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awarding 25% $150,000,000
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MDL No. 1430, Master File No. 01-CV-10861-RGS.
August 17, 2005
ORDER ON DEFENDANTS' MOTION FOR RECONSIDERATION
On August 10, 2005, the court allowed defendants' motion to strike opt-out requests submitted by certain third party payers (TTPs), with the exception of the California Consumer Health Care Council (CCHCC). Defendants ask that the court reconsider its decision with respect to the CCHCC. Defendants argue that the opt-out request submitted by John Metz, Chairman of CCHCC's Board of Directors, purports to exclude from the nationwide Lupron® Purchaser Class not only CCHCC as an entity, but also CCHCC's membership en masse in violation of the provisions of the court's the November 24, 2004 Order (Order) and the due process rights of its own members. Defendants' Memorandum, at 1. Defendants argue that if CCHCC is to be permitted to act on behalf of its individual members, it should be required (as were all other TTP opt-outs) to identify each member who is opting out, and, as required by the court's Order, "the time period during which the class member made Lupron® purchases." Order, at 10. While Metz listed "the entire class period" as the dates of purchase, this undifferentiated designation satisfies neither the spirit nor letter of the court's Order. Nor did Metz submit "written evidence of the TPP Class member's grant of authority to him to execute the notice of exclusion on its [his or her] behalf." Id. The motion to reconsider is therefore ALLOWED in part. The court will grant Metz twenty-one (21) days from the date of this Order to submit proof verifying his compliance with the November 24, 2004 Order with respect to the opt-out process.
SO ORDERED.
MEMORANDUM AND ORDER ON MDL COUNSEL'S MOTION FOR ATTORNEYS' FEES AND COSTS
On May 12, 2005, the court certified a nationwide Multi-District Litigation (MDL) class of patients and health care insurers seeking damages from TAP Pharmaceutical Products, Inc. (TAP), Abbott Laboratories and Takeda Pharmaceuticals Company Ltd. (Takeda). Plaintiffs' claims arose out of an alleged pricing scheme involving the prescription drug Lupron®. The court also approved the parties' settlement agreements and found that the notice given to Lupron® consumer-purchasers and Third Party Payers (TPPs) satisfied the requirements of Fed.R.Civ.P. 23(c)(2). Under the terms of the settlement, class counsel are permitted to seek reasonable attorneys' fees "not to exceed 30 percent of the settlement fund." In the May 12 Order, the court approved an "award of fees [to MDL counsel] . . . not to exceed 25 percent of the [Lupron® consumer-purchaser and TPP] settlement fund." The court, however, deferred ruling on a specific fee award until a number of outstanding motions had been resolved, most of which involved conflicts between MDL plaintiffs' counsel and state court counsel affiliated with the Kline Specter Group (KSG) in non-MDL Lupron® cases filed in New Jersey, North Carolina, and Arizona, and unresolved matters with several state Attorneys General who had attempted to opt state citizens and governmental entities out of the MDL settlement.In the weeks following the court's May 12 Order, counsel worked to reconcile the differences. These negotiations resulted in a complex arrangement among MDL plaintiffs' counsel, the defendants, and the Attorneys General of Idaho, Illinois, Kentucky, Minnesota, Pennsylvania, and Wisconsin, as well as a subsidiary agreement with KSG regarding payment of a portion of the attorneys' fees and costs incurred by KSG in the state court litigation. The agreement with KSG was conditioned on the court's approval of an increase in the recovery to Lupron® consumer-purchasers (from 30 to 50 percent of out-of-pocket expenses or $100, whichever is greater), a reopening of the claims window to permit KSG-represented opt-outs to rejoin the MDL class, and the approval of cy pres awards to the Attorneys General of Minnesota and Pennsylvania.
On June 24, 2005, the court heard the parties' joint motion to implement the KSG agreement and to increase the percentage of the fund allocated to attorneys' fees and costs from 25 to 30 percent. The 5 percent increase is intended to provide funds to reimburse some of the fees and expenses incurred in the state court Lupron® litigation by KSG and Miller, Faucher and Cafferty LLP (Miller Faucher), a one-time KSG affiliate. At the close of the hearing, the court: (1) reopened the claims period to permit all affirmative opt-outs, including clients of KSG and citizens represented by the Minnesota and Pennsylvania Attorneys General, to submit claims on or before July 25, 2005; (2) approved incentive awards for Intervenors/objectors Milton Greene, Steven Rowan, Robert Swanston, and Valerie Samsell (on behalf of her two daughters); and (3) adopted the proposed amendment to the Settlement Agreement increasing the payout to consumer-purchasers of Lupron®. The court now turns to the issue of an award of attorneys' fees and costs to MDL plaintiffs' counsel.
Miller Faucher filed its own fee petition apart from KSG.
The fee requests of Miller Faucher and KSG have been or will be addressed separately.
BACKGROUND
On October 11, 2004, the MDL parties notified the court that after more than three years of protracted litigation, the parties had reached a settlement. The settlement consists of two agreements. The first, which is between the defendants and the Settling Health Plans (SHPs), was placed before the court for informational purposes only, as the SHPs are not associated as a class and have settled in their individual capacities with the defendants. The second agreement, which required court approval, is between the defendants and the "Lupron® Purchaser Class." This class consists of consumer-purchasers and TPPs that are not part of the SHPs settlement. The TPPs consist primarily of self-insured employers and Taft-Hartley benefit plans.The sum allocated among the three settlement pools is $150 million. Of this amount, $40 million is designated for the claims of individual consumers, $55 million is initially allocated to the claims of the TPP class members, and an additional $55 million is earmarked for the SHPs. Attorneys' fees and expenses are to be borne separately by each pool with the SHPs paying their own fees and costs. The first $1 million in notice and claims expenses is to be paid by the TPPs; thereafter the TPP and consumer pools bear their respective costs in processing any remaining claims. Each pool is also responsible for incentive payments to class representatives. If any surplus remains in the consumer pool after all valid claims are paid, it will be distributed by the court at its discretion.
There is also a mechanism to adjust the division of funds between the SHPs and the TPPs depending on claims experience. There is no anticipation of a surplus in either the SHP or TPP pools.
After finalizing the settlement agreement, defendants transferred $150 million into an escrow account. MDL class counsel thereafter petitioned the court for a fee award of $23,750,000, and the reimbursement of an additional $1,822,754.71 in costs. MDL counsel also requested that the court approve incentive payments totaling $100,000. In its May 12, 2005 decision, the court found the fee request to be within the range of reasonableness, but deferred making a specific award. The court does so now.
The lodestar as of the date the petition was filed, April 6, 2005, amounted to $14,503,055.50, meaning that class counsel were seeking an award at a multiplier of 1.64. The requested multiplier has diminished considerably because of the additional expenses entailed in resolving the disputes with KSG and the state Attorneys General, which necessitated two post-settlement court hearings preceded by extensive filings. Upward adjustments in lodestar awards are not unheard of, but are reserved for exceptional cases. See Lipsett v. Blanco, 975 F.2d 934, 942-943 (1st Cir. 1992).
DISCUSSION
Courts have long recognized that a lawyer who recovers a "common fund" for the class she represents is entitled to be paid a reasonable attorneys' fee and her expenses prior to the distribution of the balance to the class. Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980). See In re Thirteen Appeals Arising Out of the San Juan Dupont Plaza Hotel Fire Litig., 56 F.3d 295, 305 n. 6 (1st Cir. 1995) ("[T]he common fund doctrine is founded on the equitable principle that those who have profited from litigation should share its costs."); In re Fidelity/Micron Securities Litig., 167 F.3d 735, 737 (1st Cir. 1999) ("[L]awyers whose efforts succeed in creating a common fund for the benefit of a class are entitled not only to reasonable fees, but also to recover from the fund, as a general matter, expenses, reasonable in amount, that were necessary to bring the action to a climax."). "The `common fund' doctrine is designed to spread the costs of litigation among all the beneficiaries of an identifiable fund over which a court can exercise legitimate control, in effect guarding against the unjust enrichment of passive beneficiaries at the expense of the active beneficiary."Bebchick v. Washington Metro. Area Transit Comm'n, 805 F.2d 396, 402 (D.C. Cir. 1986).
The United States Supreme Court has held that a common fund fee award may be appropriately determined by a percentage-of-the-fund (POF) method. See Blum v. Stenson, 465 U.S. 886, 900 n. 16 (1984) ("[U]nder the common fund doctrine,. . . . a reasonable fee is based on a percentage of the fund bestowed on the class."). While in the First Circuit, a judge has the discretion to apply either the lodestar or POF method in making an award of attorneys' fees in a common fund case, the Court of Appeals acknowledged the "distinct advantages that the POF method can bring to bear" — it is less burdensome to administer, it reduces the possibility of collateral disputes, it enhances efficiency throughout the litigation, it is less taxing on judicial resources, and it better approximates the workings of the marketplace. In re Thirteen Appeals, 56 F.3d at 307. At least nine other Circuits — the Second, Third, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, and the District of Columbia — have approved the use of the POF method in common fund cases.See Manual For Complex Litigation § 14.121 (Fourth 2004) ("The vast majority of courts of appeals now permit or direct district courts to use the percentage-fee method in common fund cases.").
Fees against a common fund recovery are typically assessed "either on a percentage of the fund basis or by fashioning a lodestar." In re Thirteen Appeals, 56 F.3d at 307. A lodestar "is determined by multiplying the total number of hours reasonably spent by a reasonable hourly rate." Grendel's Den, Inc. v. Larkin, 749 F.2d 945, 951 (1st Cir. 1984). "In calculating a reasonable hourly rate, one must consider such factors as the type of work performed, who performed it, the expertise that it required, and when it was undertaken." Id. Where petitioning counsel are not class counsel, as in the case of KSG and Miller Faucher, the lodestar approach provides a more appropriate measure of the value of the benefit conferred by the efforts of outside counsel on the class. Conley v. Sears, Roebuck Co., 222 B.R. 181, 188 (D. Mass. 1998).
While the First Circuit does not mandate the weighing of any specific set of factors in assessing a common fund fee request, typical considerations include: (1) the size of the fund and the number of persons benefitted; (2) the skill, experience, and efficiency of the attorneys involved; (3) the complexity and duration of the litigation; (4) the risks of the litigation; (5) the amount of time devoted to the case by counsel; (6) awards in similar cases; and (7) public policy considerations, if any.See Third Circuit Task Force, Court Awarded Attorneys Fees, 108 F.R.D. 237, 255-256 (1985);Goldberger v. Integrated Res., Inc., 209 F.3d 43, 50 (2d Cir. 2000).
Benefits Paid by the Fund in Relation to the Fee Request
The funds allocated to the Lupron® consumer-purchaser and the TPP pools total $95 million. As of July 25, 2005, 13,742 consumer claims had been filed with the Claims Administrator with a cumulative prospective payout of $29,653,845.95. Only 52 Lupron® purchasers filed opt-outs. MDL counsel, on behalf of a consortium of plaintiffs' attorneys, seek 25 percent of the fund ($23,750,000) as a fee award, and an additional $1,895,521.67 in costs, to be paid out of the consumer purchaser pool and the TPP pool in proportion to the total amounts deposited into the two pools. KSG seeks an additional $4,300,000 in fees and $2,908,267.62 in costs; Miller Faucher seeks $1,084,606.20 in fees and $73,871.06 in costs. It is apparent from the now fixed number of claims submitted that a fee award in the 25 or even 30 percent range will not dilute the recovery to Lupron® consumer-purchasers, particularly as the court will order that costs be absorbed in the ultimate percentage award.
I do not mean to imply that this is a case where a school of sharks swam towards blood in a fee feeding frenzy. Plaintiffs are mostly cancer patients who have a much more intense interest in the litigation than the usual member of a class action. Many sought out personal legal representation well before the MDL action was filed after learning in October of 2001 that TAP had plead guilty to a conspiracy to violate the Prescription Drug Marketing Act.
MDL plaintiffs' counsel's original request for costs was $1,822,754.71. On June 22, 2005, counsel supplemented the request to include subsequently incurred costs and expenses totaling $72,766.96.
KSG reached an independent settlement with defendants that included the payment of a substantial portion of its fees.
KSG and Miller Faucher understand that any award by the court will be capped by the 5 percent requested increase in the POF, and that it is unlikely that either petition will be granted in full, if at all.
Skill and Efficiency of the Attorneys Involved
MDL counsel are experienced in the handling of complex consumer class litigation. The court has previously found counsel involved on both sides of the MDL proceedings to be "honorable litigators devoted to the interests of their clients" who vigorously contested the case from its inception. "Counsel are among the most experienced lawyers the national bar has to offer in the prosecution and defense of significant class actions." November 24, 2004 Order, at 3. Nothing has since occurred to detract from the court's favorable view of the performance of MDL counsel. Complexity and Duration of the Litigation
One disturbing aspect of the case with respect to the efficiencies involved is the amount of time and money that was lost to the struggle between MDL counsel and KSG over control of the litigation, a subject of the court's May 12, 2005 Memorandum and Order. While the parallel state litigation ultimately proved an influential factor in bringing about a settlement, the conflict drove up litigation costs, including attorneys' fees. The court notes that the so-called "Class Action Fairness Bill," which took effect on February 18, 2005, may in future cases eliminate many of the coordination problems that bedeviled this litigation.
This is a complex case raising difficult and in some instances novel legal issues (potential defenses based on theories of imputed knowledge, government ratification, preemption, and lack of jurisdiction, conflicts among state laws, and differing state statutes of limitations), as well as thorny issues of fact involving pharmaceutical pricing, insurance billing practices, and the calculation of damages. The initial Complaint in the MDL matter was filed in May of 2001 after a lengthy investigation of possible claims and defenses. The case has been vigorously contested from its inception, as evidenced by the number of decisions that have issued from this court and the Court of Appeals addressing matters of jurisdiction, discovery, privilege, class certification, and substantive law. The most recent motion hearing in the case was held on June 24, 2005.
Risk of Nonpayment
Many cases recognize that the risk assumed by an attorney is "`perhaps the foremost' factor" in determining an appropriate fee award. Goldberger, 209 F.3d at 54. In Behrens v. Wometco Enterprises, Inc., 118 F.R.D. 534, 548 (S.D. Fla. 1988),aff'd, 899 F.2d 21 (11th Cir. 1990), the court observed that:
[g]enerally, the contingency retainment must be promoted to assure representation when a person could not otherwise afford the services of a lawyer. . . . A contingency fee arrangement often justifies an increase in the award of attorneys' fees. This rule helps assure that the contingency fee arrangement endures. If this `bonus' methodology did not exist, very few lawyers could take on the representation of a class client given the investment of substantial time, effort, and money, especially in light of the risks of recovering nothing.
History is replete with cases in which plaintiffs prevailed at trial on issues of liability, but recovered little or nothing by way of damages See, e.g., MCI Communications Corp. v. ATT, 708 F.2d 1081, 1166-67 (7th Cir. 1983) (remanding antitrust judgment for a new trial on damages); Eisen v. Carlisle Jacquelin, 479 F.2d 1005 (2d Cir. 1973), vacated on other grounds, 417 U.S. 156 (1974) (following two trips to the Court of Appeals and one to the Supreme Court, plaintiffs, the putative class, and their counsel received nothing); United States Football League v. Nat'l Football League, 644 F. Supp. 1040, 1042 (S.D.N.Y. 1986) ("[T]he jury chose to award plaintiffs only nominal damages, concluding that the USFL had suffered only $1.00 in damages."). MDL counsel bore the risk of the case being dismissed at the pretrial stage, of losing at trial, or of failing to prove damages. Intervenors' counsel at the preliminary approval hearing estimated a 50 percent probability that the case could be lost in its entirety if litigated through trial, an estimate which the court has previously endorsed. See November 25, 2004 Order, at 4.
Time Devoted to the Case by Plaintiffs' Counsel
The MDL complaint was filed in May of 2001. Discovery proceeded for three years and involved depositions, many lengthy, of over thirty percipient and expert witnesses, as well as the production and analysis of hundreds of thousands of pages of documents. As of February 28, 2005, MDL plaintiffs' counsel attested to having expended 44,175.98 hours in attorney time on the investigation and litigation of the case. A number of additional hours were consumed thereafter by the settlement negotiations with defendants, the defense of the proposed settlement agreement against attacks by the Intervenors and objectors, and the settlement negotiations with Intervenors' counsel and the state Attorneys General.
Awards in Similar Cases
Courts in the First Circuit have recognized that fee awards in common fund cases typically range from 20 to 30 percent. See, e.g., In re Fleet/Norstar Securities Lit., 935 F. Supp. 99, 109 (D.R.I. 1996); Conley, 222 B.R. at 187; In re Compact Disc Minimum Advertised Price Antitrust Lit., 216 F.R.D. 197, 216 n. 45 (D. Mass. 2003). See also Theodore Eisenberg Geoffrey Miller, Attorneys Fees in Class Action Settlements: An Empirical Study, 1 J.E.L.S. 2004, at 6 (finding that 1996 and 1999 NERA studies found a "remarkable uniformity in fee awards [in security class actions] between roughly 30 to 33 percent of a settlement amount. A 1996 Federal Judicial Center study examined all class actions terminated between July 1, 1992 and June 30, 1994, in four district courts. This study reports mean and median fee awards of between 24 and 30 percent of the net monetary distribution to the class."); Manual For Complex Litigation § 14.121 ("Attorney fees awarded under the percentage method are often between 25 percent and 30 percent of the fund."). The Ninth Circuit has identified 25 percent as the appropriate "benchmark" fee award in common fund cases. See Six (6) Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1311 (9th Cir. 1990). Other courts have utilized the 25 percent benchmark, with adjustments depending on the complexity of the case, the risk of nonpayment, and the magnitude of success. See, e.g., Gaskill v. Gordon, 160 F.3d 361, 362-363 (7th Cir. 1998) (affirming a fee award of 38 percent of the settlement fund); In re Pacific Enterprises Sec. Litig., 47 F.3d 373, 379 (9th Cir. 1995) (approving a 33 percent award of a $12 million common settlement fund); In re Lorazepam Clorazepate Antitrust Litig., 2003 WL 22037741, *8 (D.D.C. 2003) (30 percent); In re Rite Aid Corp. Sec. Litig., 146 F. Supp.2d 706, 735-36 (E.D. Pa. 2001) (noting expert testimony that the average fee is 28.1 percent in settlements between $100 and $200 million in awarding 25 percent of a $193 million common fund);In re Vitamins Antitrust Litig., 2001 WL 34312839, *12 (D.D.C. 2001) (determining that a 33 1/3 percent fee award was reasonable and granting class counsels' fee petition in the amount of $123,188,032 plus interest).
Although it has been said that a "POF award ordinarily decreases as the size of a common fund increases," In re Wash. Pub. Power Supply Sys. Sec. Litig., 19 F.3d 1291, 1295-96 (9th Cir. 1994), a Ninth Circuit decision analyzing the POF method as applied in large dollar common fund cases range found the statement to be empirically unsupported. See Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1050 n. 4 (9th Cir. 2002). The Court included a table of thirty-four cases in which recoveries ranged from $54 million to $185 million, including at the high end a 40 percent fee award of a $185 million settlement in In re Merry-Go-Round Enterprise, Inc., 244 B.R. 327 (Bankr. D. Md. 2000). See Vizcaino, 290 F.3d at 1052. The Vizcaino table shows either no direct or inverse correlation between the size of the settlement fund and the percentage of the fund awarded, supporting the Court's conclusion that the argument for a reduction of the percentage award as the size of a settlement fund increases reflects neither reality nor sound judicial policy. Id.
In the First Circuit as elsewhere, "[t]he lodestar approach (reasonable hours spent times reasonable hourly rates, subject to a multiplier or discount for special circumstances, plus reasonable disbursements) can be a check or validation of the appropriateness of the percentage of funds fee, but is not required." In re Thirteen Appeals, 56 F.3d at 307; In re Compact Disc, 216 F.R.D. at 215-16; see also Manual for Complex Litigation § 14.122 ("The lodestar is . . . useful as a cross-check on the percentage method by estimating the number of hours spent on the litigation and the hourly rate, using affidavits and other information provided by the fee applicant. The total lodestar estimate is then divided into the proposed fee calculated under the percentage method. The resulting figure represents the lodestar multiplier to compare to multipliers in other cases.").
The total lodestar claimed by plaintiffs' counsel as of July 30, 2005 is $15,481,308.50. The total amount of expenses incurred is $1,893,521.67. MDL Class Counsel has submitted affidavits detailing the number of hours spent on the litigation, as well as the hourly rates for lawyers from each firm, which range from $80 for the most junior attorneys to $570 per hour for the most senior. Dividing this total amount into the requested fee award of $23,750,000 minus costs yields a multiplier of 1.41, a reasonable bonus justified by the satisfactory outcome.
The hourly rates listed are consistent with the prevailing Boston-area rates for lawyers' of similar experience undertaking similar cases. The court is not in a position to make a similar judgment with respect to the thirty firms and hundreds of lawyers involved in the MDL action who practice outside this jurisdiction, but will proceed on the reasonable assumption that the MDL coordinating counsel have every incentive for weeding out inflated or dubious fee requests before making a pro rata distribution of the award.
Public Policy Considerations
While in the abstract, the public has no particular interest in whether or not lawyers are paid a fee for bringing class actions, there is a significant societal interest in obtaining redress for prescription drug consumers whose harms could not, given the cost of litigation, be pursued on an individual basis. The public interest is also served by the defendants' disgorgement of the proceeds of predatory marketplace behavior.
The large insurers stand in different shoes than the consumers and the smaller employer or union-based TPPs in terms of their ability to protect their interests, as reflected in the independent settlement reached with the defendants.
Conclusion
Having considered each of the above factors, I find that a POF award of 25 percent to MDL plaintiffs' counsel, as compensation for attorney time and expenses, while generous, is under the circumstances, fair and reasonable. Incentive Awards
"[I]n percentage-of-the-fund cases, district courts may, if they so elect, set the percentage at a level which not only accounts for fees, but also suffices to cover reimbursable expenses in whole or in part." In re Fidelity/Micron, 167 F.3d at 737. This approach not only relieves the court of the tedious and time-consuming task of parsing attorneys' often impenetrable expense accountings, it also provides an incentive to class action attorneys to contain their own costs.
The 23 percent fee award is tailored to the particular facts and circumstances of this case and is not intended to imply a "benchmark" for determining what the court would consider a reasonable fee award in future common fund cases.
MDL Class Counsel also request that the court approve incentive awards in the amount of $5,000 for each named consumer plaintiff who was deposed, $2,500 for each named consumer plaintiff who was not deposed, and $25,000 for each named TPP. The total request amounts to $100,000 to be paid to four deposed individual plaintiffs, twelve undeposed individual plaintiffs, and the two TPP plaintiffs' representatives who gathered and produced documents and sat for depositions.
The request covers representative plaintiffs in this litigation and in the various state class actions that agreed to coordinate with the MDL action.
Incentive awards serve an important function in promoting class action settlements, particularly where, as here, the named plaintiffs participated actively in the litigation. Denney v. Jenkens Gilchrist, 2005 WL 388562, at *31 (S.D.N.Y. Feb. 18, 2005). Courts "routinely approve incentive awards to compensate named plaintiffs for the services they provided and the risks they incurred during the course of the class action litigation."In re Lorazepam Clorazepate Antitrust Litig., 205 F.R.D. 369, 400 (D.D.C. 2002). "Because a named plaintiff is an essential ingredient of any class action, an incentive award can be appropriate to encourage or induce an individual to participate in the suit." In re Compact Disc, 292 F. Supp. 2d at 189. I will approve the incentive payments in the requested amounts to be made to the representatives from their respective pools.
ORDER
For the foregoing reasons, the court awards MDL counsel fees and costs in the amount of $23,750,000. The fee requests of Miller Faucher and KSG will be addressed separately, but the court will provisionally allocate an additional 5 percent of the Lupron® consumer-purchaser and TPP settlement pools for that purpose.
SO ORDERED.