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Second Circuit Summarily Affirms the Attorneys’ Fees Award in the Foreign Exchange Antitrust Settlement after District Court Rejects Class Counsel’s Side Deal with the Objector

On November 1, 2019, the United States Court of Appeals for the Second Circuit issued a summary order rejecting the appeal of an objector to the Foreign Exchange Antitrust Settlement. A few weeks earlier, U.S. District Court Judge Schofield had denied a motion filed by the objector and class counsel seeking an “indicative ruling” on their combined motion for approval of an agreement that would have ended the appeal.  These two decision clear the way for the remaining distribution from the settlement fund, which totaled over $2.3 billion dollars.

By way of background, the district court had approved an attorneys’ fee award of approximately $300 million, equal to about 13% of the $2.3 billion settlement fund. The court reached this conclusion by relying on a set of six comparator antitrust class actions resolved through settlement with a value of $1 billion or greater. 

The objector primarily argued that the district court’s approval of the fees was improper based upon the timing of the settlement agreements at issue.  Many of the defendants had settled early in the proceedings, though several defendants continued to litigate for many months, and one defendant is still actively litigating the case.  The objector argued that “the risk of litigation evaporated upon the settlement with a portion of the defendant financial institutions,” and that the judge had erred by not taking this into account.  However, the Second Circuit rejected this argument because it “ignore[d] that claims against the other defendants remained unresolved” and ran counter to settled law providing that “litigation risk must be measured as of when the case is filed.”

The Second Circuit also rejected the objector’s other arguments that the judge abused her discretion in awarding the fees.  First, the objector argued that the judge abused her discretion by awarding Class Counsel a percentage of the gross settlement fund, rather than the settlement fund net of expenses.  According to the Second Circuit, “Rule 23(h) does not bar one method or the other, as long as the award is reasonable.”  The objector also argued that the lower court erred in calculating Class Counsel’s lodestar by relying on the total hours billed, rather than requiring an itemized breakdown by time and task.  The Second Circuit rejected this argument as well, noting that when a district court relies on the lodestar “as a mere cross-check,” is does not need to “exhaustively scrutinized” the hours documents by counsel.  Instead, “the reasonableness of the claimed lodestar can be tested by the court’s familiarity with the case (as well as encouraged by the strictures of Rule 11).”

About three weeks earlier, on October 11, 2019, the district court judge declined to issue an “indicative ruling” that the Court would approve of an agreement between the objector and class counsel.  Pursuant to the agreement, the objector would have dismissed his appeal in the Second Circuit, if Class Counsel paid $300,000 to the objector’s counsel, and $5,000 to the objector, from Class Counsel’s fee award.  Rule 23(e)(5) requires court approval of any payment in connection with “forgoing, dismissing, or abandoning an appeal from a judgment approving” a settlement, and Rule 62.1 permits the court to issue an indicative ruling where, as here, an appeal is docketed and pending. 

In declining to issue the requested ruling, the court relied on the Advisory Committee Note to Rule 23(e)(5), which provides:

At least in some instances, it seems that objectors -- or their counsel --have sought to obtain consideration for withdrawing their objections or dismissing appeals from judgments approving class settlements. And class counsel sometimes may feel that avoiding the delay produced by an appeal justifies providing payment or other consideration to these objectors. Although the payment may advance class interests in a particular case, allowing payment perpetuates a system that can encourage objections advanced for improper purposes.

The court determined that “[t]he Agreement here seems to fit that description,” and “is precisely what the court-approval provision in Rule 23(e)(5)(B) is meant to address.”

The judge also denied the motion due to “precedential” concerns.  According to her, “[a]pproving agreements in these circumstances would serve only to encourage objectors or their attorneys to extract this type of payment, and make a living as serial objectors simply by filing frivolous appeals and thereby slowing down the execution of settlements.”  She concluded: “Granting the indicative ruling motion and approving the Agreement would make this Court complicit in a practice that undermines the integrity of class action procedure, and needlessly provide putative objectors with potentially dubious claims precedential support for a practice of fee extraction.”

As a result of these two ruling, we expect class counsel and the settlement administrator to proceed with the second distribution to claimants from the Settlement Fund.

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Joel D. Rothman

Special Counsel

Joel D. Rothman is an attorney who handles commercial, securities, insurance, and employment litigation matters for Mintz clients. Joel advises institutional investors on securities class actions, represents shareholders in merger disputes, and counsels insurers in coverage disputes.