In re Sd Microsoft Antitrust Litigation, 23506.

• Decision Date: 16 November 2005
• Docket Number: No. 23506.,23506.
• Citation: 707 N.W.2d 85,2005 SD 113
• Parties: In re SOUTH DAKOTA MICROSOFT ANTITRUST LITIGATION.
• Court: South Dakota Supreme Court

Page 85

707 N.W.2d 85

2005 SD 113

In re SOUTH DAKOTA MICROSOFT ANTITRUST LITIGATION.

No. 23506.

Supreme Court of South Dakota.

Argued August 31, 2005.

Decided November 16, 2005.

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David B. Tulchin of Sullivan & Cromwell, L.L.P., New York, New York, Gene N. Lebrun of Lynn, Jackson, Shultz & Lebrun, P.C., Rapid City, South Dakota, Attorneys for appellant Microsoft.

Mark A. Moreno of Schmidt, Schroyer, Moreno & Lee, Pierre, South Dakota, Ben Barnow of Barnow & Associates, PC, Chicago, Illinois, Attorneys for appellee SD Microsoft Antitrust Litigation.

GILBERTSON, Chief Justice.

[¶ 1.] South Dakota indirect-purchasers of Microsoft operating systems software brought a state antitrust class action against Microsoft. A settlement agreement reached by the parties and approved by the trial court included the payment of Plaintiffs' "reasonable attorney fees" by Microsoft. After the settlement was approved by the trial court, it retained jurisdiction to decide the Plaintiffs' application for attorney fees, expenses and costs at a later date. On November 10, 2004, the trial court entered an order awarding attorney fees, expenses and costs in the amount of $2,278,286 to be paid by Microsoft to Plaintiffs. Microsoft appeals; we reverse and remand for further proceedings consistent with this opinion.

FACTS AND PROCEDURE

[¶ 2.] The genesis of the South Dakota antitrust suit, as well as dozens of other antitrust claims brought against Microsoft, occurred in 1998 when the United States Department of Justice and several state attorneys general filed an antitrust action in the United States District Court for the District of Columbia. See United States v. Microsoft Corp., 84 F.Supp.2d 9 (D.D.C.1999) (Microsoft I). On November 5, 1999, after a bench trial the District Court of Columbia issued 412 findings of fact surrounding Microsoft's conduct with regard to its operating systems software (OSS) and its monopoly power over the web browser market. Id. The District Court found Microsoft liable for its alleged tying of Internet Explorer to its Windows products, attempting to monopolize the web browser market, and maintaining an operating system monopoly. United States v. Microsoft Corp., 87 F.Supp.2d 30 (D.D.C.2000) (Microsoft II). However, on June 28, 2001, that court was overturned in part on appeal to the Court of Appeals for the District of Columbia Circuit, which reversed on the issues of attempted monopolization, and on the District Court's use of a per se analysis rather than a rule of reason analysis on the tying claim. United States v. Microsoft Corp., 253 F.3d 34 (D.C.Cir.2001) (Microsoft III). The District Court's holding that Microsoft improperly maintained a monopoly was upheld. Id. The case was remanded in order to determine if the tying violation was committed, and the remedies of the lower court were vacated. Id. [¶ 3.] In late 1999 and early 2000, in the wake of the plaintiffs' success in the findings of fact in Microsoft I, more than 130 antitrust class actions were filed against Microsoft in state and federal courts throughout the country. In June 2000, the Judicial Panel on Multidistrict Litigation transferred all overcharge actions against Microsoft that were pending in federal courts to the United States District Court for the District of Maryland. State claims that could not be removed to federal court remained in their respective jurisdictions. See also In re Microsoft Corp. Antitrust Litigation, 274 F.Supp.2d 736 (D.Md.2002) (Microsoft IV).

[¶ 4.] In March 2000, four antitrust class actions were filed in South Dakota state courts against Microsoft alleging violations of South Dakota antitrust laws.¹ Three of those cases were consolidated in Hughes County and comprise the instant case. The Class Members were persons and entities residing in South Dakota who were indirect purchasers of Microsoft Windows or MS-DOS operating systems software (OSS) between March 10, 1996 and December 31, 2002.² After consolidation, the single amended complaint alleged Microsoft maintained a monopoly in the South Dakota marketplace. Plaintiffs alleged Microsoft established its monopoly by engaging in various anti-competitive acts, "including stifling innovation in the market place and overcharging customers." In re South Dakota Microsoft Antitrust Litig., 2003 SD 19, ¶ 2, 657 N.W.2d 668, 670. The Plaintiffs claimed that Microsoft's actions "eliminated competition in the market for similar OSS, deprived purchasers of the benefits of a free market and injured consumers by forcing them to purchase Microsoft OSS at artificially high and supra-competitive prices in violation of South Dakota antitrust laws." Id.

[¶ 5.] After certification of the class was granted at the circuit court level, Microsoft appealed to this Court for discretionary review. Id. ¶ 3. We held the circuit court did not abuse its discretion when it certified the class, as Plaintiffs had met their "threshold showing" of harm to South Dakota consumers who were indirect purchasers of these Microsoft products. Id. ¶ 32, 657 N.W.2d at 679.

[¶ 6.] On remand for further proceedings, the circuit court appointed Ben Barnow, of the firm of Barnow & Associates, P.C. in Chicago, Illinois; Mark Moreno, of Schmidt, Schroyer & Moreno, P.C. in Pierre, South Dakota; and Leonard Simon of Milberg, Weiss, Bershad, Hynes & Lerach, L.L.P (now known as Lerach Coughlin Stoia Geller Rudman & Robbins LLP) in San Diego, California, as co-lead counsel for Plaintiffs. The circuit court also appointed lawyers from two other South Dakota firms and four other out-of-state firms to serve on Plaintiffs' Executive Committee.

[¶ 7.] The circuit court ordered that all pre-trial discovery be coordinated with the federal antitrust actions pending against Microsoft in the United States District Court for the District of Maryland (hereinafter referred to as the "MDL court"). The circuit court's order directed the parties to "make every effort to avoid duplication of discovery that is propounded and taken in the federal [MDL] action or in any state action where counsel for Plaintiffs and Defendant both have the option to participate."

[¶ 8.] On October 24, 2003, eight months after this Court affirmed the class certification, counsel for Plaintiffs and Microsoft reached a proposed settlement for the South Dakota litigation. The circuit court granted preliminary approval of the settlement on November 12, 2003. The terms of the settlement required that Microsoft provide each member of the South Dakota class who submitted a valid claim form by the close of the claims period on October 15, 2004, with a voucher with a face value of twelve dollars ($12.00) or five dollars ($5.00), depending on the product purchased by the Class Member.³ The vouchers entitled Class Members to be reimbursed up to the face value of their vouchers after purchasing a platform-neutral hardware or software product within four years of the close of the claims period. Class Members could aggregate and transfer vouchers up to a total of six-hundred and fifty dollars ($650).

[¶ 9.] The maximum value of the settlement was set at $9.33 million, assuming every member of the class submitted a valid claim. However, at the time the settlement was approved by the circuit court, it was unknown how many Class Members would avail themselves of the vouchers. The parties recognized the actual value of the vouchers claimed by Class Members would be less than the theoretical maximum value, and agreed to provide a cy pres distribution of vouchers to needy public schools.⁴ Under the terms of the settlement, the cy pres distribution of vouchers would occur over a four-year period and would equal one-half of the difference between the $9.33 million figure and the actual value of vouchers ultimately issued to Class Members.

[¶ 10.] An additional term in the settlement agreement provided: "Counsel. . . shall attempt to negotiate fees following negotiation of this class settlement. . . . If the parties fail to agree, counsel shall litigate the fee issues, and each party is free to argue for what it believes to be reasonable fees. Microsoft shall also be responsible for the reasonable costs and expenses of this litigation to the extent awarded by the Court."

[¶ 11.] The parties were ultimately unable to negotiate fees, and litigation ensued. Plaintiffs requested $3.1 million in attorney fees using a percentage of the common fund method of calculation, $301,455.83 in expenses, and that Microsoft pay sales tax on the fees. Plaintiffs argued thirty percent of the full value of the $9.33 million dollar settlement was reasonable in light of the difficulty of the litigation, the benefits obtained for Class Members the skill of the attorneys involved, and the risk incurred by the attorneys when they agreed to take the case on a contingency fee basis.

[¶ 12.] Plaintiffs provided a cross-check of the percent of the common fund figure using a lodestar⁵ figure of $1,496,178.52. The lodestar was computed by Plaintiffs using three methods. First, for firms that submitted contemporaneous time sheets that specified the case and the task performed, hours worked on the South Dakota litigation were multiplied by hourly rates. Local counsel, Mark A. Moreno of Pierre, South Dakota, submitted an hourly rate of $300, as did his partner Ronald G. Schmidt; Sioux Falls counsel James Robbennolt submitted an hourly rate of $100; Sioux Falls counsel Timothy J. Dougherty submitted an hourly rate of $250; the firm of Johnson, Eiesland, Quinn, Huffman and Clayborne of Rapid City submitted a rate of $275 per hour for Glenn H. Johnson, $250 for Richard E. Huffman, $250 for Courtney R. Clayborne and $75 for others who worked on the file. Out-of-state firms from Chicago, New York and San Diego submitted hourly rates ranging from $175 to $630 per hour.

[¶ 13.] Second,...