United States District Court, S.D. Illinois
August 16, 2005.
KATHI COOPER, BETH HARRINGTON, and MATTHEW HILLESHEIM, Individually and on Behalf of All Those Similarly Situated, Plaintiffs,
THE IBM PERSONAL PENSION PLAN and IBM CORPORATION, Defendants.
The opinion of the court was delivered by: G. PATRICK MURPHY, Chief Judge, District
MEMORANDUM AND ORDER
This matter is before the Court on Class Counsel's Motion for
Award of Attorneys' Fees, Costs and Incentive Awards ("Fee
Request") (Doc. 352). Based upon the entire record in this case,
including the objections and other comments filed by the Class
Members and the arguments presented at the hearing held on August
8, 2005, the Court finds and orders as follows:
This litigation started November 1, 1999, and will continue for
at least another year as the parties continue to litigate two of
the central issues before the United States Court of Appeals and
potentially the United States Supreme Court. IBM's 1995
implementation of a pension equity formula and its 1999
implementation of a cash balance formula raise six difficult and
novel issues. It was clear when this case was filed that it would
be hard fought and was likely to be ultimately resolved by the
Court of Appeals for the Seventh Circuit or perhaps the United
States Supreme Court. In fact, early in the case the Court
observed at an oral argument that "I understand . . . whatever I do here will be reviewed de novo in the Court of
Appeals. And of the cases I have handled here, I believe that
this case has the best chance of ending up in the United States
Supreme Court. . . ." Transcript of Oral Arg. at 4:23-5:8 (Dec.
On September 17, 2001, this Court certified the case as a class
action pursuant to Rule 23(b)(2) of the Federal Rules of Civil
Procedure on behalf of three Subclasses. Subclass 1 consists of
Class Members who accrued benefits under the Pension Credit
Formula adopted by the Plan effective January 1, 1995, but did
not accrue any benefits under the Cash Balance Formula adopted by
the Plan effective July 1, 1999. Subclass 2 is comprised of Class
Members who accrued a benefit under the Cash Balance Formula
adopted by the Plan effective July 1, 1999. There are more than
250,000 members of Subclasses 1 and 2. Subclass 3 consists of
approximately 15,000 individuals who were participants in the
Plan as of July 1, 1999, but did not complete five years of
service such that they did not vest in their Plan benefit. The
Subclass 3 claims were settled under the terms of a Settlement
Agreement approved by the Court on January 10, 2005 (see Docs.
287, 288). IBM subsequently filed an interlocutory appeal
challenging the certification of the case as a class action. This
appeal was denied by the United States Court of Appeals for the
Seventh Circuit. See Cooper v. IBM, No. 01-8034 (7th Cir.
Nov. 19, 2001).
This Court is familiar with the complex and novel issues
involved in this case, as well as the work of Class Counsel in
prosecuting the claims for more than five years of this
hard-fought litigation. This prosecution has included extensive
discovery, expert witness depositions, and voluminous briefing on
all of the factual and legal issues, as well as numerous court
On May 18, 2005, the parties entered into a Settlement
Agreement ("Settlement"). Following a hearing on August 8, 2005,
the Court approved that Settlement as fair and reasonable and in the best interests of the Class following the required
notice to Class Members.
The Settlement requires IBM to amend the Plan to provide
additional pension benefits to eligible members of the Class
which, when added to the amount of attorneys' fees awarded by the
Court to Class Counsel, will total in value $314,293,000 as of
November 1, 2006. While the Settlement provides that Defendants
will appeal the Court's decision regarding liability on the Cash
Balance Claim and the Always Cash Balance Claim, the Settlement
resolves the issues regarding the remedies that should be awarded
with respect to these claims in the event this Court's rulings
are upheld on appeal. IBM agrees that if the Court's liability
ruling in favor of the Class on the Always Cash Balance Claim is
upheld on appeal, the Plan will be amended to provide additional
pension benefits. The additional value of those benefits,
including the attorneys' fees awarded by the Court to Class
Counsel in connection with that claim, will be $620,000,000 (in
addition to the guaranteed amount of $314,293,000). IBM also
agrees that if the Court's liability ruling in favor of the Class
on the Cash Balance Claim is upheld on appeal, the Plan will be
amended to provide additional pension benefits which, along with
the attorneys' fees awarded by the Court to Class Counsel in
connection with that claim, will total $1,714,293,000.
Notably, the Settlement provides that any benefit provided to a
participant as a result of the Settlement Agreement is an
independent Plan obligation separate, apart from, and in addition
to any other benefit accrued by a participant before the
Settlement Date under the Cash Balance Formula, the Pension
Credit Formula, or any formula under any other employee pension
benefit plan sponsored by IBM. In addition, any pension benefit a
participant would otherwise accrue under any Plan formula, or any
other employee pension benefit plan sponsored by IBM based on
service after the Settlement Date, will not be reduced or offset
by and will not wear away any participant's Settlement Benefit. Finally, IBM waives any defense or right to
assert any precedent or policy that might preclude or prohibit
the entry of retroactive relief.
Class Counsel seeks fees on a decreasing percentage as follows:
(1) an amount equal to 29% of the amount of any Settlement
Benefits recovered up to $250 million; (2) an amount equal to 25%
of the amount of any Settlement Benefits recovered in excess of
$250 million up to the amount of $750 million; (3) an amount
equal to 21% of the amount of any Settlement Benefits recovered
in excess of $750 million up to the amount of $1,250 million; and
(4) an amount equal to 17% of any Settlement Benefits recovered
in excess of $1,250 million. If the Class prevails on all claims,
the blended fee produced by the above percentages is 22.25%.
Class Counsel also requests incentive awards of $40,000 for Ms.
Cooper and $20,000 for Ms. Harrington to be paid out of the
attorneys' fees and costs award. Class Counsel is not requesting
any additional recovery to reimburse them for the expenses they
already have incurred or will incur in the future but have agreed
to reimburse themselves for those costs out of whatever fees are
awarded by this Court.
In considering Class Counsel's Fee Request, this Court is
guided by the numerous decisions of the Seventh Circuit requiring
the Court to do its "best to award counsel the market price for
legal services, in light of the risk of nonpayment and the normal
rate of compensation in the market at the time." In re Synthroid
Marketing Litig., 264 F.3d 712, 718 (7th Cir. 2001)
("Synthroid I"); see also Florin v. Nationsbank of Ga., N.A.,
34 F.3d 560, 565 (7th Cir. 1994) (directing district court to
determine fair attorneys' fees in class action by considering the
probability of success at the outset of the litigation); In re
Continental Ill. Sec. Litig., 962 F.2d 566, 572 (7th Cir.
1992) ("The object in awarding a reasonable attorney's fee . . .
is to give the lawyer what he would have gotten in the way of a
fee in an arm's length negotiation, had one been feasible.").
Where, as here, it is "impossible to know ex post exactly what terms would have resulted from
arm's-length bargaining ex ante, courts must do their best to
recreate the market by considering factors such as actual fee
contracts that were privately negotiated for similar litigation,
information from other cases, and data from class-counsel
auctions." Taubenfeld v. Aon Corp., No. 04-3140, 2005 WL
1560331, at *1 (7th Cir. July 5, 2005).
Based on the evidence before the Court regarding the market for
class counsel in cases of this type and a long line of ERISA
decisions, it is appropriate to award Class Counsel a percentage
of recovery fee in this case. Florin, 34 F.3d at 563; Mark
Berlind, Attorney's Fees under ERISA: When is an Award
Appropriate?, 71 Cornell L. Rev. 1037, 1060-61 (1986) ("Applying
the common benefit doctrine reflects the statute's purpose. . . .
Nothing in ERISA indicates that Congress intended to preempt the
common benefit doctrine."). As the Ninth Circuit stated in
Staton v. Boeing Company, 327 F.3d 938, 967 (9th Cir.
2003), "We conclude, as have the two other circuits that have
addressed the issue, that there is no preclusion on recovery of
common fund fees where a fee-shifting statute applies." Citing
Brytus v. Spang & Co., 203 F.3d 238, 246-247 (3rd Cir.
2000); Cook v. Niedert, 142 F.3d 1004 (7th Cir. 1998). This
reasoning is appropriate here, where an award of attorneys' fees
under ERISA's fee-shifting statute is not automatic and depends
upon a variety of factors. See, e.g., Quinn v. Blue Cross & Blue
Shield Ass'n., 161 F.3d 472, 478 (7th Cir. 1998).
The Seventh Circuit has indicated that "the decision whether to
use a percentage method or a lodestar method remains in the
discretion of the district court." Florin, 34 F.3d at 566. In
exercising that discretion, the Seventh Circuit has noted that in
common fund/benefit cases, "the measure of what is reasonable [as
an attorney fee] is what an attorney would receive from a paying
client in a similar case." Montgomery v. Aetna Plywood, Inc.,
231 F.3d 399, 408 (7th Cir. 2000); see also In re Continental Illinois Securities Litig., 985 F.2d 867
(7th Cir. 1992). Thus, "[t]he approach favored in the Seventh
Circuit is to compute attorney's fees as a percentage of the
benefit conferred on the class," particularly where that
percentage of the benefit approach replicates the market.
Williams v. General Elec. Capital Auto Lease, No. 94-C-7410,
1995 WL 765266, *9 (N.D. Ill. Dec. 26, 1995); see also Long v.
Trans World Airlines, Inc., 1993 WL 121824, *1 (N.D. Ill. Apr.
19, 1993). Here, a percentage of the benefit approach clearly
best replicates the market.
The uncontested evidence in this case is that Plaintiffs could
not afford to retain counsel on any basis other than a contingent
fee. Cooper Dec. at ¶ 3. Class representative Kathi Cooper
attests that she would not have hired Class Counsel on an hourly
basis. Id. There is no reason to believe that any other Class
Member would have been willing to pay hourly fees in the hope
that the case would be successful and the fees paid ultimately
recovered from IBM. Class Counsel, nationally recognized experts
in ERISA pension benefit cases, attest that they have not and
would not accept a similar case on any basis other than a
contingency fee basis. Sprong Aff. at ¶ 6. The record before the
Court establishes that no other capable counsel was willing to
take the case on any basis. Cooper Dec. at ¶ 5; Carr Dec. at ¶¶
8-14; Lewis Dec. at ¶¶ 11-14. Thus, the undisputed evidence is
that the market for legal services for this litigation is a
contingency fee. In fact, even the vast bulk of the objectors do
not disagree that a percentage of the recovery approach is
appropriate in this case, they merely dispute the appropriate
In determining what an appropriate percentage should be in the
unique circumstances of this case, the Court has considered a
number of factors. Class Counsel submitted affidavits and briefs
setting forth a large number of other large ERISA class actions
in which counsel have been awarded fees similar to or greater
than the percentages requested here. In addition, this Court is
personally familiar with fees in a significant number of relatively similar
cases that have been awarded in this District, and the Fee
Request in this case is below the amount in many of those cases
in spite of the fact that this case involved similar or in all
likelihood far more risk.
While not dispositive, attorneys' fees from analogous class
action settlements are indicative of what the market is for such
representation and, therefore, what an appropriate fee should be
here. As this Court noted in awarding Class Counsel 29% of the
recovery in connection with the settlement of the claims on
behalf of the Subclass 3 members, "we have a pretty substantial
body of case law now built up on these complex cases and it seems
as if 30 percent is just about the bench mark." Transcript of
Final Approval Hearing, Subclass 3, at 4:9-11 (Jan. 1, 2005).
Similarly, the Court notes that the Affidavit of Jeffrey Lewis, a
nationally recognized expert in prosecuting complex ERISA
litigation, indicates that his firm has regularly been awarded
fees in the neighborhood of 25% of the recovery. Lewis Dec. at ¶
17. Importantly, as Mr. Lewis's affidavit makes clear, those
awards occurred in cases with substantially less risk than here.
As Mr. Lewis attests, due to the extreme risk in this case, his
firm declined to bring it or any other case raising these issues
until after this Court's July 31, 2003 Order. Lewis Dec. at ¶ 14.
The Court has reviewed the Declaration of Stephen Susman, a
prominent trial counsel with vast experience in complex
litigation, who attests that if he had been asked to undertake
this case for an individual client or group of clients on a
nonclass basis, he would have done so only if they had agreed to
pay his expenses and also his standard 33 1/3 contingent fee.
Susman Dec. at ¶ 6.
The Seventh Circuit's recent decision in Taubenfeld v. Aon
indicates that it is also appropriate to consider the "quality of
legal services rendered and the contingent nature of the case."
Taubenfeld, No. 04-3140, 2005 WL 1560331, at *3. The quality of
the legal work of all counsel in this case has been exemplary. The quality of Class Counsel's
legal work both in and out of the courtroom is ably demonstrated
by the benefits conferred on the Class as a result of the
Settlement. Even if the Class were to lose both of the issues on
appeal, the Settlement would be one of the largest pension
settlements in the nation's history. And in the event that the
Class prevails on either or both of the issues on appeal, the
Settlement is likely to be the largest pension settlement in
It is clear that the Settlement represents a solid achievement
in terms of the benefits it provides Class Members compared to
what they could have achieved by further litigation. For example,
as noted by Defendants in their moving papers seeking approval of
the Settlement, Class Counsel not only achieved record-breaking
additional benefits for the Class but also achieved a "valuable
guarantee that plaintiffs could not have obtained in litigation
an assurance from defendants that they will not offset or `wear
away' the supplemental benefits provided by the Settlement
against pension benefits earned for future service to IBM."
(See Doc. 353 Defendants' Memorandum in Support of Joint
Motion for Approval of Settlement at 6.) While it is an
extremely valuable benefit to the Class Members, it is not, as a
mathematical matter, reflected in the value of the recovery, but
it warrants consideration.
The degree of risk of nonpayment in this case was high at the
outset. It is undisputed that at the time Class Counsel initiated
this action no other qualified counsel in the country would do
so. When this case was commenced in 1999, only two courts had
considered legal challenges to cash balance plans, and both
decisions were summary judgment orders rejecting the plaintiffs'
claims. See Esden v. Retirement Plan of the First National Bank
of Boston, 182 F.R.D. 432 (D. Vt. 1999); Lyons v.
Georgia-Pacific Corp. Salaried Employees Ret. Plan,
66 F.Supp.2d 1328 (N.D. Ga. 1999). Shortly after this case was filed, another district court
rejected a claim that cash balance plans violate ERISA §
411(b)(1)(H). See Eaton v. Onan Corp., 117 F.Supp.2d 812 (S.D.
Ind. 2000). To date, Class Counsel are the only attorneys in the
country who have prevailed on the claim that a pension equity
formula or a cash balance plan formula violates ERISA §
The Court is also aware from the voluminous briefing in this
case that there was not only a high degree of risk in the
litigation context, but there was also considerable additional
risk that either regulatory or legislative action might eliminate
any potential for success in the courtroom. In short, there can
be no question that the risk of nonpayment in this case was
extraordinarily high, much higher than in the other large pension
cases of which this Court is aware. In addition to facing an
uphill legal and political battle, it was equally clear that
anyone representing Plaintiffs would be required to overcome a
well-financed adversary and prominent defense counsel with
abundant financial and legal resources at their disposal.
In determining an appropriate percentage of the recovery to
award, this Court is mindful of the directive in Synthroid I
the district court must estimate the terms of the
contract that private plaintiffs would have
negotiated with their lawyers, had bargaining
occurred at the outset of the case (that is, when the
risk of loss still existed). The best time to
determine this rate is the beginning of the case, not
the end (when hindsight alters the perception of the
suit's riskiness, and sunk costs make it impossible
for the lawyers to walk away if the fee is too low).
This is what happens in actual markets. Individual
clients and their lawyers never wait until after
recovery is secured to contract for fees.
Synthroid I, 264 F.3d at 718 (emphasis in original).
All of the evidence before the Court indicates that in the
event the IBM employees had been required as a group to negotiate
the terms of a fee contract with Class Counsel at the outset of
the case, the fee percentage contained in the resulting contract
would have been equal to and more likely higher than the Fee
Request before this Court.
This Court has also considered data from so-called
class-counsel auctions. The Court notes that in In re: Synthroid
Marketing Litig., 325 F.3d 974 (7th Cir. 2003) ("Synthroid
II"), the Seventh Circuit indicated that the sophisticated
third-party payors (the insurance companies) in that case
negotiated a flat 22% rate even after the risk of the litigation
had passed and a recovery was assured. 325 F.3d at 976, 978
(explaining the 22% rate was agreed to "after a good deal of the
risk had been dissipated" and that the TPPs still "had to offer
22% to sign up lawyers on a contingent fee."). To apply the
rationale of that case to the circumstances of this case, the
Court must take into consideration the notable differences
between the auctions conducted in the securities field where
literally dozens of skilled and experienced law firms battle each
other to represent the class and typically base their cases on
long established legal precedents and the situation present here.
As nationally known pension lawyer Jeffrey Lewis attests, there
are only a handful of lawyers in the country who have the
expertise and background to practice in this area (compared to
the thousands of attorneys who practice securities litigation),
and none of them was willing to undertake the risk of pursuing
cases challenging cash balance plans in 1999 or for years
thereafter. Lewis Dec. at ¶¶ 12-14. The evidentiary record also
demonstrates that several of the best and most prominent
employment firms in the country specifically refused to take the
case on behalf of the IBM employees on any terms. Carr Dec. at ¶¶
8-13. Similarly, Mr. Susman attests that "if the Court had held
an auction at the beginning of this case for qualified counsel to
undertake this litigation, no qualified firm would have proposed
a fee structure below what Class Counsel is requesting in this
case." Susman Dec. at ¶ 8; see also Carr Dec. at ¶ 14. Based on all the evidence and testimony, the Court concludes
that if an "auction" had in fact taken place, Class Counsel would
have been the only bidder and, in light of the risk then
involved, would have extracted a far higher fee that they are now
requesting. Thus, the undisputed evidence before this Court
indicates that under the standards enunciated in Synthroid I
and Synthroid II, Class Counsel's Fee Request (inclusive of
costs) is at or below what application of an "auction" scenario
would have determined.
Class Counsel will be required to continue to litigate the two
central issues in this case for an indefinite period of time. Not
only will that involve additional time and expense, but it also
involves additional risk. This is a unique factor in this case
and merely emphasizes the reasonable nature of the Fee Request,
as any counsel negotiating a fee contract at the outset of the
litigation would certainly have taken the potential for appellate
litigation into consideration in setting a fee in light of the
very novel issues involved in this case.
In analyzing the appropriate fee to be awarded to Class
Counsel, the Court has also given careful consideration to the
objections that have been filed with the Court regarding the Fee
Request. The most notable aspect of those objections is how few
were filed. Although more than 272,000 potential Class Members
were notified by first class mailing, only 45 objected to the Fee
Request in any fashion. This is particularly remarkable in light
of the sophistication of the Class Members and the high degree of
interest in this litigation by the Class Members as evidenced by
the fact that the website IBM established to provide additional
information regarding the Settlement to Class Members received
more than 38,000 visits. A significant number of the objections
to the Fee Request (33 out of the total of 45) are individuals
who have filed letters indicating that they agree with a longer
statement of objection filed by Mr. Leas. Apparently Mr. Leas's
statement was widely circulated on the internet in an effort to solicit additional
objections agreeing with his point of view.
Putting aside the mischaracterizations and inaccuracies
regarding both the Class claims and the Settlement in Mr. Leas's
objection, his objection ignores any consideration of the
controlling Seventh Circuit authority. Instead, it relies almost
totally on information Mr. Leas selectively culls from a law
review article reporting on a statistical study of class action
fee awards. Putting aside the limitations of that study and the
potential for distortion when one tries to apply it to arrive at
an appropriate fee in this case under the proper Seventh Circuit
standards, when one closely examines the article for cases in the
category applicable here (the over $190 million decile), the mean
fee percentage was 16.4%, the median was 17.6%, and the standard
deviation was 9.6%. Applying those percentages here, a fee award
of 26% on a $929 million recovery would be presumptively
reasonable, and an award of up to 35.6% potentially could be
reasonable, depending on the complexity of the case and the risks
involved. The study supports the reasonableness of the Fee
Request, considering the risk and complexity of this case.
It is plain to see that Class Counsel greatly benefit from a
contingent fee scheme. But this case could have ended differently
in which event Counsel would have toiled for years having fronted
the costs of the litigation for no reward whatsoever. In that
event no one would argue that a contingent fee agreement along
the lines approved here was unreasonable.
The Fee Request is unreasonable only if the result was likely
from the outset, which is not the case. The motion for attorneys'
fees, costs, and incentive awards (Doc. 352) is GRANTED. The
Plan shall pay Class Counsel fees as an administrative cost of
the Plan in accordance with the Settlement Agreement and
calculated on a decreasing percentage as follows: (1) an amount
equal to 29% of the amount of any Settlement Benefits recovered
up to $250 million; (2) an amount equal to 25% of the amount of any Settlement Benefits recovered in
excess of $250 million up to the amount of $750 million; (3) an
amount equal to 21% of the amount of any Settlement Benefits
recovered in excess of $750 million up to the amount of $1,250
million; and (4) an amount equal to 17% requested of any
Settlement Benefits recovered in excess of $1,250 million. Class
Counsel shall pay incentive awards of $40,000 to Ms. Cooper and
$20,000 to Ms. Harrington out of the attorneys' fees paid by the
Plan and shall also reimburse themselves for any expenses they
already have incurred or will incur in the future out the
attorneys' fees awarded by this Court.
Finally, for the reasons set forth on the record at the August
8, 2005 hearing, the final motion for settlement approval (Doc.
351) is GRANTED, and the Clerk is DIRECTED to enter judgment
IT IS SO ORDERED.
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