Ark. Teacher Ret. Sys. v. State St. Bank & Trust Co., C.A. No. 11-10230-MLW

• Decision Date: 27 February 2020
• Docket Number: C.A. No. 11-10230-MLW, C.A. No. 11-12049-MLW, C.A. No. 12-11698-MLW
• Citation: 512 F.Supp.3d 196
• Parties: ARKANSAS TEACHER RETIREMENT SYSTEM, on behalf of itself and all others similarly situated, Plaintiff, v. STATE STREET BANK AND TRUST COMPANY, Defendant. Arnold Henriquez, Michael T. Cohn, William R. Taylor, Richard A. Sutherland, and those similarly situated, Plaintiffs, v. State Street Bank and Trust Company, Defendant. The Andover Companies Employee Savings and Profit Sharing Plan, on behalf of itself, and James Pehoushek-Stangeland and all others similarly situated, Plaintiffs, v. State Street Bank and Trust Company, Defendant.
• Court: U.S. District Court — District of Massachusetts

512 F.Supp.3d 196

ARKANSAS TEACHER RETIREMENT SYSTEM, on behalf of itself and all others similarly situated, Plaintiff,

v.STATE STREET BANK AND TRUST COMPANY, Defendant.

Arnold Henriquez, Michael T. Cohn, William R. Taylor, Richard A. Sutherland, and those similarly situated, Plaintiffs,

v.State Street Bank and Trust Company, Defendant.

The Andover Companies Employee Savings and Profit Sharing Plan, on behalf of itself, and James Pehoushek-Stangeland and all others similarly situated, Plaintiffs,

v.State Street Bank and Trust Company, Defendant.

C.A. No. 11-10230-MLW

C.A. No. 11-12049-MLW

C.A. No. 12-11698-MLW

United States District Court, D. Massachusetts.

Filed February 27, 2020

Evan R. Hoffman, Thornton & Naumes LLP, Michael A. Lesser, Michael P. Thornton, Garrett C. Bradley, Thornton Law Firm LLP, Boston, MA, Jonathan D. Selbin, Pro Hac Vice, Daniel P. Chiplock, Lieff Cabraser Heimann & Bernstein, LLP, Lawrence A. Sucharow, Pro Hac Vice, Nicole M. Zeiss, Pro Hac Vice, David J. Goldsmith, Joel H. Bernstein, Michael H. Rogers, Paul J. Scarlato, Labaton Sucharow LLP, New York, NY, Richard M. Heimann, Pro Hac Vice, Robert L. Lieff, Pro Hac Vice, Lieff, Caraser, Heimann & Bernstein LLP, San Francisco, CA, for Plaintiff Arkansas Teacher Retirement System.

Laura R. Gerber, Lynn Lincoln Sarko, Keller Rohrback LLP, Seattle, WA, for Plaintiffs James Pehoushek-Stangeland, Andover Companies Employee Savings and Profit Sharing Plan.

Beth E. Bookwalter, Daniel W. Halston, Jeffrey B. Rudman, William H. Paine, Wilmer Hale LLP, Boston, MA, for Defendant.

MEMORANDUM AND ORDER

WOLF, D.J.

TABLE OF CONTENTS

I. SUMMARY...207

II. PROCEDURAL BACKGROUND...219

III. THE STANDARDS FOR AWARDING ATTORNEYS’ FEES...220

IV. THE FACTS...223

A. The Approval of the Proposed Settlement...223

B. The Reports of Errors in the Fee Petitions...225

C. The Appointment of the Master...228

D. The Master's Investigation...230

E. The Report and Recommendations...232

F. Proceedings Following Submission of the Master's Report and Recommendations...234

V. THE AWARD OF ATTORNEYS’ FEES...238

A. The Role of the Court...238

B. Megafund Cases...238

C. The Applicable Standards...239

D. Analysis of Certain Relevant Factors...239

E. Public Policy Considerations...241

i. The Duty of Candor...241

ii. Thornton, Labaton, and Lieff...242

F. An Award of $60,000,000 in Attorneys’ Fees is Reasonable and Most Appropriate...258

G. Allocation of the Fee and Expense Award...266

H. Service Awards...270

VI. REFERRAL TO THE MASSACHUSETTS BOARD OF BAR OVERSEERS...270

VII. IMPLEMENTATION OF THIS MEMORANDUM AND ORDER...270

VIII. CONCLUSION...271

IX. ORDER...271

I. SUMMARY

In 1913, Supreme Court Justice Oliver Wendell Holmes said that "[j]udges are apt to be naif, simple-minded men ...." Occasional Speeches of Justice Oliver Wendell Holmes 172 (Howe ed. 1962). This case is a reminder that he was right.

Judges trust lawyers. They expect that lawyers will provide the court the accurate and complete information that is necessary to decide matters properly. The Federal Rules of Civil Procedure and the Massachusetts Rules of Professional Conduct make these expectations legal obligations.

For example, Federal Rule of Civil Procedure 11(b) provides that by presenting a pleading to a court an attorney is representing that he or she has made a reasonable inquiry and that all factual contentions are supported by evidence. This means, among other things, that an attorney who has signed a memorandum or sworn declaration that is submitted to the court represents that he or she has read the document and that the statements in it are true. In addition, Rule 11 requires that an attorney not continue to advocate positions based on false statements after he or she learns they are not true. Similarly, Massachusetts Rule of Professional Conduct 3.3(a) requires that an attorney not make a false statement to a court and that an attorney correct any such false statement when it is discovered to be untrue.

Judges also expect that complex class action cases conform to the paradigm prescribed by statutes, Supreme Court decisions, and other well-established jurisprudence. Although the instant consolidated cases are not subject to the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4, the parties agree that its principles apply here too.

Prior to the enactment of the PSLRA, there was "a cottage-industry of specialized securities litigation firms that researched potential targets for [class action] suits, enlisted plaintiffs, controlled the course of the litigation, and often negotiated settlements that resulted in huge profits for the law firms with only marginal recovery for the shareholders." In re Cendant Corp. Litig., 182 F.R.D. 144, 145 (D.N.J. 1998) (internal quotation marks omitted), aff'd, 264 F.3d 201 (3rd Cir. 2001). The PSLRA was intended to assure that institutional investors with a large financial stake in the litigation would "choose counsel rather than, as [was] true [in 1995], counsel choosing the plaintiff." H.R. Conf. Rep. No. 104-369, at 35. It was expected that such an institutional investor would have "sophistication and interest in the litigation [ ] sufficient to permit that ... entity to function as an active agent for the class" and "actively supervise the conduct of the litigation." Cendant Corp., 264 F.3d at 266-67.

Attorneys always have a duty to provide their clients with the information necessary to permit the clients to make informed decisions concerning the representation. See Massachusetts Rules of Professional Conduct 1.4(a)(1), (b). For an attorney representing a class, providing material information to all class members is required. Courts expect counsel to discharge this duty too.

When a class action has been settled, a common fund must be divided between class counsel and the members of the class. At this point, there is a tension between the interests of counsel in maximizing their compensation and the interests of members of the class in maximizing their recovery. The court, therefore, acts as a fiduciary to protect the interests of the class.

A defendant who has agreed to settle for a total sum has no interest in how the common fund is divided between counsel and the class. Thus, the usual adversary system does not operate to expose possible misrepresentations by counsel for the class to the court. Recognizing this, the Massachusetts Rules of Professional Conduct deem a petition to approve the settlement of a class action to be an ex parte proceeding. See Mass. R. Prof. C. 3.3 cmt. 14A. Accordingly, lawyers for the class are required to inform the court of all material facts, "whether or not the facts are adverse" to the attorneys’ personal interests. Mass. R. Prof. C. 3.3(d). Judges trust attorneys to discharge this duty when seeking an award of attorneys’ fees, among other things.

Usually courts award class counsel a percentage of the common fund as attorneys’ fees. Frequently the most appropriate award is found to be in the 20 to 30% range. However, the percentage award is usually less than 20% if the common fund is more than $250,000,000.

There are a series of well-known factors that judges customarily consider in awarding attorneys’ fees. These include:

(1) the size of the fund and the number of persons benefitted; (2) the skill, experience, and efficiency of the attorneys involved; (3) the complexity and duration of the litigation; (4) the risks of the litigation; (5) the amount of time devoted to the case by counsel; (6) awards in similar cases; and (7) public policy considerations.

In re Neurontin Mktg. & Sales Practices Litig., 58 F. Supp. 3d 167, 170 (D. Mass. 2014) (citation omitted). Assuring the integrity of judicial proceedings is an important public policy consideration. Therefore, among other things, "courts should look to the various codes of ethics as guidelines for judging the conduct of counsel" in making fee awards. In re Agent Orange Prod. Liab. Litig., 818 F.2d 216, 222 (2d Cir. 1987).

" ‘Every lawyer is an officer of the court [and] has a duty of candor to the tribunal.’ " Pearson v. First NH Mortg. Corp., 200 F.3d 30, 38 (1st Cir. 1999) (quoting Burns v. Windsor Ins. Co., 31 F.3d 1092, 1095 (11th Cir. 1994) ). If counsel in a class action fail in their duty to be candid with the court, it is permissible and appropriate for the court to take this into account in deciding what amount within the reasonable range is most appropriate to award as attorneys’ fees. In some cases it is most appropriate to deny an award of attorneys’ fees as a sanction for misconduct.

In addition to considering the customary factors, courts regularly check the reasonableness of a requested fee award against the "lodestar" of plaintiff's counsel to determine whether awarding a multiple of the lodestar is justified. A lodestar is calculated by multiplying the number of hours reasonably spent on the litigation by a reasonable hourly rate for each attorney. See In re Thirteen Appeals Arising out of the San Juan Dupont Plaza Hotel Fire Litig., 56 F.3d 295, 305 (1st Cir. 1995) (citing Blum v. Stenson, 465 U.S. 886, 896-902, 104 S.Ct. 1541, 79 L.Ed.2d 891 (1984) ). "Reasonable fees are to be calculated according to the prevailing market rates in the relevant community ...." Blum, 465 U.S. at 895, 104 S.Ct. 1541. "[T]he rate that private counsel actually charges for her services, while not conclusive, is a reliable indicium of market value." United States v. One Star Class Sloop Sailboat, 546 F.3d 26, 40 (1st Cir. 2008) (emphasis added).

Only counsel for a class possess the information necessary to calculate the lodestar, which they know will be used to test the reasonableness of their request for attorneys’ fees. Therefore, it is especially important that their representations concerning the lodestar be reliable. Judges expect that such representations have been carefully considered and are correct.

In 2016, these consolidated cases seemed to fit the PSLRA paradigm for class actions. Arkansas...