On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 99-cv-20593) District Judge: Honorable Harvey Bartle, III.
The opinion of the court was delivered by: Jordan, Circuit Judge.
Before: SLOVITER, AMBRO and JORDAN, Circuit Judges.
Three law firms and some of their clients challenge the final award of attorneys' fees that the United States District Court for the Eastern District of Pennsylvania entered on behalf of class counsel in this landmark class action.For the following reasons, we will affirm the award.
A. Diet Drugs Litigation and Settlement
This appeal arises from multidistrict mass tort litigation concerning the appetite suppressants fenfluramine, marketed as "Pondimin," and dexfenfluarmine, marketed as "Redux." Over its decade-long course, the case*fn1 has generated nearly 8000 separate orders from the District Court and numerous prior rulings and opinions from this Court. E.g., In re Diet Drugs Prods. Liab. Litig., 543 F.3d 179 (3d Cir. 2008); In re Diet Drugs Prods. Liab. Litig., 431 F.3d 141 (3d Cir. 2005); In re Diet Drugs Prods. Liab. Litig., 418 F.3d 372 (3d Cir. 2005); In re Diet Drugs Prods. Liab. Litig., 401 F.3d 143 (3d Cir. 2005); In re Diet Drugs Prods. Liab. Litig., 385 F.3d 386 (3d Cir. 2004); In re Diet Drugs Prods. Liab. Litig., 369 F.3d 293 (3d Cir. 2004); In re Diet Drugs Prods. Liab. Litig., 282 F.3d 220 (3d Cir. 2002). Although we have already set forth the background of the case and the class action settlement agreement more than once, see, e.g., Diet Drugs, 385 F.3d at 389-93; Diet Drugs, 282 F.3d at 225-29, we do so once more in order to provide context for our discussion of the fee award entered by the District Court.
Beginning in 1997, a tide of products liability lawsuits arose after researchers discovered an association between some commonly prescribed appetite suppressants and a series of disorders generally known as valvular heart disease ("VHD"). The drugs involved were "fen-phen," a diet drug regimen that paired fenfluarimine with phentermine, and dexfenlfuarmine, which was developed to produce the same anorectic effects as fen-phen without the need for a drug pairing. Evidence of serious coronary side effects from these drugs prompted the United States Food and Drug Administration ("FDA") to issue a public health advisory alert, and the pharmaceutical company Wyeth,*fn2 which was responsible for the development and promotion of fenfluramine and dexfenfluarmine, to withdraw the drugs from the market.*fn3 Former fen-phen and dexfenfluarmine users filed lawsuits and instituted class actions in numerous federal jurisdictions and state courts. Some of the earliest litigation took place in state courts in Texas, where attorneys, including Appellant Brian S. Riepen, brought numerous actions against Wyeth. Those suits generated extensive discovery, including the production by Wyeth of approximately three million pages of documents.
Many diet drug suits were also filed in federal courts. Pursuant to 28 U.S.C. § 1407, the Judicial Panel for Multidistrict Litigation transferred all of those cases, including more than 130 putative class actions, to the United States District Court for the Eastern District of Pennsylvania for coordinated and/or consolidated pretrial proceedings under MDL Docket No. 1203 (the "MDL"). Included among those actions were four cases filed by Riepen. Likewise, Appellants Freedland, Farmer, Russo, Behren & Sheller and Raymond Valori P.A. (collectively "Valori"*fn4 ) represented approximately ten clients involved in the MDL.
The District Court appointed a plaintiffs' management committee (the "PMC") to oversee the litigation and to conduct discovery of general applicability to the MDL plaintiffs. The PMC began its discovery efforts in late 1998, and, by March 1999, it had taken 80 depositions and amassed approximately nine million pages of documents, from which it winnowed 5,000 documents that, the PMC claims, established Wyeth's liability. The PMC stored the discovery results in an electronic document depository and made it available to counsel for every plaintiff in the MDL. As part of the discovery process, representatives of the PMC attended regular status conferences held by a court-appointed special discovery master (the "Special Master") and prepared motions and responses regarding class-wide discovery, in addition to addressing a variety of other pre-trial issues.
Ultimately, the PMC filed a classaction against Wyeth to pursue medical monitoring on behalf of former users of Wyeth's diet drugs. The PMC moved for class certification, and, on August 26, 1999, the Court granted the motion. By then, state courts in Illinois, New Jersey, New York, Pennsylvania, Texas, Washington, and West Virginia had also certified medical monitoring classes.*fn5
In April 1999, Wyeth, the PMC, and a coalition of counsel involved in the state court class actions began to negotiate a nationwide settlement. On November 18, 1999, they executed an elaborate settlement agreement (the "Settlement Agreement") that contemplated a series of options for class members.*fn6 At the outset, class members could obtain an echocardiogram at Wyeth's expense, to determine if they suffered from VHD, or they could exercise an initial opt-out from the settlement and pursue their claims in separate tort cases. Class members who chose not to take the initial opt-out and were diagnosed with VHD would have a second choice to make: they could receive a cash and medical services benefit or exercise an intermediate opt-out from the Settlement Agreement, which, again, would free them to turn to the tort system.*fn7 Wyeth agreed to waive its statute-of-limitations defense against tort claims by those opting out at that point. In exchange, intermediate opt-out claimants were barred from seeking punitive damages against the company.
Class members who took the cash and medical services benefit and developed more serious VHD before 2015 could choose from yet a third pair of options. They could receive payment in accordance with a matrix of calculations that assigned compensation based on different levels of severity of medical conditions.*fn8 The "matrix claims" would be processed based on the attestation of a physician, with Wyeth being able to test the foundations of the claims through an audit process permitting medical review of up to 15% of all such claims, unless the Court ordered an expanded audit for good cause shown. Alternatively, class members with worsening VHD could exercise a back-end opt-out so that they could pursue their claims in tort under the same conditions applicable to the intermediate opt-out claims.
To fund these various remedies, Wyeth agreed to create a $3.75 billion settlement fund to be administered by court- appointed trustees. The settlement fund was to be divided into two sub-funds: Fund A, into which $1 billion would be injected, would be designated for the payment of all non-matrix benefits. Fund B, which would receive $2.55 billion, would be designated for the payment of the matrix benefits. The remaining $200 million would go into an account denominated the "Fund A Legal Fees Escrow Account," from which attorneys who helped to create and implement the Settlement Agreement would be paid for services related to the non-matrix benefits.
On August 28, 2000, the District Court certified the settlement class and approved the Settlement Agreement. The settlement was hailed as an innovative departure from ordinary settlements requiring class members to make a "once-and-for-all choice" between a private remedy scheme and the tort system. Richard A. Nagareda, Autonomy, Peace, and Put Options in the Mass Tort Class Action, 115 Harv. L. Rev. 747, 796 (2002). Plaintiffs' counsel and Wyeth were praised in particular for creating the staged opt-out opportunities, which were viewed as a bold compromise between the competing concerns of individual autonomy for the class members and a comprehensive legal peace for the corporate defendant. See id. at797-805.
By the summer of 2002, however, the number of matrix claims submitted to the trust and the number of class members who exercised their intermediate and back-end opt-out rights (collectively, "downstream opt-outs") had grown well beyond Wyeth's expectations. Doubting the veracity of many of these claims, Wyeth and the PMC sought, and were granted, an order directing the medical review of 100% of the claims submitted to the settlement trust. While the 100% audit helped to ensure the integrity of the claims review, it also increased the cost of trust administration. Between the influx of new claims and the heavy processing burden they created, Wyeth feared that it would not have sufficient funds to satisfy all of its diet drug liabilities. The District Court likewise concluded that the settlement was in jeopardy, commenting that "it is not unlikely, absent some curative amendment, that thousands of deserving class members may never receive any compensation for their medical conditions from ingesting Pondimin and Redux." In re Diet Drugs Prods. Litig., 226 F.R.D. 498, 509 (E.D. Pa. 2005).
Wyeth and the PMC thus worked to amend the Settlement Agreement. Most significantly for present purposes, one of the changes, denominated the "Seventh Amendment," altered the payment matricies so that pending matrix level I and II claimants became so-called "Category One Class Members." The claims of those Category One Class Members were administered separately from the settlement trust, subjected to independent medical review, and compensated from a separate fund called the "Supplemental Class Settlement Fund," into which Wyeth injected an additional $1.275 billion.*fn9
The MDL and settlement process yielded four potential sources for fees to compensate the PMC and other attorneys who had a hand in creating common benefits for the enormous class of claimants (collectively, "Class Counsel"). First, through Pretrial Order ("PTO") 467, entered in 1998, the District Court ordered Wyeth to withhold 9% of the payments it made to plaintiffs whose cases were transferred to the MDL and place those funds in the "MDL Fee and Cost Account," from which Class Counsel would be compensated for providing case-wide services. Likewise, the Court provided for the sequestration of 6% of the value of claims in state court cases where the litigation was coordinated with the MDL.*fn10 That money also went into the MDL Fee and Cost Account. The percentages were to be deducted from the fees due to the individual lawyers for the opt-out claimants who recovered against Wyeth.*fn11
Second, as discussed above, Wyeth deposited $200 million into the Fund A Legal Fees Escrow Account pursuant to the Settlement Agreement. That account was the means of paying Class Counsel for services related to the non-matrix benefits.
Third, also pursuant to the Settlement Agreement, $229 million was transferred from Fund B into an account known as the "Fund B Legal Fees Escrow Account" to compensate Class Counsel who helped to create the matrix benefits.
Fourth and finally, the Seventh Amendment authorized the Court to award a "Common Benefit Percentage Amount," i.e., "common benefit fees to attorneys for professional services ... found by the Court to be of 'common benefit' to Category One Class Members." (App. at 11882.) Those common benefit fees would be drawn directly from the Supplemental Class Settlement Fund, and not a separate legal fees account that correlated to the fund.*fn12 Where a Category One Class Member was represented by an attorney, the common benefit award was to be deducted from the attorney's fees.*fn13
To summarize, then, the Court was authorized to pay Class Counsel from four distinct "pots" of money: the MDL Fee and Cost Account, the Fund A Legal Fees Escrow Account, the Fund B Legal Fees Escrow Account, and the Supplemental Class Settlement Fund. The first pot was established to compensate Class Counsel for services, such as its efforts in obtaining and storing discovery, performed for the benefit of all class members, including those who were compensated outside the context of the Settlement Agreement because, for example, they suffered from PPH, opted out of the Settlement Agreement, or participated in coordinated state litigation. Each of the other pots corresponded to a particular fund established pursuant to the Settlement Agreement and was evidently intended to reward counsel for creating the particular benefits that claimants received from that fund. Collectively, we will refer to these latter three pots as the "Settlement Accounts."
In the spring of 2001, the District Court established procedures that would govern its consideration of the fee award due to Class Counsel. As an initial step, it required all Class Counsel to submit time and expense records to a court-appointed auditor and to a lawyer designated as Plaintiffs' Liaison Counsel. The auditor, who was charged with determining which items of time and expense met previously established criteria for payment, reported that seventy-two law firms had performed 354,431.49 hours of compensable work and that a "lodestar value" of $101,076,658.54 was appropriate in view of their services.*fn14
Each law firm claiming to be Class Counsel then had to submit to Plaintiffs' Liaison Counsel a fee presentation, which was to contain a litany of information relevant to the services rendered, including "[a] summary of the professional time for which compensation or reimbursement is claimed ..." and "[v]erified copies of all pertinent time records which were maintained contemporaneously ... throughout this litigation ... . " (App. at 7733.) The seventy-two firms that provided their records to the auditor filed fee presentations with Plaintiffs' Liaison Counsel, who, on February 15, 2002, submitted to the Court a thirty-volume compendium containing the fee presentations. On the same day, those same seventy-two firms filed a joint petition for attorneys' fees in which they requested a total of approximately $567 million from the four available funds.
There were nine objectors to the joint petition, including Riepen.*fn15 Riepen argued that he should not have to pay an MDL assessment because he did not use PMC discovery, and he argued that the requested class fee was too high, given what he viewed as the low risk of non-compensation in the case. On March 4, 2002, the District Court entered an order permitting the objectors to request and, subject to court approval, to take limited discovery regarding the petition. Riepen participated in several discovery conferences, but did not seek any discovery. Other objectors deposed PMC lead counsel on subjects that included the details of the records submitted to Plaintiffs' Liaison Counsel and the contributions of contract attorneys to the PMC's efforts.*fn16 Once discovery was complete, the District Court held a two-day hearing on the propriety of the fee award sought in the petition.
The District Court ruled on the fee petition on October 2, 2002, in an order designated as "PTO 2622." In re Diet Drugs Prods. Liab. Litig., Civ. Action No. 99-20593, 2002 WL 32154197 (E.D. Pa. Oct. 3, 2002). Based on its findings that (1) "[t]he PMC faced significant risk at the beginning of the litigation that the work they did would be unsuccessful and uncompensated," (2) "[t]he discovery package created by the PMC ultimately paved the way for the class settlement and many individual settlements," and (3) "the PMC conferred great benefits on all litigants in the MDL and state-coordinated litigation [and] ... performed their duties with admirable skill, diligence, and efficiency," the Court awarded Class Counsel 6% of the recoveries by claimants whose actions were part of the MDL and 4% of the recoveries by claimants in coordinated state actions (the "6% & 4% Assessment").*fn17 Id. at *19. That entitled Class Counsel to a distribution of $76,861,455 from the MDL Fee and Cost Account.
As to the fees to be drawn from the Settlement Accounts, the Court found it "premature to perform a definitive ... analysis ... [because t]here is a significant amount of work still to be done ... in assisting the administration of the Settlement Agreement." Id. at *11. It concluded, however, that Class Counsel was entitled to a payment of almost $77 million -- $38,430,728 from the Fund A legal fees escrow account and the same amount from the Fund B legal fees escrow account.*fn18
Riepen and other objectors appealed, but we dismissed for lack of jurisdiction, holding that PTO 2622 was neither a final order nor a collateral order from which an appeal could be brought. Diet Drugs, 401 F.3d 143.
On January 5, 2007, the Court sought suggestions regarding the procedures and timetable it should use in determining a final fee award. It invited any interested party to submit a memorandum on the subject, and it scheduled a hearing for March 1, 2007.*fn19 In response, the PMC filed a compendium of written agreements among the now ninety firms that claimed entitlement to common benefit fees and between those firms and a group of lawyers that came to be known as the "Major Filers." The Major Filers consist of more than fifty law firms that together represented approximately 97% of the downstream opt-out plaintiffs, 26,000 claimants who were compensated under the Seventh Amendment, and half of all class members who received matrix payments through May 31, 2007.*fn20 Neither
Riepen nor Valori was among the Major Filers.
Those agreements (the "Major Filer Agreements"*fn21 reflected the shared understanding of Class Counsel and the Major Filers that "the amount to be awarded in common benefit fees ... is to be determined by the Court in the exercise of its sound discretion ... ." (App. at 12976-77.) Subject to that understanding, however, Class Counsel and the Major Filers agreed that Class Counsel would request the entire $200 million originally deposited in the Fund A Legal Fees Escrow Account, plus interest; $178,111,111 from the Fund B Legal Fees Escrow Account;*fn22 and 7% of the benefits paid under the Seventh Amendment. Additionally, they agreed that it was appropriate for Class Counsel to levy a reduced assessment -- 2% in federal cases and 1.33% in state cases -- on recoveries obtained by downstream opt-out claimants. The rationale behind the reduction, as stated in the Major Filer Agreements, was that recoveries in the downstream opt-out cases -- as opposed to the initial opt-out and PPH cases -- occurred in part because of the Settlement Agreement, which had its own mechanisms for compensating attorneys.*fn23 In the PMC's words, the reduction "served as a prophylactic against 'double dipping'" by Class Counsel. (Appellee's Br., No. 08-2387, at 25.) The Major Filers agreed that they would not object to the fees sought by Class Counsel, and the parties represented that there were no other "agreements, promises, or undertakings" among them. (App. at 13023.)
After the March 1 hearing, the District Court entered an order, in accordance with the procedures it had established to adjudicate the interim fee award, requiring that the auditor submit a report of the compensable time and expenses claimed by counsel, that Class Counsel submit supplemental fee presentations to Plaintiffs' Liaison Counsel, and that Plaintiffs' Liaison Counsel file a compendium of the fee presentations with the Court. The auditor reported that, from the inception of litigation, Class Counsel had expended 553,020.53 hours in common benefit time, thereby producing a lodestar value of $156,849,257.24. On July 16, 2007, Plaintiffs' Liaison Counsel filed the compendium of fee presentations and, on behalf of Class Counsel, a joint fee petition that complied with the terms to which Class Counsel and the Major Filers had agreed.
As it did in connection with the 2002 joint fee petition, the Court authorized those who objected to the petition to request limited discovery. Valori moved for discovery on August 7, 2007. The Special Master concluded that the motion was untimely and, because it did not adhere to the Court's instruction that any such motion set forth a concise statement of the need and legal basis for discovery, deficient. Nevertheless, the Court permitted Valori to depose the PMC's lead counsel regarding the terms and meaning of the compendium of ...