Commercial Division Blog

Posted: June 22, 2014 / Categories Commercial, Law Firms and Professional Ethics, Class Actions

Class Counsel Awarded Reduced Fees

On June 13, 2014, Justice Ramos of the New York County Commercial Division issued a decision in Schumacher v. NeoStem, Inc., 2014 NY Slip Op. 50919(U), awarding fees to class counsel in an amount significantly lower than that requested.

In Schumacher, the court was asked to certify a class, approve a class settlement and award class counsel attorneys' fees. Class counsel represented to the court "that the total number of hours spent on" the "litigation was 455.25 and [sought] a multiplier of 1.75, totaling $477,817.16." The court awarded only $125,000. It explained the factors it considered as follows:

Under CPLR 909, attorneys for a class that has been successful (through judgment or settlement) may be awarded reasonable attorneys' fees. When granting fees, a trial judge has broad discretion in deciding whether, and in what amount attorneys' fees should be awarded. Generally, the Lodestar" method is employed to calculate reasonable attorney's fees, which is calculated by multiplying the reasonable hours expended on the action by a reasonable hourly rate.

Class counsel must establish through competent evidence that its fees were consistent with customary fees charged for similar services by lawyers in the community with like experience and of comparable reputation, or were reasonable.

In the event that the court finds that an attorney spent excessive or unreasonable hours, it may exclude that amount from the calculation.
. . .

Counsel for a prevailing party must exercise billing judgment, that is, act as he would under the ethical and market restraints that constrain a private sector attorney's behavior in billing his own clients. From reviewing the billing records, is evident that a great deal of the expenses could have been avoided. Moreover, plaintiff's counsel has not established by clear and convincing evidence that the time expended was necessary to achieve the results obtained. While it is widely acknowledged that a securities class action is by its very nature a complex animal, the complexity of the underlying issues of executive compensation do not appear extraordinary.

. . . A court may apply a multiplier to the lodestar figure to account for factors such as the risk of litigation and the performance of the attorneys.

Ultimately, the degree of a plaintiff's success is the most critical factor in determining the reasonableness of a fee award.

Considering all of these factors, the court found that class counsel's work was duplicative--both within the matter and between related matters--and that its success did not justify a multiplier.

It is often hard to have one's work scrutinized after-the-fact. Perhaps the best lesson here is no matter how reasonable counsel might view its work when it is doing it, counsel seeking fees from an opponent should nonetheless expect that it will not recover for all of its billings.