Stanford University Law School - Securities Class Action Clearinghouse
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MILBERG WEISS BERSHAD
HYNES & LERACH LLP
ALAN SCHULMAN (128661)
MARK SOLOMON (151949)
JOY ANN BULL (138009)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
- and -
KIMBERLY C. EPSTEIN (169012)
222 Kearny Street, 10th Floor
San Francisco, CA 94108
Telephone: 415/288-4545
WEISS & YOURMAN
JOSEPH H. WEISS
JACK I. ZWICK
551 Fifth Avenue
Suite 1600
New York, NY 10176
Telephone: 212/682-3025
- and -
KEVIN J. YOURMAN (147159)
10940 Wilshire Blvd.
24th Floor
Los Angeles, CA 90024
Telephone: 310/208-2800
BERNSTEIN LIEBHARD & LIFSHITZ
MEL E. LIFSHITZ
274 Madison Avenue
New York, NY 10016
Telephone: 212/779-1414
Attorneys for Plaintiffs
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION
BROOKE GRAUBART, et al., On Behalf of
Themselves and All Others Similarly Situated,
Plaintiffs,
vs.
INSIGNIA SOLUTIONS PLC, et al.,
Defendants.
___________________________________
No. C-97-20265-JW(EAI)
CLASS ACTION
DATE: April 20, 1998
TIME: 9:00 a.m.
COURTROOM: The Honorable
James Ware
NOTICE OF MOTION AND MEMORANDUM
IN SUPPORT OF PLAINTIFFS' APPLICATION
FOR ATTORNEYS' FEES AND REIMBURSEMENT OF EXPENSES
I. INTRODUCTION
II. AWARD OF ATTORNEYS' FEES
A. A Reasonable Percentage Of The Fund Recovered Is The Preferred Approach To Awarding Attorneys' Fees In Common Fund Cases
B. A Percentage Fee Of 30% Of The Fund Created Is Reasonable In This Case
C. Consideration Of Relevant Factors Justify A 30% Fee In This Case
1. The Very Favorable Settlement Achieved
2. The Risks Both As To Liability And Damages
3. The Diligent Prosecution Of This Case
4. The Complexity Of This Action's Factual And Legal Questions
5. The Contingent Nature Of The Case And The Financial Burden Carried By The Plaintiffs
6. A 30% Fee Award Reflects The Market Rate In Similar Complex, Contingent Litigation
III. PUBLIC POLICY CONSIDERATIONS MANDATE THE AWARD OF ADEQUATE FEES IN CLASS ACTIONS SO THAT COMPETENT AND EXPERIENCED LAWYERS WILL UNDERTAKE SUCH REPRESENTATIONS
IV. REPRESENTATIVE PLAINTIFFS' COUNSEL'S EXPENSES ARE REASONABLE AND WERE NECESSARILY INCURRED TO ACHIEVE THE BENEFIT OBTAINED FOR THE CLASS
V. CONCLUSION
TO: ALL PARTIES AND THEIR ATTORNEYS OF RECORD
PLEASE TAKE NOTICE that, pursuant to an Order of the Court filed January 22, 1998, on April 20, 1998, at 9:00 a.m., or as soon thereafter as counsel may be heard, at the United States Courthouse, 280 South First Street, San Jose, California, before The Honorable James Ware, United States District Judge, Representative Plaintiffs will and hereby move for an order awarding Representative Plaintiffs' counsel attorneys' fees of thirty percent of the Settlement Fund, plus reimbursement of expenses incurred. Representative Plaintiffs' motion is based on their Memorandum in Support of Plaintiffs' Application for Attorneys' Fees and Reimbursement of Expenses, the declarations of counsel for the Representative Plaintiffs submitted in support thereof, the Stipulation of Settlement dated as of August 8, 1997, all other pleadings and matters of record, and such additional evidence or argument as may be presented at the hearing.
This matter has been settled for $8,000,000 in cash and, subject to Court approval, resolves this case and the related case pending in Santa Clara Superior Court captioned Sharma v. Insignia Solutions PLC, et al., Case No. CV757058, with respect to all defendants.
A settlement of this size at an early stage of the litigation is a testament to the efforts of plaintiffs' counsel. This action was one of the earlier cases brought under the Private Securities Litigation Reform Act of 1995 ("PSLRA") and as such was fraught with risk. The PSLRA was enacted to make it more difficult for investors to bring securities class actions. The PSLRA requires plaintiffs to "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. §78u-4(b)(2). In addition, the PSLRA automatically stays discovery until the court has ruled on defendants' motion to dismiss the complaint. The settlement which plaintiffs' counsel were able to obtain was the direct result of counsel's efforts to meet the more vigorous hurdles imposed by the PSLRA.
The efforts of Representative Plaintiffs' counsel in achieving this result are set forth in the Declaration of Mark Solomon in Support of Plaintiffs' Application For Approval of Settlement and For an Award of Attorneys' Fees and Reimbursement of Expenses ("Solomon Declaration"), filed herewith. These efforts included substantial pre-filing investigation and analysis, researching and preparing detailed and comprehensive complaints in this Court and in state court, addressing questions of first impression with respect to the PSLRA, conducting post-filing informal discovery and investigation, conducting formal discovery in the state court case, interviewing potential witnesses, working with experts, and successfully negotiating this settlement with defense counsel.
Representative Plaintiffs' counsel's efforts to date have been without compensation of any kind and our attorneys' fees have been wholly contingent upon the result achieved. As compensation for these efforts, we request this Court to award attorneys' fees of 30% of the Settlement Fund, plus $256,199.13 in expenses (plus interest on the award at the same rate and for the same period as that earned on the Settlement Fund). Representative Plaintiffs' counsel's percentage fee request is in line with numerous decisions within the Ninth Circuit and is the proper method of compensating counsel for the result they have obtained for the class.
Further, the Court should consider class members' positive reaction to the attorneys' fees which counsel seek. A notice was published in Investor's Business Daily on February 20, 1998, and individual notices of settlement were mailed to approximately 4,564 members of the class,(1) which advised class members of this settlement, plaintiffs' counsel proposed fee and expense request and of their right to object to the settlement and the fee and the expense request. There have been no objections to counsel's fee and expense request filed to date.(2)
For the reasons set forth below and in the Solomon Declaration, we submit that the requested attorneys' fees and the expenses for which reimbursement is sought are fair and reasonable under the applicable legal standards and in light of the contingency risks undertaken, the result achieved and the efforts expended should be awarded by the Court.
For our efforts on behalf of the class, Representative Plaintiffs' counsel are applying for compensation from the Settlement Fund on a percentage basis. The percentage method is the preferred method of fee recovery because, among other things, it aligns the lawyers' interest in being paid a fair fee with the interest of the class in achieving the maximum recovery in the shortest amount of time required under the circumstances.
It has long been recognized in equity that "a private plaintiff, or his attorney, whose efforts create, discover, increase or preserve a fund to which others also have a claim is entitled to recover from the fund the costs of his litigation, including attorneys' fees." Vincent v. Hughes Air West, Inc., 557 F.2d 759, 769 (9th Cir. 1977). The purpose of this doctrine is to avoid unjust enrichment and "to spread litigation costs proportionately among all the beneficiaries." Id. This rule, known as the common fund doctrine, is firmly rooted in American case law. See, e.g., Trustees v. Greenough, 105 U.S. 527 (1882); Central R. & Banking Co. v. Pettus, 113 U.S. 116 (1885).(3)
In Blum v. Stenson, 465 U.S. 886, 900 n.16 (1984), the Supreme Court stated that the percentage method of computing fees was the proper approach in the "common fund" context where, as here, the fees are paid out of (not in addition to) the fund recovered:
Unlike the calculation of attorney's fees under the "common fund doctrine," where a reasonable fee is based on a percentage of the fund bestowed on the class, a reasonable fee under § 1988 reflects the amount of attorney time reasonably expended on the litigation.
Id. (emphasis added).
In In re Washington Public Power Supply System Sec. Litig., 19 F.3d 1291 (9th Cir. 1994) ("WPPSS"), the Ninth Circuit held that the district court has discretion to use either the lodestar/multiplier method or the percentage of the fund method in common fund cases, and emphasized that "the district court should be guided by the fundamental principle that fee awards out of common funds be 'reasonable under the circumstances.'" Id. at 1296.
In Paul, Johnson, 886 F.2d 268, Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301 (9th Cir. 1990), and Torrisi v. Tucson Electric Power Co., 8 F.3d 1370 (9th Cir. 1993), the Ninth Circuit expressly approved the use of the percentage method in common fund cases.
In fee awards in securities class actions since Paul, Johnson, district courts in this Circuit have virtually uniformly shifted to the percentage method because it fosters judicial economy by eliminating the detailed and time-consuming lodestar analysis. In re Activision Sec. Litig., 723 F. Supp. 1373 (N.D. Cal. 1989). Supporting authority for the percentage method in other circuits and by commentators is overwhelming.(4)
Compensating counsel in common fund cases on a percentage basis makes eminently good sense. First, it is consistent with the practice in the private marketplace where contingent fee attorneys are customarily compensated on a percentage of the recovery method.(5) Second, it provides plaintiffs' counsel with a strong incentive to effectuate the maximum possible recovery in the shortest amount of time necessary under the circumstances which is precisely what occurred here.(6) Third, use of the percentage method decreases the burden imposed upon the court by the "lodestar" method and assures that class members do not experience undue delay in receiving their share of the settlement.(7)
In Paul, Johnson, the Ninth Circuit established 25% of the common fund as the "benchmark" award for attorneys' fees. 886 F.2d at 272. This "benchmark" percentage should be adjusted upward or downward when circumstances indicate that the percentage of recovery would be either too small or too large in light of the hours devoted to the case or other relevant factors. Torrisi, 8 F.3d at 1376. The guiding principle is that the fee award be "'reasonable under the circumstances.'" WPPSS, 19 F.3d at 1296 (citation omitted).
Virtually all district courts in this Circuit award percentages between 25% and 33% in securities class actions, with 30% awards representing the overwhelming majority. Some eight years ago, Judge Patel of this district critically analyzed securities class action "lodestar/multiplier" fee awards in Activision, 723 F. Supp. 1373. She concluded "that in class action common fund cases the better practice is to set a percentage fee and that, absent extraordinary circumstances that suggest reasons to lower or increase the percentage, the rate should be set at 30%." Id. at 1378 (emphasis added). The court explained its rationale as follows:
The Ninth Circuit's opinion does not appear to foreclose, upon appropriate findings, the setting of a different benchmark, since it left "to the district court the task of determining what this reasonable percentage should be." Id. [Paul, Johnson, 886 F.2d at 271.] The 25% was given for guidance and the court indicated it would approve use of that figure. As documented by the lengthy list of cases below, this court finds that in most recent cases the benchmark is closer to 30%. Therefore, the court finds that a figure of approximately 30% is substantially justified.
This court's review of recent reported cases discloses that nearly all common fund awards range around 30% even after thorough application of either the lodestar or twelve-factor method.
Id. at 1377.
Courts in this district typically award 30% fees for favorable results in securities class actions. For example, in April 1992 and July 1994, this Court awarded fees of 30% plus expenses in Berley, et al. v. Sculley, et al., Civ. No. C-91-20270-JW(PVT) (N.D. Cal. April 20, 1992), attached as Exhibit B to the Declaration of Keith F. Park in Support of Application for Award of Attorneys' Fees and Reimbursement of Expenses ("Park Decl."), filed herewith; and In re Altera Corp. Sec. Litig., Master File No. C-92-20399-JW(EAI) (N.D. Cal. July 29, 1994), Park Decl., Ex. C. In October and April 1997, The Honorable Spencer Williams awarded fees of 30% plus expenses in Strassman, et al. v. Fresh Choice, Inc., et al., Civil. No. 95-20017 SW (N.D. Cal. October 10, 1997), Park Decl. Ex. D; and Stack, et al. v. Lobo, et al., No. C-95-20049-SW (EAI) (N.D. Cal. April 4, 1997), Park Decl., Ex. E. In June 1996 and July 1992, the Honorable Charles A. Legge awarded fees of 30% plus expenses in Slomovics v. Gallogly, et al., No. C-94-2262-CAL (N.D. Cal. June 13, 1996), Park Decl., Ex. F; In re AT&E Corporation Sec. Litig., Master File No. C-90-3265-CAL (N.D. Cal. July 13, 1992), Park Decl., Ex. G. In February 1991, December 1995, and March 1996, the Honorable D. Lowell Jensen awarded fees of 30% plus expenses in In re Genentech, Inc. Sec. Litig., Master File No. C-88-4038 DLJ (N.D. Cal. February 21, 1991), Park Decl., Ex. H; In re Ross Systems Sec. Litig., Master File No. C-94-0017-DLJ (WDB) (N.D. Cal. December 13, 1995), Park Decl., Ex. I; and Leonard v. NetFrame Systems, Inc., et al., C-95-0238-DLJ (N.D. Cal. March 20, 1996), Park Decl., Ex. J. In August 1991, November 1992, December 1994, and October 1996, the Honorable Edward A. Infante awarded fees of 33-1/3%, 32%, 30% and 30%, respectively, plus expenses in In re Seagate Technology Sec. Litig., Master File No. C-84-20756(A)-WAI (N.D. Cal. August 14, 1991), Park Decl., Ex. K; In re ASK Computer Systems Sec. Litig., Master File No. C-85-20207(A)-WAI(EAI) (N.D. Cal. November 16, 1992), Park Decl., Ex. L; In re Advanced Micro Devices Sec. Litig., Master File No. C-93-20662-EAI (N.D. Cal. December 12, 1994), Park Decl., Ex. M; and Fisher, et al. v. Acuson Corp., et al., Master File No. C-93-20477-EAI (N.D. Cal. October 7, 1996), Park Decl., Ex. N. In March and October of 1991, Judge William A. Ingram awarded fees of 35% and 30%, respectively, plus expenses in Cooper, et al. v. Hwang, et al., No. C-86-20146-WAI (N.D. Cal. March 5, 1991), Park Decl., Ex. O; and Perkins, et al. v. Preletz, et al., Civ. No. 90-20026-WAI (N.D. Cal. October 1, 1991), Park Decl., Ex. P. In December 1993 and June 1994, the Honorable Fern M. Smith awarded fees of 30% plus expenses in Shields v. Smith, et al., Civ. No. C-90-0349-FMS (N.D. Cal. December 21, 1993), Park Decl., Ex. Q; and Levy, et al. v. Eletr, et al., No. C-88-3457-FMS (N.D. Cal. June 20, 1994), Park Decl., Ex. R. In June 1995, the Honorable Claudia Wilken awarded fees of 30% plus expenses in Roe, et al. v. Hospital Staffing Services, Inc., et al., No. C-92-4101-CW (N.D. Cal. June 30, 1995), Park Decl., Ex. S, and Judge William H. Orrick awarded fees of 30% plus expenses in In re Sam & Libby Inc. Sec. Litig., Master File No. 92-1564-WHO (N.D. Cal. August 1, 1994), Park Decl., Ex. T.
Numerous factors are present here which justify this Court's award of a 30% fee:
Courts have consistently recognized that the result achieved is a major factor to be considered in making a fee award. Hensley v. Eckerhart, 461 U.S. 424, 436 (1983). A settlement of $8,000,000 has been obtained solely through the efforts of Representative Plaintiffs' counsel without the assistance of any regulatory agency or the necessity of a trial. This settlement resolves the entire controversy in this Court and in state court with respect to all defendants. As a result of this settlement, class members will receive substantial compensation for their losses in Insignia Solutions PLC ("Insignia") American Depository Shares ("ADS") and have avoided the very significant risk of no recovery in the absence of a settlement. This result was achieved in the face of the obstacles presented by the PSLRA and defendants' vigorous opposition. This settlement represents the sort of result that the percentage fee method was designed to reward. Rather than unnecessarily labor for years, incurring significant expenses and delaying any potential recovery, plaintiffs' counsel have produced a present benefit to the class of $8 million in a relatively short period of time.
Numerous cases have recognized that risk is an important factor in determining the fee award. E.g., WPPSS, 19 F.3d at 1299-1301; Detroit v. Grinnell Corp., 495 F.2d 448, 470 (2d Cir. 1974). Uncertainty that an ultimate recovery could be obtained is highly relevant in determining risk. WPPSS, 19 F.3d at 1300; Grinnell, 495 F.2d at 470.
Here, the risks assumed by plaintiffs' counsel were substantial. There is no question that this case raised a panoply of difficult and unsettled issues of law because it was filed under the PSLRA. Given the large number of issues of first impression in the areas of pleading and securities laws, had this settlement not been achieved, plaintiffs faced years of costly and risky litigation against the defendants, with ultimate success far from certain.
One of the risks faced by plaintiffs was whether they would be able to show that defendants possessed the requisite scienter to maintain their claims under §10(b). Defendants argued that plaintiffs could not meet the stricter pleading standard set by the PSLRA which requires pleading a strong inference of scienter. Thus, plaintiffs faced a substantial risk that the complaint in this Court might not have withstood the motion to dismiss. In the related state court action, there was a question whether Cal. Corp. Code §§25400/25500 applied only to California purchasers.
Given the undecided legal issues and the almost certain appeal on these issues, as well as defendants' vigorous denials of any wrongdoing, it is possible that this case would never have reached a jury.
A considerable effort on the part of plaintiffs' counsel was required to produce this settlement. Representative Plaintiffs' counsel spent many hours conducting investigations, formal and informal discovery, mastering the relevant facts and dynamics of Insignia's business, and working with their experts in order to make effective arguments and conduct meaningful settlement discussions. The quality of counsel's work is ultimately reflected in the result. Plaintiffs' counsel maintain that the class could not have gotten better representation and the result achieved reflects that fact. Consequently, the quality of plaintiffs' counsel's prosecution of this case should be recognized in the fee awarded by this Court.
Courts recognize that the complexity and difficulty of the issues in a case is a significant factor to be considered in making a fee award. In Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974), the court explained that an attorney "should not be penalized for undertaking a case which may 'make new law.' Instead, he should be appropriately compensated for accepting the challenge." Id. at 718.
There is no doubt that plaintiffs' counsel took on the challenge of pursuing this class action litigation under PSLRA. Had this settlement not been achieved, the factual and legal questions at issue would have been the subject of many hours of complex analysis. Numerous novel and difficult issues would be raised in plaintiffs' attempt to prove defendants' liable under the heightened standards set by the PSLRA.
Given the inherent complexities of a securities class action and the added difficulties faced in bringing one of the earlier cases under the PSLRA, the fee requested is fair.
A determination of a fair fee must include consideration of the contingent nature of the fee and the difficulties which were overcome in obtaining the settlement.
It is an established practice in the private legal market to reward attorneys for taking the risk of non-payment by paying them a premium over their normal hourly rates for winning contingency cases. See Richard Posner, Economic Analysis of Law §21.9, at 534-35 (3d ed. 1986). Contingent fees that may far exceed the market value of the services if rendered on a non-contingent basis are accepted in the legal profession as a legitimate way of assuring competent representation for plaintiffs who could not afford to pay on an hourly basis regardless whether they win or lose.
WPPSS, 19 F.3d at 1299.
Representative Plaintiffs' counsel have received no compensation during the course of this litigation and have incurred very significant expenses in litigating for the benefit of the class. Any fee award or expense reimbursement to Representative Plaintiffs' counsel has always been at risk and completely contingent on the result achieved and on this Court's exercise of its discretion in making any award.
As demonstrated by the decisions cited above, a 30% fee is a percentage that has been repeatedly awarded by the courts in this Circuit and district. Moreover, the requested fees are in line with awards in numerous other similar cases. Attached as Appendix A is a sampling of similar cases throughout the country showing fees awarded in common fund cases equal to or greater than the percentage requested here.
Further, a Federal Judicial Center Study released in 1996, which covered all class actions in four selected federal district courts including the Northern District of California, found that as to the size of attorneys' fees: "Median rates ranged from 27% to 30%." Thomas E. Willging, Laural L. Hooper, and Robert J. Niemic, Empirical Study of Class Actions in Four Federal District Courts: Final Report to the Advisory Committee on Civil Rules 69 (Federal Judicial Center 1996). Park Decl., Ex. U. This finding is in line with an analysis of fee awards in class actions conducted in 1995 by National Economic Research Associates, a economics consulting firm. Using data from 656 shareholder class actions, the study reports on the central question of attorneys' fees: "Regardless of case size, fees average approximately 32 percent of the settlement." Frederick C. Dunbar, Todd S. Foster, Vinita M. Juneja, and Denise N. Martin, Recent Trends III: What Explains Settlements in Shareholder Class Actions? 7 (National Economic Research Associates June 1995). Park Decl., Ex. V.
In addition, the requested fees reflect the private marketplace, a result repeatedly encouraged by the courts. See Continental Illinois, 962 F.2d at 572. In private litigation, attorneys regularly contract for contingent fees between 30% and 40% directly with their clients. See Phemister, ¶66,234, at 66,995 ("Contingent fee arrangements in non-class action damage lawsuits use the simple method of paying the attorney a percentage of what is recovered for the client. The more the recovery, the more the fee. The percentages agreed on vary, with one-third being particularly common."); Kirchoff, 786 F.2d at 323 (observing that "40% is the customary fee in tort litigation" and noting, with approval, contract providing for one-third contingent fee if litigation settled prior to trial). These percentages are the prevailing market rates throughout the United States for contingent representation.
However, in class action common fund cases such as this, Representative Plaintiffs' counsel's attorneys' fees can only be determined by this Court in the exercise of its discretion. Here, counsel request an award of 30%, consistent with historic precedent, numerous recent authorities from courts in this Circuit and District. An award of the requested fees recognizes the substantial benefits conferred on the class and the circumstances under which this result was accomplished. It is fair to both counsel and the class and should be awarded by the Court.
Representative Plaintiffs' counsel's efforts were performed on a wholly contingent basis, despite significant risk and in the face of determined opposition. Under these circumstances, it necessarily follows that plaintiffs' counsel are justly entitled to the award of a reasonable percentage fee based on the benefit conferred and the common fund obtained. Under all of the circumstances present here, a 30% fee plus expenses is fair and reasonable.(8)
The federal securities laws are remedial in nature and, in order to effectuate their statutory purpose of protecting investors and consumers, private lawsuits are to be encouraged. See Basic Inc. v. Levinson, 485 U.S. 224 (1988); Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299 (1985); Herman & MacLean v. Huddleston, 459 U.S. 375 (1983); Affiliated Ute Citizens v. United States, 406 U.S. 128 (1972); Superintendent of Ins. v. Bankers Life & Casualty Co., 404 U.S. 6, 12 (1971). Indeed, the ultimate effectiveness of these remedies may largely depend on the efficacy of the class action device. 3 Louis Loss, Securities Regulation 1819 (2d ed. 1961).
Private lawsuits serve to further the objective of the federal securities laws which is to protect investors and consumers against fraudulent and other deceptive practices. As a practical matter, those lawsuits can be maintained only if competent counsel can be obtained to prosecute them. Competent counsel can be obtained if reasonable and adequate compensation for their services were awarded if a successful result is achieved. "To make certain that the public is represented by talented and experienced trial counsel, the remuneration should be both fair and rewarding. The concept of a private attorney acting as a 'private attorney general' is vital to the continued enforcement and effectiveness of the Securities Acts."
Eltman v. Grandma Lee's, Inc., [1986-1987 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶92,798, at 93,907 (E.D.N.Y. 1986) (citations omitted).
That those goals have been achieved here is beyond question. A cash recovery, via this settlement, has been obtained for purchasers of Insignia ADSs who were harmed by the alleged wrongdoing of the defendants. Despite considerable risk, a significant service has been provided to these investors -- a demonstration that the protection afforded by the federal securities laws can provide benefits through the class action device. Because of these risks, the favorable result obtained on behalf of the class, and the other factors discussed herein, Representative Plaintiffs' counsel respectfully request the Court to award the fees and expenses requested.
Representative Plaintiffs' counsel have incurred costs and expenses in an aggregate amount of $256,199.13 in prosecuting this litigation on behalf of the class. These expenses are categorized in the declarations of counsel submitted to the Court herewith.
The appropriate analysis to apply in deciding which expenses are compensable in a common fund case of this type is whether the particular costs are of the type typically billed by attorneys to paying clients in the marketplace. Harris v. Marhoefer, 24 F.3d 16, 19 (9th Cir. 1994) ("Harris may recover as part of the award of attorneys's fees those out-of-pocket expenses that 'would normally be charged to a fee paying client.'") (citation omitted). Therefore, it is proper to reimburse reasonable expenses even though they are greater than taxable costs. Id. See also Bratcher v. Bray-Doyle Indep. Sch. Dist. No. 42, 8 F.3d 722, 725-26 (10th Cir. 1993) (expenses reimbursable if they would normally be billed to client); Abrams v. Lightolier, Inc., 50 F.3d 1204, 1225 (3d Cir. 1995) (expenses recoverable if customary to bill clients for them); Miltland Raleigh-Durham v. Myers, 840 F. Supp. 235, 239 (S.D.N.Y. 1993) ("Attorneys may be compensated for reasonable out-of-pocket expenses incurred and customarily charged to their clients, as long as they 'were incidental and necessary to the representation' of those clients.") (citation omitted). The categories of expenses for which counsel seek reimbursement here are the type of expenses routinely charged to hourly clients and, therefore, should be reimbursed out of the common fund.
A large component of these expenses is the cost of our consultants who assisted us greatly, inter alia, in the areas of accounting, materiality and damages. These consultants were indispensable to us. Without their involvement, we could not have resolved the case as we did. Representative Plaintiffs' counsel believe these expenses are reasonable and know that they were necessarily incurred in obtaining this result for the class.
One of our primary consultants was Princeton Venture Research, Inc. ("PVR"), a firm composed of professional securities and financial analysts. PVR has extensive experience in providing expert opinions and analyses on issues relating to violations of securities regulations, the materiality of alleged misrepresentations and omissions, causation, and the damages resulting from violations of the securities laws. Before filing the complaint, lead counsel consulted PVR and obtained a preliminary opinion about the soundness of our theories on materiality and damages. Thereafter, counsel worked extensively with PVR in analyzing materiality, causation and damages. See Declaration of John B. Torkelsen, filed herewith, for a more detailed description of the work performed by PVR.
Another significant component of Representative Plaintiffs' counsel's expenses were the expenses of our paralegals. The effective, efficient prosecution of a securities class action in the modern era is a complex, expensive, daunting challenge. Everything that can be done to aid Representative Plaintiffs' counsel in obtaining the best result for the class at the earliest possible point in the litigation should be encouraged. As demonstrated above, the percentage of recovery method in awarding fees is one such incentive. Second only in importance to that concept is the allowance as reimbursable expenses of those items which also encourage efficient, effective case prosecution and the maximum recovery in the minimum of time. Of these items, one of the most important are the charges of the highly skilled paralegals who work on these matters. They perform a myriad of tasks which increase the efficiency and effectiveness of the lawyers who prosecute the case; tasks which, if no paralegal was available to perform, would fall to the lawyers. Compensating firms for paralegals as recoverable expenses promotes their use. In recognition of this dynamic, the vast majority of courts in the Ninth Circuit reimburse paralegal charges as an expense of prosecution in securities class actions and we request the Court to do so here.
The settlement of this action is the culmination of the hard work of Representative Plaintiffs' counsel. For their efforts, counsel request the Court to approve the fee and expense application and enter the order awarding them 30% of the Settlement Fund plus $256,199.13 in expenses, plus the interest earned thereon at the same rate and for the same period as that earned on the Settlement Fund until paid.
DATED: April 9, 1998
Respectfully submitted,
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
ALAN SCHULMAN
MARK SOLOMON
JOY ANN BULL
______________________________
JOY ANN BULL
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
KIMBERLY C. EPSTEIN
222 Kearny Street, 10th Floor
San Francisco, CA 94108
Telephone: 415/288-4545
WEISS & YOURMAN
JOSEPH H. WEISS
JACK I. ZWICK
551 Fifth Avenue
Suite 1600
New York, NY 10176
Telephone: 212/682-3025
WEISS & YOURMAN
KEVIN J. YOURMAN
10940 Wilshire Blvd.
24th Floor
Los Angeles, CA 90024
Telephone: 310/208-2800
BERNSTEIN LIEBHARD & LIFSHITZ
MEL E. LIFSHITZ
274 Madison Avenue
New York, NY 10016
Telephone: 212/779-1414
Attorneys for Plaintiffs
INSIGN-2\DLM13157.brf
DECLARATION OF SERVICE BY MAIL
PURSUANT TO NORTHERN DISTRICT LOCAL RULE 23-2(c)(2)
I, the undersigned, declare:
1. That declarant is and was, at all times herein mentioned, a citizen of the United States and a resident of the County of San Diego, over the age of 18 years, and not a party to or interested in the within action; that declarant's business address is 600 West Broadway, Suite 1800, San Diego, California 92101.
2. That on April 10, 1998, declarant served the NOTICE OF MOTION AND MEMORANDUM IN SUPPORT OF PLAINTIFFS' APPLICATION FOR ATTORNEYS' FEES AND REIMBURSEMENT OF EXPENSES by depositing a true copy thereof in a United States mailbox at San Diego, California in a sealed envelope with postage thereon fully prepaid and addressed to the parties listed on the attached Service List and that this document was forwarded to the following designated Internet site at:
http://securities.milberg.com
3. That there is a regular communication by mail between the place of mailing and the places so addressed.
I declare under penalty of perjury that the foregoing is true and correct. Executed this 10th day of April, 1998, at San Diego, California.
______________________________
PILAR COLINA
1. See paragraphs 3-5 to the Declaration of Cheryl Washington Re (A) Mailing of Notice of Pendency and Proposed Settlement of Class Actions and Proof of Claim and Release Form; and (B) Publication of Summary Notice, filed herewith.
2. The deadline for objections to be filed was April 3, 1998.
3. In Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d 268 (9th Cir. 1989), the Ninth Circuit explained the principle underlying fee awards in common fund cases:
Since the Supreme Court's 1885 decision in Central Railroad & Banking Co. of Ga. v. Pettus, 113 U.S. 116, 5 S.Ct. 387, 28 L.Ed. 915 (1885), it is well settled that the lawyer who creates a common fund is allowed an extra reward, beyond that which he has arranged with his client, so that he might share the wealth of those upon whom he has conferred a benefit. The amount of such a reward is that which is deemed "reasonable" under the circumstances.
Id. at 271 (citations omitted, emphasis in original).
4. Courts in other circuits favor the percentage of recovery approach for the award of attorneys' fees in common fund cases. Two circuits have ruled that the percentage method is mandatory in common fund cases. Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261 (D.C. Cir. 1993); Camden I Condominium Ass'n v. Dunkle, 946 F.2d 768, 774-75 (11th Cir. 1991). Other circuits and commentators have expressly approved the use of the percentage method. Gottlieb v. Barry, 43 F.3d 474 (10th Cir. 1994); Brown v. Phillips Petroleum Co., 838 F.2d 451, 454 (10th Cir. 1988) (footnote 16 of Blum recognizes both "implicitly" and "explicitly" that a percentage recovery is reasonable in common fund cases); Harman v. Lyphomed, Inc., 945 F.2d 969, 975 (7th Cir. 1991); In re First Fidelity Bancorporation Sec. Litig., 750 F. Supp. 160 (D.N.J. 1990); Report of the Third Circuit Task Force, Court Awarded Attorney Fees, 108 F.R.D. 237, 254 (October 8, 1985); Edward D. Cavanagh, Attorneys' Fees in Antitrust Litigation: Making the System Fairer, 57 Fordham L. Rev. 51, 100 (1988).
5. Courts are encouraged to look to the private marketplace in setting a percentage fee:
The judicial task might be simplified if the judge and the lawyers bent their efforts on finding out what the market in fact pays not for the individual hours but for the ensemble of services rendered in a case of this character. This was a contingent fee suit that yielded a recovery for the "clients" (the class members) of $45 million. The class counsel are entitled to the fee they would have received had they handled a similar suit on a contingent fee basis, with a similar outcome, for a paying client. Suppose a large investor had sued Continental for securities fraud and won $45 million. What would its lawyers have gotten pursuant to their contingent fee contract?
In re Continental Illinois Sec. Litig., 962 F.2d 566, 572 (7th Cir. 1992). See also Phemister v. Harcourt Brace Jovanovich, Inc., 1984-2 Trade Cas. (CCH) ¶66,234, at 66,995 (N.D. Ill. 1984) ("Contingent fee arrangements in non-class action damage lawsuits use the simple method of paying the attorney a percentage of what is recovered for the client. The more the recovery, the more the fee. The percentages agreed on vary, with one-third being particularly common.").
6. The contingent fee uses private incentives rather than careful monitoring to align the interests of lawyer and client. The lawyer gains only to the extent his client gains. . . . The unscrupulous lawyer paid by the hour may be willing to settle for a lower recovery coupled with a payment for more hours. Contingent fees eliminate this incentive and also ensure a reasonable proportion between the recovery and the fees assessed to defendants. . . .
At the same time as it automatically aligns interests of lawyer and client, rewards exceptional success, and penalizes failure, the contingent fee automatically handles compensation for the uncertainty of litigation.
Kirchoff v. Flynn, 786 F.2d 320, 325-26 (7th Cir. 1986).
7. Professor Coffee argues that a percentage of the gross recovery is the only reasonable method of awarding fees in common fund cases:
If one wishes to economize on the judicial time that is today invested in monitoring class and derivative litigation, the highest priority should be given to those reforms that restrict collusion and are essentially self-policing. The percentage of the recovery award formula is such a "deregulatory" reform because it relies on incentives rather than costly monitoring. Ultimately, this "deregulatory" approach is the only alternative . . . .
John C. Coffee, Jr., Understanding the Plaintiff's Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions, 86 Colum. L. Rev. 669, 724-25 (1986).
As Chief Judge Brieant, of the Southern District of New York, commenting upon the Paul, Johnson decision has succinctly stated:
Such an award is consistent with the new learning (old wine in a new bottle) announced by the Ninth Circuit in Paul, Johnson, supra, which new learning we believe will proceed from West to East and take us back to straight contingent fee awards bereft of largely judgmental and time-wasting computations of lodestars and multipliers. These latter computations, no matter how conscientious, often seem to take on the character of so much Mumbo Jumbo. They do not guarantee a more fair result or a more expeditious disposition of litigation.
In re Union Carbide Corp. Consumer Products Business Sec. Litig., 724 F. Supp. 160, 170 (S.D.N.Y. 1989).
8. Professor Conte acknowledged the propriety of good fees in common fund cases:
[C]ourts have been careful to award a fully compensable reasonable fee based on the underlying economic inducement for class action lawyers to pursue potentially expensive or complex common fund class litigation. These lawyers assume the risk of no compensation unless they successfully confer common fund benefits on the class, based on their reasonable expectation that they will share in the recovery in a fair proportion, in contrast to receiving a fee based initially on time-expended criteria that fail to give the results obtained factor primary consideration.
1 Alba Conte, Attorney Fee Awards §1.09, at 16 (2d ed. 1993) (footnote omitted, emphasis in original).