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In re Akorn, Inc. Securities Litigation

United States District Court, N.D. Illinois, Eastern Division

June 5, 2018

In re AKORN, INC. SECURITIES LITIGATION

          MEMORANDUM OPINION AND ORDER

          GARY FEINERMAN JUDGE.

         Three individuals (“Named Plaintiffs”) bring this suit against Akorn, Inc. and two of its officers, Rajat Rai and Timothy A. Dick, on behalf of themselves and a class of others who purchased Akorn stock between May 6, 2014 and April 24, 2015, alleging violations of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. Doc. 82. After the court denied Defendants' Rule 12(b)(6) motion, Docs. 111-112 (reported at 240 F.Supp.3d 802 (N.D. Ill. 2017)), discovery commenced and, months later, Named Plaintiffs moved for class certification, Doc. 132. Shortly after the class certification motion was fully briefed, the parties agreed to settle the suit on a classwide basis for $24 million. Doc. 161. The court granted preliminary approval of the settlement and provisional certification of the settlement class. Doc. 167.

         Named Plaintiffs now move for final approval of the settlement, certification of the settlement class, attorney fees, costs, and incentive awards. Doc. 171. The court in an oral ruling granted final approval and class certification, but entered and continued the requests for attorney fees, costs, and incentive awards. Doc. 177. The requests for costs and incentive awards are granted, and the request for attorney fees is granted in part and denied in part.

         A. Attorney Fees

         “In a certified class action, the court may award reasonable attorney's fees … that are authorized by law or by the parties' agreement.” Fed.R.Civ.P. 23(h). The Seventh Circuit has “described the district judge as a fiduciary of the class, who is subject therefore to the high duty of care that the law requires of fiduciaries.” Pearson v. NBTY, Inc., 772 F.3d 778, 780 (7th Cir. 2014) (internal quotation marks omitted). It follows that “the judge must assess … the reasonableness of the agreed-upon attorneys' fees for class counsel, bearing in mind that the higher the fees the less compensation will be received by the class members.” Redman v. RadioShack Corp., 768 F.3d 622, 629 (7th Cir. 2014). Because Defendants are paying a specific sum to be allocated among class counsel and the class, equitable principles permit the court to “determine[] the amount of attorney's fees that plaintiffs' counsel may recover” from the settlement “based on the notion that not one plaintiff, but all those who have benefitted from litigation should share its costs.” Florin v. NationsBank of Ga., N.A., 34 F.3d 560, 563 (7th Cir. 1994) (internal quotation marks omitted).

         “[A]ttorneys' fees in class actions should approximate the market rate that prevails between willing buyers and willing sellers of legal services.” Silverman v. Motorola Sols., Inc., 739 F.3d 956, 957 (7th Cir. 2013). It follows that the district court “must set a fee by approximating the terms that would have been agreed to ex ante, had negotiations occurred.” Americana Art China Co., Inc. v. Foxfire Printing & Packaging, Inc., 743 F.3d 243, 246-47 (7th Cir. 2014) (internal quotation marks omitted); see also In re Synthroid Mktg. Litig., 264 F.3d 712, 718 (7th Cir. 2001) (“Synthroid I”) (“[C]ourts must do their 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.”). “Such estimation is inherently conjectural, ” In re Trans Union Corp. Privacy Litig., 629 F.3d 741, 744 (7th Cir. 2011), and the Seventh Circuit does not prescribe a preferred method of calculation, so “in common fund cases, the decision whether to use a percentage method or a lodestar method remains in the discretion of the district court, ” Americana Art, 743 F.3d at 247. “The simple and obvious way for the judge to correct an excessive attorney's fee for a class action lawyer is to increase the share of the settlement received by the class, at the expense of class counsel.” Pearson, 772 F.3d at 786 (internal quotation marks omitted).

         Class counsel request a fee award of 33% of the $24 million settlement, Doc. 176 at 3 n.2, which comes to $7, 920, 000. As the Seventh Circuit has directed, “the ratio that is relevant to assessing the reasonableness of the attorneys' fee that the parties agreed to is the ratio of (1) the fee to (2) the fee plus what the class members received.” Redman, 768 F.3d at 630. After subtracting litigation expenses ($375, 280.60) and incentive awards ($30, 000), both of which are discussed below, the amount available for the attorney fees and payments to class members is $23, 594, 719.24. So the percentage of the settlement fund sought by class counsel, properly calculated, is actually 33.6%.

         Class counsel's request for a flat percentage of the entire settlement fund ignores the Seventh Circuit's repeated observation that negotiated fee agreements regularly apply a sliding scale in which the percentage of the settlement devoted to attorney fees decreases as the dollar value of the settlement fund increases. See Silverman, 739 F.3d at 959; In re Synthroid Mktg. Litig., 325 F.3d 974, 978-80 (7th Cir. 2003) (“Synthroid II”); Synthroid I, 264 F.3d at 721; In re Cont'l Ill. Sec. Litig., 962 F.2d 566, 572-73 (7th Cir. 1992). As the Seventh Circuit has described the sliding-scale approach:

[N]egotiated fee agreements regularly provide for a recovery that increases at a decreasing rate … .
Many costs of litigation do not depend on the outcome; it is almost as expensive to conduct discovery in a $100 million case as in a $200 million case. Much of the expense must be devoted to determining liability, which does not depend on the amount of damages; in securities litigation damages often can be calculated mechanically from movements in stock prices. There may be some marginal costs of bumping the recovery from $100 million to $200 million, but as a percentage of the incremental recovery these costs are bound to be low. It is accordingly hard to justify awarding counsel as much of the second hundred million as of the first. The justification for diminishing marginal rates applies to $50 million and $500 million cases too, not just to $200 million cases.
Awarding counsel a decreasing percentage of the higher tiers of recovery enables them to recover the principal costs of litigation from the first bands of the award, while allowing the clients to reap more of the benefit at the margin (yet still preserving some incentive for lawyers to strive for these higher awards).

Silverman, 739 F.3d at 959. Empirical studies cited by the Seventh Circuit confirm that the percentage of the settlement allocated to attorney fees tends to decrease as the total size of the settlement increases. See id. at 958 (citing Theodore Eisenberg & Geoffrey P. Miller, “Attorney Fees and Expenses in Class Action Settlements: 1993-2008, ” 7 J. Empirical Legal Stud. 248, 265 (2010)).

         In Synthroid II, the Seventh Circuit awarded attorney fees in the amount of 30% of the first $10 million of the class settlement, 25% of the second $10 million, and 22% of the amount between $20 million and $46 million. 325 F.3d at 980. Applying the Synthroid II scale to the $23, 594, 719.24 settlement fund in this case yields a fee of $6, 290, 838.23-30% of first $10 million = $3 million; 25% of second $10 million = $2.5 million; 22% of the final $3, 594, 719.24 = $790, 838.23. That award amounts to approximately 26.7% of the properly calculated settlement fund ($23, 594, 719.24), and 26.2% of the total $24 million settlement, which higher than the median percentage (24.9%) in class settlements of this size. See Eisenberg & Miller, 7 J. Empirical Legal Stud. at 265 (from 1993 to 2008, the median attorney fee percentage for class recoveries between $22.8 million and $38.3 million was 24.9%).

         Class counsel contend that it would be inappropriate to apply the sliding scale in this case. First, they argue that the absence of any objection from Akorn's many institutional shareholders demonstrates the reasonableness of their flat-percentage request. Doc. 178 at 2-3. It is true that the failure of institutional investors to object to an attorney fee request can be a factor supporting the request, see Silverman, 739 F.3d at 959, but it is by no means dispositive. Regardless of whether institutional investors raise any objections, the district court remains the “fiduciary of the class, ” Pearson, 772 F.3d at 780 (internal quotation marks ...


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