considered- — (1) the fee set by the “market”; (2) the quality of result and representation; and (3) awards in other settlements— 8.275% to be an appropriate and reasonable request.
Cross-Check
Traditionally, the “appropriate” percentage is then subjected to a crosscheck.
See General Motors,
Another, more accurate and more realistic benchmark of reasonability exists — the fee set by competitive bids in the Court’s September 1998 auction. Chief Judge Posner has written, “The object in awarding a reasonable attorney’s fee ... is to give the lawyer what he would have gotten in the way of a fee in an arm’s length negotiation .... the object is to simulate the market.”
In re Continental,
To reduce the fee award set by auction would be antithetical to the Task Force’s recommendation that a fee agreement be reached early in the litigation and not later re-adjusted once recovery is known.
Recently, the Third Circuit repeated its approval of pre-determined fees.
See Gunter v. Ridgewood Energy Corp.,
*303
Consequently, this Court will not adjust the pre-set fee award nor will it abandon this approach because the fee scale used provided for an increasing, rather than decreasing, percentage of settlement. In the past, certain courts have operated on the assumption that “economies of scale” warrant reducing fee awards as the size of a recovery increases.
See, e.g., In re Prudential,
[T]he court is well aware that most decisions addressing similar settlement amounts have adopted some variant of a sliding fee scale, by which counsel is awarded ever diminishing percentages of ever increasing common funds. This court respectfully concludes that such an approach tends to penalize attorneys who recover large settlements. More importantly, it casts doubt on the whole process by which courts award fees by creating a separate, largely unarticulat-ed set of rules for cases in which the recovery is particularly sizeable. It is difficult to discern any consistent principle in reducing large awards other than an inchoate feeling that it is simply inappropriate to award attorneys’ fees above some unspecified dollar amount, even if all of the other factors ordinarily considered relevant in determining the percentage would support a higher percentage.
In re Ikon,
To repeat, this Court finds no need whatsoever to ignore or modify the “benchmark of reasonableness” — the September 1998 auction result. Not one objection was made then to the actual process, the number and quality of the bidders, their bids, and the Court-specified conditions. True, New York City comes now to object to the legal underpinnings of the auction — but does not challenge the breadth and quality of those who participated in it.
The City
The Court, in September 1998, decided that under the PSLRA, the Court is charged with ensuring that Lead Plaintiff is capable of pursuing the class’s claims with vigor and that qualified counsel is chosen who will charge “the best rates for the class.”
See In re Cendant Corp. Litig.,
The city now appears as a fee objector. Its other co-Lead Plaintiffs, the New York State Common Retirement Fund and the California Public Employees' Retirement System, make no objection. The city argues that given the $3.1 billion recovery, the fee set in the retainer agreement signed by Lead Counsel is lower than the fee set by auction. See Pugh Decl at ¶ 17. The retainer fee set a decreasing percentage-of-recovery fee as recovery increased; the fee set by the Court escalates. The “crossover point” — the amount of recovery where the fee set by auction exceeds than that set by retainer agreement — is $1,263 billion. Weiss Aff. at ¶ 27(e)(v); Pugh Aff. Ex. D (grid comparing auction and retainer agreement fees). It is only now that the actual recovery is known that the two fee schedules can be evaluated to see which one results in the lowest fee. At a $3.1 billion settlement, the fee set by auction is $262 million; by retainer $186 million.
The city states: “Only in hindsight do we know that the Court’s grid did not produce the lowest fee structure.” Pugh Decl ¶ 19. This argument is off-target. The purpose of the auction was to obtain the legal market’s lowest qualified bid through adversarial competition at the onset of litigation. And it did. The city’s fee analysis is precisely the after-the-fact reevaluation of the fee that the Court sought to prevent by setting the fee scale while the size of recovery was unknown.
See, e.g., In re First Fidelity Bancorp. Securities Litig.,
Here the city did not attempt to enforce the grid set out in the retainer agreement anytime before “the outcome of the event [was] known.” This objection based entirely on the benefit of 20-20 hindsight will not be accepted. The Court again notes that neither of the other two co-Lead Plaintiffs seeks to enforce the retainer agreement. This lends credence to Lead Counsel’s argument that co-Lead Plaintiffs understood that the fee set by auction superseded any earlier fee arrangement.
The city’s remaining arguments — use of lodestar to cross-check the fee; its reliance on In re Prudential; and the role of Lead Plaintiff — have been addressed. This Court affirms its use of an auction process to set attorneys’ fees under the PSLRA:
As mentioned, the Court acknowledges lead plaintiffs’ statutory opportunity [to choose counsel]. However, whether under the present statute or earlier discipline, the .Court is the final arbiter of fees sought by successful plaintiffs’ lawyers in this action. See Fed.R.Civ.P. 23(e); 15 U.S.C. § 77z-l(a)(6). The mechanism of an auction gives to the Court a measure of needed foresight to meet its obligations to members of the group. The Court need not be compelled to learn by hindsight — to be told at the end of months or years of litigation, “this is what we seek for services rendered.”
*305 The Court is required to protect the interests of all members of the class. If Congress had intended otherwise with its PSLRA, it could have easily permitted lead plaintiff to designate and retain counsel without judicial approval. It did not.
In re Cendant,
Throenle and Schonbrun
Throenle’s objection that the fee request is premature ignores the clear statement in the settlement notice that “[a]t the conclusion of the Settlement Hearing ... Lead Counsel will apply” for fees. Notice ¶ 38.
Her objection that Cendant and E & Y should pay the fees ignores the provision in the settlement agreement that all sides are to bear their own legal costs. Notice ¶¶ 23-25.
Schonbrun’s assertion that detailed time records should be filed has been addressed in the Court’s discussion of lodestar.
In re Prudential
held that a district court does not abuse its discretion to not require the submission of detailed time records.
G. Expenses
Lead Counsel have submitted affidavits which set out their own expenses and those incurred by experts they hired to facilitate litigation and settlement negotiation. The experts have also supplied the Court with declarations which detail their efforts on behalf of the class. Counsel’s use of the experts, particularly Lazard Fréres, is also set out in the companion opinion assessing settlement. “There is no doubt that an attorney who has created a common fund for the benefit of the class is entitled to reimbursement of ... reasonable litigation expenses from that fund.”
Lachance v. Harrington,
The bulk of counsel’s expenses relate to the use of Lazard Fréres, whose fee correlates to the amount of recovery in the Cendant settlement. This investment bank was selected by Lead Counsel using an auction process to find the best expert at the lowest cost to the class. Joint Decl. at ¶ 152. Lead Counsel discussed the necessity for and retention of such experts informally with the Court early on. The Court had no objection then and none now. It expected competent counsel to seek competent assistance, if required, in a case of this magnitude. According to Lead Counsel, the analysis prepared by Lazard Fréres “assisted significantly in settlement negotiations ... and were significant in Lead Plaintiffs’ decision to agree to the Cendant settlement.” Joint Decl. ¶ 120, ¶¶ 112-19, 151-54 (detailing efforts of experts); see also Garner Aff. The expertise of Forensic Economics, Marks Paneth, and Arthur S. Ainsberg also were necessary to the successful negotiation.
The Court concludes, that the expenses are reasonable and were necessary to the class. This case, this class, required and demanded quality evaluation and prosecution of the claims against the defendants. The outstanding result justifies the expenditures for expert advice. Usually one gets what one pays for; here significant help in negotiating this colossal settlement from qualified experts. This Court does not recognize “reasonable” as a synonym for “cheap.” Reasonableness of price reflects the force of market competition by qualified providers of requested services. Lead Counsel are also entitled to be reimbursed $528,812 in law firm costs which include such expenses as photocopying and electronic research.
“Class Counsel has provided adequate accountings of. litigation expenses which tie the purported expenses to a specified legal product.”
NASDAQ,
*306 However, the circumstances and timing of the settlement do not warrant the grant of interest on fees and costs sought by Lead Counsel.
H. PRIDES Counsel’s Fee Request
PRIDES Lead Counsel has petitioned for counsel fees because of an issue discussed by him regarding post-April 15, 1998 claims. However, Lead Counsel also raised and discussed that issue. The Court is constrained to find such duplication coincidental; an award of fees in this action would not be warranted.
I. Conclusion
In calling for a fee auction in September 1998, the Court said that “this is not an invitation for cheapness of costs resulting from cheapness of quality” and anticipated “that professional skills of high order will be forthcoming by this procedure.”
In re Cendant,
Notes
. Those who wanted to be Lead Counsel to PRIDES holders made separate bids.
. In
In re Prudential,
the Third Circuit affirmed approval of the settlement but vacated the fee award and remanded for further consideration. While Lead Counsel’s fee request was before this Court, the district court issued a new fee opinion,
In re Prudential Ins. Co. of Am. Sales Practice Litig.,
. It should be recorded that BLBG and BRB's fee grid submitted as their auction bid was not identical to the fee grid set in the retainer agreement.
. Conversely, according to the city, “[sjhould the Court honor the Retainer negotiated by Lead Plaintiffs and lead counsel, and should lead plaintiff opt not to consider the retainer grid fees as a cap, lead counsel would realize a fee of $186 million. This is 23.2 limes lodestar or $7710 per hour.”
. NERA acted as Cendant Corporation’s damages expert during litigation.
. In detail:
It does not appear that this bidder has a history of actual trial litigation, although it has obtained significant settlements for its clients. The Court accepts counsel's representation that it would post a performance bond in any amount which the Court directs. The proposed fee schedule, which begins at 1% and escalates to 2% in the event of a $500 million settlement during the discovery period, and a flat 2% for settlement in any amount during trial activity, is not, upon examination, professionally sound. One must view this “magnanimous” offer against the realities of the cost of litigation, the deployment and commitment of experienced counsel and support personnel of several firms, and the required expenses and expenditures associated with such commitment. Unless the eventual monetary recovery in this case is in the billions, such an apparently “cheap” fee schedule does not make professional sense. In addition, this quasi-philanthropic effort does not auger well as a realistic incentive to pursue a determined resolution of the plaintiffs' cause. The Court is constrained to conclude that the bid schedule is unrealistic and against the interests of the class.
. In September 1998, Aboffs counsel charged:
that counsel for the CalPERS group had made substantial contributions to the campaign of the New York State Comptroller, who, as sole trustee of the [New York State Common Retirement Fund], has substantial influence over the decisions of the fund. This, they argued, created an appearance of impropriety because the contributions may have played a role in the selection of the group's counsel — a practice known as “pay-to-play.”
In re Cendant Corp. Litig.,
that among the factors which disqualified one bidder was the circumstance of its having accused a lead plaintiff of wrongdoing, if not criminal activity. Under those circumstances, it would be contrary to good practice and ethically dubious to permit that bidder to serve as lead counsel to that plaintiff.
. Lead Counsel do not seek fees on the benefit to the class conferred by corporate governance changes negotiated as a settlement provision.
. The Court: The point is this, I said something months ago which I'm afraid, I hope, when I said it I regretted that I said it that way upon reflection. I Lake it back to an extent. I said in discussing something similar, I said something along the lines that if it took a smart person 45 minutes to do something and it took me two hours to do it and it took somebody else two and a half hours, I said something about ... be[ing] an eiitist to say I have no problems with the person who did it in 45 minutes. He or she should be rewarded. And the more I think about it I misspoke. It’s not a question of elitism. Not at all. It’s just a question of recognition of talent.
Fairness Hearing Tr. at 143 (June 28, 2000).