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| 2001 News and Press Releases |
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HEADLINE ARCHIVED:
Do Auctions Work The Controversial Method For Choosing Class Counsel and Setting Fees
By: Phyllis Lipka Skupien, Esq. and Robert Woodman McSherry
Corporate Officers & Directors Liability Litigation Reporter:
Special Coverage: Third Circuit Task Force Report
December 13,
2001
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Excerpt: District Judge Vaughn R. Walker came to the Third Circuit Judicial Conference in Philadelphia with a straightforward message: the facts show that class counsel selection through auctions maximize shareholder recovery and the Task Force considering its merits issued an overly negative draft report. The report by the Third Circuit Task Force on the Selection of Class Counsel issued in October strongly recommends against the use of auctions, except under very limited circumstances. The San Francisco federal court judge bumped up against a legal hornets' nest 11 years ago when he became the first jurist to use an auction for the selection of class counsel, and he showed he wasn't afraid of getting stung in a vigorous defense of his position before a packed Millennium Hall at Loews Hotel, where the conference was held. The draft report, according to Judge Walker, was "inaccurate," "backwards looking" and "lawyer driven," and should be rejected by the circuit. His was not a popular stand….Judge Walker also asserts the recoveries in bidding cases exceed average settlements in comparable securities cases (those with damages over $100 million). Based on a measure of potential damages that tracks stock price fluctuations by industry, the bidding cases recovered 19.6 percent of potential investor losses while the average of all comparable cases was only 4.25 percent, he said. In his June testimony, Professor Joseph Grundfest of Stanford University said fees in securities fraud litigation in the 1990s averaged about 30 percent of gross settlements, and ranged from 25 to 30 percent. By contrast, in auction cases and cases involving "hard bargaining by a competent named plaintiff, awards range from 7 percent to 21.1 percent," he added. "I am currently in the process of tracing back the roots of the 25 percent to 33 percent norm," Grundfest said, "and have as yet discovered no persuasive argument that the norm was ever a reasonable approximation of the fee that would result from an arm's-length bargain over representation in a securities fraud class action lawsuit."
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