WOLF POPPER LLP
LESTER L. LEVY
PATRICIA I. AVERY
MICHAEL A. SCHWARTZ
845 Third Avenue
New York, NY 10022
Telephone: 212/759-4600

Co-Lead Counsel for Plaintiffs
 
 

I. INTRODUCTION

II. HISTORY OF THE LITIGATION

III. AWARD OF ATTORNEYS' FEES

A. A Reasonable Percentage of the Fund Recovered Is the Appropriate Approach to Awarding Attorneys' Fees in Common Fund Cases

B. Awarding a Percentage Fee of 30% of the Class Fund Created Has Become the Common Practice in This District

C. Consideration of Relevant Factors Justify an Award of a 30% Fee in This Case

D. The Reaction of the Class Supports the Requested Award

V. CLASS COUNSEL'S EXPENSES ARE REASONABLE AND WERE NECESSARILY INCURRED TO ACHIEVE THE BENEFIT OBTAINED FOR THE CLASS

VI. CONCLUSION

Affiliated Ute Citizens v. United States,
    406 U.S. 128 (1972)

Basic Inc. v. Levinson,
    485 U.S. 224 (1988)

Bateman Eichler, Hill Richards, Inc. v. Berner,
    472 U.S. 299 (1985)

Behrens v. Wometco Enterprises., Inc.,
    118 F.R.D. 534 (S.D. Fla. 1988),
    aff'd, 899 F.2d 21 (11th Cir. 1990)

Berley v. Sculley,
    C-91-20270-JW (N.D. Cal. Apr. 20, 1992)

Blum v. Stenson,
    465 U.S. 886 (1984)

Brown v. Phillips Petroleum Co.,
    838 F.2d 451 (10th Cir. 1988)

Camden I Condominium Ass'n v. Dunkle,
    946 F.2d 768 (11th Cir. 1991)

Coates v. Heartland Wireless Communications. Inc.,
    26 F. Supp. 2d 910 (N.D. Tex. 1998)

Cooper v. Hwang,
    No. C-86-20146-WAI (N.D. Cal. Mar. 5, 1991)
 
Detroit v. Grinnell Corp.,
    495 F.2d 448 (2d Cir. 1974)

Eltman v. Grandma Lee's, Inc.,
    [1986-1987 Transfer Binder] Fed. Sec. L. Rep.
    (CCH) ¶92,798 (E.D.N.Y. 1986)

Fisher v. Acuson Corp.,
    Master File No. C-93-20477-EAI (N.D. Cal. Oct. 7, 1996)

Gottlieb v. Barry,
    43 F.3d 474 (10th Cir. 1994)

Granbart v. Insignia Solutions PLC,
    No. C-97-20265-JW(EAI) (N.D. Cal. Apr. 20, 1998)

Harman v. Lyphomed, Inc.,
    945 F.2d 969 (7th Cir. 1991)

Hensley v. Eckerhart,
    461 U.S. 424 (1983)

Herman & MacLean v. Huddleston,
    459 U.S. 375 (1983)

Hertzberg v. Dignity Partners, Inc.,
    No. C-96-4558-CAL (N.D. Cal. Feb. 25, 2000)

In re ASK Computer Systems Sec. Litig.,
    No. C-85-20207 (A)-WAI (EAI) (N.D. Cal. Nov. 16, 1992)

In re AT&E Corporate Sec. Litig.,
    Master File No. C-90-3265-CAL (N.D. Cal. July 13, 1992)

In re Activision Sec. Litig.,
    723 F. Supp. 1373 (N.D. Cal. 1989) passim

In re Advanced Micro Devices Sec. Litig.,
    Master File No. C-93-20662-EAI (N.D. Cal. Dec. 12, 1994) 9

In re Altera Corp. Sec. Litig.,
    Master File No. C-92-20399-JW (EAI)

In re California Microwave Inc. Sec. Litig.,
    Master File No. C-95-4009-CW (N.D. Cal. Mar. 23, 1998)

In re Cirrus Logic Sec. Litig.,
    Master File No. 93-1591-WHO (N.D. Cal. July 1, 1997)

In re Conner Peripherals, Inc. Sec. Litig.,
    Master File No. C-95-2244-MHP (N.D. Cal. May 7, 1997)

In re Continental Illinois Sec. Litig.,
    962 F.2d 566 (7th Cir. 1992)

In re DSP Group, Inc.,
    Master File No. C-95-4025-CAL (N.D. Cal. Sept. 4, 1998)

In re First Fidelity Bancorporation Sec. Litig.,
    750 F. Supp. 160 (D.N.J. 1990)

In re Genentech, Inc. Sec. Litig.,
    Master File No. C-88-4038 DLJ (N.D. Cal. Feb. 21, 1991)

In re Hexcel Corp. Sec. Litig.,
    Master File No. C-92-4811-SBA (N.D. Cal. Jan. 22, 1996)

In re IMP, Inc. Sec. Litig.,
    Master File No. C-96-20826-SW (PVT) (N.D. Cal. Aug. 26, 1998)

In re King Resources Co. Sec. Litig.,
    420 F. Supp. 610 (D. Colo. 1976)

In re MDC Holdings Sec. Litig.,
    [1990 Transfer Binder] Fed. Sec. L. Rep.
    (CCH) ¶95,474 (S.D. Cal. 1990)

In re Media Vision Technology Sec. Litig.,
    Master File No. C-94-1015-FMS (N.D. Cal. Mar. 17, 1998)

In re Peritus Software Servs., Inc.,
    52 F. Supp. 2d 211 (D. Mass. 1999)

In re Ross Systems Sec. Litig.,
    Master File No. C-94-0017-DLJ (WDB) (N.D. Cal. Dec. 13, 1995)
 
In re Sam & Libby Inc. Sec. Litig.,
    Master File No. 92- 1564-WHO (N.D. Cal. Aug. 1, 1994)
 
In re Seagate Technology Sec. Litig.,
    Master File No. C-84-20756 (A)-WAI (N.D. Cal. Aug. 14, 1991)

In re Trimble Navigation Sec. Litig.,
    Master File No. C-98-20441-JF (N.D. Cal. Sept. 23, 1999)

In re Union Carbide Corp. Consumer Products Business Sec. Litig.,
    724 F. Supp. 160 (S.D.N.Y. 1989)

In re Valence Technology Sec. Litig.,
    Master File No. C-95-20459-JW (EAI) (N.D. Cal. May 8, 2000)

In re Washington Public Power Supply System Sec. Litig.,
    19 F.3d 1291 (9th Cir. 1994)

Kirchoff v. Flynn,
    786 F.2d 320 (7th Cir. 1986)

Leonard v. NetFrame Systems, Inc.,
    C-95-0238-DLJ (N.D. Cal. Mar. 20, 1996)

Levy v. Eletr,
    No. C-88-3457-FMS (N.D. Cal. June 20, 1994)

Lindy Bros Builders v. American Radiator & Standard Sanitary Corp.,
    540 F.2d 102 (3d Cir. 1976)

McDaid v. Sanders,
    No. C-95-20750-JW(EAI) (N.D. Cal. Nov. 2, 1998)

Molinari v. Symantec Corp.,
    No. C-97-20021-JF (EAI) (N.D. Cal. Oct. 26, 1999)

Paul, Johnson, Alston & Hunt v. Graulty,
    886 F.2d 268 (9th Cir. 1989)

Perkins v. Preletz,
    No. 90-20026-WAI (N.D. Cal. Oct. 1, 1991)

Phemister v. Harcourt Brace Jovanovich, Inc.,
    1984-2 Trade Cas. (CCH) ¶66,234 (N.D. Ill. 1984)

Provenz v. Miller,
    No. C-92-20159-RMW (EAI) (N.D. Cal. Aug. 23, 1999)

Roe v. Hospital Staffing Services, Inc.,
    No. C-92-4101-CW (N.D. Cal. June 30, 1995)

Rooney v. Identix, Inc.,
    No. C-97-20082-RMW (N.D. Cal. May 6, 1998)

Shields v. Smith,
    No. C-90-0349-FMS (N.D. Cal. Dec. 21, 1993)

Six Mexican Workers v. Arizona Citrus Growers,
    904 F.2d 1301 (9th Cir. 1990)

Stevelman v. Alias Research, Inc.,
    174 F.3d 79 (2d Cir. 1999)

Strassman v. Fresh Choice, Inc.,
    No. C-95-20017-SW (N.D. Cal. Oct. 10, 1997)

Superintendent of Ins. v. Bankers Life & Casualty Co.,
    404 U.S. 6 (1971)

Swedish Hosp. Corp. v. Shalala,
    1 F.3d 1261 (D.C. Cir. 1993)

Torrisi v. Tucson Electric Power Company,
    8 F.3d 1370 (9th Cir. 1993)

Trustees v. Greenough,
    105 U.S. 527 (1882)

Vincent v. Hughes Air West, Inc.,
    557 F.2d 759 (9th Cir. 1977)

Warshaw v. Xoma Corp.,
    No. 92-2264-MHP (JSB) (N.D. Cal. Sept. 5, 1997)
 
 

STATUTES, RULES AND REGULATIONS

15 U.S.C.
    §78j(b)
    §78u-4(b)(2)
 
SECONDARY AUTHORITIES
 

1 Alba Conte, Attorney Fee Awards (2d ed. 1993)
    §1.09

3 Louis Loss, Securities Regulation (2d ed. 1961)
    1819

Edward D. Cavanagh, Attorneys' Fees in Antitrust Litigation:
Making the System Fairer,
    57 Fordham L. Review 51 (1988)

John C. Coffee, Jr., Understanding the Plaintiff's Attorney:
The Implications of Economic Theory for Private Enforcement
of the Law Through Class and Derivative Actions,
    86 Colum. L. Rev. 669 (1986)

Denise N. Martin,Vinita M. Juneja, Todd S. Foster,
Frederick C. Dunbar, Recent Trends IV: What Explains Filings
    and Settlements in Shareholder Class Actions
    (NERA Nov. 1996)

Thomas E. Willging, Laurel 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
    (Federal Judicial Center 1996)

Report of the Third Circuit Task Force, Court Awarded Attorney Fees,
    108 F.R.D. 237 (October 8, 1985)
 
 

TO: ALL PARTIES AND THEIR ATTORNEYS OF RECORD

PLEASE TAKE NOTICE that, pursuant to an Order of the Court dated July 17, 2000, on September 18, 2000, at 2:00 p.m., or as soon thereafter as counsel may be heard, before the Honorable Marilyn H. Patel, United States District Judge, Representative Plaintiffs will and hereby do move for an order awarding Representative Plaintiffs' Counsel attorneys' fees of thirty percent of the $20 million cash Settlement Fund, plus reimbursement of expenses incurred, plus interest on such fees and expenses. Plaintiffs' motion is based upon Plaintiffs' Memorandum of Points and Authorities 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 January 11, 2000, all other pleadings and matters of record, and such additional evidence or argument as may be presented at the hearing.

I. INTRODUCTION

Plaintiffs' counsel have achieved a $20 million cash settlement on behalf of the Class. The settlement of this litigation is a superior result and, subject to final Court approval, resolves this controversy with respect to all claims against all defendants.

A settlement of this size at this stage of the litigation is a testament to the efforts of plaintiffs' counsel. This litigation was subject to the provisions of the Private Securities Litigation Reform Act of 1995 ("PSLRA") and, therefore was extremely risky and difficult from the outset. The PSLRA was enacted to make it harder for investors to bring securities class actions. Among other things, the PSLRA requires plaintiffs to plead with particularity facts giving rise to a strong inference of scienter in order to plead a §10(b) claim. See 15 U.S.C. §78u-4(b)(2). The PSLRA also automatically stays discovery until the court upholds the sufficiency of the complaint.

The settlement obtained here was the result of the creative and diligent efforts of plaintiffs' counsel. Plaintiffs' counsel conducted an extensive investigation of the potential claims and prepared highly detailed and specific complaints alleging wrongdoing against the Class by ADAC and the Individual Defendants during the Class Period. The efforts of class counsel in achieving this outstanding result are set forth in the Declaration of Patricia I. Avery in Support of Approval of the Proposed Class Action Settlement and Application for Attorneys' Fees and Reimbursement of Expenses (the "Avery Decl."), submitted herewith. These efforts included pre-filing investigations, drafting a consolidated class action complaint, locating and contacting witnesses, accounting and financial analysis and working with accounting and damage experts, negotiating this Settlement with defense and insurer's counsel, and conducting confirmatory discovery to ensure that the Settlement was fair, reasonable and adequate and thereafter filing an amended consolidated class action complaint.

Class counsel's efforts to date have been without compensation of any kind and our attorneys' fees as well as the reimbursement of substantial expenses have been wholly contingent upon the result achieved. As compensation for these efforts, class counsel request this Court to award them attorneys' fees of 30% of the Settlement Fund, plus $324,194.57 in expenses (plus interest on the award at the same rate and for the same period as that earned on the Settlement Fund). Plaintiffs' counsel's percentage fee request is in line with the seminal decision of this Court in In re Activision Sec. Litig., 723 F. Supp. 1373 (N.D. Cal. 1989), and numerous other decisions within the Ninth Circuit. It is the proper and most efficient method of compensating counsel for the result they have obtained for the class.

The Court should also consider class members' reactions to the attorneys' fees which counsel seek. A summary notice of the settlement was published in Investor's Business Daily, National Edition, on August 1, 2000, and individual notices of the settlement were mailed to over 27,000 members of the class,⁽¹⁾ which advised class members of this settlement and of their right to object to plaintiffs' counsel's fee request. There have been no objections to the fee application.⁽²⁾ This fact is particularly significant here since we know the class includes many institutional and mutual fund investors with substantial stakes in the Settlement Fund sufficient to motivate them to object to the fee application if they thought it was appropriate to do so.

For the reasons set forth below and in the Avery Declaration, we respectfully 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 substantial risks of no recovery faced and overcome, the result achieved and the efforts expended. The fees and expenses should be awarded by the Court in the amount requested.

II. HISTORY OF THE LITIGATION

The Court is respectfully referred to the Avery Declaration for a description of the history of the litigation, the claims asserted, the discovery undertaken, the negotiations and the substance of the settlement, and the substantial risks and uncertainties of the litigation. The Avery Declaration also sets forth matters of particular relevance to this fee application.

III. AWARD OF ATTORNEYS' FEES

A. A Reasonable Percentage of the Fund Recovered Is the Appropriate Approach to Awarding Attorneys' Fees in Common Fund Cases

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). 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.

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 Company, 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 in awarding fees in common fund cases because it fosters judicial economy by eliminating the detailed and time-consuming lodestar analysis. As this Court correctly (and resoundingly) observed in Activision:

The question this court is compelled to ask is, "Is this process necessary?" Under a cost-benefit analysis, the answer would be a resounding, "No!" Not only do the Lindy and Kerr-Johnson analyses consume an undue amount of court time with little resulting advantage to anyone, but, in fact, it may be to the detriment of the class members. They are forced to wait until the court has done a thorough, conscientious analysis of the attorneys' fee petition. Or, class members may suffer a further diminution of their fund when a special master is retained and paid from the fund. Most important, however, is the effect the process has on the litigation and the timing of settlement. Where attorneys must depend on a lodestar approach there is little incentive to arrive at an early settlement. The history of these cases demonstrates this as noted below in the discussion of typical percentage awards.

* * *

The Third Circuit, home of the Lindy formulation, recently criticized its application in common fund cases and recommended a return to a percentage of the fund approach. In the Report of the Third Circuit Task Force, Court Awarded Attorney Fees, 108 F.R.D. 237 (1985), the Task Force concluded that the Lindy method was a "cumbersome, enervating, and often surrealistic process of preparing and evaluating fee petitions that now plagues the Bench and Bar ...." Id. at 258. According to the Task Force, the percentage scheme with appropriate judicial supervision would ordinarily be adequate to protect the integrity of the fee award process. It recommended that early in the litigation the court set or "negotiate" a percentage-based fee and offered a number of suggestions for fashioning a mechanism for fee setting. Id. at 255-58. This court agrees with the Task Force's conclusion that a number of salutary effects can be achieved by this procedure, including removing the inducement to unnecessarily increase hours, prompting early settlement, reducing burdensome paperwork for counsel and the court and providing a degree of predictability to fee awards. Id. at 258.

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.⁽⁶⁾ Third, as this Court recognized in Activision, use of the percentage method decreases the burden imposed upon the court by the "lodestar" method, encourages early settlements, and assures that class members do not experience undue delay in receiving their share of the settlement.⁽⁷⁾

B. Awarding a Percentage Fee of 30% of the Class Fund Created Has Become the Common Practice in This District

Notwithstanding the 25% "benchmark," in the years since this Court's Activision decision, an overwhelming majority of courts within this District and elsewhere have awarded attorneys' fees of 30% of the value of the recovery, implicitly (if not explicitly) following this Court's observation that, in reality, fee awards "almost always hover[] around 30% of the fund created by the settlement." 723 F. Supp. at 1375. In Activision, this Court critically analyzed securities class action "lodestar/multiplier" fee awards, concluding "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). This 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." [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.

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, Laurel 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 at 69 (Federal Judicial Center 1996), attached as Exhibit 24 to the Declaration of Ellen Gusikoff Stewart in Support of (1) Final Approval of Settlement; (2) Award of Attorneys' Fees and Reimbursement of Expenses; and (3) Approval of Plan of Allocation of Settlement Proceeds ("Stewart Decl."), submitted herewith. This study found that attorneys' fees were generally in the traditional range of approximately one-third of the total settlement. "While attorneys clearly derived substantial benefits from settlements, the recoveries to the class in most cases were not trivial in comparison to the fees. But, recoveries by individual class members were in amounts that could not be expected to support individual actions." Id. at 90. This finding is in line with an analysis of fee awards in class actions conducted in 1996 by National Economic Research Associates ("NERA"), an economics consulting firm. Using data from 433 shareholder class action settlements, the study reports on the central question of attorneys' fees: "Regardless of case size, fees average approximately 32 percent of the settlement." Denise N. Martin,Vinita M. Juneja, Todd S. Foster, Frederick C. Dunbar, Recent Trends IV: What Explains Filings and Settlements in Shareholder Class Actions at 12-13 (NERA Nov. 1996). Stewart Decl., Ex. 25. Specifically, NERA examined 433 settlements, including those in the $10-$49.99 million range, which is where this settlement falls. There were 76 settlements in this range, and the average attorney fee as a percentage of the settlement in those cases was 31.72%. Id. at Table 9. Of the 433 settlements, 105, or 35.8% were in the Ninth Circuit. The average attorney fee as a percentage of the settlement in this Circuit was 32.57%. Id. at Table 12b.

In the eleven years since this Court rendered its Activision decision, courts in this District have generally awarded 30% fees for favorable results in securities class actions. For example, in September 1997, this Court awarded a fee of 30% plus expenses in Warshaw v. Xoma Corp., No. 92-2264-MHP (JSB) (N.D. Cal. Sept. 5, 1997), and in May of that year, similarly awarded a fee of 30% plus expenses in In re Conner Peripherals, Inc. Sec. Litig., Master File No. C-95-2244-MHP (N.D. Cal. May 7, 1997), Stewart Decl., Exs. 26-27. In February of this year, September 1998 and July 1992, The Honorable Charles A. Legge awarded fees of 30% plus expenses in Hertzberg v. Dignity Partners, Inc., No. C-96-4558-CAL (N.D. Cal. Feb. 25, 2000); In re DSP Group, Inc., Master File No. C-95-4025-CAL (N.D. Cal. Sept. 4, 1998); and In re AT&E Corporate Sec. Litig., Master File No. C-90-3265-CAL (N.D. Cal. July 13, 1992). 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. Feb. 21, 1991); In re Ross Systems Sec. Litig., Master File No. C-94-0017-DLJ (WDB) (N.D. Cal. Dec. 13, 1995); and Leonard v. NetFrame Systems, Inc., C-95-0238-DLJ (N.D. Cal. Mar. 20, 1996). 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. Aug. 14, 1991); In re ASK Computer Systems Sec. Litig., No. C-85-20207(A)-WAI (EAI) (N.D. Cal. Nov. 16, 1992); In re Advanced Micro Devices Sec. Litig., Master File No. C-93-20662-EAI (N.D. Cal. Dec. 12, 1994); and Fisher v. Acuson Corp., Master File No. C-93-20477-EAI (N.D. Cal. Oct. 7, 1996). In April 1992, July 1994, April 1998, November 1998 and May 2000, The Honorable James Ware awarded fees of 30% plus expenses in Berley v. Sculley, C-91-20270-JW (N.D. Cal. Apr. 20, 1992); In re Altera Corp. Sec. Litig., Master File No. C-92-20399-JW (EAI) (N.D. Cal. July 29, 1994); Granbart v. Insignia Solutions PLC, No. C-97-20265-JW(EAI) (N.D. Cal. Apr. 20, 1998); McDaid v. Sanders, No. C-95-20750-JW(EAI) (N.D. Cal. Nov. 2, 1998); and In re Valence Technology Sec. Litig., Master File No. C-95-20459-JW (EAI) (N.D. Cal. May 8, 2000). In March and October of 1991, Judge William A. Ingram awarded fees of 35% and 30%, respectively, plus expenses in Cooper v. Hwang, No. C-86-20146-WAI (N.D. Cal. Mar. 5, 1991); and Perkins v. Preletz, No. 90-20026-WAI (N.D. Cal. Oct. 1, 1991). In December 1993, June 1994 and March 1998, The Honorable Fern M. Smith awarded fees of 30% plus expenses in Shields v. Smith, No. C-90-0349-FMS (N.D. Cal. Dec. 21, 1993); Levy v. Eletr, No. C-88-3457-FMS (N.D. Cal. June 20, 1994); and In re Media Vision Technology Sec. Litig., Master File No. C-94-1015-FMS (N.D. Cal. Mar. 17, 1998). In June 1995 and March 1998, The Honorable Claudia Wilken awarded fees of 30% plus expenses in Roe v. Hospital Staffing Services, Inc., No. C-92-4101-CW (N.D. Cal. June 30, 1995); and In re California Microwave Inc. Sec. Litig., Master File No. C-95-4009-CW (N.D. Cal. Mar. 23, 1998). In July 1997 and August 1994, Judge William H. Orrick awarded fees of 30% plus expenses in In re Cirrus Logic Sec. Litig., Master File No. 93-1591-WHO (N.D. Cal. July 1, 1997); and In re Sam & Libby Inc. Sec. Litig., Master File No. 92-1564-WHO (N.D. Cal. Aug. 1, 1994). In January 1996, The Honorable Saundra Brown Armstrong awarded fees of 30% of the settlement fund in In re Hexcel Corp. Sec. Litig., Master File No. C-92-4811-SBA (N.D. Cal. Jan. 22, 1996). In May 1998 and August 1999, The Honorable Ronald M. Whyte awarded fees of 30% plus expenses in Rooney v. Identix, Inc., No. C-97-20082-RMW (N.D. Cal. May 6, 1998) and fees of 33-1/3% plus expenses in Provenz v. Miller, No. C-92-20159-RMW (EAI) (N.D. Cal. Aug. 23, 1999). In September and October 1999, The Honorable Jeremy Fogel awarded fees of 30% plus expenses in In re Trimble Navigation Sec. Litig., Master File No. C-98-20441-JF (N.D. Cal. Sept. 23, 1999); and Molinari v. Symantec Corp., No. C-97-20021-JF (EAI) (N.D. Cal. Oct. 26, 1999). And in October 1997 and August 1998, the Honorable Spencer Williams awarded fees of 30% plus expenses in Strassman v. Fresh Choice, Inc., No. C-95-20017-SW (N.D. Cal. Oct. 10, 1997); and In re IMP, Inc. Sec. Litig., Master File No. C-96-20826-SW (PVT) (N.D. Cal. Aug. 26, 1998).

It is clear that the regular practice by courts in this District is to award fees of 30%, plus expenses. Therefore, plaintiffs respectfully request this Court follow this long line of cases and award fees of 30%, plus expenses.

C. Consideration of Relevant Factors Justify an Award of a 30% Fee in This Case

(i) The result achieved. A settlement of $20 million (plus interest) has been obtained solely through the efforts of class counsel without the assistance of any regulatory agency or the necessity of a lengthy trial and post-trial appeals. This favorable settlement was achieved as a result of very extensive and creative prosecutorial and investigative efforts as detailed in the Avery Declaration. As a result of this settlement, class members will receive compensation for their losses in ADAC stock and avoid the very substantial risk of no recovery in the absence of a settlement. 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) ("most critical factor is the degree of success obtained"); In re King Resources Co. Sec. Litig., 420 F. Supp. 610, 630 (D. Colo. 1976) ("the amount of recovery, and end result achieved are of primary importance, for these are the true benefit to the client"); Behrens v. Wometco Enterprises., Inc., 118 F.R.D. 534, 547-48 (S.D. Fla. 1988) ("The quality of work performed in a case that settles before trial is best measured by the benefit obtained."), aff'd 899 F.2d 21 (11th Cir. 1990).

(ii) The risks both as to liability and damages. 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); Lindy Bros Builders v. American Radiator & Standard Sanitary Corp., 540 F.2d 102, 117 (3d Cir. 1976). Uncertainty that an ultimate recovery would be obtained is highly relevant in determining risk. WPPSS, 19 F.3d at 1300; Detroit, 495 F.2d at 470; Lindy, 540 F.2d at 117. As the court aptly observed in King Resources:

The litigation also involved unique and substantial issues of law in the technical area of SEC Rule 10b-5, ... difficult, complex and oft-disputed class action questions, and difficult questions regarding computation of damages.

* * *

In evaluating the services rendered in this case appropriate consideration must be given to the risks assumed by plaintiffs' counsel in undertaking the litigation. The prospects of success were by no means certain at the outset, and indeed, the chances of success were highly speculative and problematical.

As discussed in the Settlement Memorandum (at §VI.A.) and the Avery Declaration (at ¶¶54-59), substantial risks and uncertainties in this type of litigation and this litigation in particular made it far from certain that an ultimate recovery would be obtained. Moreover, while courts have always recognized that these types of cases carry significant risks, post-PSLRA rulings in this District regarding, inter alia, motions to dismiss make it clear that the risk of no recovery (and hence no fee) has increased exponentially. See Avery Decl., ¶82.⁽⁸⁾ Specifically, here, the risks assumed by plaintiffs' counsel were substantial. There is no question that this case raised a panoply of difficult issues because it was filed under the PSLRA.

The parties strongly disagreed about liability and damages. Defendants have vigorously denied any wrongdoing, and asserted an aggressive attack on the sufficiency of plaintiffs' complaint, a challenge which may have been successful had the motions to dismiss been decided by the Court. Moreover, were this settlement not achieved, plaintiffs faced additional costly and risky litigation against the defendants, with ultimate success far from certain. It is possible that the case would never have reached a jury and, if it did, a jury could have found no liability or no damages.

(iii) The diligent prosecution of this case. A considerable effort on the part of plaintiffs' counsel was required to produce this settlement. Plaintiffs' counsel spent many hours conducting informal and confirmatory discovery - mastering the relevant facts and dynamics of ADAC's business and sales and revenue recognition practices and policies, and working with their experts in order to make effective arguments on the merits and conduct meaningful settlement discussions.

(iv) The complexity of this action's factual and legal questions. The factual and legal questions at issue are and would continue to be the subject of complex analysis. Numerous issues would be involved in proving liability, including complex accounting principles and proof of scienter. Defendants argued that plaintiffs could not meet the stricter pleading standard set by the PSLRA which requires pleading a strong inference of scienter. Thus, despite the fact that this case concerns ADAC's restatement of three years of financial results, plaintiffs faced a substantial risk that the complaint in this Court might not have withstood the motions to dismiss. See supra, n.8.

(v) The contingent nature of the case and the financial burden carried by the plaintiffs. 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. 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 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 of whether they win or lose.

Class counsel have received no compensation during the course of this litigation and have incurred significant expenses in litigating for the benefit of the plaintiff class. Any fee award or expense reimbursement to class 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.

(vi) A 30% fee award reflects the market rate in similar complex, contingent litigations. As demonstrated by the decisions cited above, a 30% fee is a percentage that has been regularly awarded by the courts in common fund cases 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.

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 In re MDC Holdings Sec. Litig., [1990 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶95,474, at 97,490 (S.D. Cal. 1990) ("In private contingent litigation, fee contracts have traditionally ranged between 30% and 40% of the total recovery."); 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, class counsel's attorneys' fees can only be determined by the Court in the exercise of its discretion. Here, plaintiffs request an award of 30%, consistent with historic precedent and numerous recent authorities from courts in this Circuit and District. An award of the requested fee 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.

Class counsel's efforts were performed on a wholly contingent basis. Despite significant risk and in the face of determined opposition, an excellent result has been obtained for the class. Under all of the circumstances present here, a 30% fee plus expenses is fair and reasonable.⁽⁹⁾

D. The Reaction of the Class Supports the Requested Award

IV. PUBLIC POLICY CONSIDERATIONS MANDATE THE AWARD OF ADEQUATE FEES IN REPRESENTATIVE ACTIONS SO THAT COMPETENT AND EXPERIENCED LAWYERS WILL UNDERTAKE SUCH REPRESENTATIONS

The federal securities and corporate governance 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 representative litigation 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."

That those goals have been achieved here is beyond question. A cash recovery, via this settlement, has been obtained for class members who were harmed by the alleged wrongdoing of the defendants. Despite the risk, a significant service has been provided to these investors - a demonstration that the protection provided by the federal securities and corporate governance laws is real and can provide benefits through the representative litigation device. Because of these risks, the result obtained and the other factors discussed herein, class counsel respectfully request the Court to award the fees and expenses requested.

V. CLASS COUNSEL'S EXPENSES ARE REASONABLE AND WERE NECESSARILY INCURRED TO ACHIEVE THE BENEFIT OBTAINED FOR THE CLASS

Class counsel have incurred costs and expenses in an aggregate amount of $324,194.57 in prosecuting this litigation on behalf of the class. These expenses are categorized in the declarations of counsel submitted to the Court herewith.

A large component (approximately $136,000.00) of these expenses is the fees of our consultants/experts and investigators who assisted us greatly, inter alia, in the areas of forensic accounting, materiality, loss causation, damages and locating and interviewing potential witnesses. These consultants were indispensable to us. Without their involvement, we could not have resolved the case as we did. Class counsel believe these expenses are reasonable and know that they were necessarily incurred in obtaining this result for the class.⁽¹⁰⁾

Another significant component of class counsel's expenses (approximately $72,000.00) was the expense of our paralegals. The effective, efficient prosecution of a securities class action in the modern era is a complex, expensive and time consuming challenge. Everything that can be done to aid 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.

VI. CONCLUSION

The settlement of this action is the culmination of the hard work of class counsel. For their efforts, class counsel request that the Court approve the fee and expense application and enter the

order awarding them 30% of the Settlement Fund, plus $324,194.57 in expenses plus interest earned thereon at the same rate and for the same period as that earned on the Settlement Fund until paid.
 

DATED: September 8, 2000

Respectfully submitted,  MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH KEITH F. PARK ELLEN GUSIKOFF STEWART           ___________________________ ELLEN GUSIKOFF STEWART 600 West Broadway, Suite 1800 San Diego, CA 92101 Telephone: 619/231-1058 MILBERG WEISS BERSHAD HYNES & LERACH LLP REED R. KATHREIN JEFFREY W. LAWRENCE KIMBERLY C. EPSTEIN 100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 WOLF POPPER LLP LESTER L. LEVY PATRICIA I. AVERY MICHAEL A. SCHWARTZ 845 Third Avenue New York, NY 10022 Telephone: 212/759-4600 Co-Lead Counsel for Plaintiffs

N:\CASES\ADAC2.SET\LLS80525.brf

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 interest in the within action; that declarant's business address is 600 West Broadway, Suite 1800, San Diego, California 92101.

2. That on September 8, 2000, declarant served the NOTICE OF MOTION AND MEMORANDUM OF POINTS AND AUTHORITIES 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 8th day of September, 2000, at San Diego, California.
 

_____________________________________
DANELLE L. McNERTNEY

1. See paragraphs 3-6 to the Declaration of Cheryl Washington Re (A) Mailing of Notice of Pendency and Settlement of Class Action and Settlement Hearing and Proof of Claim and Release and (B) Publication of Summary Notice.

2. The deadline for objections to be filed was August 25, 2000.

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.

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. Review 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?

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.

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 fee award formula is such a "deregulatory" reform because it relies on incentives rather than costly monitoring. Ultimately, this "deregulatory" approach is the only alternative ....

As former 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.

8. Moreover, there is a recent trend among courts around the country to dismiss restatement cases at the pleading stage. See Stevelman v. Alias Research, Inc., 174 F.3d 79 (2d Cir. 1999); In re Peritus Software Servs., Inc., 52 F. Supp. 2d 211 (D. Mass. 1999); Coates v. Heartland Wireless Communications. Inc., 26 F. Supp. 2d 910 (N.D. Tex. 1998).

9. Professor Conte acknowledged the propriety of adequate 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.

10. The work performed by the principal experts/consultants is described in the Avery Declaration submitted herewith.