136 F.R.D. 639 | N.D. Cal. | 1991
ORDER DENYING MOTIONS FOR RECONSIDERATION AND GRANTING CLASS COUNSEL’S MOTION FOR STAY AND SETTING STATUS CONFERENCE.
The Law Office of David B. Gold has moved the court to set aside its earlier orders
Both the Lowey and Gold firms seek to add Arthur Andersen as a defendant although the firms differ in their view of the appropriate claims or class periods to assert against that defendant. The Lowey firm wishes to continue against the existing defendants under the terms of its bid, but states that the claim against Arthur Andersen should be treated separately. The Gold firm, on the other hand, points to Oracle’s March 26 release and argues that the competitive selection of class counsel “did not and could not take such changed circumstances into account,” Gold Resp. filed April 24, 1991 at 6, giving further reason for the court to vacate its earlier orders and abandon competitive selection of class counsel. This order addresses those matters.
For the reasons which follow, the court concludes that competitive selection of class counsel has worked well.
I. THE GOLD FIRM’S MOTION FOR RECONSIDERATION.
The Gold firm’s central argument against competitive selection misreads the rules of professional conduct and would substitute the money illusion for attorney ethics. Because litigation expenses herein presumably will exceed the Lowey bid’s $325,000 limitation on reimbursement therefor,
According to the Gold firm, the ABA Model Rules of Professional Conduct mandate an ethical distinction between a lawyer’s out-of-pocket payment of litigation expenses and the opportunity costs of the lawyer’s effort on litigation.
In fact, the ABA Model Rules afford no textual support for this argument. Under the Model Rules, “a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter.” ABA Model Rule 1.8(e)(1). The Model Rules do not require full repayment or limit the outcomes upon which a reimbursement obligation may be contingent. The ABA Model Code of Professional Responsibility, displaced by the Model Rules in 1983, allowed a lawyer to advance litigation expenses “provided the client remains ultimately liable for such expenses.” ABA Model Code of Professional Responsibility, DR 5-103(B). Omission of any reference to ultimate client liability for litigation expenses makes clear that in adopting the Model Rules, the ABA abandoned the very requirement for which the Gold firm now contends. Moreover, this change reflected actual practice because, even before adoption of the Model Code in 1969, most contingent fee lawyers had long since given up pressing clients for repayment of expenses if no recovery was obtained. F. Mac-
Even if the ABA had not abandoned it, the reimbursement requirement would be inappropriate and impractical in a class action. Courts should not “mechanically transpose to class actions the rules developed in the traditional lawyer-client setting context.” In re Corn Derivatives Antitrust Litigation, 748 F.2d 157, 163 (3rd Cir.1984) (Adams, J., concurring), cert. denied Cochrane & Bresnahan v. Plaintiff Class Representatives, 472 U.S. 1008, 105 S.Ct. 2702, 86 L.Ed.2d 718 (1985). To do so could emasculate the class action device on the basis of “outmoded and unrealistic concepts of ethics.” County of Suffolk v. Long Island Lighting Co., 710 F.Supp. 1407, 1414, 1415 (E.D.N.Y.1989) (Weinstein, J.), modified, 907 F.2d 1295 (2d Cir.1990).
To the extent ultimate client liability for litigation expenses serves useful purpose, it is to protect contingent fee lawyers against feckless clients by making them put up something to lose. K. Clermont and J. Currivan, “Improving the Contingent Fee,” 63 Cornell L.Rev. 529, 532 n. 3 (1973). Cf: Rand v. Monsanto Co., 926 F.2d 596, 600 (7th Cir.1991). This objective is wholly unsuited to class actions. It is not class counsel, but the class, which needs protection. See, 645-646, infra. In any case, the class is definitionally uninvolved and recoupment of litigation expenses from the class or class representative is a practical impossibility. Rand v. Monsanto Co., 926 F.2d at 600. To require recoupment of litigation expenses from the class representative is at odds with Rule 23, ibid., and even to permit discovery into the class representative’s ability to reimburse class counsel is a “preposterous charade.” J. Macey and G. Miller, “Plaintiffs’ Attorney’s Role in Class Action and Derivative Litigation,” 58 U.Chi.L.Rev. 1, 84-91 (1991). Surely, the Gold firm—having prospered from class litigation—cannot escape the irony that the ethical precept it now advanees is a “relic of the rules against champerty and barratry,” Rand v. Monsanto Co., 926 F.2d at 600, and has been mostly used to impede and frustrate class actions. See, e.g., In re Mid-Atlantic Toyota Antitrust Litigation, 93 F.R.D. 485, 489-491 (D.Md.1982), affirmed, 704 F.2d 125 (4th Cir.1983) (DR 5-103(B) prohibits certification unless class representative agrees to reimburse class counsel); Lim v. Citizens Savings and Loan Assn., 430 F.Supp. 802, 812-813 (N.D.Cal.1976); Palmer v. BRG of Georgia, Inc., 874 F.2d 1417, 1420-1421 (11th Cir.1989), reversed on other grounds, — U.S. -, 111 S.Ct. 401, 112 L.Ed.2d 349 (1990).
Equally unfit is the Gold firm’s contention that the reimbursement limitation presents a “conflict of interest” because it will diminish the Lowey firm’s devotion to maximizing the class’ recovery. The Low-ey firm stands to benefit from this litigation in the proportion that its percentage fee bears to the size of the class’ recovery. If expenditures on expert witnesses, attorney travel, and the assortment of other items typically funded by out-of-pocket expenditures produce a larger recovery, class counsel would simply shortchange themselves by refusing to make those outlays. They are, after all, one of the means to a greater fee. The other means, of course, is attorney effort.
From the standpoint of the Lowey firm’s bottom line, therefore, the impact of incurring an additional dollar in out-of-pocket expenses beyond the cap is exactly the same as the opportunity cost of devoting a dollar’s worth of attorney billable time. The Gold firm’s argument that the Lowey firm will be deterred by a reimbursement limitation amounts to a claim that the Low-ey firm has a greater aversion to out-of-pocket litigation expenses than to an economically equivalent amount of attorney effort. This assumes that the Lowey firm suffers from the money illusion
Yet another reason renders the Gold firm’s ethical argument specious.
But, still worse, full reimbursement of expenses encourages a form of cheating. The prospect of reimbursement tempts class counsel to allocate a portion of their overhead costs to specific litigation. Law office administration, secretarial, docket, word processing, accounting, library, clerical and other costs that must be incurred to enable the firm to operate at all can under some guise be allocated to the litigation at hand.
The Gold firm next argues that disclosing the bids for class counsel in the court’s October 18, 1990 order, 132 F.R.D. 538, prejudiced the class. According to this argument, disclosure of the bids allowed defendants to obtain “valuable information about the Lowey firm’s evaluation
In truth, one cannot reasonably divine the Lowey firm’s valuation of this litigation from its bid. But even assuming arguen-do that it is possible to do so by shrewdly reading between the lines of that firm’s bid, the class is not harmed. If it were otherwise, one could with the logic of the Gold firm argue that complaints ought not to contain prayers or parties ought not to make settlement demands lest the lawyer’s evaluation of the case be disclosed.
In common fund class litigation, disclosure of class counsel’s compensation arrangements benefits the class, if not class counsel, by producing information highly pertinent to class counsel’s performance. The compensation of an attorney who seeks to represent a class in common fund litigation is inevitably contingent regardless whether class counsel is paid by the hourly-based lodestar method, a benchmark percentage of the recovery or otherwise. Class counsel’s compensation is contingent because without recovery, counsel receives nothing. In offering attorney services on a contingent fee basis, lawyers are in reality purchasing an equity interest in the claim. G. Miller, “Some Agency Problems in Settlement,” 16 J. Legal Stud. 189 (1987). Unlike the usual attorney-client situation, however, class members do not participate in the negotiations by which a part of their claim is bargained away.
The lodestar and benchmark approaches allow the consortium of plaintiff lawyers who file class litigation to select one of their number to serve as lead counsel and thereby to control the attorney fee application and dole out the work on the case to the various attorneys who have filed complaints.
The central and long recognized problem in class litigation arises from the inability of the persons whose rights are at stake to monitor the faithfulness of their self-appointed champion and the dubious ability of the court effectively to do so on behalf of the class. Class counsel’s evaluation of the case, if implicit in a competitive bid made at
The Gold firm’s suggestion that defendants will use knowledge of class counsel’s bid as a pretext to wage a mother of all litigation proceeds from the dubious premise that defendants control the costs of securities class action litigation. J. Alexander, “Do the Merits Matter?: A Study of Settlements in Securities Class Actions”, 43 Stan.L.Rev. 497, 548 (1991). Because defendants can only do battle at a cost commensurate with its scale, the argument assumes that both sides in class litigation are trapped in a kind of prisoner’s dilemma that causes rational behavior to break down. See N. Fraser and K. Hipel, Conflict Analysis: Models and Resolutions at 247-250 (1984). Of course, no one knows for sure the dynamics of litigation, but the fact remains that a lodestar method of compensating class counsel affords them, no incentive to resist defendants’ usual delaying tactics. Indeed, the more hours class counsel can with some justification devote to the litigation, the more impressive will be the fee application ultimately submitted to the court for approval.
Under the lodestar, the impact of dilatory maneuvers by defendants on the class is twofold: first, the class’ recovery, if any, is delayed; second, the class’ recovery is diminished by the additional amounts paid class counsel to fend off the delays.
Disclosure of class counsel’s compensation arrangements also impedes defendants’ ability to cut a sell-out settlement with class counsel. See A. Rosenfield, “An Empirical Test of Class Action Settlement,” 5 J.Legal Stud. 113 (1976). The absence of disclosure gives class counsel an opportunity to collude with defendants and a free hand to rationalize whatever settlement or other disposition that alliance may produce. No doubt the shuttering of this window of opportunism accounts for the uniformly unenthusiastic response of lawyers on both sides of this litigation to competitive selection of class counsel.
Disclosure of the competing bids for class counsel is consistent with the Federal Rules. A contingent attorney fee agreement allows the client to shift a portion of the risk of losing the litigation to the attorney, K. Clermont and J. Currivan, “Improving on the Contingent Fee,” 63 Cornell L.Rev. 529, 547 (1978), while a securities class action functions as market insurance against loss from a market decline. J. Alexander, 43 Stan.L.Rev. at 570. The terms for compensation of class counsel are thus analogous to parties insurance coverage which is clearly, and quite sensibly, discoverable under Fed.R.Civ.P. 26(b).
As sort of a final grievance, the Gold firm complains that it never expected that its bid would be disclosed. This, of course, overlooks that passage of the August 3 order which described the advantages of a competitively bid fee as including “increased ability on the part of counsel, the parties, and the court during litigation to forecast one (perhaps the most) important variable for purposes of strategy, settlement and the like.” 131 F.R.D. at 695.
II. QUALIFICATIONS FOR CLASS COUNSEL.
The infirmity of the Gold firm’s attack should not suggest that competitive selection of class counsel is free of difficulty. Like other contractual relationships in which contracting is temporally separated from performance (e.g., insurance, franchise agreements), competitive selection possesses a potential for adverse selection. This occurs because a bid for class counsel must of necessity be based on incomplete information. Unanticipated circumstances may alter the potential profitability of the bid and hence the incentives for class counsel’s performance. A firm which is unduly optimistic about the cost of prosecuting a class action may underbid a firm which makes a more realistic assessment. If the
Selection of class counsel solely on the basis of price,
Far from eliminating the potential for adverse selection, the lodestar and benchmark approaches magnify it for at least two reasons: (1) the “uncertain game of assessing fees under the lodestar calculation,” and to a lesser degree, the benchmark approach, J. Macey and G. Miller, 58 U.Chi.L.Rev. at 48-61, discourages well qualified but risk-averse lawyers from class action practice; (2) monitoring of class counsel’s performance is impeded by restricting judicial review to class counsel’s fee application. Under the lodestar and benchmark, the plaintiff steering committee largely screens poor lawyering from judicial view, resulting in recoveries whose inadequacies courts cannot or will not ferret out. Courts which satisfy themselves that their ability to adjust class counsel’s compensation gives sufficient incentive for quality performance by class counsel typically fail to require meaningful qualitative information from those seeking to represent a class. This longstanding practice undoubtedly explains the jejune recitations of their qualifications furnished by the four bidders here. 132 F.R.D. at 542.
As statistics for quality lawyering, the pufferies of past recoveries and “judicial bouquets” in the bids here are the equivalent of an old school tie or the right accent. To be sure, exceedingly subjective credentials are not meaningless. See G. Akerlof, “The Market for Lemons: Qualitative Uncertainty and the Market Mechanism,” 84 QtrlyJ.Econ. at 494-495. But bland acceptance of such credentials falls short of the fiduciary standards demanded of courts by Rule 23. The lodestar and benchmark approaches fail largely because they abdicate responsibility for controlling the quality and identity of the lawyers who represent the class to the lawyers themselves. By the time courts get around to evaluating the lawyers’ conduct, they have already performed well, poorly or indifferently and the judge has no incentive to make serious inquiry.
Yet standards for class counsel’s performance are neither elusive nor foreign to the judiciary. Indeed, the setting of such standards is far more congenial to judicial decision-making than the fee setting exercise demanded by the lodestar and benchmark. Quality standards might consist, among other things, of all or any of the following: (1) evidence that one who proposes to serve as class counsel has evaluated the case, the range and probability of recovery and has premised the bid on that evaluation; (2) evidence of an ability and willingness to see the case through to recovery, such as posting a completion bond or escrowing an amount that would be forfeited in the event class counsel fails to
In order to ensure the class receives high quality representation, courts must consider sanctions or penalties for failure to perform. Fortunately, in this setting, adverse reputational effects of a failure to perform or substandard performance furnish considerable sanction. The effectiveness of this sanction, however, requires that it can be used. By their nature, the lodestar and benchmark do not entail review of class counsel’s performance until the end of the litigation when courts, typically, are delighted to clear their dockets and thus inclined to cursory and forgiving review of class counsel’s performance. This undoubtedly accounts for the plethora of laudatory remarks about class counsel in fee orders and the paucity of other observations. Any shortcomings of competitively selected class counsel that would necessitate judicial action during the litigation, on the other hand, are likely to bestir blistering commentary from the bench. The effectiveness of reputation as a sanction should be commensurately increased.
Competitive selection, by breaking up the lawyer consortiums identified with the lodestar, should also increase the effectiveness of monitoring because—professional courtesies, aside—the disappointed bidders are likely to be on the lookout for shortcomings in the performance of the winner. In extreme cases, the disappointed bidder might bring a malpractice class action against a winning, but bungling, bidder.
Competitive selection does not make price supreme and determinative, but forces the lawyers and courts to deal with the quality of class counsel’s services. The possibility that a lower bid might appear more attractive invites a bidding firm to lay out its qualitative advantages to increase its bid’s chances of acceptance. Of course, the Lowey firm’s bid came nowhere near establishing meaningful quality standards the court would expect in future competitive selections. The court is, nonetheless, satisfied that the Lowey firm is adequatély qualified to represent a class of Oracle shareholders. This conclusion is based on the court’s observations of the Lowey firm’s performance since its selection as class counsel.
1. The ratio of fees and expenses to recovery should decline as recovery increases; and
2. The ratio of fees and expenses to recovery should increase as the amount of attorney effort necessary to produce the recovery increases.
131 F.R.D. at 543-547.
These relationships have been confirmed by recently published results of a survey of 404 securities and antitrust class action attorney fees and costs awards over a ten year period from 1980 to 1990. 13 Class Action Rpts. 249 (July-Oct. 1990). The sample contained 334 securities cases; in
RECOVERY NO. OF CASES
<$50M 12(12) 2,299.0 8.2 336,343 1.78 463.59
$20<$50M 22(20) 692.2 17.8 266,400 2.45 464.76
$10<$20M 41(34) 574.8 25.9 364,061 1.75 353.95
$5<$10M 49(43) 335.0 25.8 277,230 1.53 319.90
$3<$5M 52(48) 202.7 28.6 214,191 1.55 303.22
$2<$3M 31(25) 72.4 25.2 65,165 1.33 291.60
$1<?2M 48(37) 65.7 28.3 83,702 1.14 227.60
<$1M 79(64) 39.5 27.2 84,550 0.89 170.52
TOTAL/ 334(283) MEAN 4,281.4 15.2 1,691.642 1.72 363.38
These results are consistent with the theoretical analysis of A. Rosenfield, “An Empirical Test of Class Action Settlement,” 5 J.Legal Stud. 113 (1976) and regressions performed on 94 older (i.e., 1958 to 1979) securities and antitrust class actions. See W. Lynk, “The Courts and the Market: An Economic Analysis of Contingent Fees in Class Action Litigation,” 19 J. Legal Stud. 247 (1990).
These results demonstrate the sumptuousness of the Gold and Berger bids and lay to rest the Gold firm’s assertion that the Lowey bid would afford an “inadequate fee.”
III. ACCOMMODATING CHANGED CIRCUMSTANCES.
The unarticulated reason for insistence that courts using the benchmark should leave room for “upwards” and “downwards” adjustments is that one percentage fee does not fit all cases. Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d 268, 272 (9th Cir.1989). Any litigation will look different in hindsight than at the outset. 131 F.R.D. at 692-693. But this does not warrant leaving the establishment of class counsel’s terms of engagement to the end of the case. Quite the opposite, courts should establish the terms up front, subject to possible sanctions or adjustment placed openly on the public record. The events surrounding the addition of Arthur Andersen and Oracle’s March 26 release illustrate the point.
At the time this litigation commenced, none of the plaintiff lawyers evidently thought to sue Arthur Andersen or, at any rate, considered it worth doing. Possibly, there was then no evidence suggesting Arthur Andersen’s liability. Perhaps, also,
Unlike the lodestar or benchmark which allow class counsel to make up their case as they go along, competitive selection by its nature forces firms bidding for class counsel to define their claims at the outset. The claims must at least have sufficient definition to enable a bidder to get a handle on the costs of the litigation and its potential rewards. As a result, the Lowey firm will have some advantage in bidding to represent a class against Arthur Andersen: knowledge of the facts and obvious scale economics. Still, the Gold firm or one of the others may be anxious enough to have some role in this litigation that they will submit more attractive bids.
At present, the Lowey and Gold firms take somewhat different views of the appropriate claims to assert against Arthur Andersen. The Gold firm would assert claims based on Oracle’s fiscal 1989 audited financial statements as well as the fiscal 1990 audited statements while the Lowey firm would accuse only the latter. In evaluating competitive bids, the court might have to consider the effect of these differing litigation positions. It is clear, however, that designations of class counsel should relate in the first instance to the defendant being sued. A lawyer representing a class against a particular defendant has every incentive to seek the greatest possible recovery and can be expected to broaden the class definition and period to the maximum reasonable under the circumstances.
Because the Lowey firm is unwilling to add Arthur Andersen under the terms of its present bid, it will be required to make any discovery obtained in the litigation which relates to Arthur Andersen available to any firm notifying the court and the Lowey firm of an intent to bid on representing a class against Arthur Andersen. To ensure the class receives a competitive fee, 131 F.R.D. at 693, the court will chose and compensate only one law firm to represent a class of Oracle shareholders against Arthur Andersen and any other new defendant.
Finally, the court is not unmindful that most of the lawyers in this litigation who have expressed themselves prefer some means other than competitive selection of class counsel. A judge’s oath does not include the happiness of lawyers. Some may be put off by the somewhat commercial ring of competitive selection, thinking it ill suits a learned profession. See, e.g., Rand v. Monsanto Co., 926 F.2d 596, 603 (7th Cir.1991) (concurring). The prevalence of competitive selection of contractors for public endeavors more compelling than securities class actions should allay these concerns. Under Rule 23, courts owe class members more than the right price for the services of class counsel. Courts possess a fiduciary duty, “something stricter than the morals of the marketplace.” Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 546 (1928). By focusing inquiry on the expectations, practices and standards of class counsel, competitive selection better discharges this duty and more suits judicial decision-making than merely dictating class counsel’s compensation.
Accordingly, IT IS ORDERED that:
2. Except for the claims asserted in the amended and supplemental consolidated class action complaint filed December 19, 1990, all related proceedings purporting to assert class claims are until further order STAYED;
3. A status conference is scheduled for June 13, 1991 at 10:00 a.m., and, after conferring with counsel, the court will entertain bids to serve as class counsel in class proceedings against Arthur Andersen & Co.
4. The proceedings in Greg Cronin, et al. v. Arthur Andersen & Co., No. 91-0945 VRW, and all other purported class actions on behalf of Oracle shareholders against Arthur Andersen & Co. which are related under L.R. 205-2 are consolidated for further proceedings pursuant to Fed.R.Civ.P. 42(a).
. In re Oracle Securities Litigation, 131 F.R.D. 688, 132 F.R.D. 538 (N.D.Cal. 1990).
. Degooyer v. Oracle Systems Corp., et al, No. C-90-1264-VRW. The Gold firm basically copied the amended Degooyer complaint from the consolidated class action complaint filed two months earlier by the Lowey firm.
. The Law Office of Joseph H. Weiss also sought reconsideration of the earlier orders, claiming that two classes of Oracle shareholders should be certified with separate class counsel. The Weiss firm naturally enough volunteered for one of these positions, but its motions are merit-less.
. Despite its relative novelty, competitive selection permitted designation of class counsel and determination of their compensation expeditiously: three weeks for submission of bids, In re Oracle Securities Litigation, 131 F.R.D. 688, 697 (N.D.Cal.1990), and seven weeks for their analysis and preparation of an explanatory order, 132 F.R.D. 538. With greater experience, the latter interval should considerably shorten and, of course, rearguard maneuvers of the sort addressed in this order will fall away.
. Although the court assumes arguendo that $325,000 will not cover the expenses of this litigation, 132 F.R.D. at 542, other securities class actions involving substantial recoveries have entailed expenses in line with, or less than, this amount. See, e.g., In re Baldwin-United Corp. Lit., 1986 Fed.Sec.L.Rep. ¶ 92,918, 1986 WL 12195 (recovery of $183.8M, costs of $397,-186.03); Rievman v. Burlington Northern R. Co., 118 F.R.D. 29 (S.D.N.Y.1987) (recovery of $35.5M, costs of $231,669.17); In re General Public Utilities Securities Litigation, 1984 Fed. Sec.L.Rep. ¶ 99,566, 1983 WL 22362 (recovery of $20.4M, costs of $159,680); In re Public Service Co. of Indiana Securities Lit., 125 F.R.D. 480 (S.D.Ind.1988) (recovery of $20.8M, costs of $230,402.97); In re Warner Communications Securities Lit., 618 F.Supp. 735 (D.C.N.Y.1985), affirmed, 798 F.2d 35 (2d Cir.1986) (recovery of $18.6M, costs of $124,090.08); In re Cincinnati Gas & Elec. Co. Securities Lit., 643 F.Supp. 148 (S.D.Ohio 1986) (recovery of "nearly" $14M, costs of $59,905.69).
. The ABA Model Rules are not binding on lawyers admitted to practice before this court which instead applies the California Rules of Professional Conduct. N.D.Cal.L.R. 110-3. With regard to reimbursement of expenses, however, the Model Rules and the California Rules do not differ.
. The undersigned recognizes how lawyers sometimes use neutral appearing ethical rules to persuade courts to reach "extremely questionable” results. Compare: Zylstra v. Safeway Stores, Inc., 578 F.2d 102 (5th Cir.1978) with J. Macey and G. Miller, "The Plaintiffs’ Attorney’s Role in Class Action and Derivative Litigation,” 58 U.Chi.L.Rev. 1, 104 (1991).
. Greater aversion to expenses denominated in money than to opportunity costs is called the
. In one sense, this statement is incomplete. Full reimbursement allows percentage contingent lawyers to increase their fee at no cost to themselves, an obvious incentive to run-up expenses. After $325,000 of expenses are incurred, the Lowey firm’s marginal fee becomes a fraction of each additional dollar of recovery. The Lowey firm’s optimal level of expenditures will be less under a regime of partial reimbursement than if full reimbursement were permitted. This is a manifestation of the agency problem inherent in percentage contingent fees, 131 F.R.D. at 694, 132 F.R.D. at 544 et seq. But this can hardly be considered unethical. Attorney and non-attorney litigation inputs are to some degree substitutes for one another and partial or no reimbursement of non-attorney inputs corrects the anomaly created by full reimbursement of these inputs: attorney effort is discouraged relative to out-of-pocket expenditures.
. The Gold firm fails to offer the one distinction which might justify treating litigation expenses differently from attorney effort: transactions costs. According to one observer, plaintiff firms depend on bank financing for litigation expenses. J. Coffee, "Understanding the Plaintiffs Attorney,” 86 Col.L.Rev. 669, 706 (1986). Because arranging bank financing might entail transactions costs not encountered when attorney inputs are employed, some distinction may be appropriate, if it can be demonstrated. To the extent there is any differential here, however, it probably is captured in the Lowey firm’s $325,000 reimbursement.
. Even if class counsel suspects that obvious misallocations of overhead costs will be disallowed under a lodestar or other court review, these can be easily disguised. An expert witness or consultant can remit part of his fee to class counsel for "secretarial services," to name only one fairly obvious possibility.
. Cf: Cal.Bus. & Prof.Code, § 6129, an enactment of dubious value to clients; see, L. Brick-man, "Contingent Fees Without Contingencies,” 37 U.C.L.A.L.Rev. 29 (1989).
. The flurry of complaints filed by various lawyers which signals the start of most securities class actions suggests that search costs for plaintiff lawyers are negligible and pre-filing investigation minimal. J. Alexander, "Do the Merits Matter? A Study of Settlements in Securities Class Actions,” 43 Stan.L.Rev. 497, 513-514 (1991).
. In seeking designation as class counsel, attorneys commit a portion of their “stock in trade” (time and effort) to the litigation. The ex post fee determinations of the lodestar and benchmark constitute a "pay me what you think it’s worth" offer by class counsel for their services. One suspects that such arrangements would not be acceptable to the shrewd and aggressive lawyers who do class action work if the class were beneficiary.
. The Gold firm’s argument is also eviscerated by the allowance of prejudgment interest at defendants’ cost of funds which greatly reduces, if not eliminates, the incentive for defendants to engage in a battle of litigation costs, 132 F.R.D. 538, 547; Gorenstein Enterprises, Inc. v. Quality Care-USA, Inc., 874 F.2d 431, 436 (7th Cir.1989), disagreed with on other grounds, Business Guides, Inc. v. Chromatic Communication Enterprises, Inc., 892 F.2d 802 (9th Cir.1989), affirmed, — U.S.-, 111 S.Ct. 922, 112 L.Ed.2d 1140 (1991).
. The benchmark percentage approach advocated by some judges, e.g., In re Activision Securities Litigation, 723 F.Supp. 1373 (N.D.Cal. 1989), does not avoid the problem which the Gold firm ascribes to disclosure of competitive bids because a defendant could readily figure out from the benchmark what "evaluation” of the case class counsel must have made to justify bringing the particular litigation.
. Alternatively, class counsel might also by such showing establish a basis to adjust its bid. See, 650-651, infra.
. This may also explain the suggestion of one of defendants’ counsel here that a master, mag-' istrate or a judge not familiar with the litigation supervise bidding for class counsel designation. The Third Circuit Task Force mentioned this possibility, but recognized its problems ("unduly expensive” and raising problems of "patronage and discrimination”). Ultimate resolution of these problems inevitably falls to the assigned judge. 108 F.R.D. 237, 257. Significantly, the economic interests of defendants’ counsel, who are typically compensated by the hour, are served by adding an additional layer of review whether by magistrate, master or other judge. 131 F.R.D. at 692 n. 9.
. At the March 20 hearing, the Gold firm’s Paul Bennett admitted that his firm’s joint proposal with the Berger firm contained nothing confidential. The Gold firm wholly fails to identify what "confidential” matter appeared in its competitive bid that was not also discussed in the Berger-Gold joint proposal.
. The Gold bid’s built-in incentive for a sell-out settlement was a sufficient reason for its rejection, a point that has been adequately explained earlier. See 132 F.R.D. at 544-546. A readable discussion of settlement problems in litigation generally is found in G. Miller, "Some Agency Problems in Settlement,” 16 J.Legal Stud. 189 (1987).
. Alone among the lawyers in this litigation, Elizabeth Joan Cabraser, one of the derivative counsel, has recognized the potentiality for competitive bidding to lead to a race to the bottom. Mem.Derivative Pis., April 22, 1991. Ms. Cabra-ser thoughtfully suggests a “change order" procedure for dealing with the problem.
. Contrary to otherwise thoughtful commentary, the Lowey bid was not selected "solely on the basis of price.” J. Alexander, 43 Stan.L.Rev. at 589 (emphasis added). For recoveries within 12 months below $1.6M and after 12 months below $12M, the Abbey bid was lower than the Lowey bid; the structure of the latter bid was superior. 132 F.R.D. at 543, 547.
. Promptly after its selection, the Lowey firm filed a comprehensive consolidated complaint which defendants answered without the usual time-consuming motion practice. A pretrial order tentatively certifying a class was worked out and approved by the court. Discovery, including third party discovery involving Arthur Andersen, is well underway. The Lowey firm’s papers have been thoughtful and to the point. Moreover, the Gold firm’s post-bid sniping seems not to have deflected the Lowey firm from its undertaking.
. Parenthetical numbers are cases in which attorney hours data were available.
. These results also suggest the absence of material difference between the lodestar and benchmark. Compare: Matter of Superior Beverage/Glass Container, 133 F.R.D. 119 (N.D.Ill. 1990) with In re Activision Securities Litigation, 723 F.Supp. 1373 (N.D.Cal.1989). Predictably, given the rudderless standards of the lodestar, Johnson v. Georgia Highway Express Inc., 488 F.2d 71.4 (5th Cir.1974), lodestar courts appear to adjust the multiplier upwards or downwards (as well as to cut hours) to obtain an award which is a percentage of the recovery perceived to be ‘‘fair.” 131 F.R.D. at 694-697. This is precisely the palliative that has been recommended to prevent windfalls under the benchmark approach, Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d 268, 272 (9th Cir.1989).
. In addition to setting the stage for competitive selection, designation of one firm as class counsel has other advantages. Not least among these is discouraging one of co-counsel to free ride off the efforts of co-counsel by attacking a proposed settlement as a means of extracting a larger share of the fee award.
