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$26.7 million victory for CCAF in Citigroup Securities case


The $100.3 million fee request by class counsel in In re Citigroup Securities Litigation was appalling:

  • Defendant Citigroup pays $25/hour to contract attorneys doing document review. Class counsel wanted an average of $466/hour with a 1.9 multiplier (i.e., about $900/hour) for their work.

  • Remarkably, 15% of class counsel's lodestar came from paper-shuffling work done after the case had settled, pure makework at zero risk to inflate the lodestar, much of which was done by newly hired contract attorneys. We didn't learn this until we got partial discovery nearly three months after the original objection deadline.

  • Too, the makework was done ludicrously inefficiently, with hundreds of hours billed to one-day deposition summaries.

  • Another $4 million was billed for fights between class counsel for who would represent the class.

The district court was having none of this, and sliced the lodestar in half. Unfortunately, what the court took away with one hand, the court gave partially back with the other: he proceeded to approve a multiplier of 2.8, higher than class counsel originally requested, so the fees were only cut $26.7 million. The court also chose to reject the overwhelming evidence that, in the relevant legal market, clients don't accept huge markups for contract attorneys doing document review, and permitted a $200/hour lodestar for that work. This, combined with the multiplier, means that class members were paying $560/hour for document review work, more than 22 times as much as the $25/hour that their adversary was paying. The court excused this by saying that Citigroup has market power to negotiate rates down—but surely, a client holding out the prospect of tens of thousands of hours contract attorney work has nearly as much market power to get the rate below a 2000% markup.

Moreover, a 2.8 multiplier makes no sense in the PSLRA context. Once a plaintiff survives a motion to dismiss, over 80% of cases settle and pay at least full lodestar. A multiplier half of 2.8 would be more than sufficient to induce qualified attorneys to litigate a securities case—even aside from the fact that the Supreme Court has suggested that multipliers greater than 1 are inappropriate except in exceptional circumstances.

Of greater concern is that the only repercussions class counsel suffered for what was essentially a fraud upon the court and their clients was to be awarded the same amount as if they hadn't engaged in bill-padding or failed to disclose the use of contract attorneys. What incentive will future class counsel have not to engage in the same shenanigans? Heads class counsel wins and rip their clients off by tens of millions of dollars; tails is a do-over. In Las Vegas, that's called playing with house money.

Still, CCAF is happy to have won tens of millions of dollars for class members; we'll evaluate whether we want to raise these legal questions on appeal; we'll certainly raise them on a cross-appeal if class counsel challenges the reduction. [Fisher @ Forbes; WSJ Law Blog ($); Overlawyered; ABA Journal; Legal Ethics Forum; AmLaw Litigation Daily; Alison Frankel also wrote about it behind the Reuters paywall]

Of substantial note: class counsel defended their fee request excesses by saying everyone does it. And, as Lester Brickman documented in Lawyer Barons, everyone does do it, meaning that shareholders are getting ripped off by hundreds of millions, and perhaps billions, of dollars. Where are the pension funds and hedge funds and class representatives with fiduciary duties? Perhaps it doesn't make sense for just one to bear the burden of challenging fee awards (though had a for-profit firm taken up my offer to represent me on a contingent-fee basis in this case, they could be petitioning the court for a seven-figure award right now), but surely a consortium could ensure that every fee request in a megacase gets scrutiny that could save shareholders tens of millions of dollars a case. It's precisely because so few of these get challenged or even scrutinized that class counsel thought they could get away with such blatant abuses. There needs to be more than just Ted Frank challenging these abuses if they're going to stop.

(Relatedly, this case absolutely proves my stop whining about the legal job market point. Get three friends together, find a single pension fund or hedge fund, and offer to take up fee scrutiny on a contingent fee basis. Win one case a year, and you'll be making more money than me. And there's no reason you shouldn't win more than one case a year given how rampant these abuses are.)


"Where are the pension funds and hedge funds and class representatives with fiduciary duties?" Good question: perhaps the answer is that this isn't as big a problem as you make it out to be.

That said, plaintiff's attorney should not attempt to claim the same types of attorneys fees for contract attorneys as they do for their actual attorneys. If you want to bill a full lodestar, then hire an attorney and assign them to the work, don't pay some poor recent graduate a bottom-rate and then mark it up like they're your associate in for the long haul. Contract attorney work should be billed as an expense, not as attorney's fees.

That said, you are dead wrong that 2.8 is an inappropriate multiplier for a securities case. You are evaluating the risk retrospectively. Prospectively, there's no way for the plaintiffs lawyer to be certain that, when they file a case, it will be one of the ones that overcomes the motion to dismiss and will settle. By analogy, do you think that there is no risk involved in drilling for oil, because, once the oil is found, the well is likely profitable?

The only problem with this suggestion is that the judge whose fee award the objectors have reversed is the same judge who will be ruling on the objectors' fee petition for saving the class millions. And federal judges are very stingy when awarding fees to lawyers who have gotten him reversed on appeal. While I agree that Ted should be entitled to a fee award of at least $2.7 million in this case for saving the class $27 million, good luck getting this court to acknowledge that. The judge will claim the credit for the reduction. See Rodriguez v West Publishing for proof of this.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.