Multiplier Trends And Attorney “Make Work” Conclusion Are Among The Takeaways.
Right around July 16, 2019, three law professors—Stephen J. Choi, Jessica Erickson and A.C. Pritchard–published a paper exploring fee recovery in federal securities cases involving big company defendants which result in mega-settlements. They surveyed 1,719 federal securities cases between 2005 and 2016. We link their paper here and summarize the findings which we found to be of interest:
- Institutional investors have reduced fee percentage recovery by plaintiffs’ counsel over time, but they have not been the active watchdogs intended by Congress.
- Judges award the fees requested by plaintiffs’ counsel in 85% of the cases.
- Judges award larger fees when the lodestar cross-check is done, rather than just using the percentage of recovery method alone.
- Average hourly rate in these cases is $688.
- The median multiplier is 1.105.
- The largest securities cases with respect to settlement amounts receive more scrutiny by district judges.
- Multipliers show an upward trend with the defendant company size.
- Multipliers go up if the case is likely to settle.
- Courts generally award multipliers in more egregious fraud cases, based on the conduct of the defense rather than for risk (especially in cases where dismissal is unlikely).
- Because district judges tend to award lower percentages of recovery in mega-settlement cases, the professors found that there was a larger frequency of “make work”—hours billed not to advance the case but support a big fee award—especially where multiple lead counsel is involved.
- They conclude: “Overall, our results suggest that plaintiffs’ attorneys are receiving windfall fee awards from mega-settlement cases at shareholders’ expense.”