We have been keeping up with the In re LendingClub Securities Litigation class action, No. 3:16-cv-02627-WHA in the Northern District of California (“LendingClub”), in regard to Judge William Alsup’s unusual decision to require additional briefing from the class plaintiff before agreeing to the class plaintiff’s choice of class counsel. Now, as the LendingClub Plaintiffs oppose the Defendants’ motions to dismiss, Plaintiffs’ counsel is highlighting a recurring trend in motion to dismiss practice: defendants arguing facts at the motion to dismiss stage, particularly in complex cases.
We posted earlier about the surprising decision of Judge William Alsup of the Northern District of California not to appoint lead counsel in the LendingClub class action cases at the same time he appointed a lead plaintiff. Instead, the judge ordered that candidates for lead counsel must submit applications to the newly appointed lead plaintiff, who would then move the court—via their current counsel, who was allowed to apply but not to receive special treatment—to approve the lead plaintiff’s choice.
That process has now concluded, and in a short order dated October 28, 2016 (“Op.”), Judge Alsup held that lead plaintiff’s current counsel, Robbins Geller, was an appropriate selection as class counsel. Specifically, “the Court [was] persuaded that the selection of Robbins Geller was within the scope of several reasonable choices and was not influenced by any pay-to-play considerations.” (Op. at 1.)
In a recent decision in the now-consolidated LendingClub class action cases, Judge William Alsup of the Northern District of California appointed a lead plaintiff but unexpectedly declined to appoint lead counsel at the same time. Instead, the judge ordered that candidates for lead counsel must submit applications to the newly appointed lead plaintiff, who will then move the court—via their current counsel, who is allowed to apply but not to receive special treatment—to approve the lead plaintiff’s choice.
There have been several recent and interesting updates to the In re Petrobras Securities Litigation, 14-cv-9662 (S.D.N.Y.) that we have discussed several times on this blog. First, the Second Circuit has decided to accept review of the class certification question. Second, Judge Jed Rakoff denied a motion to stay the underlying proceedings (including the impending trial) pending the Second Circuit appeal in a decision that called the class action “arguably secondary” to the numerous opt-out proceedings. Finally, several plaintiffs have voluntarily dismissed their claims with prejudice—but without explanation.
Ever since the Supreme Court issued its opinion in Morrison v. National Australia Bank, Ltd., 561 U.S. 247 (2010), courts have been making their own interpretations of what Morrison means for whether certain transactions are “domestic” and thus amenable to class-action securities claims. Judge Dean Pregerson of the U.S. District Court for the Central District of California recently weighed in with a May 20, 2016 opinion (“Op.”) dismissing all claims with prejudice in the Stoyas et al. v. Toshiba Corporation class action, No. CV 15-04194, for failure to allege that the alleged fraud involved domestic transactions. Although the opinion considers certain Japanese-law claims, the key question the Court addresses is whether Morrison allows claims to be brought based on transactions in unsponsored American Depositary Shares for non-U.S. companies.
We speculated in September that a decision to grant summary judgment against a class member in the long-running In re Vivendi Universal, S.A. Securities Litigation, 02 Civ. 5571 (SAS) (S.D.N.Y.) “could have implications for class members, but more likely for opt-outs.” Now Judge Shira Scheindlin, in what may be one of the well-known judge’s final decisions before stepping down from the bench, has granted summary judgment against another class member while relying heavily on her prior decision. The Court determined that, because the evidence established that the investment analyst had anticipated Vivendi’s liquidity issues (the subject of the fraud) and established that the class member continued to buy Vivendi shares after the end of the class period, Vivendi had successfully rebutted the presumption of reliance and established that the class member “was indifferent to the fraud.”
The deadline for parties to object to the settlement in the In re Credit Default Swaps Antitrust Litigation, Master Docket No. 13-MD-2476 (DLC) in the Southern District of New York recently passed on February 29, 2016. Unlike in most cases, where parties typically only object to settlements to the extent they allocate attorneys’ fees, several potential settlement class members to this litigation (“CDS Litigation”) have made specific, substantive objections to the potential distribution of settlement funds. In class plaintiffs’ (“Plaintiffs” or “Class Plaintiffs”) memo of law in support of approval of the settlement, Plaintiffs responded forcefully to these objections. Although Judge Denise Cote has yet to decide whether to approve the settlement, it is worth examining these new objections, which may suggest a trend in class-action settlement objections—at least in antitrust cases relating to securities transactions—moving forward. In addition, Plaintiffs’ heavy reliance on experts to create a settlement model may reflect another trend worth keeping an eye on.
The Columbia Law Review has recently published an article, Is the Price Right: An Empirical Study of Fee-Setting in Securities Class Action, 115 Colum. L. Rev. 1371 (Oct. 2015), by Professors Lynn A. Baker, Michael A. Perino, and Charles Silver, with the involvement of Cornerstone Research, a litigation consulting firm. This article contains both a methodical examination of fee awards in securities class actions and a proposal for improving the system.
The main thrust of the article is an analysis of judicial treatment of fee proposals (such as whether the judge reduces plaintiffs’ counsel’s fee proposal, and by how much), the frequency of fee arrangements between plaintiffs and their counsel before seeking to be named as class counsel, how these factors differ between districts that do and don’t see a high volume of securities class actions, and how often judges provide explanations to justify their fee decisions. To conduct this study, the authors (and what appears to be a small army of law student assistants) collected a vast trove of data “with information on all of the 431 securities class action settlements that were announced between January 1, 2007 and December 31, 2012 in the federal district courts in the United States.” Id. at 1380. The data “include the number and type of plaintiffs who sought control of class litigation, the terms of any agreements regarding fees and costs that were disclosed to the courts, the amounts requested as fees, the formulas for calculating fees that judges were asked to employ, the presence and number of objectors, and many other details.” Id. (A useful chart in the appendix of the article includes the details of each case in which fees were cut. See id. at 1451-52.)
The results of the study are fascinating. The authors find that, in several regards, the revisions to the fee award scheme in the Private Securities Litigation Reform Act of 1995 (PSLRA) have not worked as envisioned. “For example, although the statute was supposed to encourage lead plaintiffs to bargain over fees with class counsel at the start of litigation,” the authors found that “cases with ex ante fee agreements are the exception rather than the rule,” and courts seem to have little interest in requiring or enforcing such ex ante fee agreements. Id.; see also id. at 1389-95. The authors also found that judges in low-volume districts set fees that are higher than those in high-volume districts, and the data suggests that “plaintiffs’ attorneys may be aware of and may seek to exploit these market imperfections by asking courts for significantly higher fees in low-volume districts than in high-volume ones.” Id. at 1380-81; see also id. at 1396-1402. Finally, courts reduced the fee request from plaintiffs’ counsel in only a very small minority of cases (15 percent); worse, these reductions “are effectively random events, driven more by judges’ predilections and biases than by the merits of the fee requests.” Id. at 1381; see also id. at 1402-06.
In light of these findings, the authors propose a new structure for fee awards. The proposal has four key aspects:
- The lead plaintiff should negotiate a fee when retaining counsel to handle the case;
- The lead plaintiff should disclose the terms of the negotiated fee to the district court when offering a law firm for appointment as class counsel;
- The district court should review the negotiated fee terms before appointing class counsel and should uphold them unless they are clearly unreasonable or not the products of arm’s-length negotiations; and
- When reviewing class counsel’s request for a fee award at the end of litigation, the district court should apply the agreed terms unless unforeseen developments have rendered those terms clearly excessive or unfair. In the rare instance in which a court determines that the agreed terms merit modification, the court should provide an opinion that articulates its reasons for deviating from the agreed terms.
Id. at 1432, 1432-49. The authors emphasize that this proposal maintains the PSLRA’s preference for considering the lead plaintiff as “bargaining agent for the class,” with the judge “serving as a backstop in case the lead plaintiff fails to do its job.” Id. at 1433. However, “[b]y setting class counsel’s fees at the appointment stage, courts would strengthen class counsel’s incentives to devote resources to the litigation, while also compensating them appropriately for incurring risks.” Id. at 1437. This proposal, especially in requiring ex ante fee arrangements, “would give class counsel considerable protection from a court’s subsequent, arbitrary fee reduction by establishing a presumption of reasonableness following initial review.” Id. at 1444.
Whatever one thinks of the authors’ proposal, the article clearly illustrates some under-appreciated and under-analyzed aspects of the fee-setting schema in securities class actions, and it should hopefully spark discussion among both scholars and practitioners.