IN RE KeySPAN CORPORATION SECURITIES LIT

Full title: IN RE KeySpan CORPORATION SECURITIES LITIGATION

Court: United States District Court, E.D. New York

Date published: Aug 25, 2005

CV 2001-5852 (ARR)(MDG) (E.D.N.Y. Aug. 25, 2005)

Opinion

CV 2001-5852 (ARR)(MDG).

August 25, 2005

REPORT AND RECOMMENDATION

MARILYN GO, Magistrate Judge

After preliminarily approving the settlement of this securities class action (ct. doc. 111) brought against defendant KeySpan Corporation ("KeySpan" or "the Company") and its officers and directors, the Honorable Allyne R. Ross, United States District Judge, referred to me the Application for an Award of Attorneys' Fees and Reimbursement of Expenses ("Fees Mem.") of counsel for the plaintiff class, Weiss Lurie ("Weiss Lurie") and Cauley Bowman Carney Williams PLLC ("Cauley Bowman") (hereinafter "Class Counsel") (ct. doc. 118).

For the reasons that follow, I respectfully recommend that this Court award attorneys' fees in the amount of $2,750,000, representing 20 percent of the Settlement Fund and expenses in the amount of $516,194.26.

BACKGROUND

The facts pertinent to the claims asserted by the plaintiffs are discussed at length in three prior orders of the district court and will not be repeated here. See Opinion and Order dated March 18, 2003 ("3/18/03 Opinion and Order") (ct. doc. 63); Opinion and Order dated July 30, 2003 ("7/30/03 Opinion and Order") (ct. doc. 85); and Opinion and Order dated November 2003¹ ("11/03 Opinion and Order") (ct. doc. 101). In support of their motion for an award of fees, Class Counsel have submitted the Declarations of Joseph H. Weiss ("Weiss Decl."), J. Allen Carney ("Carney Decl."), the Revised Declaration of S. Gene Cauley in Support of the Application for an Award of Attorneys' Fees and Reimbursement of Expenses ("Cauley Rev. Decl."),² and the Supplemental Declaration of J. Alan Carney in Support of the Application for an Award of Attorneys' Fees and Reimbursement of Expenses ("Carney Supp. Decl.").

1 Although the order does not bear the exact date on which Judge Ross signed the opinion, it was likely signed on or just before November 21, 2003, the date of docketing.

2 Class Counsel are directed to electronically file this submission within five days of receipt of this Report and Recommendation.

On August 28, 2001, Ira M. Press, of Kirby McInerney Squire, LLP, filed the Dinallo complaint, 01-CV-5852 (ARR)(MDG). On August 29, 2001 and October 29, 2001, Joseph H. Weiss, of Weiss Yourman, filed the complaints in Brody, 01-CV-7025 (CBA)(MDG), and Bennett, 01-CV-7294 (CBA)(MDG), respectively. On October 30, 2001, Fred Taylor Isquith, of Wolf Haldenstein Adler Freeman Herz LLP, filed the Fay complaint, 01-CV-7294 (JG)(RML)). After consolidating the four actions on November 29, 2001 (ct. doc. 14), the Court appointed Donald Kassan and Peter Hubbard as the Lead Plaintiffs and Cauley Geller Bowman Rudman, LLP and Weiss Yourman as Co-Lead Counsel on March 27, 2002.³ Memorandum Decision and Order dated March 27, 2002 ("3/27/02 Dec.") (ct. doc. 28); Cauley Rev. Decl., ¶ 12.

3 After their appointment as co-lead counsel, both firms changed their membership and are now known as Cauley Bowman Carney Williams, PLLC and Weiss Lurie.

On May 13, 2002, Class Counsel filed a Consolidated Class Action Complaint ("Consol. Compl."). (Ct. doc. 29), Cauley Rev. Decl., ¶ 14. Defendants responded with a motion to dismiss the Consolidated Complaint served on November 1, 2002. See ct. doc. 36. On March 18, 2003, Judge Ross granted defendants' motion but gave plaintiffs leave to replead claims relating to the acquisition of Roy Kay, Inc. ("Roy Kay"). See 3/18/03 Opinion and Order.

On April 7, 2003, Lead Plaintiffs filed an Amended Class Action Complaint ("Amended Complaint"). (Ct. doc. 64). In the Amended Complaint, plaintiffs again asserted claims for violations of Section 10(b) of the Securities Exchange Act of 1934 ("the Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 of the regulations promulgated thereunder, 17 C.F.R. § 240.10b-5. See 7/30/03 Opinion and Order at 1. Plaintiffs also alleged that the individual defendants, by virtue of their status as controlling persons in the Company, were liable under Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), as well as for insider trading in violation of Section 20A of the Exchange Act, 15 U.S.C. § 78t-1(a). Id.

Defendants again moved to dismiss, or, in the alternative, to strike certain allegations of the complaint. On July 30, 2003, Judge Ross denied defendants' motion to dismiss but granted, in part, the motion to strike certain allegations relating to certain statements made in 2000. See 7/30/03 Opinion and Order at 30-31, 34.

On August 19, 2003, defendants served plaintiffs with their motion for reconsideration. See ct. doc. 86. Judge Ross granted that motion and struck allegations relating to alleged false statements made prior to January 25, 2001. See generally 11/03 Opinion and Order.

Before Judge Ross rendered her decision on defendants' motion for reconsideration, this Court met with the parties on November 7, 2003 and entered a scheduling order setting deadlines for the completion of discovery and plaintiffs' motion for class certification. See ct. doc. 99. On December 1, 2003, Class Counsel served defendants with a Motion for Class Certification and discovery on the class certification and other issues commenced. See ct. doc. 102; Cauley Rev. Decl., ¶ 28. Defendants later stipulated to designation of Howard Frank as the sole class representative and certification of the class. Ct. doc. 104. On March 12, 2004, Judge Ross approved the stipulation and certified a class consisting of all purchasers of KeySpan stock between January 25, 2001 and July 17, 2001. Id.; Cauley Rev. Decl., ¶ 29.

As discovery proceeded, the parties engaged in settlement discussions with the assistance of Stephen A. Hochman, Esq., of Friedman, Wittenstein Hochman (the "Mediator"). Hochman Decl., ¶ 3; Cauley Rev. Decl., ¶ 3; Weiss Decl., Ex. A. Over the course of two and a half months beginning April 20, 2004, Mr. Hochman had "numerous separate telephone conversations and negotiations with counsel for both parties." Hochman Decl., ¶¶ 4-6; Cauley Rev. Decl., ¶ 4.

After informing the Court on September 23, 2004 that the parties had reached a settlement, plaintiffs followed with an application for preliminary approval. Ct. docs. 108, 111. On November 16, 2004, Judge Ross signed an order preliminarily approving the settlement, directing that notice of the pendency of settlement be sent and setting a hearing to consider the fairness of the settlement. Ct. doc. 111; Cauley Rev. Decl., ¶ 35.

In February 2005, Class Counsel filed a motion for final approval of the settlement (ct. doc. 119) and a motion for approval of attorney fees and reimbursement of expenses, ct. doc. 118. As set forth in the parties' Stipulation of Agreement of Compromise, Settlement and Release ("Settlement Stip.") filed on September 23, 2004 (ct. doc. 109), the proposed settlement consists of $13,750,000 to be paid by defendants within ten days after preliminary approval of settlement, plus interest earned thereon. Id. at ¶ 3. The costs of administering the settlement, taxes, attorneys fees, costs and expenses of litigation are to be paid out of the settlement and the balance distributed to shareholders according to a plan of allocation set forth in the Settlement Stip. Id. at ¶¶ 3(a), 4, 5, 25.

Class Counsel seek an award of 33 1/3% of the settlement fund, or $4,583,328.75, interest earned thereon, and reimbursement of litigation expenses in the aggregate amount of $591,901.66. Class Counsel also seek fees for the Lead Plaintiffs and the certified Class Representative in the amount of $15,750.00. Cauley Rev. Decl., ¶¶ 45-46. Only one Class Member objected to the magnitude of the fees. See Weiss Decl., Ex. C.

On March 1, 2005, Class Counsel, at the Court's request, submitted time records for review.⁴ Class Counsel also submitted a revised declaration in support of an award for attorneys' fees and expenses. See Cauley Rev. Decl., Ex. B.

4 Although counsel requested that the records be reviewedin camera, they did not provide any basis for shielding the records from disclosure. These time records will be filed in hard copy with the court within five days of this report, absent a formal motion for a protective order.

Following oral argument on March 11, 2005, Class Counsel filed a supplemental submission on fees ("Supp. Fees Mem.") which includes the Supplemental Declaration of J. Allen Carney ("Carney Supp. Decl."). Ct. doc. 123.

DISCUSSION

A. General Principles

Attorneys who create a common fund from which members of a class are compensated are entitled to "a reasonable fee — set by the court — to be taken from the fund." Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 47 (2d Cir. 2000) (internal citation omitted). In fact, "[i]t bears noting that Rule 23 was amended in 2003 to provide explicit authority to award `reasonable attorney fees' in class actions." In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 300 n. 7 (3d Cir. 2005) (citing Fed.R.Civ.P. 23(h)). The amount of "fees awarded in common fund cases [must] not exceed what is `reasonable' under the circumstances." Goldberger, 209 F.3d at 47. Because plaintiffs in common fund cases lack the ability to negotiate the amount of fees collectively, or at arm's length, "awards in these cases are proper only if made with moderation." Goldberger, 209 F.3d at 52 (emphasis in original). "What constitutes a reasonable fee is properly committed to the sound discretion of the district court." Goldberger, 209 F.3d at 47.

Both the lodestar and percentage methods are available in calculating reasonable attorneys' fees in class action settlements. Goldberger, 209 F.3d at 50. Courts using the lodestar method multiply the number of hours reasonably expended by a reasonable hourly rate for attorneys of similar skill within a given geographic location to determine the fee. See Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 478 U.S. 546, 565 (1986). "Courts in their discretion may increase the lodestar by applying a multiplier based on factors such as the riskiness of the litigation and the quality of the attorneys." Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 121 (2d Cir. 2005).

The percentage of the fund method is a simpler calculation where the award is based on "some percentage of the fund created for the benefit of the class." Savoie v. Merchants Bank, 166 F.3d 456, 460 (2d Cir. 1999) (citing Blum v. Stenson, 465 U.S. 886, 900 n. 16 (1984)). Courts utilizing the percentage method should "cross-check" the adequacy of the resulting fee by applying the lodestar method. See Goldberger, 209 F.3d at 50. "Courts typically reduce the percentage of the fee as the size of the recovery increases and utilize the lodestar method to confirm that the percentage amount does not award counsel an exorbitant hourly rate." In re Bristol-Meyers Squibb Sec. Litig., 361 F. Supp. 2d 229, 233 (S.D.N.Y. 2005) (citing In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465, 486, 489 n. 24 (S.D.N.Y. 1998) (internal citations omitted)).

Although the Second Circuit has sanctioned the use of either the percentage and lodestar methods, see Goldberger, 209 F.3d at 50, the trend among district courts in this Circuit is to use the percentage of recovery method. See Global Crossing Securities and ERISA Litig., 225 F.R.D. 436, 466 (S.D.N.Y. 2004); Maley v. Del Global Tech., 186 F. Supp. 2d 358, 370 (S.D.N.Y. 2002) (citing cases). In addition, "a majority of Circuits have approved the percentage-of-recovery method."Maley, 186 F. Supp. 2d at n. 8 (citing In re American Bank Note Holographics, Inc., Sec. Litig., 127 F. Supp. 2d 418, 430-31 (S.D.N.Y. 2001) (collecting cases)). Use of the percentage method comports with the statutory language of the Private Securities Litigation Reform Act of 1995 ("PSLRA") which specifies that "[t]otal attorneys' fees and expenses awarded by the court to counsel for the plaintiff class shall not exceed areasonable percentage of the amount of any damages and prejudgment interest actually paid to the class. . . ." 15 U.S.C. § 78u-4(a)(6) (emphasis added); see also In re Cendant Corp. Sec. Litig., 404 F.3d 173, 188 n. 7 (3d Cir. 2005) ("[T]he PSLRA has made percentage-of-recovery the standard for determining whether attorneys' fees are reasonable"); Maley, 186 F. Supp. 2d at 370 (noting that in amending the PSLRA, Congress "indicated a preference for the use of the percentage method"). Given the increasing use of the percentage of the fund method and its incorporation in the PSLRA, I recommend that this Court utilize this method to determine the fee award in this case.

Regardless of whichever method is utilized, courts in this Circuit must consider the following factors in determining what constitutes a reasonable fee: (1) the risk of the litigation; (2) the magnitude and complexities of the litigation; (3) time and labor expended by counsel; (4) the quality of representation; (5) the requested fee in relation to the settlement; and (6) public policy considerations. See Goldberger, 209 F.3d at 50 (quoting In re Union Carbide Corp. Consumer Prod. Bus. Sec. Litig., 724 F. Supp. 160, 163 (S.D.N.Y. 1989)).

B. Application of the Goldberger Factors

(1) Risk of the Litigation

The most important Goldberger factor in determining the amount of fees and whether to award an enhancement is the risk of success in pursuing the case. 209 F.3d at 54. Recognizing that "[r]isk falls along a spectrum and should be accounted for accordingly[,]" the Second Circuit cautioned:

[W]e have held that public policy considerations justified the award of no contingency allowance in a case that was risky simply because it was of "highly questionable merit." In re "Agent Orange" Prod. Liab. Litig., 818 F.2d 226, 235-36 (2d Cir. 1987). Similarly, there are cases where the risk is "so slight" that any enhancement for the contingent nature of the fee must be "minimal." Lindy Bros. Builders, Inc. v. American Radiator Standard Sanitary Corp., 487 F.2d 161, 168 (3d Cir. 1973).

Goldberger, 209 F.3d at 54 (emphasis in original). The risk of the litigation must be measured as of the time the case is filed.See id. at 55.

The Second Circuit further observed in Goldberger that "[a]t least one empirical study has concluded that `there appears to beno appreciable risk of non-recovery' in securities class actions, because `virtually all cases are settled.'"Goldberger, 209 F.3d at 52 (citing Janet Cooper Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 Stan. L. Rev. 497, 578 (1991)) (alteration in original); see also In re Dreyfus Aggressive Growth Mutual Fund Litig., No. 98 CV 4318 HB, 2001 WL 709262, at *4 n. 10 (S.D.N.Y. June 22, 2001) (citing S.Rep. No. 104-98, at 9 (1995),reprinted in 1995 U.S.C.C.A.N. 679, 687 ("estimating that approximately 300 securities lawsuits are filed each year and that 93% of these cases reach settlements averaging $8.6 million")). Although recent studies of cases brought after enactment of the PSLRA indicate that a higher percentage are now dismissed at the pleading stage, the risk of non-recovery in securities actions filed in this Circuit is still not significant. In a study of district and appellate courts decisions in the Second and Ninth Circuits between 1996 and 2002, Professors Pritchard and Sale found that courts in the Second Circuit granted 36% of motions to dismiss while the courts in the Ninth Circuit granted 63%. See A.C. Pritchard Hillary A. Sale, What Counts as Fraud? An Empirical Study of Motions to Dismiss under the Private Securities Litigation Reform Act, University of Michigan John M. Olin Center for Law and Economics, Paper No. 03-011 (June 2004), available at http:// www.law.umich.edu/CentersAndPrograms/olin/abstracts/3-11.htm.⁵ Data compiled by Woodruff-Sawyer indicates that the average rate of non-voluntary dismissals of cases from 1996-2001 was 25.1% as opposed to 11.2% for the period from 1993-1995. See Richard Painter, Megan Farrell Scott Adkins, Private Securities Litigation Reform Act: A Post-Enron Analysis, The Federalist Society for Law and Public Policy Studies, (June 2002) at 7,available at www.fed-soc.org (referring to data found in a study by Woodruff-Sawyer Co.). Similarly, National Economic Research Associates ("NERA") reported that 24% of post-PSLRA cases were dismissed as opposed to 12% of cases before enactment. Todd S. Foster, Frederick C. Dunbar, Denise N. Martin, Vinita M. Juneja Lucy P. Allen, Recent Trends VII: PSLRA, Six Years Later (National Economic Research Associates, Inc.) (Jan. 2002), at fourth page (discussed in Painter et al., Private Securities Litigation Reform Act, at 8). Notwithstanding the similar rates of dismissal reported in the post-PSLRA studies, in fact, the actual rates may be lower. Breaking down decisions granting dismissal into whether motions were granted or denied in their entirety, Professors Grundfest and Pritchard found that courts granted dismissal with prejudice in only 18 percent of the cases. Joseph A. Grundfest A.C. Pritchard, Statutes with Multiple Personality Disorders: The Value of Ambiguity in Statutory Design and Interpretation, 54 Stan. L. Rev. 627, 691-92 (2002). As they acknowledge, since they did not follow the litigation histories of cases in their sample, their data (and the data in other studies) fail to account for dismissals that were reversed or cases that were permitted to proceed, but were later dismissed.Id. at 692.

5 The study gives no breakdown between appellate and district court decisions and what the rate of reversal on appeal of cases dismissed by district courts was. Thus, it is not clear what the dismissal rate of cases actually filed may be.

In looking at dismissal rates as a percentage of filings, a NERA study reported that the rate of cases dismissed within two years of filing was 10% or less in all circuits other than the Fourth Circuit. See Elaine Buckberg, Todd Foster Stephanie Pancich, Recent Trends in Securities Class Action Litigation: 2003 Early Update (National Economic Research Associates, Inc.), (Feb. 2004), at 5, available at www.nera.com. The reported dismissal rate in the Second Circuit was 8% while the rate in the Fourth Circuit was 22%. Id. Similarly, in a study of post-PSLRA cases, researchers reported that only 5.79% of the cases filed between 1996 and 2000 had been dismissed as of 2000. See Mukesh Bajaj, Sumon C. Mazumdar and Atulya Sarin, Securities Class Action Settlements, 43 Santa Clara L. Rev. 1001, 1010-1011 (2003), also available at http://securities.stanford.edu/research/studies/20001116_SSRN_Baj aj.pdf.

Given the low risk of dismissal, the Second Circuit's observation in Goldberger that plaintiffs in securities actions face no appreciable risk of non-recovery remains true. Other recent studies indicate that likelihood of settlements in cases filed after 1995 remains high, if not higher than after enactment of the PSLRA. The number of reported settlements from 1991 to 1997 varied from a low of 92 settlements in 1991 to a high of 141 settlements in 1995. See Elaine Buckberg et al., Recent Trends in Securities Class Action Litigation: 2003 Early Update, at 6. The average number of settlements was 123.6 and median at 128. Id. at 6. From 1998 to 2003, a time frame more likely to reflect settlements in cases brought after enactment of the PSLRA, the number of settlements varied from 97 to 163, with the average at 128.83 and median between 122 and 133. Id.; see also 2004 Securities Litigation Study (PricewaterhouseCoopers LLP), (2005), at 12, available at www.10b.com (noting that "settlements in 2003 and 2004 were 56 percent in relation to cases filed in 2001 and 2002").⁶ Although the Woodruff-Sawyer data indicate that the settlement percentage of cases filed after the PSLRA is about 10% lower than pre-PSLRA statistics, the settlement rate of cases between 1998 and 2001 ranged between 73.6% to 78.6% and less than 1% of cases were tried. See Painter et al., Private Securities Litigation Reform Act, at 8 (referring to data found in a study by Woodruff-Sawyer Co.).

6 Between 1991 and 1995, the number of filings ranged from 163 in 1993 to 233 in 1994. See Elaine Buckberg et al., Recent Trends in Securities Class Action Litigation: 2003 Early Update, at 2. From 1997 to 2003, the number of filings ranged from 193 in 1997 to a high of 269 in 1998, excluding 2001 filings. Id. In 2001, five analyst cases, alleging "that analyst recommendations were influenced by the investment banks' interest in winning business from the recommended companies," were filed. Id. At the same time, 303 laddering cases, alleging that "newly-public companies and their underwriters engaged in unfair IPO allocation practices and manipulation of the early aftermarket," were filed. Id. These cases, which affected the filing rates from 2001 to 2003 (40 analyst cases in 2002 and 14 in 2003), are "likely to be one-time phenomena." Id. Excluding these "laddering" and "analyst" cases, 195 cases were filed in 2001 and 239 in 2002. Id.

Despite the realities of securities class action litigation, Class Counsel contend that they faced substantial risks due to the general difficulty and complexity of this litigation. See generally Fees Mem. at 16-23. They raise a series of general arguments which could readily be raised in almost every fee application in any other class action for securities fraud. First, Class Counsel argue that this securities litigation was necessarily complex because of the difficulty of proving that defendants acted with scienter in making material misrepresentations and omissions causing plaintiffs' injury. Fees Mem. at 18. However, the risks of establishing scienter and damages discussed by Class Counsel are common in almost every securities case. See, e.g., In re Bristol-Myers Squibb, 361 F. Supp. 2d at 234 ("proving scienter is one of the `general hurdles' facing plaintiffs in almost every securities case") (quoting Goldberger, 209 F.3d at 54).

Additionally, Class Counsel claim that even if they were able to establish liability, they would face risks in proving the amount of damages. Fees Mem. at 17-18. Again, this says little about the risks faced in this litigation. Of course, plaintiffs in every class action, as well as in every case where damages are sought, bear the burden of proving loss and a link between the defendant's conduct and damages. To establish the amount of recoverable damages, the use of damages experts is both commonplace and may be essential, "[p]articularly in complex cases involving the securities industry, [where] expert testimony may help a jury understand unfamiliar terms and concepts." See United States v. Bilzerian, 926 F.2d 1285, 1294 (2d Cir. 1991);In re Crazy Eddie Sec. Litig., 948 F. Supp. 1154, 1171 (E.D.N.Y. 1996) (discussing methodology of damages expert in determining impact of fraud on share value). However, Class Counsel's professed concern that the defendants would challenge plaintiffs' experts in a "battle of experts," Fees Mem. at 19, neither amounts to an enhanced risk nor suggests any unique circumstances here. On the contrary, litigants often vigorously attack the damages calculations of their adversary's expert, especially in securities actions. See, e.g., In re WorldCom, Inc. Sec. Litig., NO. 02 Civ. 3288 (DLC), 2005 WL 375314, at *5 (S.D.N.Y. Feb 17, 2005) (motions to exclude expert testimony, including testimony of damages expert); In re Blech Sec. Litig., No. 94 Civ. 7696 (RWS), 2003 WL 1610775, at *25-26 (S.D.N.Y. Mar 26, 2003) (same).

Class Counsel also attempt to characterize as risks the fact that they undertook the case on a contingency basis without a guarantee of recovery and faced the depletion of settlement funds from the "wasting" of insurance policies used to pay defense costs in this litigation. Fees Mem. at 20-23. The contingent nature of fees does not, in itself, make the risks more significant, particularly given the high rate of settlement in securities actions. See, e.g., In re Sterling Foster Co., Inc., Sec. Litig., 238 F. Supp. 2d 480, 488 (E.D.N.Y. 2002). Having maneuvered to be appointed lead counsel early in this litigation, Class Counsel are hard put now to complain that payment of fees is contingent upon resolution of this action in plaintiffs' favor.

Counsel also have not provided any evidence that defendants are in such a precarious financial condition that plaintiffs are in danger of not collecting any settlement or judgment should insurance funds be depleted. Compare with Denney v. Jenkins Gilchrist, No. 03 Civ. 5460(SAS), 2005 WL 388562, at *28 (S.D.N.Y. Feb. 18, 2005) (absent class settlement, vast majority of class members would have recovered nothing in light of significant issues regarding defendants' insurance coverage); In re Indep. Energy Holdings PLC, Inc., No. 00 Civ. 6689(SAS), 2003 WL 22244676, at *8 n. 19 (S.D.N.Y. Sept. 29, 2003) (serious contingency risk because defendant was a foreign company in receivership at outset of litigation). As Class Counsel elsewhere concede, "[t]he ability of the defendants to withstand a greater judgment is not in dispute. . . ." Memorandum of Law in Support of Motion for Final Approval of the Settlement and Plan of Allocation ("Final Approval Mem.") (ct. doc. 119) at 35.

Moreover, although counsel undoubtedly devoted significant resources prior to filing the complaint and amended complaint, such effort is also not indicative of the risks faced. Given the pleading requirements specified by the PSLRA, as well as obligations imposed on attorneys generally and under Rule 11 of the Federal Rules of Civil Procedure, counsel would be remiss not to undertake an investigation prior to filing a complaint.

Looking at the specific claims in this case, the underlying facts allege a straight-forward case of non-disclosure of material information based on publicly available facts. Although granting defendants' first motion to dismiss, Judge Ross granted leave to replead claims concerning Roy Kay because the plaintiffs "have nevertheless identified both a large, concentrated amount of insider trading, and significant operational problems at an affiliate resulting in a substantial charge to earnings." 3/18/03 Opinion and Order at 51. As further discussed by Judge Ross in her second decision, "[a]t the time of its acquisition and throughout the class period, Roy Kay was experiencing major operational and financial difficulties." 7/30/03 Opinion and Order at 4 (citing Amended Class Action Complaint ("AC") ¶¶ 57-79). The situation was so grave that on April 20, 2001, KeySpan installed new management for Roy Kay and filed suit on April 23, 2001 against the principals of Roy Kay in New Jersey state court for fraud. Id. at 7 (citing AC ¶¶ 74, 143). However, KeySpan did not issue a press release regarding the problems at Roy Kay until July 17, 2001, the last day of the class period. Id. at 8 (citing AC at ¶¶ 14, 126).

In denying defendants' motion to dismiss the amended complaint, Judge Ross relied heavily on new allegations concerning a meeting between defendant William Feraudo and Roy Kay officials in January 2001. See 07/30/03 Opinion and Order at 5-6, 21-22, 25; Fees Mem. at 7. At oral argument, Joseph Weiss advised that this additional evidence was acquired from the files of the New Jersey state court action and follow-up investigations. Transcript of Oral Argument held on March 11, 2005 ("Tr.") at 26 (to be docketed herewith). He emphasized that the memorandum of the meeting was procured after an associate examined the New Jersey state court files just one day before the files were sealed. Tr. at 26. However, the fortuity of timing is only on the part of counsel; the critical fact is that the New Jersey court files presumably were available for inspection for some time before Class Counsel undertook to review them. KeySpan brought the New Jersey action on April 23, 2001, well before Class Counsel filed the Amended Complaint and several months before the first complaint was filed in this Court. There apparently was also an action brought by the principals of Roy Kay against KeySpan in July 2001 to enforce the terms of the contract between them. See McGraw Hill Construction, "The Kays Battle KeySpan After Energy Company Ousts Them," July 26, 2001,available at www.construction.com/NewsCenter/Headlines/ENR/20010726b.asp. Since the New Jersey litigations involved some of the same transactions as those underlying the claims in this action, the files in those actions were potentially, and indeed were, a source of public information not ordinarily available to plaintiffs in securities class actions. Accordingly, while counsel are to be commended for their efforts to obtain information from the court files and to follow up on leads after court records were sealed, the existence of these related litigations tend to lessen the risks of success in this case.See, e.g., In re Arakis Energy Corp. Sec. Litig., No. 95 CV 3431 (ARR), 2001 WL 1590512, at *12 (E.D.N.Y. Oct. 31, 2001) (substantial news coverage of the defendant's situation in the financial press "undoubtedly aided counsel in their preparation for settlement negotiations"); In re Bausch Lomb, Inc. Sec. Litig., 183 F.R.D. 78, 87 (W.D.N.Y. 1998) (SEC investigation begun after commencement of securities action "clearly overlapped" and "put additional pressure on [defendant] to settle the case, and would also have given plaintiffs' counsel greater reason to believe that they could prevail").

In sum, Class Counsel have essentially offered a series of generalized arguments regarding risks in class actions, rather than pointing to circumstances existing at the inception ofthis case which posed special or additional risks not encountered in the typical securities class action. While Class Counsel did not benefit from a parallel criminal or SEC investigation, other factors pointed to easy proof sufficient to withstanding a motion to dismiss — including the existence of the related New Jersey action, the clear record of the financial difficulties at Roy Kay and KeySpan's own dramatic actions against the principals of Roy Kay. On this record, the primary uncertainty faced by plaintiffs was in establishingwhen ⁷ defendants had sufficient knowledge of the facts to support inferences of scienter as to their failure to make any public disclosure. In light of the insubstantial risk of non-recovery in securities class actions generally and under the facts of this case, this Court finds that the risk in this action fell in the lower end of the spectrum of securities fraud actions.

7 Kirby McInerney Squire, LLP, one of the firms that sought to be appointed lead counsel, had argued that the original complaint filed by Weiss contained too long a proposed class period which weakened the claims asserted. See generally 3/27/02 Dec. at 6.

(2) Magnitude and Complexity of This Litigation

Class Counsel repeat and incorporate some of the same arguments with respect to risk to argue that the magnitude and complexity of the action justifies the award sought. See generally Fees Mem. at 16-22. However, as compared to other securities class actions, this case does not appear to be sizeable, as reflected by the amount of the settlement.

Also, as discussed above, the legal and factual issues are relatively straightforward. Against a background of operational difficulties and improprieties at Roy Kay, plaintiffs faced the task of establishing when KeySpan officials became aware of the problems at Roy Kay and challenging defendants' reason for delaying disclosure of the problems so as to establish that defendants knowingly made misrepresentations and acted with scienter. See 7/30/03 Opinion and Order at 24-30 (discussing defendants' explanations).

As evidence of the complexity of this action, Class Counsel also point to their need to retain financial experts "to provide analysis . . . to help develop the claims . . . provided expert opinion on the accounting rules . . . and evaluate[d] damages," Weiss Decl., ¶ 33, and to assess liability and damages. Fees Mem. at 19; Weiss Decl., ¶¶ 32-33; Carney Decl., ¶¶ 30-31. While securities class actions undoubtedly are more complex than typical fraud actions, the use of the experts does not demonstrate that this case was particularly complex as a class action. As discussed above, experts are typically used in securities class actions, as well as other class actions.

Moreover, nothing in the record demonstrates that any attorney had to take the time to learn a new body of law or tackle sophisticated issues. Compare with Denney, 2005 WL 388562, at *28 ("class counsel had to expend significant time learning the complicated tax shelter business [and] to understand very sophisticated tax issues"). The discovery here, while voluminous, is not particularly complex. At the heart of plaintiffs' claims was when defendants became aware of the operational and financial problems at Roy Kay. While some of the issues touched upon utilities regulation and governmental contracts, the issues in this case were not so novel or complex as to distinguish this case from the typical securities action. That review of some of the documents "required special professional attention," Weiss Decl., ¶ 47, is normal in all securities litigation. Moreover, discovery did not involve intricate disputes over privilege or other difficult legal issues nor did plaintiffs have to undertake special means to procure evidence that was hard to obtain.Compare with In re Arakis Energy, 2001 WL 1590512, at *11 (plaintiffs' counsel faced with obtaining international discovery).

Thus, while Lead Counsel undoubtedly had to expend considerable time and effort to piece together the evidence, this case did not present especially novel or complex issues.

(3) Time and Labor Expended by Counsel

Class Counsel claim that they expended approximately 5,400 hours over the course of more than three years prosecuting this action. Fees Mem. at 12-13. During that time, Class Counsel state that they, inter alia: (1) conducted an "extensive pre-filing investigation, including the review and analysis of public filings such as SEC filings, press releases, analyst reports, and other publicly available information"; (2) interviewed former employees of KeySpan and its related entities; (3) prepared and filed a consolidated class action complaint; (4) prepared and filed a motion for class certification; (5) opposed two motions to dismiss and a motion for reconsideration; (6) participated in "massive document discovery[;]" (7) took several depositions and third-party discovery; (8) retained and consulted several accounting and damages experts, and (9) participated in settlement discussions with counsel for the defendants, the insurance carrier and the Mediator. Fees Mem. at 12; Cauley Rev. Decl., ¶ 44; Weiss Decl., ¶ 47.

Class Counsel indeed performed all of these tasks, and should be properly compensated for their efforts. However, given the duration of this litigation and the fact that the fees sought exceed the compensation counsel would have received if paid for all the time expended at current billing rates, this factor is not significant. Moreover, as discussed below, this Court questions the lodestar calculation of Class Counsel.

(4) Quality of Representation

"[T]he quality of representation is best measured by results, and that such results may be calculated by comparing `the extent of possible recovery with the amount of actual verdict or settlement.'" Goldberger, 209 F.3d at 55 (quotingLindy Bros. Builders, Inc. of Philadelphia v. Am. Radiator Standard Sanitary Corp., 540 F.2d 102, 118 (3d Cir. 1976)). Class Counsel assert that they "have created an excellent benefit in the form of a $13,750,000 Settlement Fund. . . . The result achieved by [Class] Counsel is commendable[.]" Fees Mem. at 24-25.

Specifically, Class Counsel contend that the settlement represents a recovery of more than 50% of total damages. See Supp. Fees Mem. at 8. Claiming that this result justifies a higher multiplier, Class Counsel point to a NERA study which reported that "the median ratio of settlement to investor losses has steadily declined from 4% in 2000 to 2.3% in 2004." Id. at 8 n. 6 (citing Elaine Buckberg, Todd Foster, Ronald Miller, Stephanie Plancich, Recent Trends in Shareholder Class Action Litigation: Bear Market Cases Bring Big Settlements, (NERA) (Feb. 2005)) chart at 8, available at www.nera.com. However, the authors of that study disclaimed the significance of such data, noting that a comparison of settlement values to investor losses (based on plaintiffs' claims) is "a misleading and exaggerated measure of damages . . . because the legally compensable loss is typically substantially less than the investor losses relative to the SP 500." Id. at 8. Thus, whether the percentage recovery here is proportionately higher than the typical settlement is not clear since the percentage of recovery claimed by Class Counsel appears to be based on different criteria from data used in the NERA study, even assuming the probity of the chart on the ratio of settlements to investor losses.

In fact, it is hard to gauge from the information presented by Class Counsel the extent of the potential recovery in this action or whether the settlement is indeed a "remarkable" recovery. Supp. Fees Mem. at 8 n. 6. The settlement involves a Settlement Class consisting of persons who purchased stock between March 24, 2000 and July 17, 2001 rather than the smaller number of purchasers of stock between January 25, 2001 and July 17, 2001 who are the members of the class certified. Compare Notice of Pendency and Settlement of Class Action (ct. doc. 112) at 5with Stipulation and Order Certifying Class under Rule 23 of the Federal Rules of Civil Procedure (ct. doc. 104) at ¶ 1. To be sure, the settlement is of great benefit to Settlement Class Members who do not qualify as members of the class previously certified by Judge Ross and would not be entitled to any recovery had the plaintiff class prevailed at trial. The significance of the recovery to other members of the Settlement Class may be a different matter.

In discussing the potential recovery, Class Counsel refer to projected damages under "conservative event-studies" and number of affected shares according to defendants' experts. See Final Approval Mem. at 34 and n. 13 (emphasis added). These studies and opinions are of limited usefulness here precisely because of the difference between the size of the class that was certified and the Settlement Class. In fact, Class Counsel noted that they calculated the artificial inflation of the market price of KeySpan stock during the Settlement Class Period caused by defendants' conduct based on the total damages sustained by Class members who purchased KeySpan stock during the original Class Period. Final Approval Mem. at 30-31. Thus, on this record, this Court has no basis to agree or disagree with Class Counsel's claim that the settlement represents an excellent recovery in light of possible provable damages.

The quality of opposing counsel is also important in evaluating the quality of Class Counsels' work. In re Warner Comm. Sec. Litig., 618 F. Supp. 735, 749 (S.D.N.Y. 1985). Simpson Thatcher Bartlett LLP represented KeySpan, and Dickstein Shapiro Morin Oshinsky LLP represented the individual defendants. Both firms vigorously and skillfully prosecuted the action on behalf of the defendants. Class Counsel are attorneys experienced in securities litigation, as this Court previously determined. See also 3/27/02 Order at 13 (ct. doc. 28) (finding Class Counsel adequate to represent class); Weiss Decl., Ex. G at 1-5 (citing cases in which the firm has been commended for its expertise and ability in securities litigation as well as highlights of other litigations); Carney Decl., Ex. C at 10-18 (listing cases in which the firm took leadership positions). From my familiarity with this case, including recent review of the submissions of Class Counsel in opposition to the three motions filed by defendants and in support of approval of the proposed settlement, this Court finds that Class Counsel adequately represented the plaintiffs in this action. Thus, the quality of representation in this case is not a factor weighing against a large fee award.

(5) Requested Fee in Relation to the Settlement

The fifth Goldberger factor, the relation of the requested fee to the settlement, militates against awarding Class Counsel 33 1/3% of the settlement. Since Goldberger, courts in the Second Circuit have tended "to award attorneys' fees in amounts considerably less than 30% of common funds in securities actions, even where there is a substantial contingency risk." In re Arakis Energy, 2001 WL 1590512, at *9 (recommending reduction of fees award from 1/3 to 25% for award of $6,000,000) (citing cases); see also In re Indep. Energy Holdings, 2003 WL 22244676, at *9 (reducing fees award from 25% to 20% for an award of $9,302,340); see also In re Am. Bank Note Holographics, Inc., 127 F. Supp. 2d 428, 433 (S.D.N.Y. 2001) (rejecting a 30% claim and awarding 25%); but see Steiner v. Williams, No. 99 CV 10186, 2001 WL 604035, at *7 (S.D.N.Y. May 31, 2001) (awarding 30% because plaintiffs' argument was "novel and risky" and because "counsel took a tremendous risk that, in the end, nothing would be recovered").

Furthermore, while the Second Circuit in Goldberger recognized the increased use of benchmarks within the 25% range, it cautioned that the use of such benchmarks "could easily lead to routine windfalls where the recovered fund runs into the multi-millions." Goldberger, 209 F.3d at 52. Citing empirical analyses of cases where recoveries ranged between $50 and $75 million, the Second Circuit observed that "courts have traditionally accounted for these economies of scale by awarding fees in the lower range of about 11% to 19%." 209 F.3d at 52 (citing William J. Lynk, The Courts and the Plaintiff's Bar: Awarding the Attorney's Fee in Class-Action Litigation, 23 J. Legal Stud. 185, 202 (1994)); see also Denney, 2005 WL 388562, at *27 (in cases with recoveries of between $50 and $75 million, "courts have traditionally awarded fees in the range of 12% to 20%") (citing In re Twinlab Corp. Sec. Litig., 187 F. Supp. 2d 80, 88 (E.D.N.Y. 2002) (12% of $26,500,000)). Other courts have found a lower percentage appropriate even where settlements are in a lower range, as here. See, e.g., In re Dreyfus, 2001 WL 709262, at *7 (15% of $18,500,000); In re Fine Host Corp. Sec. Litig., No. MDL 1241, 2000 WL 33116538, at *6 (D. Conn. Nov. 8, 2000) (17.5% of $17,750,000); Varljen v. H.J. Meyers Co., Inc., No. 97 Civ. 6742, 2000 WL 1683656, at *5 (S.D.N.Y. Nov. 8, 2000) (20% of $5,000,000 plus 89,000 shares);In re Health Mgmt. Sys. Sec. Litig., 113 F. Supp. 2d 613, 614 (S.D.N.Y. 2000) (20% of $4,500,000)).

In short, because "economies of scale could cause windfalls in common fund cases, courts have traditionally awarded fees for common fund cases in the lower range of what is reasonable."Wal-Mart, 396 F.3d at 122 (citing Goldberger, 209 F.3d at 52); In re Bristol-Meyers Squibb, 361 F. Supp. 2d at 231 (awarding four percent of a $300,000,000 settlement). While the sliding scale may appear to be more appropriate in megafund cases where an award of even a small percentage may be a windfall for plaintiffs' counsel, the concern that the size of the fund will have "no direct relationship to the efforts of counsel" is equally applicable here. In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465, 486 (S.D.N.Y. 1998) (quoting In re First Fidelity Sec. Litig., 750 F. Supp. 160, 164 n. 1 (D.N.J. 1990)); see also In re Indep. Energy Holdings, 2003 WL 22244676, at *6 (without a sliding scale "those law firms who obtain huge settlements, whether by happenstance or skill, will be over-compensated to the detriment of the class members they represent"). "`Obviously, it is not ten times as difficult to prepare, and try or settle a 10 million dollar case as it is to try a 1 million dollar case.'" Goldberger, 209 F.3d at 52 (quoting Union Carbide, 724 F. Supp. at 166).

Class Counsel cite a myriad of cases to support their contention that the requested fee award of 33 1/3% of the Settlement Fund "is commensurate with many of the awards made in class actions in this Circuit." Fees Mem. at 25-27. However, reference to awards in other cases is of limited usefulness.Goldberger, 209 F.3d at 53. A number of those cases are distinguishable in significant ways. For example, In re Blech Sec. Litig., 94 Civ. 7696 (RWS), 2002 U.S. Dist. LEXIS 23170, (S.D.N.Y. Nov. 27, 2002), lasted eight years and Silverberg v. People's Bank, No. 00-9548, 2001 U.S. App. LEXIS 22859 (2d Cir. Oct 16, 2001) took nine years. In addition, the 30% award in In re Blech Sec. Litig., Nos. 94 CV 7696, 95 CV 6422, 2000 WL 661680, at *5 (S.D.N.Y. May 19, 2000), represented a negative multiplier of the lodestar. In other cases, the one-third fee awards reflected the Court's recognition that a portion of the fee awarded might not be paid. See, e.g., Maley, 186 F. Supp. 2d at 373 (noting risk in payment since the requested fee which was awarded pari passu with other members of the Class, was subject to a possible default in the corporate note or decline in value of stock paid as part of settlement). Other cases cited by Class Counsel pre-date Goldberger. See, e.g., Becher v. Long Island Lighting Co., 64 F. Supp. 2d 174, 182 (E.D.N.Y. 1999) (ERISA action approving a fee of one-third out of $7.8 million settlement); Adair v. Bristol Tech. Systems, Inc., 97 Civ. 5874 (RWS), 1999 U.S. Dist. LEXIS 17627, at *8-9 (S.D.N.Y. Nov. 12, 1999) (awarding fee of 33% of settlement fund).

Considering "the unique circumstances" of this case,Goldberger, 209 F.3d at 53, particularly the level of risk and complexities of this case, I find that Class Counsel's time and effort do not merit an award of 33 1/3% of the settlement fund.

(6) Public Policy Considerations

As Class Counsel correctly note, the public has an interest in encouraging attorneys to undertake the risks and significant expenditure of time and money to litigate actions enforcing securities laws. Fees Mem. at 27-29; see also In re Warner Comm. Sec. Litig., 618 F. Supp. 735, 750 (S.D.N.Y. 1985),aff'd, 798 F.2d 35 (2d Cir. 1986) ("in order to effectuate the statutory purpose of [securities law of] protecting investors and consumers, private lawsuits should be encouraged") (citing cases). "Courts have recognized the importance that fair and reasonable fee awards have in encouraging private attorneys to prosecute class actions on a contingent basis pursuant to the federal securities laws on behalf of those who otherwise could not afford to prosecute." Maley, 186 F. Supp. 2d at 373.

Class Counsel, undoubtedly, have prosecuted this litigation diligently and made substantial outlays of time and resources to pursue adequate relief for the Class. While they clearly are entitled to be compensated for their efforts, this Court must insure that the fee award is fair and reasonable not only to counsel, but also to the class members.

Thus, in considering all of the Goldberger factors, particularly the relatively low risk involved, the results obtained and the need to encourage counsel to continue to pursue class actions, I recommend that the Court award fees equal to 20% of the net settlement amount.

C. Cross-check

Courts typically "utilize the lodestar method to confirm that the percentage amount does not award counsel an exorbitant hourly rate." In re Bristol-Myers Squibb, 361 F. Supp. 2d at 233. A court using the lodestar "cross-check" need not thoroughly scrutinize the hours documented by counsel. Goldberger, 209 F.3d at 50. Rather, "the reasonableness of the claimed lodestar can be tested by the Court's familiarity with the case (as well as encouraged by the strictures of Rule 11.)" Id. at 50.

When deciding whether to apply a multiplier to a claimed lodestar, the Court should consider the following: "(i) the contingent nature of the expected compensation for services rendered; (ii) the consequent risk of non-payment viewed as of the time of the filing of the suit; (iii) the quality of the representation; and (iv) the results achieved." In re Arakis Energy, 2001 WL 1590512, at *15. "The most significant factor in deciding whether to apply a multiplier greater than 1.0 is the risk of the litigation, since awarding only the lodestar would give inadequate encouragement to counsel who would represent meritorious but risky claims." In re Fine Host Corp. Sec. Litig., 2000 WL 33116538, at *6 (quoting In re Agent Orange, 818 F.2d 226, 236 (2d Cir. 1987)). However, "`[a]s the chance of success on the merits or by the settlement increases, the justification for using a risk multiplier decreases.'" Id. at *6 (quoting In re Agent Orange, 818 F.2d at 236). Additionally, a multiplier may be warranted due to "the novelty and complexity of the legal issues involved and quality of representation."Id. at *6 (citing Savoie, 166 F.3d at 460). Absent unique circumstances, post-Goldberger courts have generally refused multipliers even as high as 2.03. See, e.g., Goldberger, 209 F.3d at 54 (no multiplier), In re Auction Houses, 2001 U.S. Dist. LEXIS 1989 (S.D.N.Y. 2001) (no multiplier); Varljen v. H.J. Myers Co., 2000 U.S. Dist. LEXIS 16205 (S.D.N.Y. 2000) (refusing to award 1.6 multiplier).

In their motion for fees, Weiss Lurie submits that its lodestar would amount to $1,417,425.00, Weiss Decl., ¶ 43 n. 2. Cauley Bowman claims a lodestar of $1,000,245.00. Cauley Rev. Decl., n. 1.

First, this Court will review the rates used by Class Counsel in arriving at their lodestar calculations. The reasonable hourly rates should be based on the rates "`prevailing in the community for similar services of lawyers of reasonably comparable skill, experience, and reputation.'" Cruz v. Local Union No. 3, 34 F.3d 1148, 1159 (2d Cir. 1994) (quoting Blum v. Stevenson, 465 U.S. 886, 896 n. 11 (1984)).

Class Counsel base their lodestar calculations on their current billing rates,⁸ which range from $350.00 to $675.00 for Weiss Lurie's partners and associates and $175.00 to $580.00 for Cauley Bowman's partners and associates. In addition, Weiss charged hourly rates ranging from $235.00 to $275.00 for "law clerks,"⁹ $215.00 for paralegals and $350.00 for a "consultant."¹⁰ Work claimed by Weiss Lurie accounts for $1,417,425.00 of Class Counsel's claimed lodestar of $2,417,670.00. See Weiss Decl., Ex. E.

8 Although historic rates should ordinarily be used in multi-year cases so as to avoid windfall awards, where "the services were rendered over two or three years, relevant figures for the current year will normally still be appropriate." New York State Ass'n for Retarded Children, Inc. v. Carey, 711 F.2d 1136, 1153 (2d Cir. 1983). Given that services for this litigation were rendered over three years, this Court finds that use of current rates may be appropriate for purposes of the cross-check.

9 At the hearing, Mr. Weiss explained that law clerks ("LC") were law students who were employed by Weiss Lurie. See Tr. at 12-13.

10 Class Counsel have failed to provide a basis to claim the rate of Eugene Brandao, identified as a "Consultant" who billed 90.75 hours, for a lodestar of $31,762.00. Class Counsel have not provided any support for Mr. Brandao's billing rates, such as the kind of experience required to be a "Consultant" and the specific purpose for his participation.

Based on this court's experience and review of reported cases, I find that the requested rates of Weiss Lurie are at the higher end of hourly rates of partners in firms participating in securities class actions while the requested rates of Cauley Bowman fall in the mid to lower end of the spectrum.¹¹ See Supp. Fees Mem., Ex. B (attorney billing rates for the In re Bristol-Myers Squibb Sec. Litig.); see also In re Indep. Energy Holdings, 2003 WL 22244676, at *9 (noting that partners rates ranging from $650-695 and associates from $300-425 "are high compared to those of the other Plaintiffs' Counsel, [but] not extraordinary for a topflight New York City law firm").

11 Since Cauley Bowman's office is located in Little Rock, Arkansas, its relatively lower rates presumably reflect the lower overhead and prevailing market rates in Arkansas.

The three most senior associates in Weiss Lurie, who were admitted to the practice of law in 1982 and 1989, billed at a rate of $550.00 per hour. See Weiss Decl., Ex. E. Mark Smilow, who was admitted in 1994, billed the most hours (1,673.75) at a rate of $525.00, amounting to a lodestar of $878,718.75. See Weiss Decl., Ex. E. Comparing Weiss Lurie's rates against those in the Bristol-Myers litigation and other securities actions cited by Class Counsel, this Court finds that Weiss Lurie's rates approach the higher end of the spectrum for junior associates¹² and beyond prevailing rates for senior associates. No associate from any of the firms in theBristol-Myers litigation billed over $500 per hour. Nor has this Court found any reported case in which a district court awarded fees based on such high associate rates. See Supp. Mem., Ex. B;¹³ see also In re Indep. Energy Holdings, 2003 WL 22244676, at *9 (associate rates ranging from $300 per hour to $425 per hour);In re Sterling Foster Sec. Litig., 238 F. Supp. 2d at 489 (associate rates ranging from $405 per hour to $425 per hour).

12 H. Steven Kwon, the junior associate who billed the most hours, was admitted to the practice of law in 2002 and billed 232.50 hours at a rate of $350.00 per hour for a lodestar of $81,375.00. See Weiss Decl., Ex. E. Since Mr. Kwon had been admitted approximately one year at the time he worked on this matter, his $350 billing rate was high. See, e.g., In re Indep. Energy Holdings, 2003 WL 22244676, at *9 (associate rates ranging from $300 per hour to $425 per hour).

13 Counsel also compare their claimed billing rates to the rates of counsel for defendants. Supp. Fees Mem. at 7. These rates were extracted from submissions filed in bankruptcy cases, but it is not clear whether the Bankruptcy Court approved the requested rates. Supp. Fees Mem., Ex. C. In any event, the higher rates ordinarily charged may effectively be tempered where there is a client scrutinizing bills before paying.

Similarly, the paralegal billing rate of $215 and "law clerk" rate of $275 claimed by Weiss is excessive compared to prevailing market rates. This Court has found no reported case approving an hourly paralegal rate approaching $200 other than in theBristol-Myers litigation, where Bernstein Litowitz Berger Grossmann LLP claimed a $215 hourly rate for one supervisory paralegal who billed only 1.25 hours. The other paralegals who worked considerably more hours billed at a rate of $155-185 per hour. See Supp. Fees Mem., Ex. B. Besides not providing any support for the claimed $275 rate for "law clerks," Class Counsel has not explained why billing rates for "law clerks" should be so much higher than rates typically awarded in New York City for work performed by law students. See Moon v. Gab Kwon, No. 99 Civ. 11810 (GEL), 2002 WL 31512816, at *3 (S.D.N.Y. Nov. 8, 2002) (noting approved hourly rates for law students range between $70 and $90 and awarding $80). In fact, courts have ordinarily awarded fees for time spent by law students based on hourly rates more comparable to paralegal rates than junior associate rates. See Luciano v. Olsten Corp., 109 F.3d 111, 114 (2d Cir. 1997) (affirming fee award based on hourly rates of $135 for associates and $50 for law students/paralegals); Hutchinson v. McCabee, No. 95 CIV. 5449 (JFK), 2001 WL 930842, at *2 (S.D.N.Y. Aug. 15, 2001) (refusing to award fees for law student based on the statutory rate for attorneys and setting rate of $75 for law student and $60 for paralegals); Skold v. American Int'l Group, Inc., No. 96 CIV 7137 (HB), 1999 WL 405539, at *7 (S.D.N.Y. June 18, 1999) (approving hourly rates of $175 for associate, $75 for law students and $65 for paralegals).

Nonetheless, the use of rates which are higher than reasonable "serves to meet the concerns of [Class Counsel] that they will be properly compensated for value lost due to the contingent nature of the fee arrangement and for the risk associated with this litigation, and alleviates the necessity of the application of a heightened multiplier[.]" In re Arakis Energy, 2001 WL 1590512, at *16. Accordingly, use of these rates may be considered in this lodestar cross-check.

Next, the Court examines the hours expended by Class Counsel. Joseph Weiss, the only partner who worked on this matter on behalf of Weiss Lurie, billed 243.75 hours (approximately 10% of total hours billed by Weiss Lurie), for a $164,531.25 lodestar. Associates worked an aggregate of 2224.5 hours, for $1,118,515.00 of billed time. See Weiss Decl., Ex. E. On the other hand, six partners at Cauley Bowman worked an aggregate of 1,373.4 hours for 57% of total attorney time, amounting to $679,542.00, as compared to 887.45 hours billed by 12 associates, amounting to $269,016.75. The disproportionately high percentage of work performed by Cauley Bowman's partners resulted in a disproportionately higher lodestar. See, e.g., In re Twinlab Corp. Sec. Litig., 187 F. Supp. 2d at 87 (finding claimed lodestar to be excessive because counsel calculated the lodestar using partner billing rates for a large percentage of the time worked on the case, "regardless of whether an associate or a paralegal could have performed the work at a fraction of the price").

Even in a cursory review of the time spent for specific tasks, this Court finds what appears to be excessive hours spent and inappropriate staffing. For example, nine attorneys spent over 350 hours drafting the Consolidated Class Action Complaint, a document designed to incorporate the allegations from all four complaints originally filed. The resulting new complaint did not require extensive research or drafting to warrant the expenditure of so many hours.

Moreover, besides the approximately 100 hours expended by partner Allen Carney, two other partners, Gene Cauley and Curtis Bowman spent over 25 and 35 hours, respectively. Such staffing by partners inflates the lodestar because a partner will also supervise the basic work performed by more junior staff who bill at lower rates. See, e.g., In re Dreyfus, 2001 WL 709262, at *7. In the Court's view, the large number of attorneys working on drafting the complaint and the disproportionately large amount of time spent by partners at Cauley Bowman, resulted in excessive and duplicative hours and inflated the lodestar. This was done despite this Court's prior warning in appointing co-lead counsel that the two firms appointed "not render duplicative services which would unnecessarily increase attorneys fees and expenses." 3/27/02 Order at 14.

Equally excessive are the approximately 550 hours of work spent by counsel to prepare the memorandum in opposition to the defendants' first motion to dismiss. Here, four partners billed approximately 140 hours and associates billed approximately 400 hours. Having reviewed the 80 page memorandum, along with two brief affidavits, the Court finds that the issues addressed were not so complex or novel to justify the billing of so much time by attorneys who claim to be experienced in securities litigation.See Pltfs.' Mem. of Law in Opposition to Defs.' Motion to Dismiss the Consol. Class Action Compl., dated Jan. 10, 2003. This Court seriously doubts that any private client would readily accede to paying fees for such large amounts of time claimed by Class Counsel for these tasks.

Class Counsel have also inflated the lodestar by inappropriately staffing persons billing at higher rates for tasks that could have been performed by paralegals. The time records of Weiss and Cauley are striking for the relatively small percentage of hours for work performed by paralegals even though extensive document review was required. Out of the 2,985.50 hours billed by Weiss Lurie, approximately 88.25 hours, or three percent, was for work by paralegals. Similarly, Cauley Bowman's paralegals accounted for 53.2 hours, or two percent of total time billed by that firm. Much of the document review was performed by the "law clerks" at Weiss Lurie. Keith Gitman, who billed 364.75 hours at a rate of $275.00 per hour, for an individual lodestar of $100,306.25, had the third highest lodestar following Mr. Weiss and Mark Smilow, a mid-level associate. See Weiss Decl., Ex. E. Notwithstanding Mr. Weiss's general claim that the document review in this case needed to be performed by persons with a legal background, there is nothing about the claims raised nor any discussion in the submissions in this case that suggest that there were particularly difficult or complex issues that required a person with formal legal training, as opposed to a trained paralegal, to perform much of the work. In fact, most of the work described in Mr. Gitman's billing records was for document review "and taking notes on relevant issues and occurrences." See time records for Weiss Lurie. Similarly, the billing records of Eugene Brandao, a "consultant" billed at $350 per hour, also primarily contained entries for document review.

Further, certain individual entries stand out as excessive. For example, in Cauley Bowman's time records, in entries dated May 7 and May 9, 2003, Curtis Bowman billed a total of 2.75 hours amounting to $1,512.50 for tasks described as "review Order regarding [Defendant[s]] Proposed Motion to Dismiss." See time records for Cauley Bowman. The Court presumes the order was Judge Ross' order entered on May 5, 2003. See ct. doc. 68. This order was only two paragraphs long, one which provided the basis for the order, and the other setting forth the dates for the parties' submissions. Had this Court solely conducted a lodestar calculation, it would have deducted time for this and similar entries.

Because the lodestar calculation of Class Counsel is, at best, inflated, its use as a cross check of the reasonableness of the fee award is of limited usefulness. Accepting the lodestar as calculated by counsel, the fee award recommended of 20% of the settlement amount, or $2,750,000, amounts to 1.14 times counsel's claimed lodestar of $2,417,670.00. While this multiplier is lower than the multiplier granted in other cases, I find that it is reasonable in this case. See, e.g., In re Bristol-Myers Squibb, 361 F. Supp. 2d 229 (2.29 multiplier); Denney, 2005 WL 388562, at *29 (1.5 multiplier); In re Indep. Energy, 2003 WL 22244676, at *9 n. 22 (1.55 multiplier); In re Fine Host Corp., 2000 U.S. Dist. LEXIS 16205 (S.D.N.Y. 2000) (2.6 multiplier);contrast Goldberger, 209 F.3d 43 (no multiplier). As discussed, the lodestar calculated by Class Counsel is based on hourly rates that ranged from high to clearly unreasonable, excessive hours expended and a disproportionate amount of time expended by persons billing at higher rates than needed. In addition, as discussed below, the rates and time spent by plaintiffs' experts suffer from similar infirmities, resulting in claimed expenses that are too high.

Under these circumstances, any lodestar cross check should be based on billings that have some semblance of reasonableness. If the lodestar figure were reduced by 20% to $1,934,136, then the fee recommended would amount to 1.42 times the lodestar. If the lodestar were reduced further by $25,809.71, or just five percent of the recommended allowed expenses, to account for the doubt whether Class Counsel have carefully controlled the costs of experts and travel, then the multiplier for a lodestar of $1,908,326.29 would be 1.44. Such reductions are quite modest in light the unrestrained expenditure of time and overly generous rates of Class Counsel. I find that a multiplier of almost one and a half times this adjusted lodestar "would provide far more than sufficient encouragement to plaintiffs' counsel, indeed, would provide a windfall, where there appears, at the commencement of the litigation, no more than the usual risk of non-recovery." In re Bristol-Myers Squibb, 361 F. Supp. 2d at 236; see also In re Arakis Energy, 2001 WL 1590512, at *16 (reducing multiplier to 1.2).

D. Costs

"Class Counsel are entitled to reimbursement for reasonable litigation expenses." See In re Sterling Foster Co., Inc., Sec. Litig., 238 F. Supp. 2d 480, 490 (E.D.N.Y. 2002) (citingMiltland Raleigh-Durham v. Myers, 840 F. Supp. 235, 239 (S.D.N.Y. 1993) ("Attorneys may be compensated for reasonable out-of-pocket expenses incurred and customarily charged to their clients, as long as they `were incidental and necessary to the representation' of those clients")). However, "[a]ttorneys are clearly not entitled to reimbursement of expenses where the request is for an amount which is excessive or otherwise noncompensable." In re Bausch Lomb, 183 F.R.D. at 89 (citingIn re Fleet/Norstar Sec. Litig., 974 F. Supp. 155, 158 (D.R.I. 1997) (reducing expenses by 75% of amount requested)).

Weiss Lurie seeks reimbursement of litigation expenses in the amount of $368,070.80 while Cauley Bowman seeks $223,830.86, for an aggregate award of $591,901.66. Courts routinely grant the expense requests of class counsel. See In re Visa Check/Mastermoney Antitrust Litig., 297 F. Supp. 2d 503, 525 (E.D.N.Y. 2003); In re Bristol-Myers Squibb, 361 F. Supp. 2d 229; In re Alloy, Inc. Sec. Litig., No. 03 Civ. 1597 (WHP), 2004 WL 2750089 (S.D.N.Y. Dec. 2, 2004); In re Interpublic Sec. Litig., 2004 WL 2397190 (S.D.N.Y. Oct. 25, 2004); but see In re AMF Bowling, 334 F. Supp. 2d at 469-470 (court requested further explanation). This may be due, in part, to the fact that review of requests for expenses and costs may be even more "cumbersome, enervating, and . . . surrealistic" a process than lodestar determinations. See Goldberger, 209 F.3d at 50 (quoting Savoie, 166 F.3d 456, 461 n. 4 (quoting Third Circuit Task Force, Court Awarded Attorney Fees, 108 F.R.D. 237, 258 (1985))).

More importantly, granting requests for expenses is consonant with the public policy underlying fee awards in common fund cases. Since counsel in a class action will necessarily incur substantial costs and expenses over the course of many years and will presumably have paid the expenses by the time a fee request is considered by the Court,¹⁴ providing for reimbursements of costs and expenses is a component of affording adequate compensation to counsel in order to encourage attorneys to pursue common fund cases.

14 Class Counsel have not clearly stated whether they have paid all claimed expenses, but rather, represent that their claimed expenses are reflected in books and records prepared from expense vouchers and check records "prepared in the normal course of business[.]" Weiss Decl., ¶ 48 n. 4; Carney Decl., ¶ 45 n. 4; Cauley Rev. Decl., ¶ 45 n. 5; Cauley Supp. Decl., ¶ 4.

Since district courts are not required to engage in the tedious nit-picking of requested fees in common fund cases, Goldberger, 209 F.3d at 51, scrutiny of requested expenses, which ordinarily comprise a fraction of fees, is even less necessary. Nonetheless, the submissions before the Court trigger a few concerns. By far the largest claimed expense is for experts retained by Weiss Lurie, which seeks reimbursement of $281,256.39 for four experts, while Cauley Bowman claims expert fees of $22,894.11. At the request of the Court, both Weiss Lurie and Cauley Bowman have submitted copies of the invoices of their expert witnesses. See ct. docs. 125, 126. While the invoices by the experts hired by Weiss Lurie provide some explanation of the work performed by the firm's experts, the invoices do not give a daily breakdown of the time spent or work performed. See Weiss Decl., ¶¶ 32-33. The invoices of the experts retained by Cauley Bowman are even more sparse.

Nor do plaintiffs provide any information to enable the Court to assess the reasonableness of the hourly rates charged by the experts. The invoices indicate that much of the work performed by accountants was billed at a rate of $400 per hour. See invoices of Rosenwald Bildstein, Peter Goldman and Shareholder Services, Inc., attached as exhibit to Weiss letter (Ct. doc. 125). John Hammerslough, another accountant, charged $475 per hour, with two associates charging $300 and $175 per hour. Id.

This Court suspects that an ordinary corporate client paying such bills would have required a better explanation before paying hundreds of thousands of dollars. While this Court does not doubt the professionalism of Class Counsel, the structural collusion inherent in class settlements described in Goldberger may similarly be at play here: where all persons involved have little incentive to oppose or scrutinize a fee request. Goldberger, 209 F.3d at 53. Since the full costs of experts are routinely paid out of settlement funds, Class Counsel have little interest in reining them in, particularly if counsel have an ongoing business relationship with the expert. As the invoices submitted by Cauley Bowman's expert indicate, the experts provided support on cases besides this one. See ct. doc. 126. Several of Weiss and Lurie's experts have been retained as experts by Weiss and other plaintiffs' counsel in other securities actions. See, e.g., In re Cendant Corp. Securities Litigation, 404 F.3d 173, 185 (3rd Cir. 2005) (Hammerslough); In re Arakis Energy, 2001 WL 1590512, at *3 (Hammerslough, with Weiss Lurie as counsel); Silverberg v. People's Bank, No. 5:90CV00600, 2000 WL 502621, at *5 (D. Conn. March 17, 2000) (Hammerslough); Wells v. Dartmouth Bancorp, Inc., 813 F. Supp. 126, 128 (D.N.H. 1993) (Rosenwald Bildstein); In re Convergent Tech. Second Half 1984 Sec. Litig., NO. C-85-20130-SW, 1990 WL 606271 (N.D. Cal. Jan 10, 1990) (Bildstein); In re Elscint, Ltd. Sec. Litig., 674 F. Supp. 374 (D. Mass. 1987) (Hammerslough, with Joseph Weiss as counsel).

On the other hand, experts are clearly needed in most securities class actions and the fees of the experts have, presumably, already been paid by counsel. Thus, I recommend that these and most of the other expenses be reimbursed,¹⁵ but that the weak support for the claimed expenses be considered as a factor in determining the reasonableness of the fee award.

15 Cauley Bowman claimed $152,536.92 for meals, hotel and transportation, undoubtedly because members of Cauley Bowman had to travel from Arkansas to the New York City area and elsewhere to participate in depositions, document review and mediation. Cauley Bowman claims considerably higher travel related expenses than Weiss Lurie and fails to give a breakdown to enable determination whether the claimed expenses are reasonable. Nevertheless, since Cauley Bowman's hourly rates and hence, fees, are lower than those claimed by Weiss Lurie, the greater claimed expenses may be off-set by the lower fees.

However, I recommend that Class Counsel's award for electronic research be denied. Judges in this district have "uniformly disallow[ed] applications for electronic research costs." King v. JSC Enterprises, 325 F. Supp. 2d 162, 171 (E.D.N.Y. 2004);see also Fink v. City of New York, 154 F. Supp. 2d 403, 415 (E.D.N.Y. 2001); L.I. Head Start Child Development Services, Inc. v. Kearse, 96 F. Supp. 2d 209, 215-16 (E.D.N.Y. 2000);Bausch Lomb Sec. Litig., 183 F.R.D. at 89-90 (citing cases where courts denied request for computerized research). Thus, it is appropriate, particularly given the high rates of Class Counsel, to characterize these costs as attributable to firm overhead,¹⁶ rather than as recoverable expenses. See, e.g., Bausch Lomb, 183 F.R.D. at 90 (citing Davitt v. Info. Res., Inc., No. 94 C 2432, 1995 WL 234630, at *5 (N.D. Ill. Apr. 19, 1995)); In re PaineWebber Ltd. P'ship Litig., No. 94 Civ. 8547 (SHS), 2003 WL 21787410, at *7 (S.D.N.Y. Aug. 4, 2003) (no reimbursement for electronic research for insufficient showing).

16 This Court is aware that several electronic research companies offer service at a flat monthly rate, rather than hourly, even though monthly invoices may reflect an hourly breakdown.

For the foregoing reasons, this Court recommends that Class Counsel be awarded $516,194.26 representing the full amount of expenses requested, except for computerized research costs of $75,707.40.

E. Interest

Class Counsel seek interest earned on the fees and expenses awarded "thereon for the same time period and at the same rate as that earned on the Settlement Fund until paid[.]" Fees Mem. at 33. According to the Stipulation and Agreement of Compromise, Settlement and Release, "Defendants shall pay to the Settlement Class the sum of $13,750,000 within ten business (10) days of preliminary approval of the Stipulation by the Court, by depositing such sum into an interest bearing escrow account at Metropolitan National Bank and/or Centennial Bank." ¶¶ 3(a), 4 (ct. doc. 109). Since interest undoubtedly has accrued on the settlement monies which presumably have been deposited with the escrow agent after the Court preliminarily approved the settlement on November 16, 2004 (ct. doc. 111), I recommend that the Court award Class Counsel the pro rated amount of the interest on the settlement fund for fees and expenses.

F. Award to Class Representative and Lead Plaintiffs

Class Counsel request reasonable compensation for Lead Plaintiffs and the Class Representative pursuant to 15 U.S.C. § 78u-4(a)(4). Specifically, Class Counsel requests an award of $4,000 for Donald Kassan, $8,150 for Peter Hubbard, and $3,600 for Howard Frank. See Fees Mem. at 33.

Pursuant to the PSLRA, a plaintiff seeking to serve as a representative party on behalf of a class shall provide a sworn certification stating that he "will not accept any payment for serving as a representative party on behalf of the class beyond the plaintiff's pro rata share of any recovery, except as ordered or approved by the court in accordance with paragraph (4)." 15 U.S.C. § 78u-4(a)(2)(A)(vi). However, this section further provides that:

The share of any final judgment or of any settlement that is awarded to a representative party serving on behalf of a class shall be equal, on a per share basis, to the portion of the final judgment or settlement awarded to all other members of the class. Nothing in this paragraph shall be construed to limit the award of reasonable costs and expenses (including lost wages) directly relating to the representation of the class to any representative party serving on behalf of the class.

15 U.S.C. § 78u-4(a)(4).

Lead Plaintiffs have signed certifications as required by 15 U.S.C. § 78u-4(a)(2)(A)(vi). See also Am. Compl., ¶ 19. In support of the request of the Class Representative and Lead Plaintiffs for reasonable costs and expenses, Joseph Weiss avers that the Lead Plaintiffs and the Class Representative "expended significant time in overseeing the litigation, consulting with [Class] Counsel, responding to discovery requests and having their depositions taken in this litigation on behalf of the Class and which culminated in the Settlement for the Class." Weiss Decl., ¶ 49. He also claims that they "request only reasonable compensation for their time and effort expended prosecuting the Litigation on behalf of the Class and reimbursement of their out-of-pocket expenses relating thereto." Id. at ¶ 49. Similarly, J. Allen Carney and S. Gene Cauley generally state that the Class Representative and Lead Plaintiffs "request only reasonable compensation for their lost wages resulting from their inability to perform their occupations during this time and reimbursement of their out-of-pocket expenses relating thereto." Carney Rev. Decl., ¶ 46; Cauley Supp. Decl., ¶ 46.

While this Court agrees that the Class Representative and Lead Plaintiffs should be reimbursed for lost wages and out-of-pocket expenses incurred, the generalized statements of Counsel fail to provide any basis for determining what reasonable costs and expenses were incurred. Counsel have not shown how the time expended by the Class Representative and Lead Plaintiffs resulted in actual losses, whether in the form of diminishment in wages, lost sales commissions, missed business opportunities, use of leave or vacation time or actual expenses incurred. Without any proof or detail in this regard, I recommend that Class Representative and Lead Plaintiffs not be awarded any payment beyond their pro rata share of the settlement. See In re AMF Bowling Sec. Litig., 334 F. Supp. 2d 462, 470 (S.D.N.Y. 2004) (denying award and observing that "Congress did not want lead plaintiffs to gain a benefit in any respect, except as a member of the class they represented").

CONCLUSION

For the foregoing reasons, I respectfully recommend that this Court award Class Counsel fees in the amount of $2,750,000 which amounts 20% of the Fund in proportionate amounts; and costs totaling $516,194.26. I also recommend that the Court grant Class Counsel's request for pro rated interest, and deny the request for an incentive award to the Lead Plaintiffs and Class Representative.

Copies of this report and recommendation have been filed via ECF on this date. Any objections to this Report and Recommendation must be filed with the Clerk of the Court, with a copy to the undersigned, by September 9, 2005. Failure to file objections within the specified time waives the right to appeal.See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b).

SO ORDERED.