The opinion of the court was delivered by: BARTLE
These are two related securities class actions. Plaintiffs, stockholders of U.S. Healthcare, Inc., claimed that defendants engaged in a scheme to defraud by withholding adverse information about the company, thereby maintaining the stock at an inflated price during the class period. With discovery completed and the trial date fast approaching, counsel advised the court that the parties had reached a proposed settlement. After notice and a hearing as required under Rule 23(e) of the Federal Rules of Civil Procedure, the court approved the settlement in the amount of $ 22,000,000. In doing so, the court took into account the various factors set forth in Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975). See also General Motors Corp. Pick-Up Truck Fuel Tank Prod. Liab. Litig., 55 F.3d 768 (3d Cir.), cert. denied, 133 L. Ed. 2d 45, 116 S. Ct. 88 (1995). We must now decide the issue of counsel fees and costs.
Plaintiffs' counsel are entitled to a fee, as well as costs, to be paid from the common fund they have created for the shareholder class members. General Motors, 55 F.3d at 820 n.39. The plaintiffs' counsel request a fee of $ 7,040,000, which represents 32% of the $ 22,000,000 obtained. In addition, they seek costs in the amount of $ 1,033,529.
There are two different means which have been approved for calculating counsel fees in common fund cases. One is the lodestar method and the other the percentage of recovery method. Under the former, a court first determines how many hours were reasonably spent on the case by each attorney and in what manner. Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161, 167 (3d Cir. 1973). The court then values these services, applying a reasonable hourly rate and weighing each attorney's legal reputation and status. Id. The number of hours are multiplied by the value, producing the lodestar. See General Motors, 55 F.3d at 819 n.37. This amount should not be augmented based on the contingent nature of the success of the litigation or any similar factor. City of Burlington v. Dague, 505 U.S. 557, 120 L. Ed. 2d 449, 112 S. Ct. 2638 (1992); General Motors, 55 F.3d at 822.
The percentage of recovery method, now favored by the Court of Appeals for the Third Circuit in common fund cases, employs a different approach. See General Motors, 55 F.3d at 821. The court awards to counsel a percentage of the total settlement fund, with the objective of rewarding counsel for success and penalizing it for failure. Id. at 821-22. Unlike the lodestar method, there is no advantage to counsel in prolonging the case to enhance the fee. Here we will utilize the percentage of recovery method as the more appropriate one.
The Court of Appeals has instructed the district courts to play an active role in determining the amount of counsel fees to be awarded in this type of action. The court must protect the rights of the class members whose counsel, when seeking a fee, stand in a position adverse to their clients. A class member, unless he or she hires separate counsel (at a cost that will probably be significantly greater than his or her individual recovery), is clearly at a disadvantage in challenging any fee petition. Moreover, once a settlement has been reached, defendants' counsel has no real incentive to object, and predictably did not do so here. A defendant at that point has no interest in how the pie is divided. The fee application therefore is subject to "thorough judicial review" in order to assure that no overreaching occurs and that counsel and class members alike are treated fairly. General Motors, 55 F.3d at 819.
As noted above, we approved a settlement of $ 22,000,000 in a separate hearing. We found it to be fair, adequate, and reasonable. We recognized then and recognize now that plaintiffs' counsel faced formidable adversaries and would have had to confront a number of serious evidentiary hurdles if this case had gone to trial. A victory for the plaintiffs at the end of the day was by no means assured. The result plaintiffs' counsel achieved was commendable. Nonetheless, we must balance any fee award against the interests of the class members, who after all, are the beneficiaries of this fund. The issue is one of fair and reasonable compensation to counsel, who took serious risks and created a sizable fund, while preventing a windfall detrimental to the class members.
We have decided that an award of 25% of the fund is proper. This means a fee of $ 5,500,000. The Court of Appeals has noted that class action fee awards have ranged from 19% to 45%. See General Motors, 55 F.3d at 822. While the percentage applied here is at the lower end of the spectrum, we are influenced by the size of the settlement, which, at $ 22,000,000, is one of the largest in recent memory in this district. It is appropriate to use a sliding scale when the settlement climbs to this magnitude. See Court Awarded Attorney Fees, Report of the Third Circuit Task Force (October 8, 1985), reprinted in 108 $=EF.R.D.$=F 237, 256 (1985). Although any fee award is necessarily fact specific, we note that our colleague, Judge Raymond J. Broderick, awarded a similar 25% fee in a securities case which also settled for $ 22,000,000. See In re SmithKline Beckman Sec. Litig., 751 F. Supp. 525, 526, 534 (E.D. Pa. 1990). We believe $ 5,500,000 adequately rewards experienced counsel who faced significant obstacles to obtain an excellent result, while giving the shareholder beneficiaries their just due.
The Court of Appeals has suggested that even when we use the percentage of recovery method to determine counsel fees, we should check the result against the lodestar method "to assure that the precise percentage awarded does not create an unreasonable hourly fee." General Motors Corp., 55 F.3d at 822. Our fee award is also appropriate in light of the lodestar computation.
Using that method, the parties calculated their total fees at $ 2,085,260.65. In their fee petition, however, counsel provided only a modicum of supporting information. They simply disclosed the total fee for each of the three law firms involved and the total number of hours (8,772) that the firms worked on the case. No further breakdown or description was provided. The rendition of the costs was similarly inadequate. Since this court must protect the interests of the class members, we requested counsel to furnish us with their contemporaneous time sheets with explanations of work done, the hourly rate for each lawyer working on the cases, and a detailed categorization of their costs. Counsel promptly made supplemental filings.
We have now reviewed these submissions and find that the hourly rates, staffing, and the work performed were fair and reasonable under the circumstances. We applaud the three firms for dividing the labor so as to avoid needless duplication. The $ 5,500,000 award is over 2 1/2 times the lodestar and amounts to a generous but fair premium in terms of dollars. To have granted counsel the requested $ 7,040,000 fee would have created an "unreasonable hourly" fee. General Motors, 55 F.3d at 822.
We now turn to the issue of costs, a figure calculated by counsel to be $ 1,033,529. Not surprisingly, the bulk of the costs were related to expert witnesses. While counsel have now presented a comprehensive breakdown of their fees, they have not, despite the court's request, delineated their costs as fully. Enough documentation has been provided, however, for this court to determine that the professed expenses are slightly excessive. For example, the Milberg, Weiss firm claims to have spent $ 13,271.36 on hotels, meals, and transportation, even though counsel only had to travel between New York and Philadelphia, the defendants were located in this region, and many of the experts were locally-based. This sum is unreasonable. The Milberg, Weiss firm also seeks $ 2,148.02 in secretarial overtime. We reject this item. The class members should not suffer because counsel elected to have some clerical work completed after normal business hours. Counsel also expended $ 107,808.26 on photocopying and reproduction. They do not identify how many pages were copied or a per page charge. This sum appears to be unduly inflated. Finally, ...