Proposed $3.2 Billion Settlement Of Securities Fraud Class Action Fair, Reasonable and Adequate, and Request By Class Action Plaintiffs’ Counsel for $464 Million Fee Award Reasonable New Hampshire Federal Court Holds
Plaintiffs filed a securities fraud class action lawsuit against Tyco International, its former auditor, PricewaterhouseCoopers, and five individual defendants; the gravamen of the class action was that defendants “misrepresented the value of multiple companies that Tyco acquired and misreported Tyco’s own financial condition in ways that artificially inflated the value of Tyco stock,” thereby permitting the individual defendants “to reap enormous profits by looting the company through a combination of unreported bonuses, forgiven loans, excessive fees, and insider trading.” In re Tyco Int’l, Ltd., ___ F.Supp.2d ___, 2007 WL 4462593, *1 (D. N.H. December 19, 2007). The district court granted plaintiffs’ motion for class action treatment, and the parties eventually negotiated and sought district court approval of a proposed $3.2 billion settlement of the class action. Id. Specifically, the terms of the class action settlement requires that Tyco pay $2.975 billion in cash, plus interest, and that PricewaterhouseCoopers pay $225 million in cash, plus interest, id., at *5. The district court stated at page *5: “Tyco’s payment will be the largest cash payment ever made by a corporate defendant in the history of securities litigation. [PricewaterhouseCoopers’] payment will be the second-largest auditor settlement in securities class action history. In all, the proposed settlement is the third largest securities class action recovery in history, behind only Enron and WorldCom.” As part of the motion for approval of the class action settlement, plaintiffs’ lawyers sought an attorney fee award of 14.5% of the $3.2 billion settlement, id., at *1, together with almost $29 million in costs, id., at *14. The district court approved the class action settlement and awarded the attorney fees requested.
We do not here discuss the district court’s analysis of the proposed settlement, or its conclusion that the terms of the class action settlement were fair, reasonable and adequate. See Tyco, at *7-*11. We do note, however, that the court stated it would be “difficult to overstate the complexity of this case,” id., at *8, and that the case was “risky…for both sides,” id., at *9. The court further highlighted the expense involved, noting that more than 488,000 hours of attorney time had been devoted to prosecution of the class action, id., at *10. The court’s analysis and rejection of the various objections to the proposed settlement may be found at pages *11-*14. The attorney fee award bears mention because it represents the single largest attorney fee award in class action history.
“In line with PSLRA cases in other circuits and past common fund cases in this circuit,” the district court utilized the “percentage of fund” (POF) method for determining attorney fees. Tyco, at *14. Under that test, the court easily concluded that “the requested 14.5% award is reasonable and appropriate.” Id. In reaching that conclusion, the court noted that the fee award must “reflect the risk and effort involved in this litigation,” id., at *18. Further, noting that “Several circuit courts have encouraged district judges to use the lodestar method as a cross-check on proposed POF awards,” id., at *18 (citations omitted), the district court examined “the broader question of whether the fee award appropriately reflects the degree of time and effort expended by the attorneys,” id., and concluded that the POF award was proper, see id., at *18-*19. We note in passing that among the objections rejected by the court was the familiar complaint that “the fees were too high.” Id., at *21. Separately, the court awarded class action counsel almost $29 million in costs, noting that the breakdown of expenses revealed that reimbursement had not been sought for “computer research charges, overtime, secretarial services, rental space related to document review, supplies, press releases, or certain other miscellaneous expenses.” Id., at *22.