3.6 Methodology of Determining Attorney Fees: percentage of Recovery Method

• Library: Attorney Fees and Sanctions - Virginia and Federal Courts (Virginia CLE) (2016 Ed.)

3.6 METHODOLOGY OF DETERMINING ATTORNEY FEES: PERCENTAGE OF RECOVERY METHOD

3.601 In General. The percentage of recovery method is used in most class action (common fund) cases in federal court. As noted in Domonoske v. Bank of America, ⁴⁰¹ "[t]he vast majority of other courts in other jurisdictions consistently apply a percentage of the fund method for calculating attorneys' fees in common fund cases." ⁴⁰²

The Supreme Court "has recognized that a litigant or lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney's fee from the fund as a whole. The common-fund doctrine reflects the traditional practice in courts of equity, and it stands as a well-recognized exception to the general principle that requires every litigant to bear his own attorney's fees." ⁴⁰³ In the class action context, the common fund doctrine is grounded in the belief that to deny attorneys a recovery of their fees from the funds they helped create would unjustly enrich the class members at the expense of their attorneys and representatives. ⁴⁰⁴

Under the Federal Rules of Civil Procedure, "[i]n a certified class action, the court may award reasonable attorney's fees and nontaxable costs that are authorized by law or by the parties agreement." ⁴⁰⁵

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A court must conduct a "thorough judicial review" of class counsel's request for attorney fees. ⁴⁰⁶

"The percentage-of-recovery method does not depend on counsel's hourly rates or billable hours; it is, instead, based on a percentage of the common fund, with the precise percentage selected by the trial court with reference to essentially the same case-specific factors used to adjust, or determine a multiplier for, a lodestar figure. This methodology is less cumbersome to apply than the lodestar computation, and it has the virtue of reducing the incentive for plaintiffs' attorneys to over-litigate or 'churn' cases, particularly those cases with a high probability of success." ⁴⁰⁷

3.602 Seven Factors. Recently, it was noted that class counsel's attorney fees request at 25% of the common fund was reasonable, in part, based on recent empirical data that class action percentage awards for attorney fees generally fall between 20% and 30%, while in the Fourth Circuit an average fee award is 21.7%, and for consumer cases, approximately 28.7%. ⁴⁰⁸ In applying the percentage method, courts generally look to the following seven factors taken from the Third Circuit and used by district courts within the Fourth Circuit. ⁴⁰⁹ These factors need not be applied in a formulaic way . . . and in certain cases, one factor may outweigh the rest." ⁴¹⁰ While the Fourth Circuit has not yet indicated its preference for either the lodestar or percentage of recovery approach in common fund cases, it has been noted by the Eastern District of Virginia that two circuits have mandated and seven circuits have explicitly approved, the use of the percentage of recovery approach in common fund cases. ⁴¹¹ An excellent review of each of these factors is found in In re Mills Corp.⁴¹²

1. Results obtained for the class. "A central advantage of the percentage of the fund method is that it looks to the

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	results actually obtained by Lead Counsel rather than just the number of hours they expended, which should be an important point in awarding fees." 413 "Here, the $202.75 million total of the settlement is very large in comparison to similar cases in this District and Cir-cuit." 414
2.	Objections by members of the class to the settlement terms and/or fees requested by counsel. "[W]hile not dispositive, the dearth of legitimate objections to the requested fee . . . enforces the reasonableness of that request in the Court's eyes." 415
3.	The quality, skill, and efficiency of the attorneys involved. Where lead counsel obtained a substantial settlement within one year of the denial of the motion to dismiss after conducting extensive discovery related to class certification, preparing two expert reports and taking the depositions of defendants' experts, conducting extensive fact discovery including 4 million pages of documents and an extensive successful motion practice, which was performed against experienced and sophisticated defense attorneys, the court found lead counsel to be very experience and skilled in the field of securities litigation. 416
4.	The complexity and duration of the litigation. That a case was highly complex can be indicated by the number of potential class members, the size of the settlement, that a case played out over the course of a number of years, that the very nature of securities fraud

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