Citigroup Fees Order

Case 1:07-cv-09901-SHS Document 275
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UNITEDSTATESDISTRICTCOURT SOUTHERNDISTRICTOFNEWYORK INRECITIGROUPINC.SECURITIES LITIGATION SIDNEYH.STEIN,U.S.DistrictJudge. I. IntroductionandSummary.................................................................2 09MD2070(SHS) Thisdocumentrelatesto: 07Civ.9901(SHS) OPINION
II. Background............................................................................................5 A. TheAllegedFraudSummarized......................................................5 B. PreSettlementProceduralHistory..................................................6 1. ConsolidationofSimilarSuitsandAppointmentofInterim LeadPlaintiffsandCounsel..........................................................6 2. ConsolidatedClassActionComplaintandMotiontoDismiss. ...........................................................................................................7 3. DiscoveryandMotionforClassCertification ............................8 C. SettlementNegotiationandtheApprovalProcess.......................9 1. NegotiationsandPreliminaryApproval....................................9 2. ObjectionsandtheFairnessHearing .........................................12 III. FinalApprovalofClassActionSettlement..................................14
A. ProperNoticeofClassCertificationandtheSettlement............14 B. FairnessoftheSettlement...............................................................15 1. TheStandardforApprovingaProposedClassAction Settlement......................................................................................15 2. ProceduralFairness:ArmsLengthNegotiations...................15 3. SubstantiveFairness:TheGrinnellFactors..............................16 4. OverallFairnessEvaluation ........................................................21
IV.
FinalApprovalofthePlanofAllocation ......................................23
V. FeeAward............................................................................................26 A. PercentageoftheFundMethodwithLodestarCrossCheck....26 B. AssessingReasonablenessPursuanttoGoldberger......................27 1. TimeandLaborExpendedbyCounsel:TheLodestar...........27 2. TheMagnitudeandComplexitiesoftheLitigation................44 3. TheRiskoftheLitigation............................................................44 4. TheQualityofRepresentation...................................................45 5. TheRequestedFeeinRelationtotheSettlement....................45 6. PublicPolicyConsiderations......................................................46 C. TheLodestarCrossCheckandtheAppropriateAward...........46 VI. VII. ReimbursementofLitigationExpenses........................................48 Conclusion........................................................................................48
I.
INTRODUCTIONANDSUMMARY
Plaintiffsbringthissecuritiesfraudactiononbehalfofaclassof purchasersofCitigroup,Inc.commonstockagainstthatcompanyand certainofitsofficials.PlaintiffsallegethatCitigroupmisledinvestorsby understatingtherisksassociatedwithassetsbackedbysubprime mortgagesandoverstatingthevalueofthoseassets,inviolationof Sections10(b)and20(a)oftheSecuritiesExchangeActof1934;asaresult, allthosewhopurchasedCitigroupcommonstockbetweenFebruary26, 2007andApril18,2008paidanallegedlyinflatedprice.Thepartieshave nowreachedasettlementoftheirdisputefor$590milliontobepaidtothe class.TheCourtmustdeterminewhetherthatsettlementisfair, reasonable,andadequateandwhatareasonablefeeforplaintiffs attorneysshouldbe. OnplaintiffsunopposedmotionpursuanttoFederalRuleofCivil Procedure23,theCourtpreliminarilyapprovedthatproposedsettlement, certifiedtheclassforsettlementpurposes,andprovidedfornoticetothe classoftheproposedsettlement.Incertifyingtheclass,theCourt appointedtheproposedrepresentativesasclassrepresentativesand
appointedKirbyMcInerneyLLPasleadcounselfortheclass(Kirby, LeadCounsel,orCounsel).NowbeforetheCourtaretwomotions:(1) plaintiffsmotionforfinalapprovaloftheclassactionsettlementand approvaloftheplanofallocation(Dkt.No.164)and(2)LeadCounsels motionforanawardofattorneysfeesandreimbursementoflitigation expenses(Dkt.No.165).TheCourtconsideredwrittensubmissionsboth supportingandopposingthesettlementandheldafairnesshearingon April8,2013pursuanttoRule23(e)(2). TheCourtfindsthattheproposedsettlementisfair,reasonable,and adequateandshouldbeapproved.Classmembersreceivedadequate noticeandhadafairopportunitytoobjectorexcludethemselves;veryfew havevoicedtheiropposition.Thesettlementisprocedurallysound becauseitwasnegotiatedatarmslengthbyqualifiedcounsel.TheCourt alsoconcludesthatthesettlementissubstantivelyfair.Althoughthe$590 millionrecoveryisafractionofthedamagesthatmighthavebeenwonat trial,itissubstantialandreasonableinlightoftherisksfacediftheaction proceededtotrial. TheCourtalsoapprovestheproposedplanofallocation,subjecttoa clarificationsoughtbycertainobjectingclassmembers.Specifically,the issuewashowtotreatpurchasesofCitigroupstockmadethroughan employeestockpurchaseplaninwhichemployeescommittedto purchasesononedate,determinedtheirpriceonanotherdatebasedonsix datesspreadoversixmonths,andthenreceivedtheirsharesonyet anotherdate.TheCourtagreeswiththeobjectorsthatthesubstance,rather thantheform,ofthosetransactionsshoulddeterminehowthepurchasers arecompensatedinconnectionwiththesettlement.Forpurposesofthe allegedsecuritieslawviolations,planmemberspurchasedsharesasthe moneywasdeductedeachmonth,andtheplanofallocationshouldreflect thatthesharepriceinflationattheendofeachmonthapproximatestheir harm. TheCourtalsoconcludesthatLeadCounselisentitledtoafeeaward, albeitasmalleronethanithasproposed,aswellasreimbursementofthe requestedlitigationexpenses.Becauseofthesizeofthesettlement,the Courtplacesparticularemphasisonthelodestarcrosscheck.Lead Counselundoubtedlysecuredanimpressiverecoveryfortheclassand
legitimatelyexpendedmillionsofdollarsinattorneyandstaffhoursdoing so.ButtheCourtfindsthatCounselsproposedlodestarissignificantly overstated. TheCourtmakesthefollowingdeductionsinthelodestar: 1) $4millionintimethatoneplaintiffsfirmexpendedinan unsuccessfulattempttobecomeLeadCounselandnowwants theclasstopayforthatunsuccessfuleffort; 2) $7.5millionfor16,292hoursofattorneystimespentin pursuingdiscoveryafterthepartiesreachedanagreementto settletheirdispute.Thattimewasspentlargelyondocument reviewbycontractattorneys,afulltwentyofwhomwere hiredforthefirsttimeonoraboutthesamedaytheparties notifiedtheCourtthatanagreementinprinciplehadbeen reached; 3) A$12millionreductionbyapplyingareasonableblended hourlyrateforthelargenumberofcontractattorneysof$200 ratherthantheblendedratesubmittedbyLeadCounselof $466perhourforthe45,300hoursworkedbycontract attorneys;and 4) A10%cutfromtheremainingbalancetoaccountforwasteand inefficiencywhich,theCourtconcludes,areasonable hypotheticalclientwouldnotaccept.Onesuchunfortunate exampleisthe157.5hoursfor$66,937.50inrequestedtime spentdigestingasingledaysdeposition. Theseadjustmentsresultinalodestarof$51.4million,resultingina revisedlodestarof$25.1million.Factoringtheproperlodestarintothe Courtsanalysisoftherequested$97.5millionfeepursuanttoGoldbergerv. IntegratedResources,Inc.,209F.3d43(2dCir.2000),theCourtinstead awards$70.8millioninattorneysfees,whichis12%ofthe$590million commonfundandrepresentsamultiplierof2.8onthereducedlodestar.
II.
BACKGROUND
A. TheAllegedFraudSummarized
AbriefsummaryofplaintiffsclaimsframestheCourtsdiscussionof thesemotions.TheallegationsatissueconcernCitigroupsinvestmentin, andexposureto,risksassociatedwithanowinfamousspeciesofcomplex financialinstruments:collateralizeddebtobligations(CDOs)thathave assomeoralloftheircollateralresidentialmortgagebackedsecurities (RMBS).FollowingdismissalbytheCourtofavarietyofadditional claims,theonlyclaimsthathavesurvivedconcernCitigroupsexposureto potentialmortgagebackedCDOlosses.SeeInreCitigroupInc.Sec.Litig., 753F.Supp.2d206(S.D.N.Y.2010). ThegravamenofthesurvivingallegationsisthatCitigroupspublic statementspaintedamisleadingportraitofCitigroupasrelativelysafe fromthemarketsconcernsaboutpotentiallossesresultingfromfalling CDOvalues.FromFebruary26,2007toNovember4,2007,defendants allegedlygavetheimpressionthatCitigrouphadminimal,ifany, exposuretoCDOswhen,infact,ithadmorethan$50billioninexposure, id.at235CDOsthatwerebackedbysubprimemortgagesandwrongly valuedatpardespiteobjectiveindicationsthatsuchmortgagebacked CDOshadlostvaluebyFebruary2007.OnNovember4,2007,Citigroup disclosedthatitheld$43billionofsuperseniorCDOtranches simultaneouslywiththefactoftheirwritedownbyanexpected$8$11 billion.Id.at23940.Thatdisclosure,plaintiffsallege,omitted$10.5 billioninhedgedCDOsthatwerepurportedlyinsuredagainstloss,andit alsooverstatedtheCDOsvalue,thusunderreportinglosses.Id.at240. Plaintiffscontendthatdefendantscontinuedtooverstatethevalueofthe CDOsuntilafinalcorrectivedisclosureonApril18,2008. Asrelevanthere,theoveralleffectoftheseallegedmisstatementswas thatthemarketovervaluedCitigroupsassets,orundervaluedits liabilities,andthusovervaluedCitigroupcommonstock.Classmembers, purchasingbasedonthemarketprice,thuspaidtoomuchforthe Citigroupstocktheypurchased,andsoplaintiffsclaimasdamagesthe amountbywhichtheyallegedlyoverpaid.
B. PreSettlementProceduralHistory 1. ConsolidationofSimilarSuitsandAppointmentofInterim LeadPlaintiffsandCounsel
Variousplaintiffsfiledanumberofseparatecomplaintsagainst defendantsindistinctclassactions,eachpurportingtorepresenttheclass ofinvestorsinCitigroupthatwereallegedlyharmedbydefendants misstatementsoromissions.Becauseofthesimilarityoftheclaims,the Courtconsolidatedtheactionsfiledbytheseandotherplaintiffsintoa singleconsolidatedclassaction,No.07Civ.9901.(SeeOrderdatedAug. 19,2008,Dkt.No.59.) TheCourtalsoresolvedacontentiousbattlebetweencompeting plaintiffsandcounseltobeappointedasinterimleadplaintiffsand interimleadcounselthoughthecompetitionwasprimarilybetweenthe lawfirmsandonlyderivativelybetweentheirclients.Twomaingroupsof stockpurchaserswerevyingfortheappointment.First,JonathanButler, M.DavidDiamond,DavidWhitcombandHenriettaWhitcomb(theATD Group)werefourformerownersofAutomatedTradingDesk,Inc. (ATD);theyacquiredtheirCitigroupstockpursuanttoamergerin whichCitigrouppurchasedATDinexchangeforamixofcashand Citigroupstock.Second,agroupoffiveinstitutionalinvestmentfunds(the Funds)comprisedofthreeforeignentities,aswellasthePublic EmployeesRetirementAssociationofColorado(COPERA)andthe TennesseeConsolidatedRetirementSystem(TCRS),whichall purchasedCitigroupstockaspartoftheirinvestments.Kirbyrepresented theATDGroup,andEntwistle&CappucciLLPrepresentedtheFunds. TheCourtfoundthat,pursuanttothePrivateSecuritiesLitigation ReformAct(PSLRA),theATDGroupwasthepresumptiveleadplaintiff becauseit(1)timelymovedforappointment,(2)hasthelargestfinancial interestinthereliefsoughtbytheclass,and(3)madeapreliminary showingthatitmetthetypicalityandadequacyrequirementsofFederal RuleofCivilProcedure23(a).See15U.S.C.78u4(a)(3)(B)(iii)(I).The Courtfoundthattheothermovantsforappointmentasleadplaintiff, includingtheFunds,failedtorebutthepresumptionthatATDwasthe mostadequateleadplaintiff.(SeeTr.ofAug.19,2008PretrialConference
at1112,Dkt.No.11124.)TheCourtappointedtheATDGroupasinterim leadplaintiffsandKirby,itscounsel,asinterimleadcounsel. COPERAandTCRSmovedtoreconsiderthatappointment.(Dkt.No. 60.)TheCourtgrantedthemotiontotheextenttheFundssoughtlimited discoveryonwhethertheATDGrouppossessednonpublicinformationat thetimeoftheirstockacquisition;theCourt,however,stayeddiscovery pendingresolutionofdefendantsthenpendingmotiontodismiss.(Order datedAug.31,2009,Dkt.No.85.)Asexplainedbelow,COPERAand TCRSsubsequentlywithdrewtheirmotiontoreconsider. 2. ConsolidatedClassActionComplaintandMotiontoDismiss
FollowingtheappointmentoftheATDGroup,plaintiffsfileda consolidatedamendedcomplaint(Dkt.No.69),andthenamendedonce more,resultingintheAmendedConsolidatedClassActionComplaint (theComplaint)(Dkt.No.74).Defendantsmovedtodismissthe Complaint,andtheCourtgrantedthatmotioninpartanddenieditin part.SeeInreCitigroupInc.Sec.Litig.,753F.Supp.2d206,212(S.D.N.Y. 2010). Asexplainedabove,theCourtpermittedonlytheclaimsconcerning CitigroupsexposuretoCDOrelatedlossestoproceed,albeitfora narrowertimeperiodandagainstanarrowergroupofdefendantsthan allegedintheComplaint.Id.at249.TheCourtinitsopiniondescribedthe dismissedclaimsandthegallimaufryoffinancialinstrumentsinvolved indetailandsummarizesthoseclaimsheretoillustratethebreadthofthe claimsinitiallyasserted.Seeid.at214.Thedismissedclaimsconcern misstatementsandomissionsinthefollowingcategories: 1) thatCitigroupmisleadinglydescribedandovervaluedits investmentinsocalledAltARMBS,whichareRMBSbacked bymortgagesonecutabovesubprime,seeid.at22728,24143; 2) thatCitigroupconcealeditsexposuretorisksassociatedwith purportedlyindependentstructuredinvestmentvehiclesand overvaluedtheassetsthosevehiclesheld,id.at22829,24344; 3) thatdefendantsmisrepresentedCitigroupsmortgagelending businessinanumberofways,id.at244; 4) thatdefendantsconcealed,andthenovervalued,Citigroups
auctionratesecuritiesholdings,id.at230,24546; 5) thatCitigroupsimilarlymisledinvestorsaboutitsexposureto lossesfromleveragedloansandcollateralizedloanobligations, id.at231,24647;and 6) finally,thatCitigroupbroadlymisrepresenteditsoverall financialhealthandsolvency,id.at231,24748. Overall,plaintiffsallegedthatdefendantscouldseethefinancialcrisis writingonthewallsinmultipleareasofCitigroupsoperationsandsought toobscureordownplaytheextantandfuturelosses.TheCourtfoundthe allegationssufficienttoproceedasamatteroflawonlyforclaims regardingCitigroupsexposuretoCDOrelatedlosses.Id.at249. 3. DiscoveryandMotionforClassCertification
FollowingtheCourtsdecisionondefendantsmotiontodismiss,the partiesconducteddiscoveryrelatedtoclasscertificationandthemeritsof thesustainedCDOrelatedclaims.Thatdiscovery,whichoverlappedwith theclasscertificationmotionandthenegotiationandfinalizationofthe settlement,wasvoluminous.Inall,LeadCounselandthefirmsthatwere assistingitobtainedandreviewedapproximately40millionpagesof documents.Defendantsproducedapproximately35millionpages,and thirdpartiesproduced5millionadditionalpages.(JointDecl.ofIraM. Press&PeterS.LindendatedDec.7,2012(JointDecl.)68,Dkt.No. 171.)LeadCounselalsodeposedthirtythreedefensewitnessesand defendeddepositionsofsixteenwitnesses.(SeeJointDecl.75,87.) PursuanttotheCourtsdecisiononEntwistle&Cappuccismotionto reconsidertheappointmentoftheATDGroupasinterimleadplaintiffs, COPERAandTCRSwerepermittedtoconductdiscoveryintotheATD Groupsfitnesstoserveasclassrepresentativesfollowingthedecisionon themotiontodismiss.Instead,thosefundsreachedanagreementwiththe ATDGroupthatthemotionwouldbewithdrawnandthetwosidestothe appointmentdisputewouldjoinforcestoseekclasscertificationwithallof themasclassrepresentatives.Thus,followingclassdiscovery,theATD Group,COPERA,TCRS,andfiveotherindividualstogethermovedfor classcertificationandproposedtheentiregroupasclassrepresentatives. ThoseaddedindividualswereJohnA.BadenIII,WarrenPinchuck,
AnthonySedutto,EdwardClaus,andCarolWeil,allofwhompurchased sharesofCitigroupstockontheopenmarketduringtheclassperiod. Themotionforclasscertificationwasheavilycontested.Theparties submittedlegalmemorandaaswellasfiveattorneydeclarations appendinghundredsofexhibitsandfourexpertdeclarationsfromthree differentexperts.Defendantschallengedthecommonalityoftheclassand thetypicalityandadequacyoftheproposedrepresentativespursuantto Rule23(a).Theyfurthercontendedthatcommonquestionsdidnot predominateoverindividualizedquestionspursuanttoRule23(b)(3). Muchofthedisputeturnedontwomainissues:(1)whethertheunique circumstancesoftheATDGroupsstockacquisitionviamergeragreement rendereditunfittorepresenttheclass,and(2)whetherplaintiffshad demonstratedthattheallegedmisrepresentationswerematerial,a showingdefendantscontendedwasrequiredforplaintiffstoinvokea classwidepresumptionofrelianceonthemarketpricesuchthatcommon questionswouldpredominate.1 PriortotheCourtsrenderingadecisionontheclasscertification motion,thepartiesenteredintoasettlementagreement. C. SettlementNegotiationandtheApprovalProcess 1. NegotiationsandPreliminaryApproval
Inearly2012,thepartiesjointlyretainedLaynR.Phillips,aretired federaldistrictjudge,tomediatetheirsettlementnegotiations.Theparties participatedintwofulldaymediationsessionsandalsosubmitted extensivewrittenmaterials.(JointDecl.9697.)Thatprocessculminated inthemediatorsultimateproposalthatthepartiessettletheactionfor $590million;thepartiesonMay8,2012agreedtoacceptthatproposalas thebasisforaformalstipulationtobesubmittedtotheCourtforapproval.

TheU.S.SupremeCourthassinceheldthatsecuritiesfraudplaintiffsneednot provethatthemisrepresentationsarematerialattheclasscertificationstage.Amgen Inc.v.Conn.Ret.Plans&TrustFunds,U.S.,133S.Ct.1184,1191(2013) (abrogatingInreSalomonAnalystMetromediaLitig.,544F.3d474,486n.9(2dCir. 2008)).
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(Id.98.)AsLeadCounselhassetforthinitsfeerequest,[s]hortly thereafter,LeadCounselinformedtheCourtoftheproposedSettlement. (Id.99.) Intheensuingmonths,thepartieshashedoutthedetailsoftheformal stipulation.Themainoutstandingissuewasthesocalledexclusion thresholdorblowupprovision.Defendantswereempoweredto withdrawfromthesettlementiftheaggregateclaimvalueofpotential classmemberswhoexcludedthemselvesfromthesettlementreacheda certainthreshold.Alowerthresholdmeantagreaterchancethat defendantswouldhavethediscretiontonullifyorblowupthe settlement.InMay,plaintiffsanddefendantsinitiallydisagreedonthe correctthreshold,buttheyagainsoughtthemediatorsassistanceand agreedonthethresholdbymidJuly.(Supp.JointResp.Decl.ofIraM. Press&PeterS.LindendatedMarch25,2013(Supp.JointResp.Decl.) 54,Dkt.No.233.) Thepartiesfinalizedthedetailsofthesettlementandenteredintothe StipulationandAgreementofSettlementdatedAugust28,2012;plaintiffs thenmovedforpreliminaryapprovalofthesettlementandcertificationof theclassforsettlementpurposes.Havinghadthebenefitoftheparties earlierreportsonthesettlementtermsandproposedapprovalprocedures, aswellasextensivesubmissionsonconsiderationofthemotionforclass certification,theCourtgrantedthatmotion.(OrderPreliminarily ApprovingProposedSettlementandProvidingforNoticedatedAug.29, 2012(PreliminaryApprovalOrder),Dkt.No.156.)Indoingso,the Courtcertifiedaclassof[a]llpersonswhopurchasedorotherwise acquiredcommonstockissuedbyCitigroupduringtheperiodbetween February26,2007andApril18,2008,inclusive.(Seeid.)TheCourtset forthascheduleforprovidingnoticetotheclassandproceduresbywhich classmemberscould,interalia,submitclaimforms,objecttotheproposed settlementorLeadCounselsfeerequest,excludethemselvesfromthe class,andappearatafairnesshearing.2(Id.)Atthepartiesrequests,the
BecauseCitigroupinitiallyinadvertentlyprovidedanincompletelistof stockholderstotheappointedclaimsadministrator,theCourtadjournedthefairness hearingandorderedextendeddeadlinesandadditionalnoticeforclassmembers (footnotecontinuesonnextpage)
2
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CourtinSeptember2012mademinormodificationstothePreliminary ApprovalOrder,includingtheclassdefinitionandnoticeprocedures,in twoorders.(SeeOrdersdatedSept.6,2012&Sept.28,2012,Dkt.Nos.158, 159.)3

potentiallyprejudicedbytheerror.(SeeOrderdatedJan.2,2013,Dkt.No.183;seealso Supp.Aff.ofStephenJ.CiramidatedMar.25,2013(CiramiSupp.Aff.),Ex.36to Supp.JointResp.Decl.)
3
Thefullclassdefinition,asamendedbyorderdatedSeptember28,2012(Dkt. No.159),readsasfollows: All persons who purchased or otherwise acquired common stock issued by Citigroup during the period between February 26, 2007 and April 18, 2008, inclusive, or their successor in interest, and who were damaged thereby, excluding (i) the defendants named in the Complaint, (ii) members of the immediate families of the individual defendants named in the Complaint, (iii) any firm, trust, partnership, corporation, present or former officer, director or other individual or entity in which any of the Citigroup Defendantshasacontrollinginterestorwhichisrelatedtooraffiliatedwith any of the Citigroup Defendants, and (iv) the legal representatives, heirs, successorsininterest or assigns of any such excluded persons or entities. The Settlement Class includes persons or entities who acquired shares of Citigroup common stock during the Class Period by any method, including but not limited to in the secondary market, in exchange for shares of acquired companies pursuant to a registration statement, or through the exercise of options including options acquired pursuant to employee stock plans, and persons or entities who acquired shares of Citigroup common stock after the Class Period pursuant to the sale of a put option during the Class Period. Regardless of the identity of the person or entity that beneficially owned Citigroup common stock in a fiduciary capacity or otherwise held Citigroup common stock on behalf of third party clients or any employee benefit plans, such third party clients and employee benefit plans shall not be excluded from the Settlement Class, irrespective of the identity of the entity or person in whose name the Citigroup common stock were beneficially owned, except that any beneficiaries of such third party clients, or beneficiaries of such benefit plans who are natural persons and, who are otherwise excluded above will not share in any settlement recovery. Notwithstanding any other provision of this Agreement, the Citibuilder 401(k) Plan for Puerto Rico and the Citigroup 401(k) Plan shall qualifyasmembersoftheSettlementClass.Inaddition,apersonwhoowns (footnotecontinuesonnextpage)
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2.
ObjectionsandtheFairnessHearing a. Fewclassmembersobjectorexcludethemselves
Theclaimsadministratorsentnoticestoover2.4millionpotentialclass members.(CiramiSupp.Aff.17.)Excludingafewobjectionsfrom individualswhodidnotprovidetherequiredevidenceofclass membershiporwhoprovidedevidenceindicatingtheywerenotclass members,theCourtreceivedonlyelevenwrittenobjections.Further,only 294recipientsofthe2.4millionnoticestimelysubmittedexclusion requests,ofwhichonly134providedevidenceofmembershipintheclass. (Id.21.)Andtwentythreeofthe134exclusionscamefrominvestorswho hadalreadycommencedseparateactions.(Supp.JointResp.Decl.5.)

Citigroup common stock shall not be excluded from the settlement class solely because that common stock is held (i) in a registered or unregistered investment company (including a unit investment trust) in which any defendantintheActionhasacontrollinginterest,orservesasaninvestment manager, investment adviser, or depositor; or (ii)(a) in a life insurance company separate account, or (b) in a segment or subaccount of a life insurance companys general account to the extent associated with insurance contracts under which the insurers obligation is determined by the investment return and/or market value of the assets held in such segment or subaccount of a life insurance companys general account to the extent associated with insurance contracts under which the insurers obligation is determined by the investment return and/or market value of theassetsheldinsuchsegmentorsubaccount.Adefendantshallbedeemed to have a controlling interest in an entity if such defendant has a beneficial ownership interest, directly or indirectly, in more than 50% of the total outstanding voting power of any class or classes of capital stock that entitle the holders thereofto vote in the election of members of the Board of Directors of such entity. Beneficial ownership shall have the meaning ascribed to such term under Rule 13d3 of the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. Notwithstanding the foregoing, the Settlement Class shall not include PersonswhoseonlyacquisitionofCitigroupcommonstockduringtheClass Period was via gift or inheritance if the Person from which the common stockwasreceiveddidnotthemselvesacquirethecommonstockduringthe ClassPeriod.
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Twoobjectionsmeritdiscussion.Thefirstsuchobjectionwasfiledby sixpurchasersofCitigroupstockthroughthecompanysvoluntary employeestockpurchaseplantheFACapitalAccumulationProgram (FACAP).TheseFACAPobjectorsarealsointerimleadplaintiffsina parallelputativeclassactionconcerningCitigroupemployeesstock purchasesthroughtheFACAP,whichiscurrentlypendingbeforethis Court:Brecherv.Citigroup,Inc.,No.09Civ.7359.Here,theFACAP objectorscontendthattheCourtcannotapprovethesettlementbecause, interalia,theFACAPparticipantclassmemberswouldreleasecertain claimswithoutcompensationandbecausetheproposedplanofallocation doesnotproperlycompensatethem. TheseconddetailedobjectionwasfiledprosebyTheodoreH.Frank, anindividualinvestorinCitigroupwhoisalsoanattorneyandthe founderoftheCenterforClassActionFairness.FrankobjectstoLead Counselsfeerequest.Hecontends,interalia,thatthefeesrequested nearly$100millionareunreasonablyhighwhencomparedwith similarlysizedsettlementsandthatLeadCounselhasimproperlyinflated itslodestarcalculationinavarietyofways.FrankfocuseslargelyonLead Counselsextensiveuseofcontractattorneysbothonwhethertheir assertedhourlybillingratesareconsistentwithmarketratesandon whetherareasonableclientwouldpayforallofthehoursincludedinthe lodestar. b. Thefairnesshearing
Afterpropernoticetotheclass,theCourtheldahearingonthe fairnessofthesettlementandthereasonablenessofthefeerequeston April8,2013.Thesettlingparties,theFACAPobjectors,andFrank appeared,witheacharguingitspositionregardingthependingmotions. TheCourtalsoheardfromplaintiffsdamagesexpertontheplanof allocation,andfromLeadCounselsexpertonthereasonablenessofthe lawyershourlyratessubmittedintherequestforattorneysfees.
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III.
FINALAPPROVALOFCLASSACTIONSETTLEMENT
A. ProperNoticeofClassCertificationandtheSettlement
Rule23requiresnoticetotheclassbothwhentheclassiscertified pursuanttoRule23(b)(3)andwhenaclassactionsettlementhasbeen proposedforcourtapproval.SeeRule23(c)(2)(B),(e)(1).TheCourt providedforcombinednoticeofbotheventsinordertosavetheclassthe expenseofasecondroundofclasswidenotice.AsRule23(e)snotice requirementsarelessspecificthanthatofRule23(c)s,theCourtwillfocus onRule23(c)srequirements.InreGlobalCrossingSec.&ERISALitig.,225 F.R.D.436,448(S.D.N.Y.2004)(citationomitted).Thenoticemustdescribe (i) the nature of the action; (ii) the definition of the class certified; (iii) the class claims, issues, or defenses; (iv) that a class member may enter an appearance through an attorney if the member so desires; (v) that the court will exclude from the class any member who requests exclusion; (vi) the time and manner for requesting exclusion; and (vii) the binding effect of a class judgment on membersunderRule23(c)(3). Rule23(c)(2)(B).Further,dueprocessandtheFederalRulesrequire individualnotice[]toallclassmemberswhosenamesandaddressesmay beascertainedthroughreasonableeffort.InreGlobalCrossing,225F.R.D. at448(quotingEisenv.Carlisle&Jacquelin,417U.S.156,173(1974)). ThenoticesdistributedincludealloftheinformationthattheRules require,aswellastheadditionaldisclosuresrequiredinsecuritiescases. SeeInreIMAXSec.Litig.,283F.R.D.178,185(S.D.N.Y.2012)(citing15 U.S.C.78u4(a)(7)).TheCourtfurtherfindsthattheclaimsadministrator providedindividualnoticetothoseclassmemberswhocouldbe identifiedthroughreasonableeffort.SeeFed.R.Civ.P.23(c)(2)(B).The CourtfindsthatthenoticeherecompliedwithRule23anddueprocess.
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B. FairnessoftheSettlement 1. TheStandardforApprovingaProposedClassAction Settlement
Settlementoftheclaimsofacertifiedclassrequirescourtapproval. Fed.R.Civ.P.23(e).Acourtmayapproveaclassactionsettlementifitis fair,adequate,andreasonable,andnotaproductofcollusion.WalMart Stores,Inc.v.VisaU.S.A.Inc.,396F.3d96,116(2dCir.2005)(quotingJoelA. v.Giuliani,218F.3d132,138(2dCir.2000)).Thus,theCourtmust scrutinizeboththesettlementstermsandthenegotiatingprocessleading tosettlement.WalMartStores,396F.3dat116(citingDAmatov.Deutsche Bank,236F.3d78,85(2dCir.2001)). TheCourtmustexerciseitsdiscretiontoapproveorrejectasettlement inlightofthegeneraljudicialpolicyfavoringsettlement.Weinbergerv. Kendrick,698F.2d61,73(2dCir.1982);seealsoWalMartStores,396F.3dat 116(citingInrePaineWebberLtd.PshipsLitig.,147F.3d132,138(2dCir. 1998)).Nonetheless,thepolicyfavoringsettlementsgenerallywillnot substituteforrigorousscrutinyofthissettlement.[T]heCourtmustserve asafiduciarytoprotecttheinterestsofabsentclassmembersaffectedby thesettlement.McBeanv.CityofNewYork,233F.R.D.377,382(S.D.N.Y. 2006)(quotingGrantv.BethlehemSteelCorp.,823F.2d20,22(2dCir.1987)). Moreover,[w]henasettlementisnegotiatedpriortoclasscertification,as isthecasehere,itissubjecttoahigherdegreeofscrutinyinassessingits fairness.DAmato,236F.3dat85;seealsoWeinberger,698F.2dat73. TheCourtfirstassessesthenegotiatingprocess,examinedinlightof theexperienceofcounsel,thevigorwithwhichthecasewasprosecuted, andthecoercionorcollusionthatmayhavemarredthenegotiations themselves.Malchmanv.Davis,706F.2d426,433(2dCir.1983)(citing Weinberger,698F.2dat73).TheCourtthenconsidersthesubstantive termsofthesettlementcomparedtothelikelyresultofatrial.Id. 2. ProceduralFairness:ArmsLengthNegotiations
Thefirstindicatorofthesettlementsfairnessiswhetheritwas negotiatedatarmslengthbytheparties.Aslongastheintegrityofthe negotiatingprocessisensuredbytheCourt,itisassumedthattheforcesof selfinterestandvigorousadvocacywilloftheirownaccordproducethe
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bestpossibleresultforallsides.InrePaineWebberLtd.PshipsLitig. (PaineWebber),171F.R.D.104,132(S.D.N.Y.1997).Further,a presumptionoffairness,adequacy,andreasonablenessmayattachtoa classsettlementreachedinarmslengthnegotiationsbetween experienced,capablecounselaftermeaningfuldiscovery.WalMartStores, 396F.3dat116(quotingManualforComplexLitigation(Third)30.42 (1995)).Thenegotiationsherebeareachofthosehallmarks.TheCourthas nodoubtsabouttheexperienceorabilityofcounsel.Nor,asexplained furtherbelow,didtheylackforknowledgeofthiscase.Andthehistoryof thenegotiationsandtheroleofthemediatorsuggestthattheparties actuallydealtwithoneanotheratarmslengthgoingsofarasaccepting themediatorsproposeddollaramount.Fromhisfrontrowseat,the mediatorconcludedthatnegotiationsinthiscasewerehardfoughtandat armslengthatalltimes.(Decl.ofLaynR.PhillipsdatedNov.19,2012 5,Dkt.No.168.)TheCourtagrees.Accordingly,theCourtconcludes thattheprocesswasfairandfreefromcollusionandthatapresumptionof thesettlementsfairnessarises. 3. SubstantiveFairness:TheGrinnellFactors
TheCourtmustnextconsiderwhetherthesubstantivetermsofthe settlementsupportorrebutthepresumptionoffairnessarisingfromthe armslengthnegotiations.CourtsinthisCircuitanalyzesubstantive fairnessthroughthelensoftheninefactorssetforthinCityofDetroitv. GrinnellCorp.,495F.2d448,463(2dCir.1974): (1) thecomplexity,expenseandlikelydurationofthelitigation; (2) thereactionoftheclasstothesettlement; (3) the stage of the proceedings and the amount of discovery completed; (4) therisksofestablishingliability; (5) therisksofestablishingdamages; (6) therisksofmaintainingtheclassactionthroughthetrial; (7) theabilityofthedefendantstowithstandagreaterjudgment;
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(8) the range of reasonableness of the settlement fund in light of thebestpossiblerecovery; (9) the range of reasonableness of the settlement fund [compared] to a possible recovery in light of all the attendant risks of litigation. WalMartStores,396F.3dat117(quotingGrinnell,495F.2dat463).In weighingtheGrinnellfactors,[t]heCourtmusteschewanyrubberstamp approvalinfavorofanindependentevaluation,yet,atthesametime,it muststopshortofthedetailedandthoroughinvestigationthatitwould undertakeifitwereactuallytryingthecase.Grinnell,495F.2dat462. a. Thecomplexity,expenseandlikelydurationofthelitigation
Asageneralmatter,themorecomplex,expensive,andtime consumingthefuturelitigation,themorebeneficialsettlementbecomesas amatterofefficiencytothepartiesandtotheCourt.McBean,233F.R.D. at385.Factdiscoveryherewasnearlycomplete,andcounselforthe partieshadloggedtensofthousandsofhours.Butbecauseofthescope andcomplexityofthiscase,whatremainedwasfarfromsimpleorbrief, andcertaintobecostly.Ofthistherecanbenodoubt. Afterthecompletionoffactdiscovery,thepartieswouldundoubtedly pursueexpertdiscovery,summaryjudgmentmotions,andpretrial motionspriortotrial.Atrialwouldthenconsumesubstantialresources, anditsresultwouldbeappealable.Insum,theexpenseanddurationof continuedlitigationweighsinfavorofapprovingthesettlement. b. Thereactionoftheclasstothesettlement
Afavorablereceptionbytheclassconstitutesstrongevidencethata proposedsettlementisfair.Grinnell,495F.2dat462.Ifonlyasmall numberofobjectionsarereceived,thatfactcanbeviewedasindicativeof theadequacyofthesettlement.WalMartStores,396F.3dat118(quoting AlbaConte&HerbertB.Newberg,NewbergonClassActions11:41,at108 (4thed.2002)).Thenumbershereoverwhelminglysupportapprovalofthe settlement:amereelevenobjectionsinresponsetonearly2.5million notices,withonlysixobjectionschallengingthesettlementitselfrather thanthefeerequestornoticeprocedures.Inaddition,notasingle
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objectionwasreceivedfromanyoftheinstitutionalinvestorsthatholdthe majorityofCitigroupstock.(SeeSupp.JointResp.Decl.4.)Further,only 134classmemberssubmittedexclusionrequests.Cf.DAmato,236F.3dat 8687(findingclassresponseofeighteenobjectionsandseventytwo exclusionsfrom28,000noticesweighsinfavorofapproval).TheCourt concludesthattheclasssreactionweighsheavilyinfavorofapproval. c. Thestageoftheproceedingsandtheamountofdiscovery completed
Althoughdiscoveryhadlargely,butnotyetfully,concluded, plaintiffsenteredintosettlementonlyafterathoroughunderstandingof theircase.SeeWalMartStores,396F.3dat118.Thepartiescompleted extensivediscoverythatincludedmillionsofpagesofdocumentsand depositionsofkeywitnessesonbothsides.Thepartieshadalsoconducted apreliminarybattleoftheexperts,includingdepositions,regardingthe materialityoftheallegedmisstatementsinconnectionwiththeclass certificationmotion.Thatdisputeeffectivelyforeshadowedaloss causationdebateinsofarasCitigroupcontestedtheallegedeffectofthe misrepresentationsonthemarketpriceforCitigroupstock.LeadCounsel hadampletime,documents,andinformationfromCitigrouptodevelop itsknowledgeofthestrengthsandweaknessesoftheclasssclaims;in filings,CounselprovidedtheCourtwithadequatefactualinformation uponwhichtoevaluatethefairness,reasonableness,andadequacyofthe proposedsettlement.Plaintiffs,inshort,hadmorethanenough informationtomakeaninformedandintelligentdecision.Accordingly, thisthirdGrinnellfactoralsoweighsinfavorofapproval. d. Therisksofcontinuedlitigationassociatedwithmaintaining theclassthroughtrialandestablishingliabilityanddamages
Theroadtorecoverybymeansotherthansettlementwaslongand lackedaguardrail;thefourth,fifth,andsixthGrinnellfactorsallconcern theobstaclesplaintiffsfacedinpursuingafinaljudgmentintheirfavor. Alllitigationcarriesrisk.SeePaineWebber,171F.R.D.at126.Indeed,[i]f settlementhasanypurposeatall,itistoavoidatrialonthemeritsbecause oftheuncertaintyoftheoutcome.InreIraHaupt&Co.,304F.Supp.917, 934(S.D.N.Y.1969).Itisnocoincidencethatthepartiessettlementtalks
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rampedupspecificallytoavoidthefirstoftheseuncertainties:thatthe Courtmightdenyclasscertification.Intheclasscertificationmotion,the partiesdisputed,interalia,thematerialityoftheallegedmisstatementsa meritsissueonwhichplaintiffswouldhavehadtoagainprevailat summaryjudgmentandtrial.SeeEricaP.JohnFund,Inc.v.HalliburtonCo., 563U.S.,,131S.Ct.2179,2185(2011). Themostsignificantrisks,however,concernedliability.Plaintiffsstill hadtoprovethattheallegedmisstatementswerefalseormisleadingand thatdefendantshadadutytodiscloseinformationtheyhadomittedfrom theirpublicstatements.Theallegationsherelargelyhingedondefendants failuretoprovidethedetailsofCitigroupsexposuretothesupersenior tranchesofCDOs,butthedutytoprovidethosedetailshadnotbeen established.Further,plaintiffswouldultimatelyhavetoshowthat defendantshadactedwithfraudulentintentwhenmakingthealleged misstatements.Plaintiffsatsummaryjudgmentandtrialwouldhaveto overcomedefendantsargumentsthatCitigroupvaluedtheCDOsingood faith,relyinginpartontheirauditorsandtakingwritedownswhen marketdatatheratingagencydowngradesrequiredit.Thatisnosmall obstacle.TheU.S.SecuritiesandExchangeCommissionelectednotevento allegescienterbasedfraudclaimsinitscivilenforcementactionagainst CitigroupformisleadinginvestorsaboutCDOsduringthisclassperiod. SeeComplaint,SECv.CitigroupInc.,No.10cv1277ESH(D.D.C.July29, 2010);seealsoSECv.Stoker,No.11Civ.7388(JSR)(S.D.N.Y.July31,2012), Dkt.No.118(juryfindingforCitigroupmanageraccusedoffraudin connectionwith2007CDOtransactions). Finally,plaintiffswouldhavehadtoshowlosscausationinorderto establishbothliabilityanddamages.SeegenerallyInreOmnicomGrp.,Inc. Sec.Litig.,597F.3d501,509(2dCir.2010)(citingDuraPharms.,Inc.v. Broudo,544U.S.336,34142(2005)).Toproveliability,plaintiffshadto provethatthelosswasforeseeableandcausedbythematerializationof theriskconcealedbythefraudulentstatement.InreOmnicom,597F.3dat 513(citationomitted).Here,plaintiffswouldhavehadtoshowthat Citigroupsstockpricefellspecificallybecausethemarketlearnedthe truththatdefendantshadconcealedbytheirmisstatementsand omissionsnotbecausethemarketlearnedofanyofthemyriadother developmentsinCitigroupsoperationsandtheworldfinancialsystem.
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Thatlosscausationanalysisalsohighlightstheriskthatplaintiffs mightnotestablishdamagesatthelevelsalleged.Inotherwords,evenif plaintiffscouldhavemaintainedclassactionstatus,andestablished defendantsliability,thequestionremained:couldtheyprovethatthis fraudcausedenoughdamagestojustifytheriskandexpenseof participatinginatrialonthemerits? Insum,theriskthattheplaintiffsmightnotprevailwassignificant. TheCourtconcludesthatthefourthGrinnellfactorweighsheavilyinfavor ofapproval,andthefifthandsixthfactorsalsosupporttheconclusionthat thesettlementisfairandreasonable. e. Theabilityofthedefendantstowithstandagreaterjudgment
Althoughplaintiffsinitiallyconcededthatthereisnobasistobelieve thatDefendantsareincapableofwithstandingagreaterjudgment,they nowsuggestthatCitigroupssolvencyshouldnotbeconcededso cavalierly.(ComparePls.Mem.inSupp.ofPreliminaryApprovalat11, Dkt.No.154,withPls.Mem.inSupp.ofFinalApprovalat18,Dkt.No. 169.)However,plaintiffsignorethatCitigroupcarriesinsuranceof unknownlimitsforthisliability,andtheyfailtomentiontheabilityofthe individualdefendantstopaymorethanthesettlementrequiresthemto paywhichis$0.Butwhilethedefendantsabilitytopaymoresuggestsa settlementmightbeunfair,thisfactor,standingalone,doesnotsuggest thatthesettlementisunfair.DAmato,236F.3dat86(citingPaineWebber, 171F.R.D.at129). f. Therangeofreasonablenessofthesettlementfundinlightof thebestpossiblerecoveryandallattendantrisksoflitigation
Finally,essentialtoanalyzingasettlementsfairnessistheneedto comparethetermsofthecompromisewiththelikelyrewardsof litigation.Weinberger,698F.2dat73(quotingProtectiveComm.forIndep. StockholdersofTMTTrailerFerry,Inc.v.Anderson,390U.S.414,42425 (1968)).TheU.S.CourtofAppealsfortheSecondCircuithasemphasized that[t]hereisarangeofreasonablenesswithrespecttoasettlementa rangewhichrecognizestheuncertaintiesoflawandfactinanyparticular caseandtheconcomitantrisksandcostsnecessarilyinherentintakingany litigationtocompletion.WalMartStores,396F.3dat119(quotingNewman
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v.Stein,464F.2d689,693(2dCir.1972)).Inotherwords,thequestionfor theCourtisnotwhetherthesettlementrepresentsthehighestrecovery possiblewhichitdoesnotbutwhetheritrepresentsareasonableonein lightofthemanyuncertaintiestheclassfaceswhichitdoes.Thebest possiblerecoveryestimatedat$6.3billionisanastronomicalsum,but $590millionmorethanhalfabilliondollarsisnosmallsumitself,and theriskthattheclasswouldrecovernothingorwouldrecoverafractionof themaximumpossiblerecoverymustfactorintothedecisionmaking calculus. Plaintiffscontendthat,takingintoaccountanumberofvariables,this isatrulyimpressiverecovery.Thosevariablesincludethefollowing:that theactionconcernedexposuretoparticularlycomplexrisksassociated withCDOs;thatonlyonecorporatedefendant,Citigroup,cancontribute tothefund;thatnoparallelSECinvestigationorearningsrestatement precededtheinitiationofthissuit;thatrelatedsuitsagainstsomeofthe samedefendantshavefailedorsettledforfarless;and,mostofall,thatthe claimshererequireproofofscienter.(SeePls.Mem.inSupp.ofMot.for FinalApprovalat1922.)Further,plaintiffsexpertspointoutthat,for classactionswithroughlyequivalentallegeddamages,investorshave recoveredamuchsmallerfractionoftheamountclaimedameanof2.2% andmedianof1%comparedtoroughly9.4%here.(SeeDecl.ofJohnC. Coffee,Jr.datedDec.6,201220,Dkt.No.167;Decl.ofGeoffreyP.Miller datedDec.6,201228,Dkt.No.166(discussingJordanMilev,Robert Patton&SvetlanaStarykh,NationalEconomicResearchAssociates,Recent TrendsinSecuritiesClassActionLitigation:2011MidYearReview,(2011)).) TheCourtneednotheapsuperlativesontheoutcomeinorderto concludethatthesetwoGrinnellfactorstogetherweighheavilyinfavorof approval.Thisrecoverystandsoutinthecrowd,andiswellwithinthe rangeofreasonablenesswhencomparingthebestpossiblerecoverytothe risksofcontinuedlitigation.Accordingly,nearlyalloftheGrinnellfactors stronglysupportapproval. 4. OverallFairnessEvaluation
TheCourthaspressedthepartiestoexplainwhytheyhaveagreed thattheindividualsallegedlyresponsibleforCitigroupswrongswillpay nothinginthissettlementwhileCitigroupthatis,itscurrent
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shareholders,includingmanyofthoseallegedlydefraudedby defendantsfootsthebill.Afterall,corporationsonlyactthroughhuman beings.Indeed,theCourtsconcernsalignwiththescholarlyworkofone ofLeadCounselsownexperts,ProfessorCoffee,andothers.See,e.g.,John C.CoffeeJr.,ReformingtheSecuritiesClassAction:AnEssayonDeterrence andItsImplementation,106Colum.L.Rev.1534(2006).TheCourtshares ProfessorCoffeesconcernthatsecuritiesclassactionsinwhichthe corporationanditsinsurerspayforthereleaseofclaimsagainstits corporateofficersandexecutiveshaveessentiallynodeterrentvaluefor thoseexecutivestheoneswhoseactionsmatter.TheCourtalsolaments thattheshareholders,asowners,effectivelypaytheinsurancepremiums andanysettlementamountsovertheinsurancecoverage,suchthatmost settlementsareessentiallytransfersofwealthfromallpresent shareholderstoasubsetofpastandpresentshareholders,withsignificant sumssiphonedoffintheformoflawyersfeesandlitigationcosts.Id.at 155657. TheCourt,however,concludesthattheRule23settlementapproval processpresentsnooccasionfortheCourttoconsiderwhetherplaintiffs decisionnottoseekpaymentfromtheindividualdefendantsand Citigroupsdecisiontouseonlycorporateassetstopayforthereleaseof allclaimsagainsthighrankingformeremployeesanddirectorsisfairto Citigroupsshareholders.AstheSecondCircuithasexplained,district courtsaretoconsideronlywhethertotalcompensationtoclassmembers isfair,reasonable,andadequate,nothowthedefendantsapportion liabilityforthatcompensationamongthemselves.InreWarnerCommcns. Sec.Litig.,798F.2d35,37(2dCir.1986).Inotherwords,[t]headequacyof thesettlementdoesnotdependupontheallocationofthatamountamong theDefendants.InreNASDAQMkt.MakersAntitrustLitig.,184F.R.D. 506,512(S.D.N.Y.1999)(citingWarnerCommcns.,798F.2dat37)(denying classmemberaccesstosealeddocumentdetailingapportionmentof defendantspayments).Thattheapportionmentofliabilityhereandin similarcasesmightnotserveasadeterrenttofuturecorporate wrongdoingisaconcernforCongressandtheSEC,notforadistrictcourt reviewingasecuritiesclassactionsettlement.SeeWarnerCommcns.,798 F.2dat37;NASDAQMkt.Makers,184F.R.D.at512.
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Withthatclarification,theCourtconcludesthatnearlyevery traditionalindicatorofasettlementsfairnesspointsinfavorofapproval ofthissettlement.TheCourtfindsthatitiscertainlyfair,reasonable,and adequate.Accordingly,theCourtgrantsthemotionforfinalapprovalof thesettlement.
IV.
FINALAPPROVALOFTHEPLANOFALLOCATION
Asageneralrule,theadequacyofanallocationplanturnson whethercounselhasproperlyappriseditselfofthemeritsofallclaims, andwhethertheproposedapportionmentisfairandreasonableinlightof thatinformation.PaineWebber,171F.R.D.at133.Anallocationformula needonlyhaveareasonable,rationalbasis,particularlyifrecommended byexperiencedandcompetentclasscounsel.InreWorldCom,Inc.Sec. Litig.,388F.Supp.2d319,344(S.D.N.Y.2005)(citationsandquotation marksomitted).Areasonableplanmayconsidertherelativestrengthand valuesofdifferentcategoriesofclaims.InreTelik,Inc.Sec.Litig.,576F. Supp.2d570,580(S.D.N.Y.2008)(citingInreGlobalCrossingSec.&ERISA Litig.,225F.R.D.436,462(S.D.N.Y.2004)). Theplanofallocationinthisaction(thePlan)derivesfromthe allegedcorrectivedisclosuresandthemarketsreactiontothose disclosures.Plaintiffsexpertestimatedtheportionofthedropinprice followingeachcorrectivedisclosurethatisattributabletorevelationofthe informationthatthemisstatementsconcealedpursuanttothelaw governinglosscausation.ThePlanthentreatsthatportionoftheprice dropastheestimatedinflationinthepriceofCitigroupstockforthe periodbetweenthepriorcorrectivedisclosure(orthestartoftheclass period)andthatcorrectivedisclosure.Theresultingscheduleofestimated sharepriceinflationisthefoundationforthePlan: TransactionDate 2/26/0711/4/07 11/5/07 11/6/0711/18/07 11/19/071/14/08 1/15/08 PerSharePriceInflation $4.94 $3.38 $1.72 $1.15 $0.71
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1/16/084/18/08
$0.10
Theinflationatthetimeofeachclassmemberspurchaseisthepershare harmsheinitiallysustainedduetotheallegedfraud.If,however,theclass membersoldbeforethefinalcorrectivedisclosure,thePlanthensubtracts fromtheharmatthetimeofpurchasetheinflationinthepriceshe receivedatthetimeofsale.Theresultthetotalharmatpurchaseminus gainatsaleiseachclassmembersRecognizedLoss.Onceallclass membersRecognizedLossesaredetermined,thePlanprovidesfora proportionalallocationofthenetsettlementfund.Inotherwords,ifthe totalRecognizedLossofallclassmembersistripletheamountofthe settlementfundthatremainsafterdeductingcostsandfees,eachclass memberwillreceiveonethirdoftheirRecognizedLoss.Noonehasfiled anysubstantiveobjectiontothefairnessofthatformula. TheprincipalobjectiontothePlancomesfromtheFACAPobjectors andrelatestotheapplicationofitsunderlyingformulatoFACAP participantspurchases.ClassmemberswhoacquiredtheirCitigroup stockthroughtheFACAPsemployeestockpurchaseplandidnot purchasetheirsharesintraditionalopenmarkettransactions,andsothe CourtmustclarifytheapplicationofthePlantotheirpurchases. TheFACAPoperatedasfollows:InDecember,beforethestartofeach calendaryear,employeeseligibletoparticipateintheFACAPdecided whethertoreceivepartoftheircompensationfortheyearintheformof Citigroupstock.Theparticipantagreedtohaveacertainamountofhis pretaxpaycheckdeductedeachmonthtobeappliedtothepurchaseof stock.Butthestockwasawardedaftercompletingeachsixmonthblockof employmentbasedonanaverageoftheclosingpriceattheendofeachof thosesixmonths,lessa25%discount.Forexample,theemployeewould electtoparticipatethroughout2007inDecember2006.Eachmonth,money wasdeductedfromhispaycheck.InearlyJuly,hereceivedanaward basedonhiscontributionsoverthepriorsixmonthsandanaverageofthe closingpriceonthelasttradingdayofeachmonthfromJanuarytoJune.If theparticipanthadcommitted$1,000permonthandtheaverageofthesix closingpriceswas$40,suchthatthepriceafterdiscountwas$30,the participantinJulywasawarded200shares($6,000dividedby$30).That cyclerepeatedforJuly2007throughDecember2007basedonthesame December2006election,withsharesthenawardedinJanuary2008.Thus,
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foreachaward,theparticipantcommitsinDecember,thepriceis determinedusingmarketpricesfromsixdifferentdaysspreadoversix months(JanuarytoJuneorJulytoDecember),andthesharesarethen awardedshortlyafterthefinalpriceinputisdetermined. ThepartiescontendthatonlytheJuly2007andJanuary2008awards shouldbecompensatedunderthePlanbecausethosearetheonlyawards thatoccurredduringtheclassperiod:February26,2007April18,2008. TheFACAPobjectorscontendthattheJuly2008awardshouldalsobe includedtotheextentthatparticipantscommittedduringtheclassperiod, paidintotheFACAPduringtheclassperiodintheformofbothlaborand payrolldeductions,andpaidapricedeterminedinpartbyclassperiod marketprices.Insubstance,objectorscontend,thetransactionoccursin monthlyinstallmentsevenifthesharesareawardedinsemiannual blocks;thosemonthlywithdrawalsandpriceinputsdeterminedtheeffect ofthefraudontheirpurchasesandsoshoulddeterminetheir compensationhere. TheCourtagreeswithobjectors.Thesettlingpartiesformalisticview isinconsistentwiththeflexib[ility]requiredwhenapplyingSection 10(b)oftheExchangeAct.SeeSECv.Zandford,535U.S.813,819(2002); SuperintendentofIns.v.BankersLife&Cas.Co.,404U.S.6,12(1971).Section 10(b)broadlyprohibitsfraudinconnectionwiththepurchaseorsaleof anysecurity.15U.S.C.78j(b).Theemployees,havingalready committedtoparticipate,eachmonthhadmoneytakenfromtheirsalaries topurchasesharesbasedonthemarketpriceattheendofeachmonth. TheallegedfraudaffectedFACAPparticipantspurchaseofthesecurity inmonthlyincrements,andsotooshouldtheirremedybecalculatedin monthlyincrements.Treatingthepurchaseasoccurringinmonthly installmentsforpurposesofthePlanbetteraccordswiththesubstanceof thetransactionsandsobettereffectuate[s][thestatutes]remedial purposes.SeeZandford,535U.S.at819.Ofcourse,theFACAP participantscannothaveitbothways.IftheJanuary,February,andMarch installmentsoftheJuly2008awardareincluded,thentheJanuary installmentoftheJuly2007awardmustbeexcludedbecauseitprecedes thestartoftheclassperiod.
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Insum,theCourtconcludesthatthebasisforthePlanisrational,and thatthePlanisfairandadequate.Thesharepriceinflationschedule reflectsthattheinjuriesclaimedbydifferentclassmembershavebeen sustainedundersignificantlydifferent...factualcircumstances.See PaineWebber,171F.R.D.at133.Theeffectofthefraudonthemarketprice, andthustheharmsufferedbypurchasers,changedeachtimethemarket learnedmoreofthetruth.TheCourtinterpretsthePlantoapplytotheFA CAPobjectorsinpreciselythemannertheypropose.Accordingly,the Courtgrantsthemotionforfinalapprovaloftheproposedplanof allocation.
V.
FEEAWARD
A. PercentageoftheFundMethodwithLodestarCrossCheck
Courtstraditionallyawardplaintiffscounselfeesinclassactions basedoneitherareasonablepercentageofthesettlementfundoran assessmentbythecourtofthemarketvalueoftheworkplaintiffs attorneysperformed.Theformerisknownasthepercentageofthefund method,andthelatteristhelodestarmethod.Incomplexsecuritiesfraud classactions,courtshavelongobservedthatthethetrendinthisCircuit hasbeentowardtheuseofapercentageofrecoveryasthepreferred methodofcalculatingtheawardforclasscounselincommonfundcases. InreBeaconAssocs.Litig.,No.09Civ.777(CM),2013WL2450960,at*5 (S.D.N.Y.May9,2013);seealso,e.g.,InreAvonProds.,Inc.Sec.Litig.,No.89 Civ.6216(MEL),1992WL349768(S.D.N.Y.Nov.6,1992).Infact,the trendofusingthepercentageofthefundmethodtocompensate plaintiffscounselinmajorsecuritiesfraudclassactionsisnowfirmly entrenchedinthejurisprudenceofthisCircuit. Butthatmethoddoesnotrenderthelodestarirrelevant.Itbears emphasisthatwhethercalculatedpursuanttothelodestarorthe percentagemethod,thefeesawardedincommonfundcasesmaynot exceedwhatisreasonableunderthecircumstances.Goldbergerv. IntegratedRes.,Inc.,209F.3d43,47(2dCir.2000)(citationomitted).Partof thereasonablenessinquiryisacomparisonofthelodestartothefees awardedpursuanttothepercentageofthefundmethod[a]sacross check.WalMartStores,396F.3dat123(quotingGoldberger,209F.3dat
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50).Moreover,asLeadCounselsownexpertrecognizes,thelodestar crosscheckisparticularlyimportantinsocalledmegafundsettlements suchasthisone.(MillerDecl.32.)Thecrosscheckiscrucialbecause economiesofscalecouldcausewindfallsincommonfundcaseswith largefunds,againsuchasthisone.SeeWalMartStores,396F.3dat121 (citingGoldberger,209F.3dat52).Forthatsamereason,courtshave traditionallyawardedfeesforcommonfundcasesinthelowerrangeof whatisreasonable.Id.Withthatbackground,theCourtconsidersthe reasonablenessofKirbysrequestfor$97.5millioninattorneysfeesan awardofroughly16.5%ofthe$590millionfund. B. AssessingReasonablenessPursuanttoGoldberger CourtsinthisCircuitdeterminereasonablenessbyreferencetothe factorssetforthinGoldbergerv.IntegratedResources,Inc.,andknownasthe Goldbergerfactors: (1)thetimeandlaborexpendedbycounsel; (2)themagnitudeandcomplexitiesofthelitigation; (3)theriskofthelitigation...; (4)thequalityofrepresentation; (5)therequestedfeeinrelationtothesettlement;and (6)publicpolicyconsiderations. WalMartStores,396F.3dat121(quotingGoldberger,209F.3dat50).The Courtwillconsidereachfactorinturn. 1. TimeandLaborExpendedbyCounsel:TheLodestar
Assessingtheextentoftimeandlaborexpendedeffectivelyentailsan estimateofLeadCounselslodestar.SeeFebusv.GuardianFirstFunding Grp.,LLC,870F.Supp.2d337,339(S.D.N.Y.2012)(citationomitted).The lodestarisbaseduponthenumberofhoursreasonablyexpendedby counselonthelitigationmultipliedbyareasonablehourlyrate.Reiterv. MTANewYorkCityTransitAuth.,457F.3d224,232(2dCir.2006)(citing Blanchardv.Bergeron,489U.S.87,94(1989)).
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LeadCounselandthelawfirmsthatworkedwithitexpendedvast numbersofhoursandshouldbecompensatedfortheirefforts.Whatisin disputeiswhetherallofthosehoursandthehourlyratesprofferedto translatethosehoursintoahypotheticalfeearereasonable.Becausethe lodestarisbeingusedmerelyasacrosscheck,itisunnecessaryforthe Courttodelveintoeachhourofworkthatwasperformedbycounselto ascertainwhetherthenumberofhoursreportedlyexpendedwas reasonable.InreIPOSec.Litig.,671F.Supp.2d467,506(S.D.N.Y.2009) (citingGoldberger,209F.3dat50).Similarly,theCourtneednotdetermine withprecisionareasonablehourlyrateforeachattorney.Butthelodestar serveslittlepurposeasacrosscheckifitisacceptedatfacevalue. TheCourtfirstidentifieshoursthatitconcludeswerenotreasonably expendedforpurposesofLeadCounselslodestar.Thehoursatissue includethefollowing:(1)Entwistle&Cappuccisworkunsuccessfully seekingappointmentasleadcounsel;(2)vastnumbersofhoursspenton discoveryaftersettlementwasreached,largelybycontractattorneys;and (3)instancesofwasteandinefficiencythatrequireanacrosstheboard lodestarcut.TheCourtnextdeterminesthatareasonableclient,on balance,wouldaccepttheratessubmittedforassociates,counsel,partners andsupportstaff,butwouldnotpaytheprofferedassociatelevelratesfor theservicesofcontractattorneystoreviewdocuments. a. Hoursreasonablyexpended
TheCourtstaskistoprobethevalidityoftherepresentationsthata certainnumberofhourswereusefullyandreasonablyexpended.Lunday v.CityofAlbany,42F.3d131,134(2dCir.1994). i. The$4millioninlodestarthatEntwistle&Cappucci expendedunsuccessfullyattemptingtobecomelead counselisnotcompensable.
Noteveryhourworkedbyeveryattorneywhoseekstorepresenta classisduecompensationfromtheclass.LeadCounselhasincludedinthe lodestarthehoursincurredbyattorneysatotherfirmsthatwereassisting Kirbyinprosecutingthisaction,includingthehoursofEntwistle& Cappucci.ButEntwistle&Cappuccishoursarenotlimitedtoitswork assistingLeadCounsel;thosehoursinclude$4millionEntwistle&
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Cappuccispentattemptingtosecureappointmentasleadcounselfor itselfincludingitsmotiontoreconsidertheCourtsappointmentofKirby asleadcounsel.ThehoursEntwistle&Cappuccispentunsuccessfully seekingappointmentshouldnotyieldcompensationfromaclassthey werenotappointedtorepresent.LeadCounselcannot,bylaterchoosing Entwistle&Cappuccitoassistitsefforts,convertthehoursEntwistlespent unsuccessfullyattemptingtobecomeleadcounselintocompensabletime. Itiswellestablishedthatthecommonfunddoctrinepermits attorneyswhoseworkcreatedacommonfundforthebenefitofagroupof plaintiffstoreceivereasonableattorneysfeesfromthefund.Victorv. ArgentClassicConvertibleArbitrageFundL.P.,623F.3d82,86(2dCir.2010). Althoughcourtshavetypicallyappliedthatdoctrinetocompensate attorneyswhoperformedworkintheearlystagesofaclassactionbut werenotselectedasleadcounsel,suchworkiscompensableonlytothe extenttheattorneysworkconfer[red]substantialbenefitsontheclass. Id.at87.Asinterimleadcounsel,Kirbywasfreetoseekassistancefrom otherfirms,includingfromrecentlycompetingmovantsforthesame position,andtoincludeinthelodestartheworkthosefirmsreasonably performedunderKirbyssupervisioninprosecutingthecase.Butthe decisionbyKirbytoseektheassistanceofEntwistle&Cappuccicannot turn$4millionintimeEntwistle&CappuccispentopposingKirbys appointmentasleadcounselintocashforthelawyers. KirbysargumentsinfavorofincludingEntwistle&Cappuccishours priortothealliancebetweenthosefirmsarethefollowing:(1)that Entwistle&Cappucciwasattemptingtobenefittheclassbecausethatfirm wasattemptingtobeappointedinterimleadcounselandrepresentthe class;(2)thatthecontestationoftheinterimappointmentisitselfabenefit totheclassinsofarascompetitionyieldsthebestrepresentative;and(3) thatsomeofEntwistle&Cappuccishoursbenefittedtheclassinsofaras theultimateconsolidatedcomplaintincorporatedatleastinpartEntwistle &Cappuccispriorworkproduct. LeadCounselsfirstargumentispremiseduponanuntenablereadof thecaselawthatconfusesintentionswithimpact;theworkmusthave actuallybenefitedtheclass.SeeInreElanSec.Litig.,385F.Supp.2d363, 374(S.D.N.Y.2005)(strikingfromlodestarunappointedcounselshours
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becausetheireffortsdonotappearappreciablytohavebenefittedthe Class).AcceptingLeadCounselspositionwouldpermitvarious competingfirmstoextractcompensationforduplicativework.Further,it wouldencourageappointedcounseltochoosetheircocounselnotfor theirskillorknowledgebutfortheportfoliooflodestarinflatingwork alreadycompleted. LeadCounselssecondargumentactuallysupportstheinclusionof Kirbyshours,butnottheinclusionofEntwistle&Cappuccis.TheCourt agreesthattheinterimappointmentprocessisnecessarytotheprogressof theaction,andthattheclassbenefitsfromtheselectionofcapablecounsel. TheCourtselectedKirby,theactionproceeded,andtheclassthus benefitedfromKirbyseffortstosecureappointment.ButtheCourt rejectedEntwistle&CappuccisargumentsonbehalfoftheFundsagainst Kirbysappointment;Entwistle&Cappuccianditsclientseven abandonedthoseargumentsinwithdrawingtheirmotionfor reconsideration.Kirbycannotseriouslyarguethatthoseunsuccessful effortstoremoveKirbyconferredsubstantialbenefitsontheclass.Seeid. (unappointedcounselhadnotestablish[ed]whytheyshouldbe compensatedfor,amongotherthings,seekingbutfailingtobeappointed leadcounsel). Finally,thethirdargumentismeritoriousasamatterofdoctrinebut notsupportedonthisrecord.Courtshaveinvokedthecommonfund doctrinetoawardunappointedcounselreasonablecompensationfor uniqueworkthatinfactbenefitedtheclass.SeeVictor,623F.3dat87.But nonleadcounselisnotautomaticallyentitledtoanawardfroma commonfundeachtimeoneofitsclaimsisutilizedinthecomplaintthat leadcounselultimatelyfiles.Id.Entwistle&Cappuccihasarguedthatits workontheFundscomplaintwasincorporatedintotheoperative consolidatedcomplaintandthusbenefittedtheclass.NeitherEntwistle& CappuccinorKirbyhasidentifiedanyspecificallegationsthatwouldnot havebeenincludedbutforEntwistlespreappointmentefforts;theyhave onlyidentifiedmanyallegationsthatwereincludedinboththeFunds complaintandtheconsolidatedcomplaint.Nor,morespecifically,have theyshownthattheireffortsaddedtothecomplaintaclaimthatsurvived themotiontodismiss.Workthatisotherwisenoncompensablecannotbe billedtotheclassbasedonlyonCounselssaysothattheworkconferred
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anunspecifiedbenefit.LeadCounselhavefailedtocarrytheirburdenof demonstratingthatEntwistle&Cappuccisworkpriortothosefirms unionascocounselconferredasubstantialbenefitontheclass. Accordingly,theCourtwillstrikefromthelodestarEntwistle& CappuccishoursthatwerenotundertakenatKirbysdirection.The impermissiblehoursareanotinsignificantfractionofthetotallodestar. Indeed,Entwistle&Cappuccispreappointmentlodestardwarfseven thatofLeadCounselforthesametimeperiod.(SeePreandPostLead PlaintiffAppointment,Ex.DtoPls.Resp.toCourtsMar.1,2013Order (FeeApp.Supp.),Dkt.No.211.)TheCourtstrikes$4millionfromthe lodestar,whichisEntwistle&Cappuccistimeforprecomplaint investigation,draftingitscomplaint,andopposingtheappointmentof Kirby.(SeeEntwistleAttorneyTimeDetails,Ex.AtoFeeApp.Supp.(all entriesupthroughJan.18,2011).)Toputthesehoursinperspective,that partofEntwistle&Cappuccislodestarsimplydedicatedtoseeking appointmentandopposingKirbysappointment$1.5millionismore thandoublethelodestarthatallplaintiffsfirmsspentopposing defendantslatermotiontodismissthecomplaint.(SeeCourtHearing Preparation&Attendance,Ex.FtoFeeApp.Supp.;BriefingTime& LodestarDetail,Ex.KtoFeeApp.Supp.) ii. Thepostsettlementhoursunrelatedtosettlement matters,totaling$7.5millioninlodestar,werenot reasonablyexpended.
ObjectorFrankcorrectlychallengesthereasonablenessofthousandsof hoursexpendedondocumentreviewanddiscoveryrelatedtasksafterthe partiesreachedasettlementagreementinprinciple.LeadCounseldonot disputethatateamofcontractattorneysspentmanyhoursreviewing documentsaftertheagreementinprinciplewasarrivedat.Norcanthey evendisputethatmanyoftheseattorneysbegantheirworkonthecaseat thesametimethepartiesreachedtheagreementonthesettlementamount onoraboutMay8,2012.4Now,however,Counselcontendsthattheyhad

4
Inresponsetocontentionsthatithadfailedtoidentifycontractattorneysand improperlybilledforhoursundertakenaftersettlementwasreached,LeadCounsel (footnotecontinuesonnextpage)
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notreachedadefinitive,bindingagreementandthushadtobereadyto concludediscoveryonashorttimetable.Therefore,Counselbroughton twentyadditionalcontractattorneysandhadthemcommenceextensive documentreviewwork.TheCourtconcludesthatareasonablepaying clientwouldnothaveauthorizedorpaidforthesehours. Tobegin,uponreachingtheagreementinprinciple,theparties representedtotheCourtthatsettlementwasessentiallyafaitaccompli. Further,LeadCounselsownsubmissionsinsupportoftheirfeerequest similarlyreflectedtheirviewthatthecasehadbeensettled.Counsel initiallyrepresentedthatatthetimethepartiesreachedtheSettlement, therewerestillovertwomonthsremainingbeforethediscoverycutoffset bytheCourt,includingdepositionsofnumerousadditional witnesseswithalldepositionsafterMay9cancelled.(JointDecl.77 (emphasisadded);cf.StipulationandRevisedSchedulingOrderdatedFeb. 2,2012,Dkt.No.150(discoverycutoffonJuly13).)TakingLeadCounselat itsword,thepartiesreachedtheSettlementbyMay8,2012. Actions,ofcourse,speaklouderthanwords.Savefortheballooningof contractattorneyhoursatissue,LeadCounselslodestarreportconfirms thatbyMay2012thepartieshadlittledoubtthatthiscasewassettling. MostoftheKirbyassociatesandpartners,asdistinctfromseparately
failedtonoteanywhereinitsdetaileddescriptionsoftheworkthatthe supplementalteamthatperformedmuchofthisworkwasnothireduntilMay 2012.(See,e.g.,JointReplyDecl.106.)TheonlywaytheCourtwasabletodetermine thatwasbynoticingthatuptotwentynewlyhiredattorneysspentfulldaysreading thecomplaintinthesameweekthepartiesreportedtheirsettlementtotheCourt.(See, e.g.,KirbyProjectSpecificAttorneyTimeDetails,Ex.BtoFeeApp.Supp.(attorney beganreadingtheintroductionandsectionIoftheamendedcomplaintonMay5, 2012andfinishedonMay9;anotherbegantoreadcomplaintonMay14,2012and finishedonMay17).)Inasimilarvein,Counselfailedtonoteanywherethatthe contractattorneysatissuewerecontractattorneyshiredonanhourlybasisforthis projectratherthanbeingfirmassociateattorneys.(See,e.g.,KirbyMcInerneyLLP LodestarReport,Ex.EtoJointDecl.)Counselthencontended,inresponsetoFranks objectionandtheCourtsquestions,thatthoseattorneysstatusshouldhavebeen obviousfromtheabsenceofanyfirmbiographiesforthoseattorneysprovidedwith thefeerequest.Counselisexpectedtobemoreforthcoming.
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retainedcontractattorneys,spenttheirtimeafterMay8negotiatingastay ofdiscovery,andthenfinalizingthesettlementanddraftingpreliminary approvalpapers(allofwhichisproperlycompensable)orworkingon othermatters.(SeeKirbyAttorneyTimeDetails,Ex.AtoFeeApp.Supp. (attorneyTeliasslastentryonMay8);id.(attorneyMasterssentriesafter May8,2012);id.(entriesofattorneysLinden,Hume,andMcNeelafrom May10toMay15,2012concerningstayofdiscovery).) Withthatbackground,thequestioniswhetherahypotheticalpaying clientwouldhavepaidforthiswork.Inanalogouscircumstances,theInre AOLTimeWarner,Inc.Securities&ERISALitigationcourtreducedthe lodestarby5,000associatehoursfordocumentreviewperformedafter signingamemorandumofunderstandingandbeforeasettlement agreementwassignedbecausefewprivateclientspayinghourlyfees wouldabsorbthecostofsuchunabatedworkoveratwomonthperiod. No.02Civ.5575(SWK),2006U.S.Dist.LEXIS78101,at*73(S.D.N.Y.Sept. 28,2006)(R&RofSpecialMaster),adopted,2006U.S.Dist.LEXIS77926 (S.D.N.Y.Oct.25,2006).ThisCourthasreachedthesameconclusion regardingthe16,291.8hoursatissuehere. TherealitywasthatasettlementwasreachedonMay8andthe partiestelephonedtheCourttwodayslatertoreportthatintheviewof theparties,asettlementwasreachedsubjecttotheCourtsapprovaland draftdocuments.(SeeTr.ofHearingdatedApr.8,2013at73:2474:1,Dkt. No.262.)Atthesametime,LeadCounselwashiringascoreofnew contractattorneysandsettingthemandotherattorneystoworkon documentreview.ThehoursLeadCounselexpendedfinalizingthe settlementareappropriatelyincludedinthelodestar.Allotherhoursafter theMay8agreement,thevastmajorityofwhichconsistofcontract attorneysperformingbasicdocumentreview,serveonlytoinflatethe lodestar.5TheCourtconcludesthatthosehourswerenotusefullyand
Althoughtheevidenceisclearthatthepartieswereconfidentthattheyhad settledtheactioninearlyMay,themonthsofMay,June,andJuly2012havethethree highestcontractattorneylodestartotalsofthisfiveyearlitigation.(SeeKirbyProject SpecificAttorneyTimeDetails,Ex.BtoFeeApp.Supp.;Decl.ofJohnW.Toothman datedMar.15,201392.)
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reasonablyexpended.SeeLundayv.CityofAlbany,42F.3d131,134(2d Cir.1994).Accordingly,theCourtstrikesthose16,291.8hours, representing$7.5milliondollars,fromthelodestar. iii. Thelodestarshouldbereducedforwasteand inefficiency. Inacaseofthismagnitude,itisinevitablethatattorneyswillspend morehoursthanturnouttobenecessaryonsomeprojects.Butitis,or oughttobe,farfrominevitablethatattorneyswillattempttochargethose hourstotheirclient.SeeHensleyv.Eckerhart,461U.S.424,434(1983) (counselseekingfeeawardmustexercisebillingjudgment,which entailsgoodfaithefforttoexcludefromafeerequesthoursthatare excessive,redundant,orotherwiseunnecessary).Andsomeinstancesof wasteandinefficiencyaresoegregiousthattheirinclusioninamotionfor feescastsashadowoverallofthehourssubmittedtotheCourtjustas thethirteenthstrokeofaclockcallsintodoubtwhetheranyprevious strokewasaccurate. Frankhighlightedtwoexampleswherecontractattorneysspentan unacceptablenumberofhoursdigestingsingledaydepositions:239hours (for$89,625)ononeand94.25hoursonanother(for$51,837.50).(SeeSupp. Decl.ofTheodoreH.FrankdatedMar.15,201311,Dkt.No.218.)Frank contendsthattheCourtshouldtreattheseexamplesasrepresenting consistentpracticeanddrasticallycutnotonlythesehours,butallthe hoursofmanyattorneys.LeadCounselagreesthatthese333hourswere wastefulandwithdrawsthemfromthelodestarwithoutfurtherdiscussion ofinefficiency.Neitherapproachisappropriate. Frankischerrypicking,butCounselcannotagreetotossoutthose cherriesandpretendnoothersareripeforpicking.Indeed,theCourts ownreviewrevealsanumberofsimilarinstancesofwaste.Twoother contractattorneys,forexample,appeartohavespentoverthreeweeksof eighthourdayseachdigestingaonedaydeposition:157.5hours(for $66,937.50)foroneattorneyand142.5hours(for$53,437.50)fortheother. (SeeKirbyProjectSpecificAttorneyTimeDetails,Ex.BtoFeeApp.Supp (reviewofBrushammardepositionandMarsiglianodeposition);Pls. CounselAppearinginDepositions,Ex.EtoFeeApp.Supp.(Investor RelationHeadArthurTildesley,Jr.beingtheonlytwodaydeposition).)
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Multiplecontractattorneysinthelodestarreportspentmorethana yearsimplylistingdocumentreviewasthetaskperformedallday, everyday,forapproximately$1.5millioninlodestarforeachattorney. (See,e.g.,KirbyProjectSpecificAttorneyTimeDetails(attorneyM.B.s$1.7 millioninlodestarandattorneyD.F.s$1.5million,bothlistingdocument revieweverydayfromMar.14,2011toJuly19,2012).)Counselasserts thatdocumentreviewwaslistedmerelyasanadministrative convenienceinsteadofreproducingmoredetailedhandwrittenrecordsof contractattorneyshours.(SeePls.Supp.ReplyMem.at26,Dkt.No.232.) Butwhatevertimetheconveniencesaved,classcounselcannotpresent effectivelyunreviewablehoursinthenameofconvenience.Ontheother hand,theCourtfinds,forexample,thestaffingfordepositionsandthe hoursLeadCounseldevotedtocourtfilingsandconferencesarewell withintherangeofreasonable. Inbalancingtheevidenceofwasteandunreviewablehoursagainst themanyinstancesofreasonablecharges,theCourtconcludesthatthe lodestarshouldbefurthercutby10%toaccountforwasteandinefficiency thatapayingclientwouldnotaccept.Toavoiddoublecountingthecuts, theCourtwillmakethisacrosstheboardadjustmentonlyafterallother cutshavebeenmade. b. Reasonablehourlyrates
Thelodestarfigureshouldbebasedonmarketratesinlinewith those[rates]prevailinginthecommunityforsimilarservicesbylawyersof reasonablycomparableskill,experience,andreputation.Reiter,457F.3d at232(quotingBlumv.Stenson,465U.S.886,896n.11(1984)).TheCourt mustdeterminetherateapayingclientwouldbewillingtopay.See ArborHillConcernedCitizensNeighborhoodAssnv.Cnty.ofAlbany,522F.3d 182,190(2dCir.2008);seegenerallyMcDanielv.Cnty.ofSchenectady,595 F.3d411,42122(2dCir.2010)(discussinguseofArborHillbasedlodestar calculationaspartofcrosscheckoncommonfundpercentageaward). Becauselegalservicesarenotacommoditytradedonanopenmarket,the priceforsimilarservicescanvarysignificantlybasednotonlyonthe product,butalsoontheclient.Clientswithgreaterbargainingleverage thosethatconsumethemostservicesandareabletopayforthemare generallyabletonegotiatemorefavorablelegalrates.Inconsideringthe
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hypotheticalpayingclient,theSecondCircuitinstructscourtstoconsider whetherafullyinformedgroupofplaintiffsabletonegotiate collectivelywouldagreetoagivenrate.Goldberger,209F.3dat52.In otherwords,iftheclasswereareasonable,payingclientfreetochooseits counselandnegotiaterates,whathourlyratewoulditacceptforthe attorneysandotherprofessionalstaffemployedhere? TheCourtsfocusisontheprofferedhourlyratesfortheservicesof contractattorneysattorneyswhoarenotpermanentemployeesofthe lawfirm,arehiredlargelyfromoutsidestaffingagencies,arenotlistedon counselslawfirmwebsiteorresume,arepaidbythehour,andarehired onatemporarybasistocompletespecificprojectsrelatedtoaparticular action.TheCourtfocusesmorecloselyonthecontractattorneyratesnot onlybecausethoseratesareoverstated,butalsobecausethetotal proposedlodestarforcontractattorneysdwarfsthatofthefirmassociates, counsel,andpartners:$28.6millionforcontractattorneyscomparedtoa combined$17millionforallotherattorneys.(Ltr.ofPeterS.Lindendated Apr.7,2013(LindenLtr.),Dkt.No.264.)TheCourtfindsthat,on balance,theproposedratesforfirmattorneysarereasonable.Theblended hourlyrateforassociateshereis$402,andtheblendedrateforpartners andcounselis$632.(Id.)Theseratesarewithintherangeacceptedinthis district.See,e.g.,InreTelik,Inc.Sec.Litig.,576F.Supp.2d570,589 (S.D.N.Y.2008).Inaddition,theCourtfindstheratesforsupportstaff, whotogethermakeuproughly$6millionoftheproposedlodestar,are reasonable. Inattemptingtodeterminethemarketratefortheservicesofthe contractattorneyshere,theCourthasbeenpresentedwithataleoftwo extremes.Atoneextreme,objectorFranksuggeststhatthemarketratefor contractattorneyservicesistheratethatthelawfirms,notclients,payfor theservicesofcontractattorneys,andthatinanyeventnoreasonable payingclientwouldacceptarateabove$100perhour.LeadCounsel respondsthatthesecontractattorneysperformedtheworkof,andhave thequalificationsof,lawfirmassociatesandsoshouldbebilledatrates commensuratewiththeratesofassociatesofsimilarexperiencelevels.The proposedcontractattorneyratesreachashighas$550,withablended hourlyrateof$466higherthanthe$402perhourrateforassociates!
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(LindenLtr.)Theprecisetruthisunknown,butwithoutdoubtlies betweenthesetwoextremes. i. Courtsagreethatcontractattorneyhoursarenot factuallyequivalenttoassociatehours.
Frankcontends(1)thatthecontractattorneysshouldbetreatedasa litigationcostandnotincludedinthelodestaratall,and(2)that,if included,alodestarmultipliercannotbeappliedtotheirworkbecauseto dosopermitstoohighamarkup.Neitherargumentprevails.First,courts routinelyrejectclaimsthatcontractattorneylaborshouldbetreatedasa reimbursablelitigationexpense.SeeCarlsonv.XeroxCorp.,596F.Supp.2d 400,409(D.Conn.2009)(collectingcases),affd,355F.Appx523(2dCir.).6 Second,courtshavealsoregularlyappliedalodestarmultipliertocontract attorneyshours.TheCourtshouldnomoreattempttodeterminea correctspreadbetweenthecontractattorneyscostandhisorherhourly ratethanitshouldpassjudgmentonthedifferentialbetweenaregular associateshourlyrateandhisorhersalary.InreAOLTimeWarner SholderDerivativeLitig.,No.02Civ.6302(CM),2010WL363113,at*22 (S.D.N.Y.Feb.1,2010)(SpecialMastersR&R,adoptedasCourtsopinion, id.at*1).Thelodestarmultiplier,meanwhile,isdeterminedbyfactorssuch astheriskofthelitigationandtheperformanceoftheattorneys;the firmscostofemployingtheattorneyisnotpartoftheGoldbergeranalysis. SeeGoldberger,209F.3dat47. LeadCounselsownpositionfindsnomoresupportincourtdecisions thanFrankspositiondoes.Counselassertedwithoutreferencetoasingle casethat[a]lloftheauthoritywehaveseensupportsthepracticeof billingprojectattorneysatthemarketrateforcomparableinhouse
Inarelatedattackontheinclusionofcontractattorneyhoursinthelodestar, FrankinvokespartofanAmericanBarAssociationethicsopinionlimitingmarkupon contractattorneyworktoareasonableallocationofassociatedoverheadand supervisioncosts.ABAComm.onEthics&ProflResponsibilityFormalOp.08451 (Aug.5,2008).But,incontext,thatruleaddressesthesituation[i]fthefirmdecidesto pass[thecontractattorney]coststhroughtotheclientasadisbursement.Id.(emphasis added).ThisCourtisawareofnorequirementthatafirmdoso.
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attorneysincalculatingfeeawards.(SeePls.ReplyMem.at15.)7But Courtsseemtoagreethatacontractattorneysstatusasacontract attorneyratherthanbeingafirmassociateaffectshismarketrate.Even theauthorityonwhichCounselreliespresumesthatclientsgenerallypay lessfortheworkofcontractattorneysthanforthatoffirmassociates.See InreWorldCom,Inc.Sec.Litig.,No.02Civ.3288(DLC),2004WL2591402,at *21n.48(S.D.N.Y.Nov.12,2004)(findinguseofcontractattorneysjustified becausehiringthemwasafarmoreefficientwayofproceedingthan givingthetasktomorehighlycompensatedcounsel(emphasisadded)). Morerecently,anotherjudgeinthisdistrictconsideredtheproperbilling practicesforcontractattorneydocumentreviewservicesandobservedas follows: There is little excuse in this day and age for delegating document review (particularly primary review or first pass review) to anyone other than extremely lowcost, lowoverhead temporary employees (read, contract attorneys)and there is absolutely no excuse for paying those temporary, lowoverhead employees $40 or$50anhourandthenmarkinguptheirpaytentimesforbilling purposes.
Whenpressedforthereferencedauthority,LeadCounselcitedcasesthatstand fortheuncontroversialpropositionthatcontractattorneys,asallprofessionalstaff, arebilledattheirmarketratesnotthepropositionthattheirmarketratesare equivalenttotheratesforcomparableassociates.Intheirsupplementalreply,Counsel selectivelyquotedaPSLRAfeeawardpermittingablendedhourlyrateof$200for nonpartnerattorneyswhethercounsel,associate,orcontractattorneys.Inre UnitedHealthGrp.Inc.PSLRALitig.,643F.Supp.2d1094,1106(D.Minn.2009).But UnitedHealthcontradictsCounselsposition.Thecourtwasstreamliningitscross checkcalculationbycollapsingarangeofrates,notfindingthattheprevailingmarket rateisthesameforallcounsel,associates,andcontractattorneysregardlessoftheir position,experience,andreputation.Indeed,thatcourtrecognizedthatusingcontract attorneysisefficientpreciselybecauseitreduc[es]theneedforassociateandpartner time.Id.at1105.Theimplicationisthattheratesforcontractattorneysarelower thanforassociatesandthatthoselowerratescombinedwiththehigherassociate andcounselratesyieldedtheblended$200rate.Thus,theacceptedmarketratefor contractattorneyspresumablywaswellbelow$200.
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InreBeaconAssocs.Litig.,No.09Civ.777(CM),2013WL2450960,at*18 (S.D.N.Y.May9,2013).Insum,courtshavelargelyrejectedthe propositionthatthemarkettreatscontractattorneysasindistinguishable fromfirmassociatesforbillingpurposes;itdoesnot. ii. Payingclientsnegotiateawiderangeofratesfor contractattorneyservices.
Thequestionfordeterminationis:whatwouldareasonableclientpay alawfirmfortheservicesofanextremelylowcost,lowoverhead temporaryemployee[](read,contractattorney[])?InreBeaconAssocs. Litig.,2013WL2450960,at*18.Toanswerthatquestion,theCourtmay conductanempiricalinquirybasedonthepartiesevidenceormayrely onthecourtsownfamiliaritywiththeratesifnosuchevidenceis submitted.Francoisv.Mazer,No.09Civ.3275(KBF),2012WL3245439,at *1(S.D.N.Y.Aug.6,2012)(citationomitted),affd,No.123545CV,2013 WL3185262(2dCir.June25,2013).[T]heburdenisonthefeeapplicantto producesatisfactoryevidenceinadditiontotheattorneysown affidavitsthattherequestedratesareinlinewithprevailingmarket rates.Savoiev.Merchs.Bank,166F.3d456,463(2dCir.1999)(citation omitted). LeadCounselreliesprimarilyonitsownempiricalstudyofthe ratessubmittedinfeerequestsinsimilarcasesandtheexpertdeclaration ofKennethMoscaret.NeitherpersuadestheCourtthatafullyinformed groupofplaintiffsabletonegotiatecollectivelywouldroutinelyagreeto paybetween$350and$550perhourforcontractattorneystoreview documents.Thoseratesarereasonablyappliedtoassociateattorneys, whosedutiesinvolvesuchmattersaslegalresearch,draftinglegal memorandaandcourtsubmissions,preparingfordepositions,and draftingsettlementdocuments;contractattorneysareoverwhelmingly devotedtodocumentreview. Farfromillustratingmarketpractices,LeadCounselsempirical studypresentsratesthat,astheratesunderconsiderationhere,were merelysubmittedtocourtsbyplaintiffscounselinPSLRAcommonfund casesaspartofafeerequest.(SeeJointSupp.Resp.Decl.16;Ex.39to JointSupp.Resp.Decl.)Counsel,forexample,liststheratessubmittedfor contractattorneysandassociatesintheUnitedHealthfeerequestwithout
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disclosingthatthecourttheredrasticallyreducedthoseproposedrates andtherequestedfee.SeeInreUnitedHealthGrp.Inc.PSLRALitig.,643F. Supp.2d1094,1106(D.Minn.2009).Moreoften,though,thedecisionsto whichLeadCounselpointsawardedfeeswithoutopininguponan appropriatedifferentialbetweenassociateandcontractattorneyrates.See, e.g.,Carlson,596F.Supp.2dat410(decliningtoundertakegimleteyed reviewofrateandhourdetailsandfindingmultiplierreasonable assumingdramaticcutstolodestarforcontractattorneys).Asaresult, Counselsstudyoftherelationshipbetweenassociateandcontract attorneyratesis,atbest,misleading.Moreover,LeadCounseleffectively concedesthatthe$466blendedratesoughthereisinflatedbypointingto anaverageproposedrateof$313initsownselectedsampleofcases.(See Ex.39toJointSupp.Resp.Decl.)Cf.,e.g.,Apple,Inc.v.SamsungElecs.Co., No.C111846LHK(PSG),2012WL5451411,at*3(N.D.Cal.Nov.7,2012) (majorfirmproposing$125perhourforcontractattorneys). Next,Moscaretsopinionoffersminimalevidenceoftheratethat wouldhavebeennegotiatedinthesecircumstances.8Moscaretopines,in sum,thatinthebroadcorporateclientmarketplace,clientsaccepta widerangeofratesforcontractattorneys,andthatCounselsproposed schemeisamongthoseaccepted.(See,e.g.,Decl.ofKennethM.Moscaret datedMar.21,20135,Dkt.No.231.)Thoughunwillingtoofferspecifics, heestimate[s]thatamajorityofcorporateclientspayprevailingmarket ratescommensuratewiththeskill,experience,andabilitiesofthose contractattorneys.(Id.33.)Evenassumingthoseprevailingmarket ratesareequivalenttothoseofassociates,asCounselasserts,hisestimate
ProfessorMilleralsoopinesthattheratesheregenerallyarereasonable,buthis declarationdoesnotmentioncontractattorneys,nordoesitspecificallyconsiderthe appropriateratesfortheirservices.Counselhaspointedoutthatbankruptcycourt filingsonwhichMillerrelied,aswellasotherfilingsCounsellatersubmitted, assertedratessometimesreachingashighasthosehere,andwereapproved.The Courtaccordsthosefilingslittleweightgiventhattheratesassertedwerenot explicitlyanalyzed.Moreover,separatefromthecontractattorneyrates,Miller appearsnottohaveconsideredtheprofferedhourlyratesofKirbyscocounsel. (CompareMillerDecl.39,withExs.G&HtoPls.JointDecl.(hourlyratesfor partners).)
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nonethelesshasnoapplicationherebecauseofhispremise:thatthe marketincludesthe5.8millionU.S.companieswith199employees, nearlyallofwhichlackinhouselegaldepartments.(Seeid.35.)Moscaret alsoconcedesthatmostofthosesmallcompaniesonwhichhisopinionis basedarenotengagedinsecuritieslitigation.(Id.36.)Asaresult,his sampleismateriallyskewedawayfromclientslikeplaintiffshere:agroup ofhighlysophisticatedleadplaintiffsabletonegotiatecollectivelyto secureappropriatehourlyratesfromtheirattorneys.Oneoftheclass representativesaloneCOPERAisapensionfundwithbillionsof dollarsundermanagementandaninhouselegaldepartment.SeeAbout ColoradoPERAOverview, https://www.copera.org/pera/about/overview.htm(lastvisitedJuly30, 2013). Frank,meanwhile,reliesontheopinionsofWilliamRuaneandJohn Toothman.EvenassumingthatRuaneisqualifiedtoprovideexpert testimony,hisopinionthatthemarketrateforcontractattorneys documentreviewservicesisbetween$50and$70perhourisoflittlehelp becauseitderivesentirelyfromhisexperienceworkingforasingle companythatfocusedondefensesideproductsliability.(Decl.ofWilliam J.RuanedatedMar.14,2013,Dkt.No.217.)Onecompanysexperienceis notdispositiveofprevailingmarketpractices.9 Toothmanopinesthatareasonableclientwouldpayatmosttherates oflowerlevelparalegals.(Decl.ofJohnW.ToothmandatedMar.15, 20134,Dkt.No.224.)Hisopinion,whichisgroundedinhisexpertiseon broadermarketpractices,ismorehelpfulbutstilllimitedbycertain
TheamicussubmissionoftheAssociationofCorporateCounsel(ACC)is,for relatedreasons,similarlynarrowinitsreach.TheACCsletterreferstoasurveyofits membership.Thebreadthandvalidityofthatsurvey,however,isunclearand untested.Thesurveyappearstobelimitedtotheresponsesofaselfselectedfraction ofitsalreadyselfselectedmembership,andonlyathirdofthoserespondents employedcontractattorneys.Atmost,thesurveyconfirmsthatanumberofclients occupyonesideofthespectrumthatMoscaretacknowledges:thatclientsoftenhire contractattorneysdirectlyorpayarelativelysmallmarkup.TotheextentthatFrank purportstoofferhisownviewsasanexpertonbillingpractices,theCourtfindsthat heisnotqualifiedtodoso.
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assumptions.Toothmaninfersfromthesometimescursorytimerecords thatalloftheworkwassimplistic.(See,e.g.,id.4849.)Asnotedabove, mostofthecontractattorneytimeisattributedsimplytovariantsofthe termdocumentreview,butnotalldocumentreviewiscreatedequal. Manyofthedocumentsreviewedhereconcernedhighlycomplexfinancial instrumentsandsubtlenuancesofcircumstantialevidenceofscienter. Toothmanalsoignoresthatsomeofthesecontractattorneysprepared othersfor,andafewparticipatedinthetakingof,depositions.(SeePls. CounselAppearinginDepositions,Ex.EtoFeeApp.Supp.)Asaresult, theadagethatMichelangeloshouldnotchargeSistineChapelratesfor paintingafarmersbarnhasforcehere,butitsapplicationisnotassimple asToothmansuggests.10SeeUrsicv.BethlehemMines,719F.2d670,677(3d Cir.1983).Insum,Toothmanprovidesevidencethatapayingclientwould negotiatesupportstafflevelratesforsome,butnotall,ofthehoursat issue. TheCourtalsodirectedCounseltoproducethersumsofthe contractattorneyshereandconsideredthem,andagreeswithCounselthat someoftheseattorneyswereparticularlywellqualified.TheCourtfurther agreesthatapayingclientsurelywouldhavepaidsomethingapproaching anassociatesrateforsomenumberofthehourshere.ButtheCourtfinds thatnotallofthecontractattorneyshadthetypeofexperienceandfew performedthetypeofworkthatjustifiesassociatelevelrates.11Onlya
Alodestarreportforpurposesofacrosscheckneednotcontainthesamedetail ashourlybills.Cf.Cassesev.Williams,503F.Appx55,59(2dCir.2012)(findingthat districtcourtactedwithindiscretionincalculatinglodestarforcrosscheckpurposes withoutexactrecords).Bythesametoken,however,LeadCounselcannotclaimto haverecordedmillionsofdollarsinlodestardescribedonlywiththewords documentreviewandexpecttheCourttotreatthosehoursasiftheywerefor takingordefendingadepositionorothermorecomplextasksforpurposesof determiningwhatareasonableclientwouldpay.
10
WhiletheCourtadherestoitsviewthattheamountCounselpaidcontract attorneysisnottheissue,theCourtnotesthatCounselsubmittedevidencethatat leastoneofthecontractattorneysemployedbyafirmthatassistedLeadCounsel received$15perhourinwagesbelyingCounselssuggestionthatafullassociate attorneysbillingratewasappropriate.(SeeElanProjectSpecificAttorneyTime (footnotecontinuesonnextpage)

11
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veryfewofthescoresofcontractattorneyshereparticipatedin depositionsorsupervisedotherswork,whilethevastmajorityspenttheir timereviewingdocuments.Cf.InreEnronCorp.Sec.,Derivative&ERISA Litig.,586F.Supp.2d732,781(S.D.Tex.2008)(relyingonfactthatcontract attorneyhadprevioustrialexperience,tookmorethanthirtyfact depositionsintheunderlyingcaseandtooksomeofdefendantsexperts depositions). iii. TheCourtconcludesthatanappropriateblended hourlyrateforthecontractattorneyserviceshereis $200. Intheend,theempiricaldataandotherevidencebeforetheCourt offernosimpleanswers.Noonenumberflowsinexorablyfromtherecord; theCourtmustexerciseitsdiscretiontosettheappropriaterate.TheCourt findsthatthehypotheticalpayingclienthereisonewithsignificant negotiatingleverage,asevidencedbythehardfoughtbattlefor appointment.Thisistrueeventhoughthisclientmaynothavethesortof leverageCitigroup,forexample,possessesasadeeppocketedclientwith asignificantstreamoflitigationbusiness.TheCourthastakenaccountof thequalificationsandexperienceofthevariouscontractattorneyshere,the largelydocumentreviewworktheyperformed,andthewiderangeof ratesacceptedinthemarket.Consideringthehypotheticalclientandthe rangeofservicesatissue,theCourtconcludesthatareasonableblended hourlyrateforthecontractattorneyshereis$200. TheCourtwillapplythatratetothecontractattorneyhours remainingaftercuttingthepostsettlementhours,whichconstitutemore than$21millionofthelodestar.(LindenLtr.)HavingappliedtheCourts rateof$200totheroughly45,300hoursatissue,theCourtsubtracts approximately$12millionfromtheproposedlodestar.
Details,Ex.BtoFeeApp.Supp.(attorneyL.C.pageforweekofAug.8,2011).)This samecontractattorney,moreover,waslistedasOfCounselelsewhereinthefee request,withaprofferedrateof$500perhour.(SeeDecl.ofKennethA.Elandated Nov.13,2012at3,Ex.ItoJointDecl.)
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c.
Theproperlodestarforassessingthereasonablenessofthe proposedaward
Toreview,Counselproposedalodestarof$51.4million,andthe Courthascut$7.5millioninpostsettlementdiscoverywork,$4millionof Entwistle&CappuccisworkbeforejoiningLeadCounsel,and$12million basedonthereasonablehourlyrateforallremainingcontractattorney work.Afterthosereductions,$27.9millionremainsbeforecutting10% ($2.8million)forwasteandinefficiency.Thus,theCourtcalculatesthe lodestarinthisactiontobe$25.1million. LeadCounselsproposedlodestarof$51.4millionwas,intheCourts judgment,significantlyinflated.Asrevised,therequested$97.5millionfee herewouldyieldalodestarmultiplierofabout3.9,notthe1.9multiplier thatCounselproposed.TheCourtwillreturntothelodestartouseitasa crosscheckthattakesintoaccountotherGoldbergerfactorsforexample, therisksinvolvedandthequalityofCounselswork.Thatanalysisaside, Counselcertainlyinvestedanenormousamountoftimeandenergyinthis litigation.Thus,thefirstGoldbergerfactorweighsinfavorofasubstantial feeaward. 2. TheMagnitudeandComplexitiesoftheLitigation
Asnotedabove,thisactionwashighlycomplex.Securitiesclass litigationisnotablydifficultandnotoriouslyuncertain.InreMerrillLynch TycoResearchSec.Litig.(MLTyco),249F.R.D.124,138(S.D.N.Y.2008) (citationandquotationmarksomitted).Evenamongsecuritiesactions,the financialinstrumentsinvolvedandthescopeoftheallegationsrenderthis actionmorechallengingthanthestandardsecuritiesclassaction.This factorweighsinfavorofasubstantialfee. 3. TheRiskoftheLitigation
Similarly,theclass,andbyextensionLeadCounsel,facedsubstantial risksthattheywouldnotprevailifthepartieslitigatedtheactionthrough trialandappeal.Significantrisksweighinfavorofsubstantial compensationabovewhatapayingclientwouldhavepaidbecause[n]o oneexpectsalawyerwhosecompensationiscontingentuponhissuccess tocharge,whensuccessful,aslittleashewouldchargeaclientwhoin
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advancehadagreedtopayforhisservices,regardlessofsuccess.Grinnell, 495F.2dat470. However,forsometimenow,virtuallyallsecuritiesactionsthat survivemotionstodismissthepleadingsultimatelysettlepriortotrial.See MLTyco,249F.R.D.at139.Butthefactorsthattraditionallyrender securitiescasesmostlikelytosurviveamotiontodismissand,inturn,to settlesuchaspriorgovernmentinvestigationsareabsenthere.Cf.id. Thus,notwithstandingthelikelihoodofsettlement,therisksinvolvedin undertakingthislitigationwerereal.Innumerousclassactions... plaintiffscounselhaveexpendedthousandsofhoursandadvanced significantoutofpocketexpensesandreceivednoremuneration whatsoever.InreMarsh&McLennanCos.Sec.Litig.,No.04Civ.8144 (CM),2009WL5178546,at*18(S.D.N.Y.Dec.23,2009).Settlementmight bethenorm,butitisnotguaranteed.Thisfactoralsomilitatesinfavorofa substantialaward. 4. TheQualityofRepresentation
Toevaluatethequalityoftherepresentation,courtsreviewthe recoveryobtainedandthebackgroundsofthelawyersinvolvedinthe lawsuit.MLTyco,249F.R.D.at141(quotingInreGlobalCrossingSec.& ERISALitig.,225F.R.D.at467.)LeadCounselsresultsareexcellent.More thanhalfabilliondollarsisasignificantandsuccessfulrecoveryunder essentiallyanydefinitionofsuccess.TheCourtsquarrelswiththelodestar submissiondonotdetractfromthequalityofCounselswork.Giventhe significantchallengesposedbyscienterbasedfraudclaimsandthe complexityandsizeofthiscase,therecoveryhereissubstantial,asthe classsoverwhelminglyfavorablereactionreflects.Further,theCourtin appointingKirbytookintoaccountitsoutstandingreputationasaleading plaintiffsclassactionfirm.Thequalityoftherepresentationhereweighs infavorofasubstantialfeeaward. 5. TheRequestedFeeinRelationtotheSettlement
Therequestedfeeof$97.5millionis16.5%ofthe$590million settlementfund.Theinquiryforthisfactorfocusesonwhetherthat percentageisreasonablewhencomparedtofeesawardedinsimilarcases. LeadCounselandFranksparredatlengthoverwhatconstitutesasimilar
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case.Eachsidesuggeststhattheotherisinappropriatelyincludingor excludingcertaincasesinordertoskewtheaveragefeeawardupor down,andeachsideiscorrect.Basedonslightlydifferentranges, Counselsexpertsfoundtheaveragefeeinsimilarcaseswas16.7%(Prof. Coffee)and17.3%(Prof.Miller),withslightlylowermediansof16.8%and 16.5%.(CoffeeDecl.1718;MillerDecl.58.)Franksownselections yieldedaveragesof15.1%or12.5%,andmediansof12%or11.5%.(See ObjectionofTheodoreH.Frankat5,Dkt.No.222.)Thisdisputeonlyhelps illustratewhyreferencetoawardsinothercasesisoflimitedusefulness ...becausefeeawardsshouldbeassessedbasedontheunique circumstancesofeachcase.MLTyco,249F.R.D.at141(citationsand quotationmarksomitted).Whileawardsinothercasesinthesame ballparkasthisonehelptodeterminearangeofreasonableness,theCourt neednotpassuponeachpotentialcomparator.Onbalance,therequested feeherefallswithintherangeofreasonablefeesawardedingenerally similarcases,buttowardthehighendofthatrange.SeeInreWachovia PreferredSec.&Bond/NotesLitig.,No.09Civ.6351(RJS),2011U.S.Dist. LEXIS155622,at*10,*14(S.D.N.Y.Dec.30,2011)(notingawardsbelow8% oflargesettlements,andawarding12%of$627millionsettlement). Accordingly,thisfactorweighsinfavorofasubstantialfeeaward,albeit lowerthanLeadCounselhasrequested. 6. PublicPolicyConsiderations
Inordertoattractwellqualifiedplaintiffscounselwhoareableto takeacasetotrial,andwhodefendantsunderstandareableandwillingto doso,itisnecessarytoprovideappropriatefinancialincentives.Inre WorldCom,Inc.Sec.Litig.,388F.Supp.2dat359.Thefeespaidtoclass counselthusshouldbebothfairandrewarding.MLTyco,249F.R.D.at 142(citationomitted).Anawardoffeesinexcessofthatrequiredto encourageclasslitigation,however,doesnotnecessarilyservepublic policy.Id.Asignificantawardisappropriatehere. C. TheLodestarCrossCheckandtheAppropriateAward HavingconsideredalltheGoldbergerfactors,whichtogethersupporta substantialfee,theCourtreturnstothelodestarasacrosscheckonthe requestedfee.ByLeadCounselsexpertsowncalculations,the3.9
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multiplierthemultiplierbasedonthereducedlodestarascalculatedby theCourtiswellabovethenorminsecuritiesclassactionsettlementsof similarsize.(SeeCoffeeDecl.1718(meanof2.29andmedianof2.14 for$490$690millionsettlementrange);MillerDecl.58(meanof2.13and medianof1.70for$550$880millionsettlementrange).)Courtsinthis Circuithavetrendedtowardawardinglowerpercentagesandlower multipliersforawardsfromextremelylargecommonfundssuchasthis one.CompareInreTelik,Inc.Sec.Litig.,576F.Supp.2dat590(observing thatlodestarmultiplesofover4areroutinelyawardedbycourtsin contextof$5millionsettlement),withInreMerrillLynch&Co.Research ReportsSec.Litig.,No.02MD1484(JFK),2007WL313474,at*23(S.D.N.Y. Feb.1,2007)(concluding,for$39millionsettlement,thatrequest representingmultiplierof2.43isexcessive,andrecognizingthatcourts sinceGoldbergerquestionmultipliersover2.03).Thattrend,reflectedinthe expertsanalyses,likelyreflectsconcernaboutthedangerofroutine overcompensationforriskthathastroubled[theSecondCircuit]inthe contextofmegafundclassactions.SeeMcDaniel,595F.3dat426 (quotingGoldberger,209F.3dat57). TheCourtconcludesthatasignificantmultiplierisjustifiedhere,but notoneashighas3.9themultiplierthatwouldneedtobeappliedtothe trimmedlodestartoreachCounselsrequestedfee.Indeed,itiswellabove themultiplierof3.0thatCOPERAnegotiatedwithEntwistle&Cappucci asacrosscheckintheeventthatfirmwasappointedclasscounsel.(Reply. Decl.ofAndrewJ.EntwistledatedMar.22,20136,Dkt.No.230.)As alreadydiscussedatlength,Counseltookonacontingencyrisk,and broughtconsiderableskillandexperiencetobearonaverycomplexcase. SeeGoldberger,209F.3dat47(citationomitted)(multiplierisbasedonless objectivefactors,suchastheriskofthelitigationandtheperformanceof theattorneys,whichalsohelpdeterminecorrectpercentage(quotation marksomitted));seealsoSavoie,166F.3dat460.Onbalance,however,the Courtconcludes,basedonitsanalysisofalltheGoldbergerfactorsandthe lodestarcrosscheck,thattherequested$97.5millionfeeconstituting 16.5%ofthesettlementandalodestarmultiplierof3.9basedonthe revisedlodestarisnotreasonable. TheCourtconcludesthatareasonablefeehereis12%ofthe$590 millioncommonfund,or$70.8milliondollars.Onaproperlycalculated
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B. PreSettlementProceduralHistory 1. ConsolidationofSimilarSuitsandAppointmentofInterim LeadPlaintiffsandCounsel

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CourtinSeptember2012mademinormodificationstothePreliminary ApprovalOrder,includingtheclassdefinitionandnoticeprocedures,in twoorders.(SeeOrdersdatedSept.6,2012&Sept.28,2012,Dkt.Nos.158, 159.)3

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B. FairnessoftheSettlement 1. TheStandardforApprovingaProposedClassAction Settlement

Thefirstindicatorofthesettlementsfairnessiswhetheritwas negotiatedatarmslengthbytheparties.Aslongastheintegrityofthe negotiatingprocessisensuredbytheCourt,itisassumedthattheforcesof selfinterestandvigorousadvocacywilloftheirownaccordproducethe

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TheCourthaspressedthepartiestoexplainwhytheyhaveagreed thattheindividualsallegedlyresponsibleforCitigroupswrongswillpay nothinginthissettlementwhileCitigroupthatis,itscurrent

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Withthatclarification,theCourtconcludesthatnearlyevery traditionalindicatorofasettlementsfairnesspointsinfavorofapproval ofthissettlement.TheCourtfindsthatitiscertainlyfair,reasonable,and adequate.Accordingly,theCourtgrantsthemotionforfinalapprovalof thesettlement.

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TheCourtstaskistoprobethevalidityoftherepresentationsthata certainnumberofhourswereusefullyandreasonablyexpended.Lunday v.CityofAlbany,42F.3d131,134(2dCir.1994). i. The$4millioninlodestarthatEntwistle&Cappucci expendedunsuccessfullyattemptingtobecomelead counselisnotcompensable.

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