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Sutton v. Bernard

July 12, 2006


The opinion of the court was delivered by: John F. Grady, United States District Judge


This is a class action in which the shareholder plaintiffs allege securities fraud against three officers of Marchfirst, Inc. ("Marchfirst"), a Chicago-based consulting corporation. The complaint alleges that defendants artificially inflated the price of Marchfirst's stock by publicly issuing materially false and misleading statements and failing to disclose material facts necessary to make those statements not false and misleading. Marchfirst, which was named as a defendant, filed for bankruptcy five and one-half months after the complaint was filed.

The court has under advisement the motion of class counsel for final approval of a proposed class settlement and an award of attorneys fees and expenses. We believe the $18,000,000 settlement is reasonable, considering the uncertain outcome of the legal and factual questions that would be involved in a trial of the case, as well as the problems that would be encountered in collecting a judgment in excess of the proposed settlement amount. No class member has objected to the settlement, and we believe it is in the best interest of the class that it be approved. Accordingly, we will grant final approval of the settlement.

What remains, then, is the matter of fees and expenses. We will deal first with the expenses.

Request for Reimbursement of Expenses

The original request of class counsel was for reimbursement in the amount of $757,274.23, which covered the expenses of fifteen different law firms.*fn1 We had questions about some of the expense items, and, in our first Order of May 4, 2006 (the "First Order of May 4") we requested further information. It was provided by counsel on June 22, 2006.*fn2 As part of the response, some of the reimbursement requests were reduced, with the revised total being $701,824.01.*fn3 But we believe further reductions are required.

The cost of computer-assisted legal research is included in attorneys fees and is not separately recoverable as an expense. Montgomery v. Aetna Plywood Inc., 231 F.3d 399, 409 (7th Cir. 2000). Therefore, the following amounts claimed by the following law firms for computer research will be deducted from the requested expense award:

Milberg Weiss $22,348.00 Miller Faucher and Cafferty 522.70 Berger & Montague 4,335.22 Shiffrin & Barroway 3,400.00 Wolf Haldenstein Adler Freeman & Herz 4,029.61 Faruqi & Faruqi 1,230.00 Futterman & Howard 232.00 Bernard M. Gross 684.70 Marc S. Henzel 78.24 Lowenstein Sandler PC 456.60 Total: $37,317.07

Another expense we questioned in our First Order of May 4 was secretarial overtime. We observed that "[t]his is the kind of cost that is normally included in a lawyer's overhead. In order to recover this expense, counsel should provide case authority for the allowance." (First Order of May 4 at 3.) In their response, counsel cited two district court cases, one from the Eastern District of Pennsylvania and the other from the District of Colorado. (Response of June 22, 2006 at 9, ¶ 24.) Both cases allowed reimbursement for secretarial overtime, but without discussion and without providing any rationale. In their research that came up with the Pennsylvania and Colorado cases, it would have been impossible for counsel not to have found two cases that are squarely on point and closer to home. In In re Abbott Laboratories Omniflox Products Liability Litigation, No. 94 C 2469, 1997 WL 162891, at * (N.D. Ill. Mar. 26, 1997), Judge Aspen of this court denied a request for reimbursement of secretarial overtime: "[S]ecretarial overtime is overhead and will not be granted." Judge Aspen cited Spicer v. Chicago Board Options Exchange, Inc., 844 F. Supp. 1226, 1261 (N.D. Ill. 1993), where Judge Will of this court denied reimbursement for secretarial overtime because "as with all clerical salaries,this is part of overhead."

The decisions of Judges Aspen and Will are obviously in accord with our own preliminary impression, and we will deny the following requests for secretarial overtime:

Milberg Weiss $4,125.77 Lowenstein Sandler 25.00 Total: $4,150.77

We are disappointed that counsel did not cite the Abbott Laboratories and Spicer cases, especially since the firm that was denied reimbursement for secretarial overtime by Judge Aspen in Abbott Laboratories was Miller Faucher and Cafferty, local counsel in this case. Rule 3.3(a)(3) of the Illinois Rules of Professional Conduct provides that "a lawyer shall not ... fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel." Our Local Rule 83.53.3 adopts the same language. This matter of secretarial overtime is an illustration of the fact that "class actions are rife with potential conflicts of interest between class counsel and class members," Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781, 785 (7th Cir. 2004).

It was necessary for counsel to incur expenses of travel, meals and hotel stays in connection with trips to court, to depositions and to places where documents had to be reviewed on site. We have requested information about the travel expenses and meals, and, assuming the trips and meals were necessary (see n.1, supra) the amounts were reasonable. (Air travel, for instance, was by coach unless in some unusual circumstance a business class fare was cheaper). We are, however, concerned about the average hotel bill incurred by Milberg Weiss. It was $450.00, whereas the bills incurred by all other counsel were in the area of $200 to $250. In response to an inquiry we made of Milberg Weiss, we are informed that their total hotel bills were $11,722.53. We will exclude approximately 50 percent of that amount, or $5,800.00, in order to bring Milberg Weiss's reimbursement into line with that of their colleagues. As Judge Aspen remarked in Abbott Laboratories, "[n]o first-class airfare, expensive hotels, or lavish meals were reasonably necessary to discovery. Attorneys should not view representation of the consolidated plaintiffs as an opportunity to travel in style." 1997 WL 162891, at *2.

In its original fee petition, Milberg Weiss requested reimbursement for fees it paid to experts, consultants and other professionals. These were stated to be a total of $106,737.06, with a reference to an "Exhibit 4" to the petition. Exhibit 4 is simply a list of various categories of expenses and their amounts. One category is "Professional Fees (Expert/Consultant)" in the amount of $106,737.06, without any detail. In our First Order of May 4, we asked counsel to explain this expense item.*fn4 Counsel's response of June 22, 2006 ignored our specific inquiry as to the identity of the experts, referred again to "Exhibit 4," and stated that "[d]ue to an accounting oversight," the fee petition had included as an expense a payment that Milberg Weiss had made to the law firm of Lowenstein Sandler for legal services rendered in connection with the bankruptcy issues in the case. The payment was said to be approximately $15,000.00. Milberg Weiss advised that it "no longer seeks to be reimbursed for that expense," and reduced the claim for experts, consultants and other professionals from $106,736.06 to $89,222.90. (Aff. of Brad N. Friedman in Support of Plaintiffs' Counsel's Submission of Additional Information Concerning Their Unreimbursed Expenses at 4 & Ex. 2.) (The legal bill of Lowenstein Sandler was actually $17,514.16). Still, however, we had no listing of the experts, no explanation of their services, no copies of their reports and no invoices. We needed this information in order to evaluate the reduced claim of $89,222.90, and a member of our staff made three telephone requests of counsel to provide a copy of the missing "Exhibit 4." Finally, on June 29, 2006, Exhibit 4 was hand-delivered to chambers. It consists of a sheaf of copies of market studies and other reports of properly reimbursable work done by experts and service providers, along with copies of their invoices. But also included are invoices totaling $15,047.61 from the law firm Tishler & Wald, Ltd. for services rendered in connection with the litigation between the class and ...

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