United States District Court, N.D. California
IN RE WELLS FARGO & CO. SHAREHOLDER DERIVATIVE LITIGATION This Document Relates To: ALL ACTIONS
ORDER TO SHOW CAUSE RE: APPOINTMENT OF EXPERT WITNESS
PURSUANT TO RULE OF EVIDENCE 706
JON S.
TIGAR UNITED STATES DISTRICT JUDGE
Now
before the Court are Plaintiffs' motions for final
approval of a derivative action settlement, ECF No. 276, and
for attorney's fees and expenses, ECF No. 277. The
attorney's fees submitted for approval include fees for
“‘contract'/'discovery' attorneys
(i.e., attorneys who are not full-time firm employees but
rather were hired through an outside agency) . . . .”
ECF No. 277 at 27-28. One of the questions the Court must
answer in ruling on these motions is the appropriate hourly
rate the Court should assign to contract attorney services
when calculating the Plaintiffs' counsel's lodestar.
In
class action litigation, a district court “may award
reasonable attorney's fees and nontaxable costs that are
authorized by law or by the parties' agreement.”
Fed.R.Civ.P. 23(h). “If there is no contractual or
statutory basis to award attorneys' fees in a class
action case, a court may rely on the ‘common fund
doctrine,' a traditional equitable doctrine ‘rooted
in concepts of quasi-contract and restitution.'”
Rodriguez v. Disner, 688 F.3d 645, 653 (9th Cir.
2012) (quoting Vincent v. Hughes Air W., Inc., 557
F.2d 759, 770 (9th Cir. 1977)). The common fund doctrine
derives from the “historic equity jurisdiction”
of the federal courts, “and allows a court to award
attorney's fees to a party whose litigation efforts
directly benefit others.” Chambers v. NASCO,
Inc., 501 U.S. 32, 45 (1991). “Under the
common fund doctrine, ‘a litigant or a 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.'”
Rodriguez, 688 F.3d at 653 (quoting Boeing Co.
v. Van Gemert, 444 U.S. 472, 478 (1980)). “The
guiding principle is that attorneys' fees ‘be
reasonable under the circumstances.'” Id.
(quoting Florida v. Dunne, 915 F.2d 542, 545 (9th
Cir. 1990)). “[T]he assumption in scrutinizing a class
action settlement agreement must be, and has always been,
that the members of the class retain an interest in assuring
that the fees to be paid class counsel are not unreasonably
high.” Staton v. Boeing Co., 327 F.3d 938, 964
(9th Cir. 2003).
“Where
a settlement produces a common fund for the benefit of the
entire class, ” as here, “courts have discretion
to employ either the lodestar method or the
percentage-of-recovery method” to determine the
reasonableness of attorney's fees. In re Bluetooth
Headset Prods. Liab. Litig., 654 F.3d 935, 942 (9th Cir.
2011). “Because the benefit to the class is easily
quantified in common-fund settlements, ” the Ninth
Circuit permits district courts “to award attorneys a
percentage of the common fund in lieu of the often more
time-consuming task of calculating the lodestar.”
Id. The Ninth Circuit has maintained a
well-established “benchmark for an attorneys' fee
award in a successful class action [at] twenty-five percent
of the entire common fund.” Williams v. MGM-Pathe
Commc'ns Co., 129 F.3d 1026, 1027 (9th Cir. 1997).
Courts in the Ninth Circuit generally start with the 25
percent benchmark and adjust upward or downward depending on:
the extent to which class counsel “achieved exceptional
results for the class, ” whether the case was risky for
class counsel, whether counsel's performance
“generated benefits beyond the cash . . . fund, ”
the market rate for the particular field of law (in some
circumstances), the burdens class counsel experienced while
litigating the case (e.g., cost, duration, foregoing other
work), and whether the case was handled on a contingency
basis.
In re Online DVD-Rental Antitrust Litig., 779 F.3d
934, 954-55 (9th Cir. 2015) (quoting Vizcaino v.
Microsoft Corp., 290 F.3d 1043, 1047-50 (9th Cir.
2002)). This Court also considers the effect of settlement
size on the appropriate percentage of fees to award. See
Rodman v. Safeway Inc., No. 11-cv-03003-JST, 2018 WL
4030558, at *4-5 (N.D. Cal. Aug. 23, 2018).
In
addition, courts often cross-check the amount of fees against
the lodestar. “Calculation of the lodestar, which
measures the lawyers' investment of time in the
litigation, provides a check on the reasonableness of the
percentage award.” Vizcaino, 290 F.3d at 1050.
“The lodestar figure is calculated by multiplying the
number of hours the prevailing party reasonably expended on
the litigation (as supported by adequate documentation) by a
reasonable hourly rate for the region and for the experience
of the lawyer.” In re Bluetooth, 654 F.3d at
941. “In determining a reasonable hourly rate, the
district court should be guided by the rate prevailing in the
community for similar work performed by attorneys of
comparable skill, experience, and reputation.”
Ingram v. Oroudjian, 647 F.3d 925, 928 (9th Cir.
2011) (quoting Chalmers v. City of Los Angeles, 796
F.2d 1205, 1210-11 (9th Cir. 1986), opinion amended on
denial of reh'g, 808 F.2d 1373 (9th Cir. 1987)). The
burden of demonstrating that the requested rates are in line
with those prevailing in the relevant community is on the
plaintiffs. Blum v. Stenson, 465 U.S. 886, 895 n.11
(1984). Regardless whether the court uses the lodestar or
percentage approach, the main inquiry is whether the fee
award is “reasonable in relation to what the plaintiffs
recovered.” Powers v. Eichen, 229 F.3d 1249,
1258 (9th Cir. 2000).
Here,
Co-Lead Counsel claim 48, 367.65 hours, at hourly rates
ranging from $560 to $1, 075 for partners or “of
counsel” attorneys, $250 to $660 for associates, $365
to $420 for staff or project attorneys, and from $295 to $415
for “contract”/“discovery” attorneys
hired through an outside agency. Id. at 26-28. Based
on these figures, they calculate a lodestar of $22, 426,
479.50, which would make the multiplier for their requested
award 3.03.[1] Id. at 25-26. The work of
contract attorneys (i.e., attorneys who are not full-time
firm employees but rather were hired through an outside
agency) accounts for $9, 868, 641 of this amount, or 44.6
percent of Plaintiffs' claimed lodestar. ECF No. 281 at
22-23. In its motion, Plaintiffs' counsel does not
provide the actual hourly rate paid for the time of any
particular contract attorney, but states generally that they
were compensated at a rate somewhere between $35 and $50 per
hour. Compare ECF No. 277 at 28 n.13 (using a figure
of $40-$50 per hour); ECF No. 287 at 17 n.9 (using a figure
of $35 per hour). This mark-up is, to say the least,
“striking.” In re Anthem, Inc. Data Breach
Litig., No. 15-MD-02617-LHK, 2018 WL 3960068, at *19
(N.D. Cal. Aug. 17, 2018) (contract attorneys paid between
$25.00 and $65.00 per hour billed at rates ranging from
$185.00 to $495.00 per hour, with most over $350.00).
It
follows from the foregoing that the Court cannot determine
what value to place on the services of contract attorneys for
purposes of calculating the lodestar unless the Court
determines what the “market rate” for those
services is. Surprisingly, however, there is very little
authority on that question. As the Court observed in a
different case:
The courts have not spoken with one voice concerning the
proper treatment of contract attorney costs in the
calculation of a lodestar. Many courts hold that contract
attorneys' hours should be billed at market rates and
included in the lodestar without regard to the wage actually
paid to the contract attorney. See, e.g., Charlebois v.
Angels Baseball LP, 993 F.Supp.2d 1109, 1124 (C.D. Cal.
2012); In re Tyco Int'l, Ltd. Multidistrict
Litig., 535 F.Supp.2d 249, 272 (D.N.H. 2007). In the
view of these courts, “[t]he lodestar calculation is
intended not to reflect the costs incurred by the firm, but
to approximate how much the firm would bill a paying
client.” Tyco Int'l, 535 F.Supp.2d at 272.
Accordingly, “it is not objectionable per se .
. . to apply a multiplier to a lodestar that includes work
performed by contract attorneys, even though the profit
margin for the firms employing them was greater than the
profit margin the firms would have had for work done by
full-time employees.” Carlson v. Xerox Corp.,
596 F.Supp.2d 400, 410 (D. Conn. 2009), aff'd,
355 Fed.Appx. 523 (2d Cir. 2009). Not surprisingly, this is
the position taken by Class Counsel. See IPP Resp.
at 35 (“[I]f the contract lawyer is billed as just
another lawyer whose work makes up the fee for the matter,
the firm may bill the client any reasonable rate for the
services just as it does for one of its associates.”)
(quoting Legal Ethics, Law. Deskbk. Prof. Resp. §
1.5-4(e) (2015-2016 ed.)).
Some courts, by contrast, are unwilling to calculate a
lodestar at higher associate market rates when contract
attorneys themselves billed at much lower rates. See,
e.g., City of Pontiac Gen. Employees' Ret. Sys. v.
Lockheed Martin Corp., 954 F.Supp.2d 276, 280 (S.D.N.Y.
2013). The reasoning of these courts is that some tasks in
document-intensive litigation can and should be performed by
“low-cost, low-overhead” contract attorneys,
“and there is absolutely no excuse for paying those
temporary, low-overhead employees $40 or $50 an hour and then
marking up their pay ten times for billing purposes.”
In re Citigroup Inc. Sec. Litig., 965 F.Supp.2d 369,
395-96 (S.D.N.Y. 2013). Also, “a sophisticated client,
knowing these contract attorneys cost plaintiff's counsel
considerably less than what the firm's associate
attorneys cost (in terms of both salaries and benefits) would
have negotiated a substantial discount in the hourly rates
charged the client for these services.” City of
Pontiac, 954 F.Supp.2d 276.
In re: Cathode Ray Tube (CRT) Antitrust Litig., No.
1917, 2016 WL 4126533, at *8 (N.D. Cal. Aug. 3, 2016),
dismissed sub nom. In re Cathode Ray Tube (CRT) Antitrust
Litig., No. 16-16368, 2017 WL 3468376 (9th Cir. Mar. 2,
2017). While this Court found it unnecessary to reach the
question in CRT, see id., it believes the
question is more squarely presented here, particularly given
the enormity of the claimed contract attorney fees both as an
absolute number and as a percentage of the overall claimed
lodestar fees.
There
are several potential approaches to answering this question.
One approach, and the one suggested by Plaintiffs'
counsel, is to calculate all contract attorney fees at a
notional “market rate” determined by
Plaintiffs' counsel based on each attorney's
background and experience and the type of work performed on
the case. See, e.g., In re Tyco Int'l, Ltd.
Multidistrict Litig., 535 F.Supp.2d 249, 272 (D.N.H.
2007) (“It is therefore appropriate to bill a contract
attorney's time at market rates and count these time
charges toward the lodestar.”). This is the approach
taken by many district courts, although the “market
rate” is artificial in the sense that the rate has
never been paid - or at least, there is no evidence that it
has ever been paid - by a willing buyer. Another approach is
to allow the actual cost of the contract attorneys to
Plaintiffs' counsel only as a cost item and not to
include it in Plaintiffs' counsel's lodestar. This
approach has been taken by some district courts, see,
e.g., Dial Corp. v. News Corp., 317 F.R.D. 426, 438
(S.D.N.Y. 2016), but only at the suggestion of counsel. The
practice of billing contract attorney's fees as a cost
has much to recommend it - it “reap[s] cost savings for
the clients[]” and “promotes judicial efficiency
by avoiding a judicial determination of fees, ” In
re Anthem, Inc. Data Breach Litig., 2018 WL 3960068, at
*18 - but no court has required it. A third approach is to
include in the lodestar the hourly rate actually paid to
contract attorneys, increasing that rate by a certain amount
to account for overhead. See, e.g., In re Petrobras Sec.
Litig., 317 F.Supp.3d 858, 875-76 (S.D.N.Y. 2018),
appeal dismissed sub nom. No. 18-2120, 2018 WL
7108171 (2d Cir. Sept. 13, 2018), and aff'd, No.
18-2120, 2019 WL 4127327 (2d Cir. Aug. 30, 2019). A fourth
approach is to start with the nominal “market”
rates suggested by plaintiffs' counsel and reduce that
rate to a different nominal rate to account for the
lawyers' status as contract attorneys. In re Anthem,
Inc. Data Breach Litig., 2018 WL 3960068, at *20. This
kind of adjustment, while reducing the size of the mark-up by
plaintiffs' counsel, still does not attempt to identify
an actual market rate for the services provided by contract
attorneys.
All
these options remain open to the Court. The Court believes,
however, that an additional approach warrants consideration:
determining what actual clients typically pay for contract
attorney services when a law firm utilizes those contract
attorneys' services on behalf of that paying client. That
rate, rather than a notional rate determined by
Plaintiffs' counsel, is more likely to be the
“market rate” for those services, because
“[a]n actual price, agreed to by a willing buyer and a
willing seller, is the most accurate gauge of the value the
market places on a good.” Keener v. Exxon Co.,
USA, 32 F.3d 127, 132 (4th Cir. 1994). “Market
prices of commodities and most services are determined by
supply and demand, ” and “the rates charged in
private representations may afford relevant
comparisons.” Blum, 465 U.S. at 895 n.11. For
example, do law firms typically pass along the expense of
contract attorneys' services as a cost, as they would
expert ...