citigroup fees order

8/22/2019 Citigroup Fees Order

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UNITEDSTATESDISTRICTCOURT

SOUTHERNDISTRICTOFNEWYORK

INRECITIGROUPINC.SECURITIES

LITIGATION

09MD

2070

(SHS)

Thisdocumentrelatesto:

07Civ.9901(SHS)

OPINION

SIDNEYH.STEIN,U.S.DistrictJudge.

I. IntroductionandSummary................................................................. 2II. Background............................................................................................ 5

A. TheAllegedFraudSummarized...................................................... 5B. PreSettlementProceduralHistory.................................................. 6

1. ConsolidationofSimilarSuitsandAppointmentofInterimLeadPlaintiffsandCounsel.......................................................... 6

2. ConsolidatedClassActionComplaintandMotiontoDismiss............................................................................................................ 7

3. DiscoveryandMotionforClassCertification............................ 8C. SettlementNegotiationandtheApprovalProcess.......................9

1. NegotiationsandPreliminaryApproval.................................... 92. ObjectionsandtheFairnessHearing......................................... 12

III. FinalApprovalofClassActionSettlement.................................. 14A. ProperNoticeofClassCertificationandtheSettlement............14B. FairnessoftheSettlement............................................................... 15

1. TheStandardforApprovingaProposedClassActionSettlement...................................................................................... 15

2. ProceduralFairness:ArmsLengthNegotiations...................153. SubstantiveFairness:TheGrinnellFactors.............................. 164. OverallFairnessEvaluation........................................................ 21

Case 1:07-cv-09901-SHS Document 275 Filed 08/01/13 Page 1 of 48


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IV. FinalApprovalofthePlanofAllocation...................................... 23V. FeeAward............................................................................................ 26

A. PercentageoftheFundMethodwithLodestarCrossCheck....26B. AssessingReasonablenessPursuanttoGoldberger......................27

1. TimeandLaborExpendedbyCounsel:TheLodestar...........272. TheMagnitudeandComplexitiesoftheLitigation................443. TheRiskoftheLitigation............................................................ 444. TheQualityofRepresentation................................................... 455. TheRequestedFeeinRelationtotheSettlement....................456. PublicPolicyConsiderations...................................................... 46

C. TheLodestarCrossCheckandtheAppropriateAward...........46VI. ReimbursementofLitigationExpenses........................................ 48VII. Conclusion........................................................................................ 48

I. INTRODUCTIONANDSUMMARYPlaintiffsbringthissecuritiesfraudactiononbehalfofaclassof

purchasersofCitigroup,Inc.commonstockagainstthatcompanyand

certainofitsofficials.PlaintiffsallegethatCitigroupmisledinvestorsby

understatingtherisksassociatedwithassetsbackedbysubprimemortgagesandoverstatingthevalueofthoseassets,inviolationof

Sections10(b)and20(a)oftheSecuritiesExchangeActof1934;asaresult,

allthosewhopurchasedCitigroupcommonstockbetweenFebruary26,

2007andApril18,2008paidanallegedlyinflatedprice.Thepartieshave

nowreachedasettlementoftheirdisputefor$590milliontobepaidtothe

class.TheCourtmustdeterminewhetherthatsettlementisfair,

reasonable,andadequateandwhatareasonablefeeforplaintiffs

attorneysshouldbe.

Onplaintiffs

unopposed

motion

pursuant

to

Federal

Rule

of

Civil

Procedure23,theCourtpreliminarilyapprovedthatproposedsettlement,

certifiedtheclassforsettlementpurposes,andprovidedfornoticetothe

classoftheproposedsettlement.Incertifyingtheclass,theCourt

appointedtheproposedrepresentativesasclassrepresentativesand



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3

appointedKirbyMcInerneyLLPasleadcounselfortheclass(Kirby,

LeadCounsel,orCounsel).NowbeforetheCourtaretwomotions:(1)

plaintiffs

motion

for

final

approval

of

the

class

action

settlement

and

approvaloftheplanofallocation(Dkt.No.164)and(2)LeadCounsels

motionforanawardofattorneysfeesandreimbursementoflitigation

expenses(Dkt.No.165).TheCourtconsideredwrittensubmissionsboth

supportingandopposingthesettlementandheldafairnesshearingon

April8,2013pursuanttoRule23(e)(2).

TheCourtfindsthattheproposedsettlementisfair,reasonable,and

adequateandshouldbeapproved.Classmembersreceivedadequate

noticeandhadafairopportunitytoobjectorexcludethemselves;veryfew

havevoicedtheiropposition.Thesettlementisprocedurallysound

becauseit

was

negotiated

at

arms

length

by

qualified

counsel.

The

Court

alsoconcludesthatthesettlementissubstantivelyfair.Althoughthe$590

millionrecoveryisafractionofthedamagesthatmighthavebeenwonat

trial,itissubstantialandreasonableinlightoftherisksfacediftheaction

proceededtotrial.

TheCourtalsoapprovestheproposedplanofallocation,subjecttoa

clarificationsoughtbycertainobjectingclassmembers.Specifically,the

issuewashowtotreatpurchasesofCitigroupstockmadethroughan

employeestockpurchaseplaninwhichemployeescommittedto

purchases

on

one

date,

determined

their

price

on

another

date

based

on

six

datesspreadoversixmonths,andthenreceivedtheirsharesonyet

anotherdate.TheCourtagreeswiththeobjectorsthatthesubstance,rather

thantheform,ofthosetransactionsshoulddeterminehowthepurchasers

arecompensatedinconnectionwiththesettlement.Forpurposesofthe

allegedsecuritieslawviolations,planmemberspurchasedsharesasthe

moneywasdeductedeachmonth,andtheplanofallocationshouldreflect

thatthesharepriceinflationattheendofeachmonthapproximatestheir

harm.

TheCourtalsoconcludesthatLeadCounselisentitledtoafeeaward,

albeitasmaller

one

than

it

has

proposed,

as

well

as

reimbursement

of

the

requestedlitigationexpenses.Becauseofthesizeofthesettlement,the

Courtplacesparticularemphasisonthelodestarcrosscheck.Lead

Counselundoubtedlysecuredanimpressiverecoveryfortheclassand



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legitimatelyexpendedmillionsofdollarsinattorneyandstaffhoursdoing

so.ButtheCourtfindsthatCounselsproposedlodestarissignificantly

overstated.

TheCourtmakesthefollowingdeductionsinthelodestar:

1) $4millionintimethatoneplaintiffsfirmexpendedinanunsuccessfulattempttobecomeLeadCounselandnowwants

theclasstopayforthatunsuccessfuleffort;

2) $7.5millionfor16,292hoursofattorneystimespentinpursuingdiscoveryafterthepartiesreachedanagreementto

settletheirdispute.Thattimewasspentlargelyondocument

reviewbycontractattorneys,afulltwentyofwhomwere

hired

for

the

first

time

on

or

about

the

same

day

the

parties

notifiedtheCourtthatanagreementinprinciplehadbeen

reached;

3) A$12millionreductionbyapplyingareasonableblendedhourlyrateforthelargenumberofcontractattorneysof$200

ratherthantheblendedratesubmittedbyLeadCounselof

$466perhourforthe45,300hoursworkedbycontract

attorneys;and

4) A10%cutfromtheremainingbalancetoaccountforwasteandinefficiencywhich,theCourtconcludes,areasonable

hypothetical

client

would

not

accept.

One

such

unfortunate

exampleisthe157.5hoursfor$66,937.50inrequestedtime

spentdigestingasingledaysdeposition.

Theseadjustmentsresultinalodestarof$51.4million,resultingina

revisedlodestarof$25.1million.Factoringtheproperlodestarintothe

Courtsanalysisoftherequested$97.5millionfeepursuanttoGoldbergerv.

IntegratedResources,Inc.,209F.3d43(2dCir.2000),theCourtinstead

awards$70.8millioninattorneysfees,whichis12%ofthe$590million

commonfundandrepresentsamultiplierof2.8onthereducedlodestar.



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II. BACKGROUNDA. TheAllegedFraudSummarizedAbriefsummaryofplaintiffsclaimsframestheCourtsdiscussionof

thesemotions.TheallegationsatissueconcernCitigroupsinvestmentin,

andexposureto,risksassociatedwithanowinfamousspeciesofcomplex

financialinstruments:collateralizeddebtobligations(CDOs)thathave

assomeoralloftheircollateralresidentialmortgagebackedsecurities

(RMBS).FollowingdismissalbytheCourtofavarietyofadditional

claims,theonlyclaimsthathavesurvivedconcernCitigroupsexposureto

potentialmortgagebackedCDOlosses.SeeInreCitigroupInc.Sec.Litig.,

753F.Supp.2d206(S.D.N.Y.2010).

Thegravamen

of

the

surviving

allegations

is

that

Citigroups

public

statementspaintedamisleadingportraitofCitigroupasrelativelysafe

fromthemarketsconcernsaboutpotentiallossesresultingfromfalling

CDOvalues.FromFebruary26,2007toNovember4,2007,defendants

allegedlygavetheimpressionthatCitigrouphadminimal,ifany,

exposuretoCDOswhen,infact,ithadmorethan$50billioninexposure,

id.at235CDOsthatwerebackedbysubprimemortgagesandwrongly

valuedatpardespiteobjectiveindicationsthatsuchmortgagebacked

CDOshadlostvaluebyFebruary2007.OnNovember4,2007,Citigroup

disclosedthatitheld$43billionofsuperseniorCDOtranches

simultaneouslywiththefactoftheirwritedownbyanexpected$8$11

billion.Id.at23940.Thatdisclosure,plaintiffsallege,omitted$10.5

billioninhedgedCDOsthatwerepurportedlyinsuredagainstloss,andit

alsooverstatedtheCDOsvalue,thusunderreportinglosses.Id.at240.

Plaintiffscontendthatdefendantscontinuedtooverstatethevalueofthe

CDOsuntilafinalcorrectivedisclosureonApril18,2008.

Asrelevanthere,theoveralleffectoftheseallegedmisstatementswas

thatthemarketovervaluedCitigroupsassets,orundervaluedits

liabilities,andthusovervaluedCitigroupcommonstock.Classmembers,

purchasingbased

on

the

market

price,

thus

paid

too

much

for

the

Citigroupstocktheypurchased,andsoplaintiffsclaimasdamagesthe

amountbywhichtheyallegedlyoverpaid.



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6

B. PreSettlementProceduralHistory1. ConsolidationofSimilarSuitsandAppointmentofInterim

LeadPlaintiffsandCounsel

Variousplaintiffsfiledanumberofseparatecomplaintsagainst

defendantsindistinctclassactions,eachpurportingtorepresenttheclass

ofinvestorsinCitigroupthatwereallegedlyharmedbydefendants

misstatementsoromissions.Becauseofthesimilarityoftheclaims,the

Courtconsolidatedtheactionsfiledbytheseandotherplaintiffsintoa

singleconsolidatedclassaction,No.07Civ.9901.(SeeOrderdatedAug.

19,2008,Dkt.No.59.)

TheCourtalsoresolvedacontentiousbattlebetweencompeting

plaintiffsand

counsel

to

be

appointed

as

interim

lead

plaintiffs

and

interimleadcounselthoughthecompetitionwasprimarilybetweenthe

lawfirmsandonlyderivativelybetweentheirclients.Twomaingroupsof

stockpurchaserswerevyingfortheappointment.First,JonathanButler,

M.DavidDiamond,DavidWhitcombandHenriettaWhitcomb (theATD

Group)werefourformerownersofAutomatedTradingDesk,Inc.

(ATD);theyacquiredtheirCitigroupstockpursuanttoamergerin

whichCitigrouppurchasedATDinexchangeforamixofcashand

Citigroupstock.Second,agroupoffiveinstitutionalinvestmentfunds(the

Funds)comprisedofthreeforeignentities,aswellasthePublic

EmployeesRetirementAssociationofColorado(COPERA)andthe

TennesseeConsolidatedRetirementSystem(TCRS),whichall

purchasedCitigroupstockaspartoftheirinvestments.Kirbyrepresented

theATDGroup,andEntwistle&CappucciLLPrepresentedtheFunds.

TheCourtfoundthat,pursuanttothePrivateSecuritiesLitigation

ReformAct(PSLRA),theATDGroupwasthepresumptiveleadplaintiff

becauseit(1)timelymovedforappointment,(2)hasthelargestfinancial

interestinthereliefsoughtbytheclass,and(3)madeapreliminary

showingthatitmetthetypicalityandadequacyrequirementsofFederal

Ruleof

Civil

Procedure

23(a).

See

15

U.S.C.

78u

4(a)(3)(B)(iii)(I).

The

Courtfoundthattheothermovantsforappointmentasleadplaintiff,

includingtheFunds,failedtorebutthepresumptionthatATDwasthe

mostadequateleadplaintiff.(SeeTr.ofAug.19,2008PretrialConference



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at1112,Dkt.No.11124.)TheCourtappointedtheATDGroupasinterim

leadplaintiffsandKirby,itscounsel,asinterimleadcounsel.

COPERAand

TCRS

moved

to

reconsider

that

appointment.

(Dkt.

No.

60.)TheCourtgrantedthemotiontotheextenttheFundssoughtlimited

discoveryonwhethertheATDGrouppossessednonpublicinformationat

thetimeoftheirstockacquisition;theCourt,however,stayeddiscovery

pendingresolutionofdefendantsthenpendingmotiontodismiss.(Order

datedAug.31,2009,Dkt.No.85.)Asexplainedbelow,COPERAand

TCRSsubsequentlywithdrewtheirmotiontoreconsider.

2. ConsolidatedClassActionComplaintandMotiontoDismissFollowingtheappointmentoftheATDGroup,plaintiffsfileda

consolidatedamended

complaint

(Dkt.

No.

69),

and

then

amended

once

more,resultingintheAmendedConsolidatedClassActionComplaint

(theComplaint)(Dkt.No.74).Defendantsmovedtodismissthe

Complaint,andtheCourtgrantedthatmotioninpartanddenieditin

part.SeeInreCitigroupInc.Sec.Litig.,753F.Supp.2d206,212(S.D.N.Y.

2010).

Asexplainedabove,theCourtpermittedonlytheclaimsconcerning

CitigroupsexposuretoCDOrelatedlossestoproceed,albeitfora

narrowertimeperiodandagainstanarrowergroupofdefendantsthan

allegedin

the

Complaint.

Id.

at

249.

The

Court

in

its

opinion

described

the

dismissedclaimsandthegallimaufryoffinancialinstrumentsinvolved

indetailandsummarizesthoseclaimsheretoillustratethebreadthofthe

claimsinitiallyasserted.Seeid.at214.Thedismissedclaimsconcern

misstatementsandomissionsinthefollowingcategories:

1) thatCitigroupmisleadinglydescribedandovervalueditsinvestmentinsocalledAltARMBS,whichareRMBSbacked

bymortgagesonecutabovesubprime,seeid.at22728,24143;

2) thatCitigroupconcealeditsexposuretorisksassociatedwithpurportedlyindependentstructuredinvestmentvehiclesand

overvaluedtheassetsthosevehiclesheld,id.at22829,24344;3) thatdefendantsmisrepresentedCitigroupsmortgagelending

businessinanumberofways,id.at244;

4) thatdefendantsconcealed,andthenovervalued,Citigroups



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auctionratesecuritiesholdings,id.at230,24546;

5) thatCitigroupsimilarlymisledinvestorsaboutitsexposuretolosses

from

leveraged

loans

and

collateralized

loan

obligations,

id.at231,24647;and

6) finally,thatCitigroupbroadlymisrepresenteditsoverallfinancialhealthandsolvency,id.at231,24748.

Overall,plaintiffsallegedthatdefendantscouldseethefinancialcrisis

writingonthewallsinmultipleareasofCitigroupsoperationsandsought

toobscureordownplaytheextantandfuturelosses.TheCourtfoundthe

allegationssufficienttoproceedasamatteroflawonlyforclaims

regardingCitigroupsexposuretoCDOrelatedlosses.Id.at249.

3. DiscoveryandMotionforClassCertificationFollowingtheCourtsdecisionondefendantsmotiontodismiss,the

partiesconducteddiscoveryrelatedtoclasscertificationandthemeritsof

thesustainedCDOrelatedclaims.Thatdiscovery,whichoverlappedwith

theclasscertificationmotionandthenegotiationandfinalizationofthe

settlement,wasvoluminous.Inall,LeadCounselandthefirmsthatwere

assistingitobtainedandreviewedapproximately40millionpagesof

documents.Defendantsproducedapproximately35millionpages,and

thirdpartiesproduced5millionadditionalpages.(JointDecl.ofIraM.

Press&PeterS.LindendatedDec.7,2012(JointDecl.)68,Dkt.No.

171.)LeadCounselalsodeposedthirtythreedefensewitnessesand

defendeddepositionsofsixteenwitnesses.(SeeJointDecl.75,87.)

PursuanttotheCourtsdecisiononEntwistle&Cappuccismotionto

reconsidertheappointmentoftheATDGroupasinterimleadplaintiffs,

COPERAandTCRSwerepermittedtoconductdiscoveryintotheATD

Groupsfitnesstoserveasclassrepresentativesfollowingthedecisionon

themotiontodismiss.Instead,thosefundsreachedanagreementwiththe

ATDGroupthatthemotionwouldbewithdrawnandthetwosidestothe

appointmentdisputewouldjoinforcestoseekclasscertificationwithallof

themas

class

representatives.

Thus,

following

class

discovery,

the

ATD

Group,COPERA,TCRS,andfiveotherindividualstogethermovedfor

classcertificationandproposedtheentiregroupasclassrepresentatives.

ThoseaddedindividualswereJohnA.BadenIII,WarrenPinchuck,



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AnthonySedutto,EdwardClaus,andCarolWeil,allofwhompurchased

sharesofCitigroupstockontheopenmarketduringtheclassperiod.

Themotion

for

class

certification

was

heavily

contested.

The

parties

submittedlegalmemorandaaswellasfiveattorneydeclarations

appendinghundredsofexhibitsandfourexpertdeclarationsfromthree

differentexperts.Defendantschallengedthecommonalityoftheclassand

thetypicalityandadequacyoftheproposedrepresentativespursuantto

Rule23(a).Theyfurthercontendedthatcommonquestionsdidnot

predominateoverindividualizedquestionspursuanttoRule23(b)(3).

Muchofthedisputeturnedontwomainissues:(1)whethertheunique

circumstancesoftheATDGroupsstockacquisitionviamergeragreement

rendereditunfittorepresenttheclass,and(2)whetherplaintiffshad

demonstratedthat

the

alleged

misrepresentations

were

material,

a

showingdefendantscontendedwasrequiredforplaintiffstoinvokea

classwidepresumptionofrelianceonthemarketpricesuchthatcommon

questionswouldpredominate.1

PriortotheCourtsrenderingadecisionontheclasscertification

motion,thepartiesenteredintoasettlementagreement.

C. SettlementNegotiationandtheApprovalProcess1. NegotiationsandPreliminaryApproval

Inearly2012,thepartiesjointlyretainedLaynR.Phillips,aretired

federaldistrictjudge,tomediatetheirsettlementnegotiations.Theparties

participatedintwofulldaymediationsessionsandalsosubmitted

extensivewrittenmaterials.(JointDecl.9697.)Thatprocessculminated

inthemediatorsultimateproposalthatthepartiessettletheactionfor

$590million;thepartiesonMay8,2012agreedtoacceptthatproposalas

thebasisforaformalstipulationtobesubmittedtotheCourtforapproval.

1

The

U.S.

Supreme

Court

has

since

held

that

securities

fraud

plaintiffs

need

not

provethatthemisrepresentationsarematerialattheclasscertificationstage.Amgen

Inc.v.Conn.Ret.Plans&TrustFunds, U.S. ,133S.Ct.1184,1191(2013)

(abrogatingInreSalomonAnalystMetromediaLitig.,544F.3d474,486n.9(2dCir.

2008)).



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(Id.98.)AsLeadCounselhassetforthinitsfeerequest,[s]hortly

thereafter,LeadCounselinformedtheCourtoftheproposedSettlement.

(Id.

99.)

Intheensuingmonths,thepartieshashedoutthedetailsoftheformal

stipulation.Themainoutstandingissuewasthesocalledexclusion

thresholdorblowupprovision.Defendantswereempoweredto

withdrawfromthesettlementiftheaggregateclaimvalueofpotential

classmemberswhoexcludedthemselvesfromthesettlementreacheda

certainthreshold.Alowerthresholdmeantagreaterchancethat

defendantswouldhavethediscretiontonullifyorblowupthe

settlement.InMay,plaintiffsanddefendantsinitiallydisagreedonthe

correctthreshold,buttheyagainsoughtthemediatorsassistanceand

agreedon

the

threshold

by

mid

July.

(Supp.

Joint

Resp.

Decl.

of

Ira

M.

Press&PeterS.LindendatedMarch25,2013(Supp.JointResp.Decl.)

54,Dkt.No.233.)

Thepartiesfinalizedthedetailsofthesettlementandenteredintothe

StipulationandAgreementofSettlementdatedAugust28,2012;plaintiffs

thenmovedforpreliminaryapprovalofthesettlementandcertificationof

theclassforsettlementpurposes.Havinghadthebenefitoftheparties

earlierreportsonthesettlementtermsandproposedapprovalprocedures,

aswellasextensivesubmissionsonconsiderationofthemotionforclass

certification,

the

Court

granted

that

motion.

(Order

Preliminarily

ApprovingProposedSettlementandProvidingforNoticedatedAug.29,

2012(PreliminaryApprovalOrder),Dkt.No.156.)Indoingso,the

Courtcertifiedaclassof[a]llpersonswhopurchasedorotherwise

acquiredcommonstockissuedbyCitigroupduringtheperiodbetween

February26,2007andApril18,2008,inclusive.(Seeid.)TheCourtset

forthascheduleforprovidingnoticetotheclassandproceduresbywhich

classmemberscould,interalia,submitclaimforms,objecttotheproposed

settlementorLeadCounselsfeerequest,excludethemselvesfromthe

class,andappearatafairnesshearing.2(Id.)Atthepartiesrequests,the

2 BecauseCitigroupinitiallyinadvertentlyprovidedanincompletelistof

stockholderstotheappointedclaimsadministrator,theCourtadjournedthefairness

hearingandorderedextendeddeadlinesandadditionalnoticeforclassmembers

(footnotecontinuesonnextpage)



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CourtinSeptember2012mademinormodificationstothePreliminary

ApprovalOrder,includingtheclassdefinitionandnoticeprocedures,in

two

orders.

(See

Orders

dated

Sept.

6,

2012

&

Sept.

28,

2012,

Dkt.

Nos.

158,

159.)3

potentiallyprejudicedbytheerror.(SeeOrderdatedJan.2,2013,Dkt.No.183;seealso

Supp.Aff.ofStephenJ.CiramidatedMar.25,2013(CiramiSupp.Aff.),Ex.36to

Supp.JointResp.Decl.)

3 Thefullclassdefinition,asamendedbyorderdatedSeptember28,2012(Dkt.

No.159),readsasfollows:

Allpersonswhopurchasedorotherwiseacquiredcommonstockissuedby

CitigroupduringtheperiodbetweenFebruary26,2007andApril18,2008,

inclusive, or their successor in interest, and who were damaged thereby,

excluding (i) thedefendantsnamed in theComplaint, (ii)membersof the

immediate familiesof the individualdefendantsnamed in theComplaint,

(iii) any firm, trust, partnership, corporation, present or former officer,

director or other individual or entity in which any of the Citigroup

Defendantshasacontrollinginterestorwhichisrelatedtooraffiliatedwith

anyof theCitigroup Defendants, and (iv) the legal representatives, heirs,

successorsininterest or assigns of any such excluded persons or entities.

The Settlement Class includes persons or entities who acquired shares of

CitigroupcommonstockduringtheClassPeriodbyanymethod,including

but not limited to in the secondary market, in exchange for shares of

acquiredcompanies

pursuant

to

aregistration

statement,

or

through

the

exerciseofoptions includingoptionsacquiredpursuant toemployeestock

plans, and persons or entities who acquired shares ofCitigroup common

stockaftertheClassPeriodpursuanttothesaleofaputoptionduringthe

Class Period. Regardless of the identity of the person or entity that

beneficially owned Citigroup common stock in a fiduciary capacity or

otherwiseheldCitigroupcommonstockonbehalfof thirdpartyclientsor

anyemployeebenefitplans,such thirdpartyclientsandemployeebenefit

plans shall notbe excluded from the Settlement Class, irrespective of the

identityoftheentityorpersoninwhosenametheCitigroupcommonstock

werebeneficiallyowned,except thatanybeneficiariesof such thirdparty

clients,or

beneficiaries

of

such

benefit

plans

who

are

natural

persons

and,

who are otherwise excluded above will not share in any settlement

recovery. Notwithstanding any other provision of this Agreement, the

Citibuilder401(k)Plan forPuertoRicoand theCitigroup401(k)Planshall

qualifyasmembersoftheSettlementClass.Inaddition,apersonwhoowns




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2. ObjectionsandtheFairnessHearinga. Fewclassmembersobjectorexcludethemselves

Theclaimsadministratorsentnoticestoover2.4millionpotentialclass

members.(CiramiSupp.Aff.17.)Excludingafewobjectionsfrom

individualswhodidnotprovidetherequiredevidenceofclass

membershiporwhoprovidedevidenceindicatingtheywerenotclass

members,theCourtreceivedonlyelevenwrittenobjections.Further,only

294recipientsofthe2.4millionnoticestimelysubmittedexclusion

requests,ofwhichonly134providedevidenceofmembershipintheclass.

(Id.21.)Andtwentythreeofthe134exclusionscamefrominvestorswho

hadalreadycommencedseparateactions.(Supp.JointResp.Decl.5.)

Citigroup common stock shall notbe excluded from the settlement class

solelybecausethatcommonstockisheld(i)inaregisteredorunregistered

investment company (including a unit investment trust) in which any

defendantintheActionhasacontrollinginterest,orservesasaninvestment

manager, investment adviser, or depositor; or (ii)(a) in a life insurance

company separate account, or (b) in a segment or subaccount of a life

insurance companys general account to the extent associated with

insurancecontractsunderwhich the insurersobligation isdeterminedby

the investment return and/or market value of the assets held in such

segmentor

subaccount

of

alife

insurance

companys

general

account

to

the

extent associated with insurance contracts under which the insurers

obligation isdeterminedby the investment returnand/ormarketvalueof

theassetsheldinsuchsegmentorsubaccount.Adefendantshallbedeemed

to have a controlling interest in an entity if such defendant has a

beneficialownershipinterest,directlyorindirectly,inmorethan50%ofthe

totaloutstandingvotingpowerofanyclassorclassesofcapitalstock that

entitletheholdersthereoftovoteintheelectionofmembersoftheBoardof

Directors of such entity. Beneficial ownership shall have the meaning

ascribed to such termunderRule13d3of theSecuritiesExchangeActof

1934, as amended, or any successor statute or statutes thereto.

Notwithstandingthe

foregoing,

the

Settlement

Class

shall

not

include

PersonswhoseonlyacquisitionofCitigroupcommonstockduringtheClass

Period was via gift or inheritance if the Person from which the common

stockwasreceiveddidnotthemselvesacquirethecommonstockduringthe

ClassPeriod.



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13

Twoobjectionsmeritdiscussion.Thefirstsuchobjectionwasfiledby

sixpurchasersofCitigroupstockthroughthecompanysvoluntary

employee

stock

purchase

planthe

FA

Capital

Accumulation

Program

(FACAP).TheseFACAPobjectorsarealsointerimleadplaintiffsina

parallelputativeclassactionconcerningCitigroupemployeesstock

purchasesthroughtheFACAP,whichiscurrentlypendingbeforethis

Court:Brecherv.Citigroup,Inc.,No.09Civ.7359.Here,theFACAP

objectorscontendthattheCourtcannotapprovethesettlementbecause,

interalia,theFACAPparticipantclassmemberswouldreleasecertain

claimswithoutcompensationandbecausetheproposedplanofallocation

doesnotproperlycompensatethem.

TheseconddetailedobjectionwasfiledprosebyTheodoreH.Frank,

anindividual

investor

in

Citigroup

who

is

also

an

attorney

and

the

founderoftheCenterforClassActionFairness.FrankobjectstoLead

Counselsfeerequest.Hecontends,interalia,thatthefeesrequested

nearly$100millionareunreasonablyhighwhencomparedwith

similarlysizedsettlementsandthatLeadCounselhasimproperlyinflated

itslodestarcalculationinavarietyofways.FrankfocuseslargelyonLead

Counselsextensiveuseofcontractattorneysbothonwhethertheir

assertedhourlybillingratesareconsistentwithmarketratesandon

whetherareasonableclientwouldpayforallofthehoursincludedinthe

lodestar.

b. ThefairnesshearingAfterpropernoticetotheclass,theCourtheldahearingonthe

fairnessofthesettlementandthereasonablenessofthefeerequeston

April8,2013.Thesettlingparties,theFACAPobjectors,andFrank

appeared,witheacharguingitspositionregardingthependingmotions.

TheCourtalsoheardfromplaintiffsdamagesexpertontheplanof

allocation,andfromLeadCounselsexpertonthereasonablenessofthe

lawyershourlyratessubmittedintherequestforattorneysfees.



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14

III. FINALAPPROVALOFCLASSACTIONSETTLEMENTA. ProperNoticeofClassCertificationandtheSettlementRule23requiresnoticetotheclassbothwhentheclassiscertified

pursuanttoRule23(b)(3)andwhenaclassactionsettlementhasbeen

proposedforcourtapproval.SeeRule23(c)(2)(B),(e)(1).TheCourt

providedforcombinednoticeofbotheventsinordertosavetheclassthe

expenseofasecondroundofclasswidenotice.AsRule23(e)snotice

requirementsarelessspecificthanthatofRule23(c)s,theCourtwillfocus

onRule23(c)srequirements.InreGlobalCrossingSec.&ERISALitig.,225

F.R.D.436,448(S.D.N.Y.2004)(citationomitted).Thenoticemustdescribe

(i)thenatureoftheaction;(ii)thedefinitionoftheclasscertified;

(iii)the

class

claims,

issues,

or

defenses;

(iv)

that

aclass

member

may enter an appearance through an attorney if themember so

desires;(v)thatthecourtwillexcludefromtheclassanymember

who requestsexclusion; (vi) the timeandmanner forrequesting

exclusion; and (vii) the binding effect of a class judgment on

membersunderRule23(c)(3).

Rule23(c)(2)(B).Further,dueprocessandtheFederalRulesrequire

individualnotice[]toallclassmemberswhosenamesandaddressesmay

beascertainedthroughreasonableeffort.InreGlobalCrossing,225F.R.D.

at448

(quoting

Eisen

v.

Carlisle

&

Jacquelin,

417

U.S.

156,

173

(1974)).

ThenoticesdistributedincludealloftheinformationthattheRules

require,aswellastheadditionaldisclosuresrequiredinsecuritiescases.

SeeInreIMAXSec.Litig.,283F.R.D.178,185(S.D.N.Y.2012)(citing15

U.S.C.78u4(a)(7)).TheCourtfurtherfindsthattheclaimsadministrator

providedindividualnoticetothoseclassmemberswhocouldbe

identifiedthroughreasonableeffort.SeeFed.R.Civ.P.23(c)(2)(B).The

CourtfindsthatthenoticeherecompliedwithRule23anddueprocess.



15/48

15

B. FairnessoftheSettlement1. TheStandardforApprovingaProposedClassAction

Settlement

Settlementoftheclaimsofacertifiedclassrequirescourtapproval.

Fed.R.Civ.P.23(e).Acourtmayapproveaclassactionsettlementifitis

fair,adequate,andreasonable,andnotaproductofcollusion.WalMart

Stores,Inc.v.VisaU.S.A.Inc.,396F.3d96,116(2dCir.2005)(quotingJoelA.

v.Giuliani,218F.3d132,138(2dCir.2000)).Thus,theCourtmust

scrutinizeboththesettlementstermsandthenegotiatingprocessleading

tosettlement.WalMartStores,396F.3dat116(citingDAmatov.Deutsche

Bank,236F.3d78,85(2dCir.2001)).

TheCourt

must

exercise

its

discretion

to

approve

or

reject

asettlement

inlightofthegeneraljudicialpolicyfavoringsettlement.Weinbergerv.

Kendrick,698F.2d61,73(2dCir.1982);seealsoWalMartStores,396F.3dat

116(citingInrePaineWebberLtd.PshipsLitig.,147F.3d132,138(2dCir.

1998)).Nonetheless,thepolicyfavoringsettlementsgenerallywillnot

substituteforrigorousscrutinyofthissettlement.[T]heCourtmustserve

asafiduciarytoprotecttheinterestsofabsentclassmembersaffectedby

thesettlement.McBeanv.CityofNewYork,233F.R.D.377,382(S.D.N.Y.

2006)(quotingGrantv.BethlehemSteelCorp.,823F.2d20,22(2dCir.1987)).

Moreover,[w]henasettlementisnegotiatedpriortoclasscertification,as

isthecasehere,itissubjecttoahigherdegreeofscrutinyinassessingits

fairness.DAmato,236F.3dat85;seealsoWeinberger,698F.2dat73.

TheCourtfirstassessesthenegotiatingprocess,examinedinlightof

theexperienceofcounsel,thevigorwithwhichthecasewasprosecuted,

andthecoercionorcollusionthatmayhavemarredthenegotiations

themselves.Malchmanv.Davis,706F.2d426,433(2dCir.1983)(citing

Weinberger,698F.2dat73).TheCourtthenconsidersthesubstantive

termsofthesettlementcomparedtothelikelyresultofatrial.Id.

2. ProceduralFairness:ArmsLengthNegotiationsThefirstindicatorofthesettlementsfairnessiswhetheritwas

negotiatedatarmslengthbytheparties.Aslongastheintegrityofthe

negotiatingprocessisensuredbytheCourt,itisassumedthattheforcesof

selfinterestandvigorousadvocacywilloftheirownaccordproducethe



16/48

16

bestpossibleresultforallsides.InrePaineWebberLtd.PshipsLitig.

(PaineWebber),171F.R.D.104,132(S.D.N.Y.1997).Further,a

presumption

of

fairness,

adequacy,

and

reasonableness

may

attach

to

a

classsettlementreachedinarmslengthnegotiationsbetween

experienced,capablecounselaftermeaningfuldiscovery.WalMartStores,

396F.3dat116(quotingManualforComplexLitigation(Third)30.42

(1995)).Thenegotiationsherebeareachofthosehallmarks.TheCourthas

nodoubtsabouttheexperienceorabilityofcounsel.Nor,asexplained

furtherbelow,didtheylackforknowledgeofthiscase.Andthehistoryof

thenegotiationsandtheroleofthemediatorsuggestthattheparties

actuallydealtwithoneanotheratarmslengthgoingsofarasaccepting

themediatorsproposeddollaramount.Fromhisfrontrowseat,the

mediatorconcluded

that

negotiations

in

this

case

were

hard

fought

and

at

armslengthatalltimes.(Decl.ofLaynR.PhillipsdatedNov.19,2012

5,Dkt.No.168.)TheCourtagrees.Accordingly,theCourtconcludes

thattheprocesswasfairandfreefromcollusionandthatapresumptionof

thesettlementsfairnessarises.

3. SubstantiveFairness:TheGrinnellFactorsTheCourtmustnextconsiderwhetherthesubstantivetermsofthe

settlementsupportorrebutthepresumptionoffairnessarisingfromthe

armslengthnegotiations.CourtsinthisCircuitanalyzesubstantive

fairnessthrough

the

lens

of

the

nine

factors

set

forth

in

City

of

Detroit

v.

GrinnellCorp.,495F.2d448,463(2dCir.1974):

(1)thecomplexity,expenseandlikelydurationofthelitigation;(2)thereactionoftheclasstothesettlement;(3)the stage of the proceedings and the amount of discovery

completed;

(4)therisksofestablishingliability;(5)therisksofestablishingdamages;(6)therisksofmaintainingtheclassactionthroughthetrial;(7)theabilityofthedefendantstowithstandagreaterjudgment;



17/48

17

(8)therangeofreasonablenessof thesettlement fund in lightofthebestpossiblerecovery;

(9)therangeofreasonablenessofthesettlementfund[compared]to a possible recovery in light of all the attendant risks of

litigation.

WalMartStores,396F.3dat117(quotingGrinnell,495F.2dat463).In

weighingtheGrinnellfactors,[t]heCourtmusteschewanyrubberstamp

approvalinfavorofanindependentevaluation,yet,atthesametime,it

muststopshortofthedetailedandthoroughinvestigationthatitwould

undertakeifitwereactuallytryingthecase.Grinnell,495F.2dat462.

a. Thecomplexity,expenseandlikelydurationofthelitigationAsageneralmatter,themorecomplex,expensive,andtime

consumingthefuturelitigation,themorebeneficialsettlementbecomesas

amatterofefficiencytothepartiesandtotheCourt.McBean,233F.R.D.

at385.Factdiscoveryherewasnearlycomplete,andcounselforthe

partieshadloggedtensofthousandsofhours.Butbecauseofthescope

andcomplexityofthiscase,whatremainedwasfarfromsimpleorbrief,

andcertaintobecostly.Ofthistherecanbenodoubt.

Afterthecompletionoffactdiscovery,thepartieswouldundoubtedly

pursueexpertdiscovery,summaryjudgmentmotions,andpretrial

motionsprior

to

trial.

A

trial

would

then

consume

substantial

resources,

anditsresultwouldbeappealable.Insum,theexpenseanddurationof

continuedlitigationweighsinfavorofapprovingthesettlement.

b. ThereactionoftheclasstothesettlementAfavorablereceptionbytheclassconstitutesstrongevidencethata

proposedsettlementisfair.Grinnell,495F.2dat462.Ifonlyasmall

numberofobjectionsarereceived,thatfactcanbeviewedasindicativeof

theadequacyofthesettlement.WalMartStores,396F.3dat118(quoting

Alba

Conte

&

Herbert

B.

Newberg,

Newberg

on

Class

Actions

11:41,

at

108

(4thed.2002)).Thenumbershereoverwhelminglysupportapprovalofthe

settlement:amereelevenobjectionsinresponsetonearly2.5million

notices,withonlysixobjectionschallengingthesettlementitselfrather

thanthefeerequestornoticeprocedures.Inaddition,notasingle



18/48

18

objectionwasreceivedfromanyoftheinstitutionalinvestorsthatholdthe

majorityofCitigroupstock.(SeeSupp.JointResp.Decl.4.)Further,only

134

class

members

submitted

exclusion

requests.

Cf.

DAmato,

236

F.3d

at

8687(findingclassresponseofeighteenobjectionsandseventytwo

exclusionsfrom28,000noticesweighsinfavorofapproval).TheCourt

concludesthattheclasssreactionweighsheavilyinfavorofapproval.

c. Thestageoftheproceedingsandtheamountofdiscoverycompleted

Althoughdiscoveryhadlargely,butnotyetfully,concluded,

plaintiffsenteredintosettlementonlyafterathoroughunderstandingof

theircase.SeeWalMartStores,396F.3dat118.Thepartiescompleted

extensivediscovery

that

included

millions

of

pages

of

documents

and

depositionsofkeywitnessesonbothsides.Thepartieshadalsoconducted

apreliminarybattleoftheexperts,includingdepositions,regardingthe

materialityoftheallegedmisstatementsinconnectionwiththeclass

certificationmotion.Thatdisputeeffectivelyforeshadowedaloss

causationdebateinsofarasCitigroupcontestedtheallegedeffectofthe

misrepresentationsonthemarketpriceforCitigroupstock.LeadCounsel

hadampletime,documents,andinformationfromCitigrouptodevelop

itsknowledgeofthestrengthsandweaknessesoftheclasssclaims;in

filings,CounselprovidedtheCourtwithadequatefactualinformation

uponwhich

to

evaluate

the

fairness,

reasonableness,

and

adequacy

of

the

proposedsettlement.Plaintiffs,inshort,hadmorethanenough

informationtomakeaninformedandintelligentdecision.Accordingly,

thisthirdGrinnellfactoralsoweighsinfavorofapproval.

d. Therisksofcontinuedlitigationassociatedwithmaintainingtheclassthroughtrialandestablishingliabilityanddamages

Theroadtorecoverybymeansotherthansettlementwaslongand

lackedaguardrail;thefourth,fifth,andsixthGrinnellfactorsallconcern

theobstaclesplaintiffsfacedinpursuingafinaljudgmentintheirfavor.

Alllitigationcarriesrisk.SeePaineWebber,171F.R.D.at126.Indeed,[i]fsettlementhasanypurposeatall,itistoavoidatrialonthemeritsbecause

oftheuncertaintyoftheoutcome.InreIraHaupt&Co.,304F.Supp.917,

934(S.D.N.Y.1969).Itisnocoincidencethatthepartiessettlementtalks



19/48

19

rampedupspecificallytoavoidthefirstoftheseuncertainties:thatthe

Courtmightdenyclasscertification.Intheclasscertificationmotion,the

parties

disputed,

inter

alia,

the

materiality

of

the

alleged

misstatementsa

meritsissueonwhichplaintiffswouldhavehadtoagainprevailat

summaryjudgmentandtrial.SeeEricaP.JohnFund,Inc.v.HalliburtonCo.,

563U.S. , ,131S.Ct.2179,2185(2011).

Themostsignificantrisks,however,concernedliability.Plaintiffsstill

hadtoprovethattheallegedmisstatementswerefalseormisleadingand

thatdefendantshadadutytodiscloseinformationtheyhadomittedfrom

theirpublicstatements.Theallegationsherelargelyhingedondefendants

failuretoprovidethedetailsofCitigroupsexposuretothesupersenior

tranchesofCDOs,butthedutytoprovidethosedetailshadnotbeen

established.Further,

plaintiffs

would

ultimately

have

to

show

that

defendantshadactedwithfraudulentintentwhenmakingthealleged

misstatements.Plaintiffsatsummaryjudgmentandtrialwouldhaveto

overcomedefendantsargumentsthatCitigroupvaluedtheCDOsingood

faith,relyinginpartontheirauditorsandtakingwritedownswhen

marketdatatheratingagencydowngradesrequiredit.Thatisnosmall

obstacle.TheU.S.SecuritiesandExchangeCommissionelectednotevento

allegescienterbasedfraudclaimsinitscivilenforcementactionagainst

CitigroupformisleadinginvestorsaboutCDOsduringthisclassperiod.

SeeComplaint,SECv.CitigroupInc.,No.10cv1277ESH(D.D.C.July29,

2010);see

also

SEC

v.

Stoker,

No.

11

Civ.

7388

(JSR)

(S.D.N.Y.

July

31,

2012),

Dkt.No.118(juryfindingforCitigroupmanageraccusedoffraudin

connectionwith2007CDOtransactions).

Finally,plaintiffswouldhavehadtoshowlosscausationinorderto

establishbothliabilityanddamages.SeegenerallyInreOmnicomGrp.,Inc.

Sec.Litig.,597F.3d501,509(2dCir.2010)(citingDuraPharms.,Inc.v.

Broudo,544U.S.336,34142(2005)).Toproveliability,plaintiffshadto

provethatthelosswasforeseeableandcausedbythematerializationof

theriskconcealedbythefraudulentstatement.InreOmnicom,597F.3dat

513(citation

omitted).

Here,

plaintiffs

would

have

had

to

show

that

Citigroupsstockpricefellspecificallybecausethemarketlearnedthe

truththatdefendantshadconcealedbytheirmisstatementsand

omissionsnotbecausethemarketlearnedofanyofthemyriadother

developmentsinCitigroupsoperationsandtheworldfinancialsystem.



20/48

20

Thatlosscausationanalysisalsohighlightstheriskthatplaintiffs

mightnotestablishdamagesatthelevelsalleged.Inotherwords,evenif

plaintiffs

could

have

maintained

class

action

status,

and

established

defendantsliability,thequestionremained:couldtheyprovethatthis

fraudcausedenoughdamagestojustifytheriskandexpenseof

participatinginatrialonthemerits?

Insum,theriskthattheplaintiffsmightnotprevailwassignificant.

TheCourtconcludesthatthefourthGrinnellfactorweighsheavilyinfavor

ofapproval,andthefifthandsixthfactorsalsosupporttheconclusionthat

thesettlementisfairandreasonable.

e. TheabilityofthedefendantstowithstandagreaterjudgmentAlthough

plaintiffs

initially

conceded

that

there

is

no

basis

to

believe

thatDefendantsareincapableofwithstandingagreaterjudgment,they

nowsuggestthatCitigroupssolvencyshouldnotbeconcededso

cavalierly.(ComparePls.Mem.inSupp.ofPreliminaryApprovalat11,

Dkt.No.154,withPls.Mem.inSupp.ofFinalApprovalat18,Dkt.No.

169.)However,plaintiffsignorethatCitigroupcarriesinsuranceof

unknownlimitsforthisliability,andtheyfailtomentiontheabilityofthe

individualdefendantstopaymorethanthesettlementrequiresthemto

paywhichis$0.Butwhilethedefendantsabilitytopaymoresuggestsa

settlementmightbeunfair,thisfactor,standingalone,doesnotsuggest

thatthesettlementisunfair.DAmato,236F.3dat86(citingPaineWebber,

171F.R.D.at129).

f. Therangeofreasonablenessofthesettlementfundinlightofthebestpossiblerecoveryandallattendantrisksoflitigation

Finally,essentialtoanalyzingasettlementsfairnessistheneedto

comparethetermsofthecompromisewiththelikelyrewardsof

litigation.Weinberger,698F.2dat73(quotingProtectiveComm.forIndep.

StockholdersofTMTTrailerFerry,Inc.v.Anderson,390U.S.414,42425

(1968)).The

U.S.

Court

of

Appeals

for

the

Second

Circuit

has

emphasized

that[t]hereisarangeofreasonablenesswithrespecttoasettlementa

rangewhichrecognizestheuncertaintiesoflawandfactinanyparticular

caseandtheconcomitantrisksandcostsnecessarilyinherentintakingany

litigationtocompletion.WalMartStores,396F.3dat119(quotingNewman



21/48

21

v.Stein,464F.2d689,693(2dCir.1972)).Inotherwords,thequestionfor

theCourtisnotwhetherthesettlementrepresentsthehighestrecovery

possiblewhich

it

does

notbut

whether

it

represents

a

reasonable

one

in

lightofthemanyuncertaintiestheclassfaceswhichitdoes.Thebest

possiblerecoveryestimatedat$6.3billionisanastronomicalsum,but

$590millionmorethanhalfabilliondollarsisnosmallsumitself,and

theriskthattheclasswouldrecovernothingorwouldrecoverafractionof

themaximumpossiblerecoverymustfactorintothedecisionmaking

calculus.

Plaintiffscontendthat,takingintoaccountanumberofvariables,this

isatrulyimpressiverecovery.Thosevariablesincludethefollowing:that

theactionconcernedexposuretoparticularlycomplexrisksassociated

withCDOs;

that

only

one

corporate

defendant,

Citigroup,

can

contribute

tothefund;thatnoparallelSECinvestigationorearningsrestatement

precededtheinitiationofthissuit;thatrelatedsuitsagainstsomeofthe

samedefendantshavefailedorsettledforfarless;and,mostofall,thatthe

claimshererequireproofofscienter.(SeePls.Mem.inSupp.ofMot.for

FinalApprovalat1922.)Further,plaintiffsexpertspointoutthat,for

classactionswithroughlyequivalentallegeddamages,investorshave

recoveredamuchsmallerfractionoftheamountclaimedameanof2.2%

andmedianof1%comparedtoroughly9.4%here.(SeeDecl.ofJohnC.

Coffee,Jr.datedDec.6,201220,Dkt.No.167;Decl.ofGeoffreyP.Miller

datedDec.

6,

2012

28,

Dkt.

No.

166

(discussing

Jordan

Milev,

Robert

Patton&SvetlanaStarykh,NationalEconomicResearchAssociates,Recent

TrendsinSecuritiesClassActionLitigation:2011MidYearReview,(2011)).)

TheCourtneednotheapsuperlativesontheoutcomeinorderto

concludethatthesetwoGrinnellfactorstogetherweighheavilyinfavorof

approval.Thisrecoverystandsoutinthecrowd,andiswellwithinthe

rangeofreasonablenesswhencomparingthebestpossiblerecoverytothe

risksofcontinuedlitigation.Accordingly,nearlyalloftheGrinnellfactors

stronglysupportapproval.

4. OverallFairnessEvaluationTheCourthaspressedthepartiestoexplainwhytheyhaveagreed

thattheindividualsallegedlyresponsibleforCitigroupswrongswillpay

nothinginthissettlementwhileCitigroupthatis,itscurrent



22/48

22

shareholders,includingmanyofthoseallegedlydefraudedby

defendantsfootsthebill.Afterall,corporationsonlyactthroughhuman

beings.

Indeed,

the

Courts

concerns

align

with

the

scholarly

work

of

one

ofLeadCounselsownexperts,ProfessorCoffee,andothers.See,e.g.,John

C.CoffeeJr.,ReformingtheSecuritiesClassAction:AnEssayonDeterrence

andItsImplementation,106Colum.L.Rev.1534(2006).TheCourtshares

ProfessorCoffeesconcernthatsecuritiesclassactionsinwhichthe

corporationanditsinsurerspayforthereleaseofclaimsagainstits

corporateofficersandexecutiveshaveessentiallynodeterrentvaluefor

thoseexecutivestheoneswhoseactionsmatter.TheCourtalsolaments

thattheshareholders,asowners,effectivelypaytheinsurancepremiums

andanysettlementamountsovertheinsurancecoverage,suchthatmost

settlementsare

essentially

transfers

of

wealth

from

all

present

shareholderstoasubsetofpastandpresentshareholders,withsignificant

sumssiphonedoffintheformoflawyersfeesandlitigationcosts.Id.at

155657.

TheCourt,however,concludesthattheRule23settlementapproval

processpresentsnooccasionfortheCourttoconsiderwhetherplaintiffs

decisionnottoseekpaymentfromtheindividualdefendantsand

Citigroupsdecisiontouseonlycorporateassetstopayforthereleaseof

allclaimsagainsthighrankingformeremployeesanddirectorsisfairto

Citigroupsshareholders.AstheSecondCircuithasexplained,district

courtsare

to

consider

only

whether

total

compensation

to

class

members

isfair,reasonable,andadequate,nothowthedefendantsapportion

liabilityforthatcompensationamongthemselves.InreWarnerCommcns.

Sec.Litig.,798F.2d35,37(2dCir.1986).Inotherwords,[t]headequacyof

thesettlementdoesnotdependupontheallocationofthatamountamong

theDefendants.InreNASDAQMkt.MakersAntitrustLitig.,184F.R.D.

506,512(S.D.N.Y.1999)(citingWarnerCommcns.,798F.2dat37)(denying

classmemberaccesstosealeddocumentdetailingapportionmentof

defendantspayments).Thattheapportionmentofliabilityhereandin

similarcasesmightnotserveasadeterrenttofuturecorporate

wrongdoingisaconcernforCongressandtheSEC,notforadistrictcourt

reviewingasecuritiesclassactionsettlement.SeeWarnerCommcns.,798

F.2dat37;NASDAQMkt.Makers,184F.R.D.at512.



23/48

23

Withthatclarification,theCourtconcludesthatnearlyevery

traditionalindicatorofasettlementsfairnesspointsinfavorofapproval

of

this

settlement.

The

Court

finds

that

it

is

certainly

fair,

reasonable,

and

adequate.Accordingly,theCourtgrantsthemotionforfinalapprovalof

thesettlement.

IV. FINALAPPROVALOFTHEPLANOFALLOCATIONAsageneralrule,theadequacyofanallocationplanturnson

whethercounselhasproperlyappriseditselfofthemeritsofallclaims,

andwhethertheproposedapportionmentisfairandreasonableinlightof

thatinformation.PaineWebber,171F.R.D.at133.Anallocationformula

needonlyhaveareasonable,rationalbasis,particularlyifrecommended

byexperienced

and

competent

class

counsel.

In

re

WorldCom,

Inc.

Sec.

Litig.,388F.Supp.2d319,344(S.D.N.Y.2005)(citationsandquotation

marksomitted).Areasonableplanmayconsidertherelativestrengthand

valuesofdifferentcategoriesofclaims.InreTelik,Inc.Sec.Litig.,576F.

Supp.2d570,580(S.D.N.Y.2008)(citingInreGlobalCrossingSec.&ERISA

Litig.,225F.R.D.436,462(S.D.N.Y.2004)).

Theplanofallocationinthisaction(thePlan)derivesfromthe

allegedcorrectivedisclosuresandthemarketsreactiontothose

disclosures.Plaintiffsexpertestimatedtheportionofthedropinprice

followingeachcorrectivedisclosurethatisattributabletorevelationofthe

informationthatthemisstatementsconcealedpursuanttothelaw

governinglosscausation.ThePlanthentreatsthatportionoftheprice

dropastheestimatedinflationinthepriceofCitigroupstockforthe

periodbetweenthepriorcorrectivedisclosure(orthestartoftheclass

period)andthatcorrectivedisclosure.Theresultingscheduleofestimated

sharepriceinflationisthefoundationforthePlan:

TransactionDate PerSharePriceInflation

2/26/0711/4/07 $4.94

11/5/07

$3.38

11/6/0711/18/07 $1.72

11/19/071/14/08 $1.15

1/15/08 $0.71



24/48

24

1/16/084/18/08 $0.10

Theinflationatthetimeofeachclassmemberspurchaseisthepershare

harmshe

initially

sustained

due

to

the

alleged

fraud.

If,

however,

the

class

membersoldbeforethefinalcorrectivedisclosure,thePlanthensubtracts

fromtheharmatthetimeofpurchasetheinflationinthepriceshe

receivedatthetimeofsale.Theresultthetotalharmatpurchaseminus

gainatsaleiseachclassmembersRecognizedLoss.Onceallclass

membersRecognizedLossesaredetermined,thePlanprovidesfora

proportionalallocationofthenetsettlementfund.Inotherwords,ifthe

totalRecognizedLossofallclassmembersistripletheamountofthe

settlementfundthatremainsafterdeductingcostsandfees,eachclass

memberwillreceiveonethirdoftheirRecognizedLoss.Noonehasfiled

anysubstantive

objection

to

the

fairness

of

that

formula.

TheprincipalobjectiontothePlancomesfromtheFACAPobjectors

andrelatestotheapplicationofitsunderlyingformulatoFACAP

participantspurchases.ClassmemberswhoacquiredtheirCitigroup

stockthroughtheFACAPsemployeestockpurchaseplandidnot

purchasetheirsharesintraditionalopenmarkettransactions,andsothe

CourtmustclarifytheapplicationofthePlantotheirpurchases.

TheFACAPoperatedasfollows:InDecember,beforethestartofeach

calendaryear,employeeseligibletoparticipateintheFACAPdecided

whetherto

receive

part

of

their

compensation

for

the

year

in

the

form

of

Citigroupstock.Theparticipantagreedtohaveacertainamountofhis

pretaxpaycheckdeductedeachmonthtobeappliedtothepurchaseof

stock.Butthestockwasawardedaftercompletingeachsixmonthblockof

employmentbasedonanaverageoftheclosingpriceattheendofeachof

thosesixmonths,lessa25%discount.Forexample,theemployeewould

electtoparticipatethroughout2007inDecember2006.Eachmonth,money

wasdeductedfromhispaycheck.InearlyJuly,hereceivedanaward

basedonhiscontributionsoverthepriorsixmonthsandanaverageofthe

closingpriceonthelasttradingdayofeachmonthfromJanuarytoJune.If

theparticipant

had

committed

$1,000

per

month

and

the

average

of

the

six

closingpriceswas$40,suchthatthepriceafterdiscountwas$30,the

participantinJulywasawarded200shares($6,000dividedby$30).That

cyclerepeatedforJuly2007throughDecember2007basedonthesame

December2006election,withsharesthenawardedinJanuary2008.Thus,



25/48

25

foreachaward,theparticipantcommitsinDecember,thepriceis

determinedusingmarketpricesfromsixdifferentdaysspreadoversix

months

(January

to

June

or

July

to

December),

and

the

shares

are

then

awardedshortlyafterthefinalpriceinputisdetermined.

ThepartiescontendthatonlytheJuly2007andJanuary2008awards

shouldbecompensatedunderthePlanbecausethosearetheonlyawards

thatoccurredduringtheclassperiod:February26,2007April18,2008.

TheFACAPobjectorscontendthattheJuly2008awardshouldalsobe

includedtotheextentthatparticipantscommittedduringtheclassperiod,

paidintotheFACAPduringtheclassperiodintheformofbothlaborand

payrolldeductions,andpaidapricedeterminedinpartbyclassperiod

marketprices.Insubstance,objectorscontend,thetransactionoccursin

monthlyinstallments

even

if

the

shares

are

awarded

in

semi

annual

blocks;thosemonthlywithdrawalsandpriceinputsdeterminedtheeffect

ofthefraudontheirpurchasesandsoshoulddeterminetheir

compensationhere.

TheCourtagreeswithobjectors.Thesettlingpartiesformalisticview

isinconsistentwiththeflexib[ility]requiredwhenapplyingSection

10(b)oftheExchangeAct.SeeSECv.Zandford,535U.S.813,819(2002);

SuperintendentofIns.v.BankersLife&Cas.Co.,404U.S.6,12(1971).Section

10(b)broadlyprohibitsfraudinconnectionwiththepurchaseorsaleof

any

security.

15

U.S.C.

78j(b).

The

employees,

having

already

committedtoparticipate,eachmonthhadmoneytakenfromtheirsalaries

topurchasesharesbasedonthemarketpriceattheendofeachmonth.

TheallegedfraudaffectedFACAPparticipantspurchaseofthesecurity

inmonthlyincrements,andsotooshouldtheirremedybecalculatedin

monthlyincrements.Treatingthepurchaseasoccurringinmonthly

installmentsforpurposesofthePlanbetteraccordswiththesubstanceof

thetransactionsandsobettereffectuate[s][thestatutes]remedial

purposes.SeeZandford,535U.S.at819.Ofcourse,theFACAP

participantscannothaveitbothways.IftheJanuary,February,andMarch

installmentsof

the

July

2008

award

are

included,

then

the

January

installmentoftheJuly2007awardmustbeexcludedbecauseitprecedes

thestartoftheclassperiod.



26/48

26

Insum,theCourtconcludesthatthebasisforthePlanisrational,and

thatthePlanisfairandadequate.Thesharepriceinflationschedule

reflects

that

the

injuries

claimed

by

different

class

members

have

been

sustainedundersignificantlydifferent...factualcircumstances.See

PaineWebber,171F.R.D.at133.Theeffectofthefraudonthemarketprice,

andthustheharmsufferedbypurchasers,changedeachtimethemarket

learnedmoreofthetruth.TheCourtinterpretsthePlantoapplytotheFA

CAPobjectorsinpreciselythemannertheypropose.Accordingly,the

Courtgrantsthemotionforfinalapprovaloftheproposedplanof

allocation.

V. FEEAWARDA. PercentageoftheFundMethodwithLodestarCrossCheckCourtstraditionallyawardplaintiffscounselfeesinclassactions

basedoneitherareasonablepercentageofthesettlementfundoran

assessmentbythecourtofthemarketvalueoftheworkplaintiffs

attorneysperformed.Theformerisknownasthepercentageofthefund

method,andthelatteristhelodestarmethod.Incomplexsecuritiesfraud

classactions,courtshavelongobservedthatthethetrendinthisCircuit

hasbeentowardtheuseofapercentageofrecoveryasthepreferred

methodofcalculatingtheawardforclasscounselincommonfundcases.

Inre

Beacon

Assocs.

Litig.,

No.

09

Civ.

777

(CM),

2013

WL

2450960,

at

*5

(S.D.N.Y.May9,2013);seealso,e.g.,InreAvonProds.,Inc.Sec.Litig.,No.89

Civ.6216(MEL),1992WL349768(S.D.N.Y.Nov.6,1992).Infact,the

trendofusingthepercentageofthefundmethodtocompensate

plaintiffscounselinmajorsecuritiesfraudclassactionsisnowfirmly

entrenchedinthejurisprudenceofthisCircuit.

Butthatmethoddoesnotrenderthelodestarirrelevant.Itbears

emphasisthatwhethercalculatedpursuanttothelodestarorthe

percentagemethod,thefeesawardedincommonfundcasesmaynot

exceedwhatisreasonableunderthecircumstances.Goldbergerv.

IntegratedRes.,Inc.,209F.3d43,47(2dCir.2000)(citationomitted).Partof

thereasonablenessinquiryisacomparisonofthelodestartothefees

awardedpursuanttothepercentageofthefundmethod[a]sacross

check.WalMartStores,396F.3dat123(quotingGoldberger,209F.3dat



27/48

27

50).Moreover,asLeadCounselsownexpertrecognizes,thelodestar

crosscheckisparticularlyimportantinsocalledmegafundsettlements

such

as

this

one.

(Miller

Decl.

32.)

The

cross

check

is

crucial

because

economiesofscalecouldcausewindfallsincommonfundcaseswith

largefunds,againsuchasthisone.SeeWalMartStores,396F.3dat121

(citingGoldberger,209F.3dat52).Forthatsamereason,courtshave

traditionallyawardedfeesforcommonfundcasesinthelowerrangeof

whatisreasonable.Id.Withthatbackground,theCourtconsidersthe

reasonablenessofKirbysrequestfor$97.5millioninattorneysfeesan

awardofroughly16.5%ofthe$590millionfund.

B. AssessingReasonablenessPursuanttoGoldbergerCourts

in

this

Circuit

determine

reasonableness

by

reference

to

the

factorssetforthinGoldbergerv.IntegratedResources,Inc.,andknownasthe

Goldbergerfactors:

(1)thetimeandlaborexpendedbycounsel;

(2)themagnitudeandcomplexitiesofthelitigation;

(3)theriskofthelitigation...;

(4)thequalityofrepresentation;

(5)therequestedfeeinrelationtothesettlement;and

(6)publicpolicyconsiderations.

WalMartStores,396F.3dat121(quotingGoldberger,209F.3dat50).The

Courtwillconsidereachfactorinturn.

1. TimeandLaborExpendedbyCounsel:TheLodestarAssessingtheextentoftimeandlaborexpendedeffectivelyentailsan

estimateofLeadCounselslodestar.SeeFebusv.GuardianFirstFunding

Grp.,LLC,870F.Supp.2d337,339(S.D.N.Y.2012)(citationomitted).The

lodestarisbaseduponthenumberofhoursreasonablyexpendedby

counselon

the

litigation

multiplied

by

areasonable

hourly

rate.

Reiter

v.

MTANewYorkCityTransitAuth.,457F.3d224,232(2dCir.2006)(citing

Blanchardv.Bergeron,489U.S.87,94(1989)).



28/48

28

LeadCounselandthelawfirmsthatworkedwithitexpendedvast

numbersofhoursandshouldbecompensatedfortheirefforts.Whatisin

dispute

is

whether

all

of

those

hours

and

the

hourly

rates

profferedto

translatethosehoursintoahypotheticalfeearereasonable.Becausethe

lodestarisbeingusedmerelyasacrosscheck,itisunnecessaryforthe

Courttodelveintoeachhourofworkthatwasperformedbycounselto

ascertainwhetherthenumberofhoursreportedlyexpendedwas

reasonable.InreIPOSec.Litig.,671F.Supp.2d467,506(S.D.N.Y.2009)

(citingGoldberger,209F.3dat50).Similarly,theCourtneednotdetermine

withprecisionareasonablehourlyrateforeachattorney.Butthelodestar

serveslittlepurposeasacrosscheckifitisacceptedatfacevalue.

TheCourtfirstidentifieshoursthatitconcludeswerenotreasonably

expendedfor

purposes

of

Lead

Counsels

lodestar.

The

hours

at

issue

includethefollowing:(1)Entwistle&Cappuccisworkunsuccessfully

seekingappointmentasleadcounsel;(2)vastnumbersofhoursspenton

discoveryaftersettlementwasreached,largelybycontractattorneys;and

(3)instancesofwasteandinefficiencythatrequireanacrosstheboard

lodestarcut.TheCourtnextdeterminesthatareasonableclient,on

balance,wouldaccepttheratessubmittedforassociates,counsel,partners

andsupportstaff,butwouldnotpaytheprofferedassociatelevelratesfor

theservicesofcontractattorneystoreviewdocuments.

a. HoursreasonablyexpendedTheCourtstaskistoprobethevalidityoftherepresentationsthata

certainnumberofhourswereusefullyandreasonablyexpended.Lunday

v.CityofAlbany,42F.3d131,134(2dCir.1994).

i. The$4millioninlodestarthatEntwistle&Cappucciexpendedunsuccessfullyattemptingtobecomelead

counselisnotcompensable.

Noteveryhourworkedbyeveryattorneywhoseekstorepresenta

classis

due

compensation

from

the

class.

Lead

Counsel

has

included

in

the

lodestarthehoursincurredbyattorneysatotherfirmsthatwereassisting

Kirbyinprosecutingthisaction,includingthehoursofEntwistle&

Cappucci.ButEntwistle&Cappuccishoursarenotlimitedtoitswork

assistingLeadCounsel;thosehoursinclude$4millionEntwistle&



29/48

29

Cappuccispentattemptingtosecureappointmentasleadcounselfor

itselfincludingitsmotiontoreconsidertheCourtsappointmentofKirby

as

lead

counsel.

The

hours

Entwistle

&

Cappucci

spent

unsuccessfully

seekingappointmentshouldnotyieldcompensationfromaclassthey

werenotappointedtorepresent.LeadCounselcannot,bylaterchoosing

Entwistle&Cappuccitoassistitsefforts,convertthehoursEntwistlespent

unsuccessfullyattemptingtobecomeleadcounselintocompensabletime.

Itiswellestablishedthatthecommonfunddoctrinepermits

attorneyswhoseworkcreatedacommonfundforthebenefitofagroupof

plaintiffstoreceivereasonableattorneysfeesfromthefund.Victorv.

ArgentClassicConvertibleArbitrageFundL.P.,623F.3d82,86(2dCir.2010).

Althoughcourtshavetypicallyappliedthatdoctrinetocompensate

attorneyswho

performed

work

in

the

early

stages

of

aclass

action

but

werenotselectedasleadcounsel,suchworkiscompensableonlytothe

extenttheattorneysworkconfer[red]substantialbenefitsontheclass.

Id.at87.Asinterimleadcounsel,Kirbywasfreetoseekassistancefrom

otherfirms,includingfromrecentlycompetingmovantsforthesame

position,andtoincludeinthelodestartheworkthosefirmsreasonably

performedunderKirbyssupervisioninprosecutingthecase.Butthe

decisionbyKirbytoseektheassistanceofEntwistle&Cappuccicannot

turn$4millionintimeEntwistle&CappuccispentopposingKirbys

appointmentasleadcounselintocashforthelawyers.

KirbysargumentsinfavorofincludingEntwistle&Cappuccishours

priortothealliancebetweenthosefirmsarethefollowing:(1)that

Entwistle&Cappucciwasattemptingtobenefittheclassbecausethatfirm

wasattemptingtobeappointedinterimleadcounselandrepresentthe

class;(2)thatthecontestationoftheinterimappointmentisitselfabenefit

totheclassinsofarascompetitionyieldsthebestrepresentative;and(3)

thatsomeofEntwistle&Cappuccishoursbenefittedtheclassinsofaras

theultimateconsolidatedcomplaintincorporatedatleastinpartEntwistle

&Cappuccispriorworkproduct.

LeadCounsels

first

argument

is

premised

upon

an

untenable

read

of

thecaselawthatconfusesintentionswithimpact;theworkmusthave

actuallybenefitedtheclass.SeeInreElanSec.Litig.,385F.Supp.2d363,

374(S.D.N.Y.2005)(strikingfromlodestarunappointedcounselshours



30/48

30

becausetheireffortsdonotappearappreciablytohavebenefittedthe

Class).AcceptingLeadCounselspositionwouldpermitvarious

competing

firms

to

extract

compensation

for

duplicative

work.

Further,

it

wouldencourageappointedcounseltochoosetheircocounselnotfor

theirskillorknowledgebutfortheportfoliooflodestarinflatingwork

alreadycompleted.

LeadCounselssecondargumentactuallysupportstheinclusionof

Kirbyshours,butnottheinclusionofEntwistle&Cappuccis.TheCourt

agreesthattheinterimappointmentprocessisnecessarytotheprogressof

theaction,andthattheclassbenefitsfromtheselectionofcapablecounsel.

TheCourtselectedKirby,theactionproceeded,andtheclassthus

benefitedfromKirbyseffortstosecureappointment.ButtheCourt

rejectedEntwistle

&

Cappuccis

arguments

on

behalf

of

the

Funds

against

Kirbysappointment;Entwistle&Cappuccianditsclientseven

abandonedthoseargumentsinwithdrawingtheirmotionfor

reconsideration.Kirbycannotseriouslyarguethatthoseunsuccessful

effortstoremoveKirbyconferredsubstantialbenefitsontheclass.Seeid.

(unappointedcounselhadnotestablish[ed]whytheyshouldbe

compensatedfor,amongotherthings,seekingbutfailingtobeappointed

leadcounsel).

Finally,thethirdargumentismeritoriousasamatterofdoctrinebut

not

supported

on

this

record.

Courts

have

invoked

the

common

fund

doctrinetoawardunappointedcounselreasonablecompensationfor

uniqueworkthatinfactbenefitedtheclass.SeeVictor,623F.3dat87.But

nonleadcounselisnotautomaticallyentitledtoanawardfroma

commonfundeachtimeoneofitsclaimsisutilizedinthecomplaintthat

leadcounselultimatelyfiles.Id.Entwistle&Cappuccihasarguedthatits

workontheFundscomplaintwasincorporatedintotheoperative

consolidatedcomplaintandthusbenefittedtheclass.NeitherEntwistle&

CappuccinorKirbyhasidentifiedanyspecificallegationsthatwouldnot

havebeenincludedbutforEntwistlespreappointmentefforts;theyhave

onlyidentified

many

allegations

that

were

included

in

both

the

Funds

complaintandtheconsolidatedcomplaint.Nor,morespecifically,have

theyshownthattheireffortsaddedtothecomplaintaclaimthatsurvived

themotiontodismiss.Workthatisotherwisenoncompensablecannotbe

billedtotheclassbasedonlyonCounselssaysothattheworkconferred



31/48

31

anunspecifiedbenefit.LeadCounselhavefailedtocarrytheirburdenof

demonstratingthatEntwistle&Cappuccisworkpriortothosefirms

union

as

co

counsel

conferred

a

substantial

benefit

on

the

class.

Accordingly,theCourtwillstrikefromthelodestarEntwistle&

CappuccishoursthatwerenotundertakenatKirbysdirection.The

impermissiblehoursareanotinsignificantfractionofthetotallodestar.

Indeed,Entwistle&Cappuccispreappointmentlodestardwarfseven

thatofLeadCounselforthesametimeperiod.(SeePre andPostLead

PlaintiffAppointment,Ex.DtoPls.Resp.toCourtsMar.1,2013Order

(FeeApp.Supp.),Dkt.No.211.)TheCourtstrikes$4millionfromthe

lodestar,whichisEntwistle&Cappuccistimeforprecomplaint

investigation,draftingitscomplaint,andopposingtheappointmentof

Kirby.(See

Entwistle

Attorney

Time

Details,

Ex.

A

to

Fee

App.

Supp.

(all

entriesupthroughJan.18,2011).)Toputthesehoursinperspective,that

partofEntwistle&Cappuccislodestarsimplydedicatedtoseeking

appointmentandopposingKirbysappointment$1.5millionismore

thandoublethelodestarthatallplaintiffsfirmsspentopposing

defendantslatermotiontodismissthecomplaint.(SeeCourtHearing

Preparation&Attendance,Ex.FtoFeeApp.Supp.;BriefingTime&

LodestarDetail,Ex.KtoFeeApp.Supp.)

ii. Thepostsettlementhoursunrelatedtosettlementmatters,

totaling

$7.5

million

in

lodestar,

were

not

reasonablyexpended.

ObjectorFrankcorrectlychallengesthereasonablenessofthousandsof

hoursexpendedondocumentreviewanddiscoveryrelatedtasksafterthe

partiesreachedasettlementagreementinprinciple.LeadCounseldonot

disputethatateamofcontractattorneysspentmanyhoursreviewing

documentsaftertheagreementinprinciplewasarrivedat.Norcanthey

evendisputethatmanyoftheseattorneysbegantheirworkonthecaseat

thesametimethepartiesreachedtheagreementonthesettlementamount

on

or

about

May

8,

2012.4

Now,

however,

Counsel

contends

that

they

had

4 Inresponsetocontentionsthatithadfailedtoidentifycontractattorneysand

improperlybilledforhoursundertakenaftersettlementwasreached,LeadCounsel




32/48

32

notreachedadefinitive,bindingagreementandthushadtobereadyto

concludediscoveryonashorttimetable.Therefore,Counselbroughton

twenty

additional

contract

attorneys

and

had

them

commence

extensive

documentreviewwork.TheCourtconcludesthatareasonablepaying

clientwouldnothaveauthorizedorpaidforthesehours.

Tobegin,uponreachingtheagreementinprinciple,theparties

representedtotheCourtthatsettlementwasessentiallyafaitaccompli.

Further,LeadCounselsownsubmissionsinsupportoftheirfeerequest

similarlyreflectedtheirviewthatthecasehadbeensettled.Counsel

initiallyrepresentedthatatthetimethepartiesreachedtheSettlement,

therewerestillovertwomonthsremainingbeforethediscoverycutoffset

bytheCourt,includingdepositionsofnumerousadditional

witnesseswithall

depositions

after

May

9cancelled.

(Joint

Decl.

77

(emphasisadded);cf.StipulationandRevisedSchedulingOrderdatedFeb.

2,2012,Dkt.No.150(discoverycutoffonJuly13).)TakingLeadCounselat

itsword,thepartiesreachedtheSettlementbyMay8,2012.

Actions,ofcourse,speaklouderthanwords.Savefortheballooningof

contractattorneyhoursatissue,LeadCounselslodestarreportconfirms

thatbyMay2012thepartieshadlittledoubtthatthiscasewassettling.

MostoftheKirbyassociatesandpartners,asdistinctfromseparately

failedtonoteanywhereinitsdetaileddescriptionsoftheworkthatthe

supplementalteamthatperformedmuchofthisworkwasnothireduntilMay

2012.(See,e.g.,JointReplyDecl.106.)TheonlywaytheCourtwasabletodetermine

thatwasbynoticingthatuptotwentynewlyhiredattorneysspentfulldaysreading

thecomplaintinthesameweekthepartiesreportedtheirsettlementtotheCourt.(See,

e.g.,KirbyProjectSpecificAttorneyTimeDetails,Ex.BtoFeeApp.Supp.(attorney

beganreadingtheintroductionandsectionIoftheamendedcomplaintonMay5,

2012andfinishedonMay9;anotherbegantoreadcomplaintonMay14,2012and

finishedonMay17).)Inasimilarvein,Counselfailedtonoteanywherethatthe

contractattorneysatissuewerecontractattorneyshiredonanhourlybasisforthis

project

rather

than

being

firm

associate

attorneys.

(See,

e.g.,

Kirby

McInerney

LLP

LodestarReport,Ex.EtoJointDecl.)Counselthencontended,inresponsetoFranks

objectionandtheCourtsquestions,thatthoseattorneysstatusshouldhavebeen

obviousfromtheabsenceofanyfirmbiographiesforthoseattorneysprovidedwith

thefeerequest.Counselisexpectedtobemoreforthcoming.



33/48

33

retainedcontractattorneys,spenttheirtimeafterMay8negotiatingastay

ofdiscovery,andthenfinalizingthesettlementanddraftingpreliminary

approval

papers

(all

of

which

is

properly

compensable)or

working

on

othermatters.(SeeKirbyAttorneyTimeDetails,Ex.AtoFeeApp.Supp.

(attorneyTeliasslastentryonMay8);id.(attorneyMasterssentriesafter

May8,2012);id.(entriesofattorneysLinden,Hume,andMcNeelafrom

May10toMay15,2012concerningstayofdiscovery).)

Withthatbackground,thequestioniswhetherahypotheticalpaying

clientwouldhavepaidforthiswork.Inanalogouscircumstances,theInre

AOLTimeWarner,Inc.Securities&ERISALitigationcourtreducedthe

lodestarby5,000associatehoursfordocumentreviewperformedafter

signingamemorandumofunderstandingandbeforeasettlement

agreementwas

signed

because

few

private

clients

paying

hourly

fees

wouldabsorbthecostofsuchunabatedworkoveratwomonthperiod.

No.02Civ.5575(SWK),2006U.S.Dist.LEXIS78101,at*73(S.D.N.Y.Sept.

28,2006)(R&RofSpecialMaster),adopted,2006U.S.Dist.LEXIS77926

(S.D.N.Y.Oct.25,2006).ThisCourthasreachedthesameconclusion

regardingthe16,291.8hoursatissuehere.

TherealitywasthatasettlementwasreachedonMay8andthe

partiestelephonedtheCourttwodayslatertoreportthatintheviewof

theparties,asettlementwasreachedsubjecttotheCourtsapprovaland

draft

documents.

(See

Tr.

of

Hearing

dated

Apr.

8,

2013

at

73:24

74:1,

Dkt.

No.262.)Atthesametime,LeadCounselwashiringascoreofnew

contractattorneysandsettingthemandotherattorneystoworkon

documentreview.ThehoursLeadCounselexpendedfinalizingthe

settlementareappropriatelyincludedinthelodestar.Allotherhoursafter

theMay8agreement,thevastmajorityofwhichconsistofcontract

attorneysperformingbasicdocumentreview,serveonlytoinflatethe

lodestar.5TheCourtconcludesthatthosehourswerenotusefullyand

5

Although

the

evidence

is

clear

that

the

parties

were

confident

that

they

had

settledtheactioninearlyMay,themonthsofMay,June,andJuly2012havethethree

highestcontractattorneylodestartotalsofthisfiveyearlitigation.(SeeKirbyProject

SpecificAttorneyTimeDetails,Ex.BtoFeeApp.Supp.;Decl.ofJohnW.Toothman

datedMar.15,201392.)



34/48

34

reasonablyexpended.SeeLundayv.CityofAlbany,42F.3d131,134(2d

Cir.1994).Accordingly,theCourtstrikesthose16,291.8hours,

representing

$7.5

million

dollars,

from

the

lodestar.

iii. Thelodestarshouldbereducedforwasteandinefficiency.

Inacaseofthismagnitude,itisinevitablethatattorneyswillspend

morehoursthanturnouttobenecessaryonsomeprojects.Butitis,or

oughttobe,farfrominevitablethatattorneyswillattempttochargethose

hourstotheirclient.SeeHensleyv.Eckerhart,461U.S.424,434(1983)

(counselseekingfeeawardmustexercisebillingjudgment,which

entailsgoodfaithefforttoexcludefromafeerequesthoursthatare

excessive,redundant,

or

otherwise

unnecessary).

And

some

instances

of

wasteandinefficiencyaresoegregiousthattheirinclusioninamotionfor

feescastsashadowoverallofthehourssubmittedtotheCourtjustas

thethirteenthstrokeofaclockcallsintodoubtwhetheranyprevious

strokewasaccurate.

Frankhighlightedtwoexampleswherecontractattorneysspentan

unacceptablenumberofhoursdigestingsingledaydepositions:239hours

(for$89,625)ononeand94.25hoursonanother(for$51,837.50).(SeeSupp.

Decl.ofTheodoreH.FrankdatedMar.15,201311,Dkt.No.218.)Frank

contendsthattheCourtshouldtreattheseexamplesasrepresenting

consistentpracticeanddrasticallycutnotonlythesehours,butallthe

hoursofmanyattorneys.LeadCounselagreesthatthese333hourswere

wastefulandwithdrawsthemfromthelodestarwithoutfurtherdiscussion

ofinefficiency.Neitherapproachisappropriate.

Frankischerrypicking,butCounselcannotagreetotossoutthose

cherriesandpretendnoothersareripeforpicking.Indeed,theCourts

ownreviewrevealsanumberofsimilarinstancesofwaste.Twoother

contractattorneys,forexample,appeartohavespentoverthreeweeksof

eighthourdayseachdigestingaonedaydeposition:157.5hours(for

$66,937.50)for

one

attorney

and

142.5

hours

(for

$53,437.50)

for

the

other.

(SeeKirbyProjectSpecificAttorneyTimeDetails,Ex.BtoFeeApp.Supp

(reviewofBrushammardepositionandMarsiglianodeposition);Pls.

CounselAppearinginDepositions,Ex.EtoFeeApp.Supp.(Investor

RelationHeadArthurTildesley,Jr.beingtheonlytwodaydeposition).)



35/48

35

Multiplecontractattorneysinthelodestarreportspentmorethana

yearsimplylistingdocumentreviewasthetaskperformedallday,

every

day,

for

approximately

$1.5

million

in

lodestar

for

each

attorney.

(See,e.g.,KirbyProjectSpecificAttorneyTimeDetails(attorneyM.B.s$1.7

millioninlodestarandattorneyD.F.s$1.5million,bothlistingdocument

revieweverydayfromMar.14,2011toJuly19,2012).)Counselasserts

thatdocumentreviewwaslistedmerelyasanadministrative

convenienceinsteadofreproducingmoredetailedhandwrittenrecordsof

contractattorneyshours.(SeePls.Supp.ReplyMem.at26,Dkt.No.232.)

Butwhatevertimetheconveniencesaved,classcounselcannotpresent

effectivelyunreviewablehoursinthenameofconvenience.Ontheother

hand,theCourtfinds,forexample,thestaffingfordepositionsandthe

hoursLead

Counsel

devoted

to

court

filings

and

conferences

are

well

withintherangeofreasonable.

Inbalancingtheevidenceofwasteandunreviewablehoursagainst

themanyinstancesofreasonablecharges,theCourtconcludesthatthe

lodestarshouldbefurthercutby10%toaccountforwasteandinefficiency

thatapayingclientwouldnotaccept.Toavoiddoublecountingthecuts,

theCourtwillmakethisacrosstheboardadjustmentonlyafterallother

cutshavebeenmade.

b. ReasonablehourlyratesThelodestarfigureshouldbebasedonmarketratesinlinewith

those[rates]prevailinginthecommunityforsimilarservicesbylawyersof

reasonablycomparableskill,experience,andreputation.Reiter,457F.3d

at232(quotingBlumv.Stenson,465U.S.886,896n.11(1984)).TheCourt

mustdeterminetherateapayingclientwouldbewillingtopay.See

ArborHillConcernedCitizensNeighborhoodAssnv.Cnty.ofAlbany,522F.3d

182,190(2dCir.2008);seegenerallyMcDanielv.Cnty.ofSchenectady,595

F.3d411,42122(2dCir.2010)(discussinguseofArborHillbasedlodestar

calculationaspartofcrosscheckoncommonfundpercentageaward).

Because

legal

services

are

not

a

commodity

traded

on

an

open

market,

the

priceforsimilarservicescanvarysignificantlybasednotonlyonthe

product,butalsoontheclient.Clientswithgreaterbargainingleverage

thosethatconsumethemostservicesandareabletopayforthemare

generallyabletonegotiatemorefavorablelegalrates.Inconsideringthe



36/48

36

hypotheticalpayingclient,theSecondCircuitinstructscourtstoconsider

whetherafullyinformedgroupofplaintiffsabletonegotiate

collectively

would

agree

to

a

given

rate.

Goldberger,

209

F.3d

at

52.

In

otherwords,iftheclasswereareasonable,payingclientfreetochooseits

counselandnegotiaterates,whathourlyratewoulditacceptforthe

attorneysandotherprofessionalstaffemployedhere?

TheCourtsfocusisontheprofferedhourlyratesfortheservicesof

contractattorneysattorneyswhoarenotpermanentemployeesofthe

lawfirm,arehiredlargelyfromoutsidestaffingagencies,arenotlistedon

counselslawfirmwebsiteorresume,arepaidbythehour,andarehired

onatemporarybasistocompletespecificprojectsrelatedtoaparticular

action.TheCourtfocusesmorecloselyonthecontractattorneyratesnot

onlybecause

those

rates

are

overstated,

but

also

because

the

total

proposedlodestarforcontractattorneysdwarfsthatofthefirmassociates,

counsel,andpartners:$28.6millionforcontractattorneyscomparedtoa

combined$17millionforallotherattorneys.(Ltr.ofPeterS.Lindendated

Apr.7,2013(LindenLtr.),Dkt.No.264.)TheCourtfindsthat,on

balance,theproposedratesforfirmattorneysarereasonable.Theblended

hourlyrateforassociateshereis$402,andtheblendedrateforpartners

andcounselis$632.(Id.)Theseratesarewithintherangeacceptedinthis

district.See,e.g.,InreTelik,Inc.Sec.Litig.,576F.Supp.2d570,589

(S.D.N.Y.2008).Inaddition,theCourtfindstheratesforsupportstaff,

whotogether

make

up

roughly

$6

million

of

the

proposed

lodestar,

are

reasonable.

Inattemptingtodeterminethemarketratefortheservicesofthe

contractattorneyshere,theCourthasbeenpresentedwithataleoftwo

extremes.Atoneextreme,objectorFranksuggeststhatthemarketratefor

contractattorneyservicesistheratethatthelawfirms,notclients,payfor

theservicesofcontractattorneys,andthatinanyeventnoreasonable

payingclientwouldacceptarateabove$100perhour.LeadCounsel

respondsthatthesecontractattorneysperformedtheworkof,andhave

thequalifications

of,

law

firm

associates

and

so

should

be

billed

at

rates

commensuratewiththeratesofassociatesofsimilarexperiencelevels.The

proposedcontractattorneyratesreachashighas$550,withablended

hourlyrateof$466higherthanthe$402perhourrateforassociates!



37/48

37

(LindenLtr.)Theprecisetruthisunknown,butwithoutdoubtlies

betweenthesetwoextremes.

i. Courtsagreethatcontractattorneyhoursarenotfactuallyequivalenttoassociatehours.

Frankcontends(1)thatthecontractattorneysshouldbetreatedasa

litigationcostandnotincludedinthelodestaratall,and(2)that,if

included,alodestarmultipliercannotbeappliedtotheirworkbecauseto

dosopermitstoohighamarkup.Neitherargumentprevails.First,courts

routinelyrejectclaimsthatcontractattorneylaborshouldbetreatedasa

reimbursablelitigationexpense.SeeCarlsonv.XeroxCorp.,596F.Supp.2d

400,409(D.Conn.2009)(collectingcases),affd,355F.Appx523(2dCir.).6

Second,courts

have

also

regularly

applied

alodestar

multiplier

to

contract

attorneyshours.TheCourtshouldnomoreattempttodeterminea

correctspreadbetweenthecontractattorneyscostandhisorherhourly

ratethanitshouldpassjudgmentonthedifferentialbetweenaregular

associateshourlyrateandhisorhersalary.InreAOL

citigroup fees order

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