     15-3011(L)
     In Re: Tremont Securities Law, State Law and Insurance Litigation

                         UNITED STATES COURT OF APPEALS
                             FOR THE SECOND CIRCUIT

                                  SUMMARY ORDER
     RULINGS  BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER
     FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
     APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY
     ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX
     OR AN ELECTRONIC DATABASE (WITH THE NOTATION ASUMMARY ORDER@). A PARTY CITING A SUMMARY
     ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

 1        At a stated term of the United States Court of Appeals for
 2   the Second Circuit, held at the Thurgood Marshall United States
 3   Courthouse, 40 Foley Square, in the City of New York, on the
 4   26th day of June, two thousand seventeen.
 5
 6   PRESENT: DENNIS JACOBS,
 7            CHRISTOPHER F. DRONEY,
 8                 Circuit Judges,
 9            TIMOTHY C. STANCEU,
10                 Chief Judge, U.S. Court of Int’l Trade.
11
12   - - - - - - - - - - - - - - - - - - - -X
13
14   IN RE: TREMONT SECURITIES LAW, STATE                               15-3011 (L)
15   LAW AND INSURANCE LITIGATION                                       15-3241 (Con)
16                                                                      15-3251 (Con)
17   - - - - - - - - - - - - - - - - - - - -X
18
19   FOR APPELLANTS GEORGE                          VINCENT T. GRESHAM, Law
20   TURNER, BINDLER LIVING                         Office of Vincent T. Gresham,
21   TRUST, MADELYN HAINES,                         Atlanta, GA.
22   JOHN JOHNSON, WILLIAM J.
23   MILLARD TRUST, STELLA

     
       Judge Timothy C. Stanceu, Chief Judge of the United States
     Court of International Trade, sitting by designation.

                                                1
 1   RUGGIANO TRUST, WEST
 2   TRUST, PAUL ZAMROWSKI:
 3
 4   FOR APPELLANT MARY               JOSHUA FRUCHTER, Wohl &
 5   CATHERINE MARTIN, as the         Fruchter LLP, New York, NY.
 6   personal representative of
 7   the estate of Michael S.         Gary S. Graifman, Kantrowitz,
 8   Martin:                          Goldhamer & Graifman, P.C.,
 9                                    Chestnut Ridge, NY.
10
11   FOR APPELLANT                    RICHARD G. HADDAD, Otterbourg
12   PHILADELPHIA FINANCIAL           P.C., New York, NY.
13   LIFE ASSURANCE COMPANY:
14
15   FOR APPELLEES ARTHUR E.          ANDREW J. ENTWISTLE (Arthur
16   LANGE REVOCABLE TRUST,           V. Nealon, Robert N.
17   ARTHUR C. LANGE, NEAL            Cappucci, on the brief),
18   J. POLAN, EASTHAM                Entwistle & Cappucci LLP, New
19   CAPITAL APPRECIATION             York, NY.
20   FUND LP, NPV POSITIVE
21   CORP., and all others            Reed R. Kathrein, Lee M.
22   similarly situated:              Gordon, Hagens Berman Sobol
23                                    Shapiro LLP, Berkeley, CA.
24
25   FOR APPELLEES ARTHUR M.          Jeffrey M. Haber, Stephanie
26   BRAINSON, YVETTE                 M. Beige, Bernstein Liebhard
27   FINKELSTEIN, GROUP DEFINED       LLP, New York, NY.
28   PENSION PLAN & TRUST, and
29   all others similarly
30   situated:
31
32   FOR APPELLEES DOLOS X            IRWIN WARREN (Adam J.
33   LLC, DOLOS XI LLC, DOLOS         Bookman, Matthew S. Connors,
34   XII LLC:                         on the brief), Weil, Gotshal
35                                    & Manges LLP, New York, NY.
36
37   FOR APPELLEE SPCP GROUP,         Walter Rieman, Paul, Weiss,
38   LLC:                             Rifkind, Wharton & Garrison
39                                    LLP, New York, NY.
40
41   FOR APPELLEE HSBC BANK           Thomas J. Moloney, Joaquin P.
42   PLC:                             Terceño, Cleary Gottlieb

                                  2
 1                                     Steen & Hamilton LLP, New
 2                                     York, NY.
 3
 4   FOR APPELLEE THE ROYAL            Michael S. Feldberg, Allen &
 5   BANK OF SCOTLAND N.V.:            Overy LLP, New York, NY.
 6
 7   FOR APPELLEES NEW YORK            JOHN M. VASSOS (Mary C.
 8   LIFE INSURANCE AND ANNUITY        Pennisi, on the brief),
 9   CORPORATION, METROPOLITAN         Morgan, Lewis & Bockius LLP,
10   LIFE INSURANCE COMPANY,           New York, NY.
11   GENERAL AMERICAN LIFE
12   INSURANCE COMPANY, NEW
13   ENGLAND LIFE INSURANCE
14   COMPANY, JOHN HANCOCK LIFE
15   INSURANCE COMPANY (U.S.A.),
16   PACIFIC LIFE INSURANCE
17   COMPANY, SECURITY LIFE OF
18   DENVER, DELAWARE LIFE
19   INSURANCE COMPANY, PRUCO
20   LIFE INSURANCE COMPANY,
21   NATIONWIDE LIFE INSURANCE
22   COMPANY:
23
24        Appeal from a judgment of the United States District Court
25   for the Southern District of New York (Griesa, J.).

26        UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED AND
27   DECREED that the judgment of the district court be AFFIRMED IN
28   PART AND VACATED AND REMANDED IN PART.

29        Appellants, investors in various hedge funds managed by
30   Tremont Group Holdings, Inc. and its affiliates, appeal from
31   a judgment of the United States District Court for the Southern
32   District of New York (Griesa, J.), approving a post-settlement
33   plan to allocate the liquidated assets of certain funds (the
34   “Plan of Allocation,” or “POA”) and awarding attorneys’ fees.
35   For the reasons stated below, we affirm the district court’s
36   approval of the POA, but vacate and remand for a reduction of
37   the fee award consistent with this order.




                                   3
 1        We assume the parties’ familiarity with the underlying
 2   facts, the procedural history, and the issues presented for
 3   review.

 4        Tremont Group Holdings and its affiliates managed two
 5   groups of hedge funds. The first, known as the “Rye Funds,”
 6   invested all of their assets either with Bernard L. Madoff
 7   Investment Securities (“BLMIS”) or, in the case of Rye Select
 8   Broad Market XL Fund, L.P. (“Rye XL”), in synthetic derivatives
 9   intended to mirror the returns of BLMIS. The Rye Funds include
10   Rye Select Broad Market Fund, L.P. (“Rye Onshore”), Rye Select
11   Broad Market Portfolio Limited (“Rye Offshore”), Rye Select
12   Broad Market Insurance Fund, L.P. (“Rye Insurance”), Rye Select
13   Broad Market Prime Fund, L.P. (“Rye Prime”), and Rye XL. Three
14   of these (Rye Onshore, Rye Offshore, and Rye Insurance) invested
15   directly with BLMIS and were “net losers,” meaning they invested
16   more money with BLMIS than they withdrew.

17        The second group of hedge funds, the “Tremont Funds,” were
18   “funds of funds,” investing a portion of their assets in the
19   Rye Funds (and therefore indirectly with BLMIS) and the rest
20   in investments unrelated to BLMIS. Appellants largely
21   invested in Tremont Funds.

22        When BLMIS collapsed in December 2008, investors in the Rye
23   and Tremont Funds filed several putative class actions and
24   derivative complaints against various entities and individuals
25   responsible for the investment of fund assets with BLMIS.
26   These actions were consolidated in 2009, with counsel (referred
27   to herein as “Lead Counsel”) appointed to represent all settling
28   investors.

29        The parties to these consolidated actions settled in
30   February 2011. That “Investor Settlement” created two
31   separate escrow accounts: (1) the Net Settlement Fund (“NSF”),
32   containing $100 million paid by the defendants in exchange for
33   the release of all claims against them1; and (2) the Fund
34   Distribution Account (“FDA”), containing all the assets that
35   remained in the liquidated Rye Funds after claims by and against
     1
       The NSF has already been distributed and is not at issue in
     this appeal.

                                    4
 1   the trustee of the BLMIS bankruptcy estate (the “Trustee”) were
 2   resolved in separate litigation (the “Trustee Litigation”).

 3        In the Trustee Litigation, the three net-loser Rye Funds
 4   filed approximately $2.2 billion in claims against the Trustee
 5   under the Securities Investor Protection Act (“SIPA”). The
 6   Trustee, in turn, sought to claw back approximately $2.1 billion
 7   in avoidable transfers made to the Rye and Tremont Funds. In
 8   July 2011, a settlement (the “Trustee Settlement”) was reached:
 9   the Rye and Tremont Funds collectively paid the Trustee $1
10   billion in cash; in exchange, the Trustee withdrew its avoidance
11   claims against each of them and granted the net-loser Rye Funds
12   roughly $2.2 billion in claims plus a claim for the return of
13   eighty percent ($800 million) of the $1 billion payment pursuant
14   to section 502(h) of the Bankruptcy Code. Thus, after the funds
15   paid the Trustee $1 billion to settle the clawback claims
16   against them,2 the net-loser Rye Funds received claims totaling
17   roughly $3 billion.

18        The FDA is composed almost entirely of those $3 billion in
19   claims. It also includes $32.4 million in cash remaining in
20   Rye XL (a Rye Fund that did not have to contribute to the $1
21   billion Trustee Settlement). It is expected that a total of
22   around $1.45 billion will eventually flow into the FDA from the
23   Trustee.3

24        The allocation of the FDA was not part of the Investor
25   Settlement. Nevertheless, the parties agreed that a “plan of
26   allocation [would] be approved by the [District] Court,” J.A.


     2
       The $1 billion payment by the funds to the Trustee was
     collected as follows: the three net-loser Rye Funds contributed
     a combined $212 million of their own money plus $650 million
     they borrowed from Fortress Investment Group, LLC (“Fortress”);
     the Tremont Funds and one of the net-winner Rye Funds (Rye Prime)
     contributed the remaining $138 million.
     3
       As of September 2015, approximately $650 million had already
     poured into the FDA. Another $650 million was recovered from
     the Trustee and never reached the FDA because it was used to
     repay the Fortress loan.

                                    5
 1   285, and the court explicitly retained jurisdiction over the
 2   FDA’s allocation.

 3        In its 2011 final judgment approving the Investor
 4   Settlement, the district court tasked Lead Counsel with
 5   responsibility for proposing a plan of allocation. In April
 6   2014, Lead Counsel solicited proposed plans from interested
 7   parties and notified them of mediation to resolve the allocation
 8   issue. After more than a year of mediation among numerous
 9   parties (including multiple appellants), a consensus plan of
10   allocation (the “POA”) emerged.

11        Under the POA -- which is supported by investors holding
12   approximately ninety-seven percent of the net equity in the
13   funds -- FDA assets are distributed as follows.

14        First, the $32.4 million that Rye XL contributed to the FDA
15   is returned to Rye XL investors.

16        Next, the funds are awarded equal priority to the balance
17   of the FDA using a simple formula: (1) each net-loser Rye Fund
18   has a claim (referred to as a “SIPC Claim”) equal to its portion
19   of the $3 billion Trustee Settlement; (2) each Tremont and
20   net-winner Rye Fund that contributed cash to the Trustee
21   Settlement has a “Virtual SIPC Claim” equal to eighty percent
22   of its Trustee Settlement contribution.

23        Finally, once the money is allocated to the appropriate
24   funds using the formula described above, each fund’s investors
25   will receive a pro rata share of the fund’s allocation according
26   to the investor’s net equity (i.e., amount lost) in that fund.
27   In other words, only investors who lost money in a given fund
28   due to that fund’s investment in BLMIS are entitled to recover
29   anything from the fund. Thus, net-loser investors in any fund
30   will recover a share of that fund’s SIPC or Virtual SIPC Claim;
31   and net-loser investors in any net-loser fund will recover a
32   share of that fund’s cross-investment in each Rye Fund in which
33   it was invested.

34        In September 2015, after a three-hour hearing regarding
35   allocation of the FDA, the district court issued a written
36   opinion approving the POA, rejecting an alternative plan
37   proposed by appellant Michael S. Martin, granting Lead

                                    6
 1   Counsel’s motion for attorneys’ fees, and overruling all
 2   objections. Appellants appeal the court’s approval of the POA
 3   and award of attorneys’ fees.

 4        We review a district court’s allocation of settlement funds
 5   and award of attorneys’ fees for abuse of discretion. See In
 6   re “Agent Orange” Prod. Liab. Litig., 818 F.2d 179, 181 (2d Cir.
 7   1987) (settlement funds); Goldberger v. Integrated Res., Inc.,
 8   209 F.3d 43, 47 (2d Cir. 2000) (attorneys’ fees).

 9        1. There are unusual features to this appeal. We are
10   reviewing an allocation of assets that were obtained in
11   unrelated litigation and that are being held in an account
12   created for the purpose of allocation by a settlement that is
13   not being challenged. Further complicating matters, those
14   assets represent the liquidated remains of a group of hedge
15   funds (the Rye Funds) that imploded after Madoff’s Ponzi scheme
16   was revealed. Unlike a typical settlement fund distribution
17   plan, the POA is separate from the underlying settlement,
18   involves assets that are already earmarked for the potential
19   recipients (the investors in the liquidated hedge funds), and
20   is the product of mediation between those recipients. These
21   circumstances, however, do not disturb the traditional
22   deference we owe to the district court’s equitable allocation
23   of settlement-related funds.4

24        The district court did not abuse its discretion in
25   approving the POA. The POA is fair and reasonable, as was the
26   mediation process that produced it. See In re PaineWebber Ltd.
27   P’ships Litig., 171 F.R.D. 104, 133 (S.D.N.Y. 1997), aff’d, 117
28   F.3d 721 (2d Cir. 1997) (per curiam) (“As a general rule, the
29   adequacy of an allocation plan turns on whether counsel has
30   properly apprised itself of the merits of all claims, and

     4
       Nor does this peculiar procedural posture deprive the district
     court of jurisdiction over the FDA’s allocation. Although the
     Investor Settlement did not include a plan of allocation, it
     authorized the court to adopt such a plan, and the court
     explicitly retained jurisdiction over “all matters relating to”
     the Investor Litigation, including allocation of the FDA. J.A.
     642.

                                    7
 1   whether the proposed apportionment is fair and reasonable in
 2   light of that information.”).

 3        First, the POA reflects the net-loser Rye Funds’ superior
 4   claim to the proceeds of the Trustee Settlement. See In re
 5   Corrugated Container Antitrust Litig., 643 F.2d 195, 220 (5th
 6   Cir. 1981) (“It is self-evident that if the settlement’s
 7   adequacy rests on the value of one set of claims, distribution
 8   of the settlement should be weighed heavily in favor of
 9   plaintiffs whose claims comprise that set.”). That settlement
10   granted roughly $3 billion in claims exclusively to these three
11   funds because only they were net-loser BLMIS customers. See
12   In re Bernard L. Madoff Inv. Secs. LLC, 654 F.3d 229, 238 (2d
13   Cir. 2011) (limiting SIPA recovery to net-loser BLMIS
14   customers). To be sure, the Tremont and net-winner Rye Funds
15   contributed $138 million to the Trustee Settlement, and that
16   contribution helped enable the net-loser Rye Funds to receive
17   their $800 million section 502(h) claim. But the Tremont and
18   net-winner Rye Funds’ $138 million contribution was not
19   selfless: the payment settled the clawback claims against them.
20   And, in any event, that contribution is recognized by the
21   allowance of Virtual SIPC Claims, which are calculated on the
22   same eighty-percent basis as the net-loser Rye Funds’ section
23   502(h) claim.

24        Second, the POA reflects the net-loser Rye Funds’ greater
25   victimization by BLMIS. Unlike the other funds, they invested
26   their entire portfolio with BLMIS and incurred enormous losses.

27        Third, the Tremont Funds were exposed to Madoff’s fraud
28   only through their cross-investments in Rye Funds. Under the
29   POA, Tremont Funds, like all Rye Fund investors, are compensated
30   for their Madoff losses.

31        Fourth, the POA adopts the net equity principle of
32   allocation that this Court has previously endorsed with respect
33   to Madoff’s Ponzi scheme. This principle holds that, because
34   net winners were given money stolen from net losers, only net
35   losers have an equitable right to recovery. See id. at 235,
36   238.

37        Fifth, the POA respects the separate legal status of the
38   funds. Rather than pool all of the Trustee Settlement proceeds

                                    8
 1   into one pot for distribution directly to the individual
 2   investors -- as the rejected plan proposed by Martin would do
 3   -- the POA first allocates the proceeds according to the claims
 4   held by the funds. This is appropriate given that the FDA
 5   arises from the derivative claims brought on behalf of the funds
 6   in the Investor Litigation.

 7        Finally, the POA provides for the priority distribution of
 8   $32.4 million to Rye XL’s investors in recognition of Rye XL’s
 9   direct cash contribution to the FDA in that amount.

10        Thus, in sum, the POA is based on fair and equitable
11   principles. It is the product of protracted, contentious
12   mediation in which numerous Rye and Tremont Fund investors with
13   diverse interests participated through counsel.5 Attorneys
14   for two of the appellants (Martin and Philadelphia Financial
15   Life Assurance Company) took part in the mediation and advocated
16   on their clients’ behalf. The retired federal judge who served
17   as the mediator attested to the inclusive and hard-fought nature
18   of the negotiations, the numerous compromises made, the
19   opportunity for all parties to advance their positions, and the
20   fairness of the POA. And the district court provided ample
21   opportunity for appellants and other interested parties to
22   voice their concerns and submit competing proposals before it
23   decided to allocate the FDA according to the POA.

24        Given these facts, and the fair terms of the POA (including
25   significant concessions to Tremont and net-winner Rye Fund
26   investors in the form of Virtual SIPC Claims), the district
27   court did not abuse its discretion in concluding that
28   appellants’ interests were adequately represented and
29   protected.6 See In re Literary Works in Elec. Databases
     5
       The Tremont Funds’ interests were represented at mediation not
     only by the several Tremont Fund investors who attended, but
     also by: (1) Rye Fund investors, who, like the Tremont Funds,
     were exposed to Madoff’s fraud through their investments in the
     Rye Funds; and (2) investors in Rye Prime, which, like the
     Tremont Funds, contributed cash to the Trustee Settlement
     without receiving a claim in return.
     6
       Accordingly, the district court’s denial of Martin’s 2015
     motion to certify a subclass of Tremont Fund investors pursuant
                                    9
 1   Copyright Litig., 654 F.3d 242, 252 (2d Cir. 2011) (“The Supreme
 2   Court’s decision in Amchem . . . allows courts, in assessing
 3   the adequacy of representation, to examine a settlement’s
 4   substance for evidence of prejudice to the interests of a subset
 5   of plaintiffs.”).

 6        2. The POA allows a recovery only to investors who
 7   suffered a net loss in the Madoff Ponzi scheme. Appellants
 8   argue that this conflicts with the Investor Settlement, which
 9   they claim entitles every investor to recover. Appellants’
10   argument rests on ¶ 1.18 of the Investor Settlement, which
11   defines “Fund Distribution Claimant” as “any limited partner
12   or shareholder in any of the Settling Funds . . . , each of which
13   shall be entitled to receive a disbursement from the [FDA].”
14   J.A. 263-64 (emphasis added).

15        Paragraph 1.18 of the Investor Settlement does not impugn
16   the POA. The Investor Settlement explicitly stated that
17   allocation of the FDA would be decided separately. It is
18   implausible that the parties intended to drastically limit the
19   terms of that allocation through a vague reference to
20   entitlement buried in the definitional section of the
21   settlement.

22        Viewed in context, ¶ 1.18 is more naturally read as a
23   statement of eligibility, rather than a guarantee of recovery.
24   See Huertas v. East River Hous. Corp., 992 F.2d 1263, 1267 (2d
25   Cir. 1993) (“[A] court may look to certain aids, such as the
26   circumstances surrounding a settlement agreement’s formation,
27   when construing it for enforcement purposes.”).

28        3. Philadelphia Financial contends that the POA should be
29   rejected because it conflicts with the funds’ governing
30   documents. Many of the funds are limited partnerships whose
31   partnership agreements dictate the allocation of assets,
32   including upon liquidation. The partnership agreements
33   generally require that assets of the fund be distributed

     to Federal Rule of Civil Procedure 23 was not an abuse of
     discretion. Moreover, because the POA was a mechanism to
     resolve the derivative (rather than class action) claims in this
     litigation, Rule 23 is arguably inapplicable.

                                    10
 1   proportionally according to the value of each investor’s
 2   capital account, whereas the POA distributes FDA assets based
 3   on an investor’s net equity in a given fund.

 4        However, the Investor Settlement rendered the funds’
 5   governing documents irrelevant for purposes of allocation.
 6   When the funds and their investors signed the Investor
 7   Settlement, all assets flowing into the FDA became subject to
 8   equitable distribution by the district court. See J.A. 285,
 9   ¶ 2.23 (explaining that the FDA will be disbursed to the funds’
10   limited partners and shareholders pursuant to a plan of
11   allocation approved by the district court). In other words,
12   because the POA determines how the FDA is distributed to
13   investors, the funds’ partnership agreements do not control.
14   And because the partnership agreements would not allocate
15   assets more fairly than the POA (and would risk giving effect
16   to Madoff’s fictitious account statements), the district court
17   did not abuse its discretion in ignoring them.

18        4. Martin claims that the mediation was tainted by secret,
19   collusive side-deals, and that the district court erred in
20   denying his motion for disclosure of all agreements reached
21   during the mediation process. Martin relies on Federal Rule
22   of Civil Procedure (“Rule”) 23(e)(3), which requires that
23   parties seeking approval of a proposed class action settlement
24   “file a statement identifying any agreement made in connection
25   with the proposal.” Fed. R. Civ. P. 23(e)(3).

26        As an initial matter, Rule 23, which governs class actions,
27   is arguably not controlling here. The FDA, unlike the NSF,
28   resolves the non-class derivative claims in this litigation.

29        In any event, all mediation attendees signed a
30   confidentiality agreement which covered “all statements of the
31   parties, counsel, and mediators, as well as the materials
32   generated solely for purposes of the mediation.” J.A. 1691.
33   Attendees also orally agreed “that the entire mediation process
34   and all communications, negotiations and agreements pursuant
35   thereto were covered with a complete cloak of confidentiality
36   and must remain confidential, including in particular, being
37   off limits from discovery, court papers, arguments or other



                                   11
 1   Court proceedings, absent further agreement by the parties.”
 2   J.A. 2178.

 3        Rule 23 does not require disclosure of all agreements made
 4   during confidential mediation. As we have observed:

 5            A party seeking disclosure of confidential mediation
 6            communications must demonstrate (1) a special need for
 7            the confidential material, (2) resulting unfairness
 8            from a lack of discovery, and (3) that the need for
 9            the evidence outweighs the interest in maintaining
10            confidentiality. All three factors are necessary to
11            warrant disclosure of otherwise non-discoverable
12            documents.

13   Savage & Assocs. P.C. v. K&L Gates LLP (In re Teligent, Inc.),
14   640 F.3d 53, 58 (2d Cir. 2011) (citations omitted).

15        The district court found that there was no reason to believe
16   that any agreements reached during mediation were collusive,
17   and that the need for confidentiality outweighed the need for
18   disclosure. Given the importance of encouraging mediation in
19   this tangled matter, the mediator’s testimony regarding the
20   fairness of the negotiations and the evident fairness of the
21   POA, the district court did not err in denying Martin’s motion
22   to revoke confidentiality. See id. at 59-60 (“Were courts to
23   cavalierly set aside confidentiality restrictions on
24   disclosure of communications made in the context of mediation,
25   parties might be less frank and forthcoming during the mediation
26   process or might even limit their use of mediation
27   altogether.”).

28        5. Appellants (with the exception of Martin) argue that
29   the district court erred in awarding Lead Counsel a fee equal
30   to three percent of the FDA,7 capped at two-and-a-half times the
31   “lodestar” of counsel’s hourly rate multiplied by hours worked.8
32   If, as the parties anticipate, the Trustee pays approximately
     7
       The three percent is not applied against Rye XL’s $32.4 million
     priority distribution.
     8
       The district court also awarded Lead Counsel nearly $1 million
     in expenses.

                                    12
 1   $1.45 billion into the FDA, this cap will likely be triggered
 2   and Lead Counsel will receive in excess of $40 million.

 3        “We review a district court’s award of attorney’s fees for
 4   abuse of discretion, which occurs when (1) the court’s decision
 5   rests on an error of law (such as application of the wrong legal
 6   principle) or clearly erroneous factual finding, or (2) its
 7   decision -- though not necessarily the product of a legal error
 8   or a clearly erroneous factual finding -- cannot be located
 9   within the range of permissible decisions.” McDaniel v. Cty.
10   of Schenectady, 595 F.3d 411, 416 (2d Cir. 2010) (internal
11   citation, quotation marks, and brackets omitted).

12        In absolute terms, an award of three percent of a common
13   fund is not excessive, as numerous opinions confirm.9 However,
14   the calculation is guided by several (non-exclusive) factors:
15   “(1) the time and labor expended by counsel; (2) the magnitude
16   and complexities of the litigation; (3) the risk of the
17   litigation; (4) the quality of representation; (5) the
18   requested fee in relation to the settlement; and (6) public
19   policy considerations.” Goldberger, 209 F.3d at 50
20   (alterations and quotation marks omitted). Further, fee
21   awards should be approached “with an eye to moderation,” and
22   “should be assessed based on scrutiny of the unique
23   circumstances of each case, and a jealous regard to the rights
24   of those who are interested in the fund.” Id. at 53 (internal
25   quotation marks omitted).


     9
       See, e.g., In re Nortel Networks Corp. Secs. Litig., 539 F.3d
     129, 134 (2d Cir. 2008) (affirming fee award equal to 3% of $438
     million fund and acknowledging that fee was “toward the lower
     end of reasonable fee awards”); Wal-Mart Stores, Inc. v. Visa
     U.S.A. Inc., 396 F.3d 96, 123 (2d Cir. 2005) (affirming fee award
     equal to 6.5% of $3.38 billion common fund); Goldberger, 209
     F.3d at 52 (observing that “empirical analyses demonstrate that
     in cases like this one, with recoveries of between $50 and $75
     million, courts have traditionally accounted for these
     economies of scale by awarding fees in the lower range of about
     11% to 19%”); Carlson v. Xerox Corp., 596 F. Supp. 2d 400, 414
     (D. Conn. 2009), aff’d, 355 F. App’x 523 (2d Cir. 2009) (summary
     order) (awarding fee equal to 16% of $750 million common fund).
                                    13
 1        The district court concluded that the Goldberger factors
 2   supported Lead Counsel’s requested fee, stating in relevant
 3   part:

 4            In its work on the FDA, [Lead] Counsel has
 5            unquestionably put forth great labor. Furthermore,
 6            the litigation has been highly complex, involving a
 7            great deal of unsettled law, many parties, and a
 8            voluminous case history. [Lead] Counsel has
 9            displayed great skill in managing these challenges.
10            Objectors uncharitably characterize [Lead] Counsel as
11            mere “administrators” of the FDA. In fact, [Lead]
12            Counsel’s driving role in structuring the FDA as part
13            of the [Investor] Settlement, and thereafter working
14            to mediate conflicts and effect a fair and expedient
15            distribution of the funds, has gone well beyond rote
16            administration. In short, the allocation and
17            distribution of the FDA is a complex matter of great
18            importance to many parties, and [Lead] Counsel has
19            performed admirably. . . . [T]his litigation
20            involved unique practical and legal challenges. The
21            outcome of [Lead] Counsel’s labor was never certain.

22   In re Tremont Sec. Law, State Law & Ins. Litig., No. 08-CV-11117,
23   2015 WL 5333494, at *10, 2015 U.S. Dist. LEXIS 122204, at *36-38
24   (S.D.N.Y. Sept. 14, 2015).

25        We do not question the district court’s characterization
26   of Lead Counsel’s performance or the complexity or importance
27   of this matter. However, we think the court gave insufficient
28   consideration to the lack of contingency risk, and that factor
29   is generally the most important in determining whether to award
30   a lodestar multiplier. Goldberger, 209 F.3d at 54 (“We have
31   historically labeled the risk of success as perhaps the foremost
32   factor to be considered in determining whether to award an
33   enhancement.” (internal quotation marks omitted)).

34        The district court identified two risks Lead Counsel
35   supposedly faced. Neither supports Lead Counsel’s requested
36   2.5 lodestar multiplier.

37        The first identified risk was “in bringing the derivative
38   claims that gave rise to the inclusion of the FDA as part of

                                    14
 1   the [Investor] Settlement.” In re Tremont, 2015 WL 5333494,
 2   at *9, 2015 U.S. Dist. LEXIS 122204, at *34. This is not a
 3   proper consideration in relation to this particular fee award.
 4   First, Lead Counsel was already compensated for the risk in
 5   bringing the derivative (i.e., state law) claims in the fee
 6   award for the August 2011 Investor Settlement. See J.A. 617
 7   (stating that the 2011 fee award compensated Lead Counsel for
 8   “their respective contributions in the prosecution of the State
 9   Law Actions and the Securities Actions”); J.A. 619 (finding that
10   had Lead Counsel “not achieved the Settlement, a significant
11   risk would remain that State Law and Securities Plaintiffs and
12   the State Law and Securities Subclasses may have recovered less
13   or nothing”).

14        Second, Lead Counsel is requesting fees for work completed
15   only after the district court approved the Investor Settlement
16   in August 2011.10 It does not do to multiply the fee award here
17   -- which is based on hours worked after the Investor Settlement
18   -- in order to compensate a risk that dissipated when the court
19   approved that settlement.

20        Third, the hundreds of millions of dollars that have been
21   flowing into the FDA were essentially guaranteed by the July
22   2011 settlement in the Trustee Litigation, a separate case led
23   by separate counsel (who already took their cut) involving money
24   obtained by the Trustee (who is also being compensated). There
25   is no reason to award Lead Counsel a lodestar multiple based
26   on the size of a recovery they did not secure.11 Nor was there
27   ever a real possibility that the FDA would be so insignificant


     10
       More specifically, Lead Counsel is seeking fees for work
     completed from May 2011 through August 2015. The district
     court approved the Investor Settlement and the initial fee award
     in August 2011. However, Lead Counsel submitted the initial
     fee request in May 2011, which explains why they are now seeking
     fees from May 2011 to August 2011 in addition to fees for work
     involving the FDA POA after approval of the settlement.
     11
       Although Lead Counsel was responsible for securing the $100
     million NSF, they were paid a thirty-percent fee for that.

                                   15
 1   that Lead Counsel might be deprived of rich compensation for
 2   their work relating to it.

 3        The second risk identified by the district court was the
 4   “risk[] in defending the Plan of Allocation against objectors.”
 5   In re Tremont, 2015 WL 5333494, at *9, 2015 U.S. Dist. LEXIS
 6   122204, at *35. However, Lead Counsel’s fee award is not tied
 7   to any particular plan of allocation; rather, it is dependent
 8   on the size of the FDA (which is a product of the Trustee’s
 9   efforts) and the lodestar -- which only increased as the number
10   of objections to the POA (and thus Lead Counsel’s hours spent
11   defending it) grew. Accordingly, there appears to have been
12   little (if any) risk in defending the POA against objectors,
13   except for the remote possibility that the district court would
14   refuse to approve any plan of allocation submitted by Lead
15   Counsel.

16        Given the lack of contingency risk, a lodestar multiplier
17   cap of 2.5 “cannot be located within the range of permissible
18   decisions.” McDaniel, 595 F.3d at 416; see also City of Detroit
19   v. Grinnell Corp., 495 F.2d 448, 471 (2d Cir. 1974), abrogated
20   on unrelated grounds by Goldberger, 209 F.3d at 49-50 (“The
21   greater the probability of success, of either ultimate victory
22   on the merits or of settlement, the less this consideration
23   should serve to amplify the basic hourly fee.”). A lodestar
24   multiplier of 2.5 would be considered high for a standard common
25   fund case in this Circuit.12 At the same time, virtually all
26   the cases that feature a multiplier are those in which, unlike

     12
        See, e.g., In re Citigroup Inc. Secs. Litig., 965 F. Supp.
     2d 369, 401 (S.D.N.Y. 2013) (citing data regarding lodestar
     multipliers in securities class action settlements and
     observing that a multiplier of 2.8 is “high”); In re Merrill
     Lynch & Co. Research Reports Secs. Litig., No. 02 MD 1484, 2007
     WL 313474, at *23, 2007 U.S. Dist. LEXIS 9450, at *75 (S.D.N.Y.
     Feb. 1, 2007) (ruling that “an award that equates to a multiplier
     of 2.43 of the lodestar is excessive”); In re Twinlab Corp. Secs.
     Litig., 187 F. Supp. 2d 80, 87 (E.D.N.Y. 2002) (describing
     counsel’s requested multiplier of 3.58 as “inconsistent with
     post-Goldberger courts which have generally refused
     multipliers as high as 2.03”).

                                    16
1   here, the fund was collected by the efforts of counsel with an
2   inherent risk that the litigation would yield less or none.

3        We therefore remand so that the district court can revise
4   the cap to reflect counsel’s limited risk.13 The specific
5   recalculation, of course, remains subject to the district
6   court’s sound discretion. Although a cap of 2.5 times the
7   lodestar is excessive, one equal to the lodestar is not
8   necessarily required.




    13
       Appellants George Turner, Bindler Living Trust, Madelyn
    Haines, John Johnson, William J. Millard Trust, Stella Ruggiano
    Trust, West Trust, and Paul Zamrowski challenge the lodestar
    multiplier cap on the additional grounds that the district court
    relied on time summaries (rather than contemporaneous time
    records) and Lead Counsel’s hourly rates. With respect to time
    records, although they are ordinarily required, see Scott v.
    City of New York, 626 F.3d 130, 133-34 (2d Cir. 2010) (per
    curiam), the district court may rely on summaries that are based
    on voluminous contemporaneous records. See Cruz v. Local Union
    No. 3 of Int’l Bhd. of Elec. Workers, 34 F.3d 1148, 1160 (2d
    Cir. 1994) (“A review of the submissions made by [counsel] shows
    that they made contemporaneous entries as the work was
    completed, and that their billing [summary] was based on these
    contemporaneous records. We believe this falls sufficiently
    within the meaning of ‘contemporaneous’ . . . .”). However,
    the sparse summaries provided by Lead Counsel are of doubtful
    adequacy. Therefore, on remand, the district court should
    require the submission of more detailed summaries that, at the
    very least, break down the hours worked by year and task. With
    respect to the district court’s use of counsel’s hourly rates
    to calculate the lodestar, we find no abuse of discretion.
    Given the skill and experience required in this complex
    securities litigation, we cannot conclude that those rates were
    unreasonable.

                                  17
1        Accordingly, and finding no merit in appellants’ other
2   arguments, we hereby AFFIRM the judgment of the district court
3   with respect to the plan of allocation and VACATE AND REMAND
4   with respect to the fee award.

5                               FOR THE COURT:
6                               CATHERINE O’HAGAN WOLFE, CLERK




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