District Court Must Examine Class Action Attorney Fee Awards Closely but not According to a Strict Formula and, so Viewed, Approval of Class Action Settlement was Proper
Plaintiffs filed a federal securities fraud class action against AT&T based on allegedly false statements that artificially inflated stock prices. The defense waged an intense battle for several years but ultimately settled the class action claims for $100 million eight (8) days into a jury trial. The district court approved the settlement, which included payment of attorney fees equal to 21.25% of the settlement proceeds ($21.25 million), and four objectors appealed. The Third Circuit affirmed. In re AT&T Corp. Securities Litig., 455 F.3d 160 (3d Cir. 2006).
The July 20, 2006 opinion details the typical procedure for assessing attorney fees in the Third Circuit, and analyzed each of the factors the district court was required to consider when determining whether to approve a class action settlement. In the Third Circuit, those factors are set forth in Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975), and include:
(1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining a class action through the trial; (7) the ability of defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.
In re AT&T, at 164-65 (citation omitted). The Circuit Court also summarized the factors to be considered in reviewing an attorney fees award in class action settlements, id., at 166. Those factors, however, must not be applied “in a formulaic way” but rather must be analyzed in terms of the specific nature of the case. “What is important is that in all cases, the district court ‘engage in robust assessments of the fee award reasonableness factors,’ [citation], recognizing ‘an especially acute need for close judicial scrutiny of fee arrangements in class action settlements.’ [Citation.]” Id. (citations omitted). The Third Circuit concluded – after a detailed analysis – that the district court properly had considered the requisite factors in approving the settlement. Accordingly, it affirmed.