perspective, it may be hard to understand why a higher multiple can be justified early in the litigation and a lower multiple later. More importantly, as in the case at bar, why should the multiplier be 2.177 instead of 2.176 or 2.178? Or 2.376 or 2.083? The plain fact is that lawyers and judges start with the aggregate fee that is perceived as reasonable, then divide the lodestar into the desired fee, and, voila, out comes a multiplier! Decisions should not be made by backing into them.
On the other hand, ordinary people understand percentage fee arrangements. There is a trade off that is both understood and rational: plaintiff counsel may receive what could be perceived as a windfall but that is compensation for undertaking the risk of litigation. It also places the court in the position of making decisions over figures with two significant figures from a mathematical standpoint -- 15% versus 30% -- rather than four significant figures -- 2.177 versus 2.178. Fees in common cases involve rough equity, not mathematical precision.
Accordingly, in common fund cases where the settlement is neither extraordinarily low nor extraordinary high, the special master recommends a percentage fee award with a range of 15% to 30%. Where the recovery is very modest, these ranges could increase; where the recovery is extraordinarily high, the ranges could be reduced. See Third Circuit Task Force, 108 EF.R.D.F at 256.
In the case at bar, considering the size of the settlement and the progress of the litigation, a percentage fee of 20% is recommended. The case was settled after motions to dismiss were denied and after substantial document production. Nine depositions, encompassing twelve days of time, were also taken. Transcript of proceedings, Dec. 20, 1989, at 10. Thus, this would produce a fee of $ 1,998,000 based upon the original base settlement fund of $ 9,990,000 on December 22, 1989. As of November 29, 1991, the fund had grown to $ 11,250,000 and the fee should also include 20% of the interest generated by the fund. Were the special master to have used a lodestar approached, he would have applied a multiplier of two, to compensate for risk, against a lodestar of $ 1,050,000 for a fee of $ 2,100,000. Thus, while not controlling, the lodestar approach would produce a fee consistent with the percentage method.
With respect to expenses, the hourly rate for attorneys normally captures overhead or internal expenses but the client is billed for third party payments such as for travel and experts. For example, an hourly rate of $ 300 per hour translates into an annual gross of $ 540,000, based upon 1800 billable hours. This gross must cover not only compensation to the partner but a proportionate share of overhead. In the past, overhead included such items as rent, library, copying, computers, secretaries, paralegals, health benefits, and administrative staff. In the present lodestar, $ 57,413 was charged for 808 hours of paralegal time. This averages to about $ 70 per hour or $ 126,000 annually for a paralegal. It is doubtful that paralegals average any where near $ 126,000 in compensation. Thus, what was formerly an expense has now been converted into a profit center. This is another reason to move away from the lodestar.
Electronic research has somewhat supplanted library as an item of expense. Arguably, as the trial judge initially ordered, this is an item of internal expense that ought to be captured by the respectable hourly fees or percentage fee award. However, the Seventh Circuit has accepted such charges as a billable expense. Accordingly, expenses in the amount of $ 131,900, plus interest accrued from December 22, 1989 until the date of disbursement should also be allowed.
Dated: January 31, 1992
Charles W. Murdock