On October 22, 2014, Justice Friedman of the New York County Commercial Division issued a decision in West Palm Beach Police Pension Fund v. Gottdiener, 2014 NY Slip Op. 32777(U), awarding attorney fees to class counsel.
In the underlying action, the plaintiff filed, on behalf of a class of all common stock holders, an action challenging a merger involving the financial adviser Duff & Phelps. Plaintiff alleged breach of fiduciary duty by the Duff & Phelps board, as well as the existence of material misrepresentations in the proxy statement. After substantial settlement discovery, the parties agreed on a settlement wherein Duff & Phelps would make additional disclosures in connection with the merger. Plaintiff moved without opposition to certify a settlement class, which the court granted.
Plaintiff also moved for an award of attorney fees under CPLR § 909. The parties had negotiated a cap of $500,000 on an attorney fee award. Plaintiff’s counsel demanded the full amount, and defendants did not object. However, the court, largely relying on Second Circuit case law, conducted its own analysis because “while the presence of an arms’ length negotiated fee agreement among the parties weighs strongly in favor of approval, such an agreement is not binding on the court. If the court finds good reason to do so, it may reject an agreement as to attorneys’ fees just as it may reject an agreement as to the substantive claims.” (Internal quotation omitted.)
The court applied the lodestar method rather than the percentage method (there was no money paid in the settlement anyway) and accepted all of the hours billed by class counsel and their hourly rates as reasonable, again without objection from the defendants. To reach their $500,000 demand, plaintiff’s counsel requested a 1.2 multiplier as an enhancement to their fees, but the court refused, finding that “the contingency risk that plaintiff faced was insubstantial, given the ubiquity of settlements in shareholder derivative actions challenging mergers based upon insufficient disclosures . . . [and] the risk of success [is] perhaps the foremost factor to be considered in determining whether to award an enhancement.” (Internal citation and quotation omitted.)
The court also quoted a decision by Delaware’s Chancellor Strine expressing a general disapproval attorney fee awards for class settlements “where there is no material change in the economic terms of deals and simply some additional disclosures” but still approving the fee award in the particular case. It seems as though Justice Freidman felt the same way.