In re Cardinal Health Inc. Securities Litigations, C2-04-575.

• Decision Date: 31 December 2007
• Docket Number: No. C2-04-575.,C2-04-575.
• Parties: In re CARDINAL HEALTH INC. SECURITIES LITIGATIONS, Plaintiff, This Document Relates To: All Securities Actions.
• Court: U.S. District Court — Southern District of Ohio

528 F.Supp.2d 752

In re CARDINAL HEALTH INC. SECURITIES LITIGATIONS, Plaintiff,

This Document Relates To: All Securities Actions.

No. C2-04-575.

United States District Court, S.D. Ohio, Eastern Division.

December 31, 2007.

COPYRIGHT MATERIAL OMITTED

John R. Climaco, Scott D. Simpkins, Climaco Lefkowitz Peca Wilcox & Garofoli LPA, Daniel Richard Karon, Goldman Scarlato & Karon, P.C., Jack Landskroner, Landskroner-Grieco-Madden, Ltd., Cleveland, OH, James M. Wilson, Martin D. Chitwood, Chitwood Harley Harnes LLP, Atlanta, GA, Joseph F. Murray, Brian K. Murphy, Geoffrey J. Moul, Murray Murphy Moul & Basil, Patrick G. Warner, David P. Meyer, David P. Meyer & Associates Co. LPA, Daniel N. Abraham, Colley Shroyer & Abraham Co., L.P.A., Columbus, OH, Marc A. Topaz, Schiffrin & Barroway LLP, Radnor, PA, Trig R. Smith, Luke 0. Brooks, Darren J. Robbins, Henry Rosen, Jeffrey W. Lawrence, Lesley E. Weaver, Ramzi Abadou, Shirley H. Huang, Sylvia Wahba-Keller, Tor Gronborg, William S. Lerach, Lerach Coughlin Stoia Geller Rudman & Robbins, LLP, San Diego, CA, Melvyn I. Weiss, David Bershad, Peter E. Seidman, Steven G. Schulman, Milberg Weiss Bershad Hynes & Lerach, LLP, Robert N. Cappucci, Stephen. D. Oestreich, Vincent R. Cappucci, William W. Wickersham, Entwistle & Cappucci LLP, New York, NY, Richard Stuart Wayne, Joseph J. Braun, Strauss & Troy, Cincinnati, OH, Scott E. Smith, Smith Phillips & Associates Co. LPA, Worthington, OH, Solomon B. Cera, Gold, Bennett, Cera & Sidener, LLP, San Francisco, CA, for Plaintiffs.

Geoffrey J. Ritts, John M. Newman, Jr., Jones Day Reavis & Pogue, Paul P. Eyre, Baker & Hostetler, Cleveland, OH, Brian G. Selden, J. Kevin Cogan, J. Todd Kennard, Jones Day, Mark Alan Johnson, Baker & Hostetler, Shawn J. Organ, Jones Day, Roger Philip Sugarman, Kegler Brown Hill & Ritter, John Ryan Gall, Pamela H. Thurston, Squire Sanders & Dempsey, Robert H. Nichols, Daniel M. Anderson, John Patrick Gilligan, John Cooper McDonald, Schottenstein Zox & Dunn, Columbus, OH, Arthur S. Greenspan, Richards, Spears, Kibbe & Orbe, Charles D. Riely, Christopher T. Schulten, James J. Benjamin, Jr., Stephen M. Baldini, Akin, Gump, Strauss, Hauer, Feld, LLP, New York, NY, Michele L. Odorizzi, Mayer, Brown, Rowe & Maw, LLP, Chicago, IL, for Defendants.

OPINION AND ORDER

ALGENON L. MARBLEY, District Judge.

I. INTRODUCTION

This matter is before the Court upon Lead Counsel's request for attorneys' fees arising out of a $600 million settlement between Cardinal Health, Inc. ("Cardinal" or the "Company") and its shareholders. This is the largest securities class action settlement in the Sixth Circuit, and the attorneys request 24.167% of the settlement in fees, equalling $145 million.

Pursuant to Rule 23 of the Federal Rules of Civil Procedure, the Court conducted a fairness hearing, where the parties sought final approval of the $600 million settlement, requested approval of Lead Plaintiffs costs pursuant to 15 U.S.C. § 77z-1(a)(4), and asked the Court to award Lead Counsel reasonable fees and expenses. The Court subsequently approved the $600 million settlement as "fair, reasonable, and adequate," but reserved the Lead Counsel's request for attorneys' fees ($145 million), attorneys' expenses ($2,241,821,10), and Lead Plaintiff's costs ($82,452.81¹), for further consideration.

The Court has considered the parties' briefs, the ten objections, the various studies relating to the award of attorneys' fees in class actions,² and the affidavits of Professors Charles Silver and Arthur R. Miller. In addition, the Court has scrutinized the applicable Sixth Circuit precedents and comparable post-PSLRA cases from other Circuits. Based on this research, and for the reasons set forth herein, the Court AWARDS. Lead Counsel 18% of the class's net recovery in attorneys' fees, GRANTS Lead Counsel's request for expenses in the amount of $2,241,821.10, and GRANTS Lead Plaintiff's request for expenses in the amount of $82,452.81.

II. BACKGROUND

This attorneys' fee determination arises from a securities class action lawsuit brought on behalf of all persons and entities who purchased Cardinal's publicly traded securities between October 24, 2000, and July 26, 2004, inclusive (the "Class").³ The Complaint alleges that all Defendants, including Cardinal, six members of the Company's senior management ("Individual Defendants"),⁴ and the accounting firm Ernst & Young ("E & Y"), knowingly or recklessly disregarded errors in Cardinal's methods of revenue recognition. Plaintiffs allege that Defendants, by publicly misrepresenting the Company's operating revenue, fraudulently induced class members to purchase Cardinal stock at artificially inflated prices in violation of § 10(b) of the Securities Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and the rules and regulations promulgated thereunder by the Securities Exchange Commission ("SEC"), including Rule 17 C.F.R. § 240.10b-5.

The Lead Plaintiff in this case is the Pension Fund Group ("PFG"), which is an aggregation of four large and sophisticated pension fund groups with prior securities litigation experience. The member organizations comprising PFG are: (1) New Mexico State Investment Council ("New Mexico"); (2) Amalgamated Bank as trustee for the LongView Collective Investment Fund, LongView 600 Small Cap Collective Fund, LongView VEBA 500 and LongView Quantitative Fund ("Amalgamated"); (3) PACE Industry Union Management Pension Fund ("PACE"); and (4) California Field Ironworkers Trust Funds ("Ironworkers"). Lead Plaintiff, through its Lead Counsel, has vigorously litigated this case and conducted extensive discovery, including reviewing approximately 7.2 million pages of documents, interviewing ninety-eight potential witnesses, and consulting numerous experts. In addition, in March 2006, Lead Counsel defeated a complex motion to dismiss, upon which the Court issued a one-hundred-forty page decision.⁵ Lead Counsel had the benefit of a prior SEC investigation, which prompted Cardinal to admit to misstating revenue in its financial statements by approximately $1.2 billion. Through Lead Counsel's work, however, Defendants admitted to misstating revenue totaling approximately $23.5 billion. In all, Lead Counsel invested 51,970 billable hours in this case.

After litigating the case for nearly three years, Lead Counsel reached a settlement with Defendants after intensive, arm'slength negotiations that extended over several months and involved a nationally recognized mediator, Professor Eric Green. The agreement provides that Defendants will pay $600 million into a settlement fund, to be distributed to the Class according to a plan of allocation. Following preliminary approval from the Court, the parties sent notice to all 809,802 potential Class members of the settlement.

On October 19, 2007, the Court held a fairness hearing during which it approved the settlement amount without objection. On the issue of attorneys' fees, however, ten separate parties filed objections with the Court. At the fairness hearing, the Court heard oral argument from the parties and objectors relating to Lead Counsel's request for $145 million in attorneys' fees.

III. ANALYSIS OF REASONABLE ATTORNEYS' FEES

Lead Counsel requests that the Court award 24.167% of the $600 million settlement, or $145 million, in attorneys' fees. Though Lead Counsel contends that this award is reasonable given the extraordinary settlement, the quality of representation, and awards in other cases, there are 'ten formal objectors who argue that $145 million exceeds reasonable compensation for the attorneys and unduly dilutes the recovery for the class.⁶

The Court has an obligation to ensure that attorneys' fees are reasonable under both the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act ("PSLRA"). Fed.R.Civ.P. 23(g); 15 U.S.C. § 78u-4. The first step in this analysis is to determine whether the fee request carries a presumption of reasonableness under the PSLRA. See In re Cendant Corp. Litig., 264 F.3d 201, 282 (3d Cir.2001) (holding that ex-ante fee arrangements between Lead Counsel and Lead Plaintiff are accorded a rebuttable presumption of reasonableness). In this instance, the Court does not attach a presumption of reasonableness to Lead Counsel's request for 24% of the settlement because there was no ex-ante fee agreement between Lead Counsel and Lead Plaintiff. The next step in the Court's analysis, therefore, is to determine the reasonable amount of attorneys' fees independently.

To make this determination, the Court must first decide whether to award fees based on a percentage of the settlement ("percentage approach") or based on Lead Counsel's lodestar ("lodestar approach"). After reviewing the merits of each of these approaches, the. Court finds the percentage approach is more appropriate. Second, the Court must utilize the Ramey factors—those factors the Sixth Circuit has established for evaluating attorneys' fees—to evaluate the reasonableness of the request and, if the request is not reasonable, to set an appropriate award. Ramey v. Cincinnati Enquirer, Inc., 508 F.2d 1188, 1196 (6th Cir.1974). Based on this analysis, described in more detail below, the Court finds that the $145 million request is excessive given the particular facts and circumstances of this case, and instead awards 18% of the Class's net recovery, approximately $108 million before interest, to Lead Counsel.

A. Framework for Reviewing Lead Counsel's Request for Attorneys' Fees in PSLRA Cases

Under the PSLRA, the Court has an "independent obligation to ensure the reasonableness of any fee request." Cendant, 264 F.3d at 281-82; 15 U.S.C. § 78u-4.⁷ Indeed, in any class action, Federal Rule of Civil Procedure 23(e) provides that no class action "shall ... be dismissed or compromised without the approval of the court." Accordingly, the Court must zealously protect the "class's interest by acting as a fiduciary for the...