Plaintiffs’ class counsel is entitled to compensation from a common settlement fund, even where underlying action was brought pursuant to a fee-shifting statute.
Fresno County Employees’ Retirement Association vs. Isaacson/Weaver Family Trust, No. 17-2662 (2nd Cir., 5/23/19).
The United States Court of Appeals for the Second Circuit reviews a lower District Court’s decision granting class counsel’s request for a percentage fee award from a common settlement fund. This fee award was compensation for counsel’s representation of plaintiffs during a large class action alleging federal securities laws violations against a medical technology firm. The securities litigation resulted in a settlement requiring the class-action defendant to pay over $10 million into a common fund; the settlement also provided that plaintiffs’ class counsel would receive its fees solely from this common fund. One member of the plaintiffs-class, the Isaacson/Weaver Family Trust, objected to this fee award, asserting that, since the class-action securities claims were originally brought pursuant to statutes containing so-called fee-shifting provisions (wherein counsel’s fees would be paid by defendant and limited to counsel’s hourly fee multiplied by the hours actually expended by counsel on the case (also known as a “lodestar”)), counsel could not properly be paid out of the common settlement fund.
The Appellate Court now reviews the district court’s decision that, because the parties’ settlement agreement provided for counsel to be compensated from a common fund, counsel’s fees were not restricted to the lodestar, even though the underlying claims were brought pursuant to a fee-shifting statute. The Isaacson/Weaver Family Trust argues that where, as here, an action is initiated under a statute that shifts plaintiffs’ counsel’s fees to a defendant once plaintiffs have prevailed, then those fees are limited to the unenhanced lodestar fee, even though the action was settled pursuant to the creation of a common fund. Plaintiffs-class counsel asserts that, whenever an action is resolved through the creation of a common fund, equitable principles allow a district court to award a fee using either the lodestar method or a percentage-of-the-common fund method. The Appellate Court now confirms the district court’s award of fees from the common fund, agreeing with Plaintiffs’ view.
As the Court notes, fee-shifting statutes are generally not intended to circumscribe the principle of the equitable fund doctrine, unless that doctrine interferes with the purpose of a fee-shifting statute; namely, to encourage the counsel’s prosecution of certain actions by private parties. Where, as in the instant case, a common settlement fund results from the commencement of an action, no such interference exists and counsel is entitled to derive its fees from that common fund. The Court also analyzes the matter from the standpoint of the settling parties. Where plaintiffs’ counsel’s fees are awarded pursuant to a fee-shifting-statute, a defendant will be forced to pay for the costs of the statute’s enforcement; the courts will, therefore, consider a reasonable fee with the defendant’s perspective in mind. In contrast, where an attorney has settled a case and created a common fund, the courts will determine what a reasonable fee is from the plaintiffs’ perspective, the defendant having no further interest in how the plaintiffs’ class counsel and class members spend the fixed amount of money paid by defendant into the settlement fund.
(SOLA Ref. No. 2019-26-03)
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