In Re Federal National Mortgage Ass'n Securities, Derivative, & "Erisa" Litigation

UNITED STATES DISTRICT COURT
F()R THE DISTRICT OF COLUMBIA
FILED
In re Federal National Mortgage DEC 5 2013
Association Securities, Derivative, and MDL No. 1668 0 0
“ERISA” Lirigarion C"§'zi°r'iiijrhsp'r?is§ii§tr§"d
In re Fannie Mae Securities Litigation Consolidated Civil Action No. 04-1639
(RJL)
f’\-
MEMORANDUM OPINION
o@¢@inb@r §, 2013 [## 1092, 1093]
This is a class action securities fraud suit against Federal National Mortgage
Association ("F annie l\/Iac") and its former accountant, KPMG, LLP,l brought by a class
of parties represented by lead plaintiffs the Ohio Public Employees Retirement System
("OPERS") and the State Teachers Retirement System of Ohio ("STRS") (collectively,
“‘Lead Plaintil``fs"). After nearly a decade of litigation~including more than five years of
extensive discovery, multiple rounds of briefing on dispositive motions, several appeals
to our Circuit Court, a constitutional challenge to a regulation in a related proceeding,z
and more than two years of mediation--the parties now seek final approval of a
' Three of Fannie Maei``s former senior executives-Fraiikliii D. Raines (Fannie l\/lae’s ChiefExecutive
Officer and Chairman of the Board), J. Timothy Howard (Fannie Mae’s Chief Financial Offlcer and Vice
Chairman), and Leanne G. Spencer (Fannie l\/lae’s Controller and Senior Vice President)_were
defendants in this suit until this Court granted their summary/judgment motions and dismissed them from
the case during the past year. See Ir/ re Fannie Mae Sec. Litig., 892 F. Supp. 2d 59 (D.D.C. 2012)
(Franklin D. Raines); In re Fannie Mae Sec. Lz'tz``g., 898 F. Supp. 2d l76 (D.D.C. 2012)(]. Timothy
Howard); Irz re Famu``e Mae Sec. Litig., 905 F. Supp. 2d 63 (D.D.C. 20l2) (Leanne G. Spencer).
2 Ohio Pub. Emps. Ret. Sys. v. FHFA, Civil Case No. l l-0l 543 (D.D.C.).
stipulated settlement agreement that would resolve this action as to the Settlement Class3
and constitute the largest securities class action settlement in the history of our Circuit
(since the Private Securities Litigation Reform Act ("PSI»,RA") went into effect in l996).
On October 31, 2013, the Court held a fairness hearing related to the settlement, as
required by Federal Rule of Civil Procedure 23(e) ("Fairness Hearing"). The arguments
and representations made on the record during the Fairness Hearing are hereby expressly
incorporated and made part of this Memorandum Opinion. Upon consideration of the
parties’ pleadings, the arguments and representations made at the Fairness Hearing, the
relevant statutes and case law, and the entire record herein, the Court GRANTS Lead
Plaintiffs’ Motion for Final Approval of Class Action Settlement and Approval of Plan of
Allocation and Memorandum of Law in Support ("Pls.’ Mot. Final Approval") [Dkt. #
1092], and hereby approves the $153 million settlement and the Plan of Allocation. The
Court also GRANTS Lead Counsel’s4 Motion for an Award of Attorneys’ Fees and
Reimbursement of Litigation Expenses and Memorandum of Law in Support ("Mot.
Attorneys’ Fees") [Dkt. # 1093], and hereby awards plaintiffs’ counsel attorneys’ fees
equal to 22% of the Settlement Fund (including interest and after other expenses have
been deducted) and $15,294,860.78 in reimbursement of litigation expenses.
3 Unless otherwise indicated herein, capitalized terms shall have those meanings contained in the
Stipulation of Settlement of Securities Action [Dkt. # 1089-2].
4 Lead Counsel is the law firm Markovits, Stock & Del\/larco, LLC. The Court initially appointed the law
firm Waite, Schneider, Bayless & Chesley Co., LPA as lead counsel in 2005, see In re Fannz``e Mae Sec.
Litig., 355 F. Supp. 2d 26l, 265 (D.D.C. 2005), but subsequently approved the substitution of Markovits,
Stock & Del\/larco, LLC for that firm as lead counsel. see l\/linute Order, Sept. 20, 20l2.
BAcKGRouNn5
In September 2004, several F annie Mae shareholders filed class action suits
alleging that the company and its executives had violated the federal securities laws and
committed securities fraud. Compl. [Dkt. # l]. After other separately-filed cases were
consolidated into this multi-district litigation action, l appointed OPERS and STRS as
Lead Plaintiffs on January l3, 2005. Irz re Fanm``e Mae Sec. Lz'tz'g., 355 F. Supp. 2d 261,
263-64 (D.D.C. 2005).(’ Plaintiffs alleged that Fannie Mae, its auditor KPMG, and three
of Fannie Mae’s former senior executives violated § l0(b) of the Securities Exchange Act
of 1934, 15 U.S.C. § 78j, and SEC Rule l0b-5, 17 C.F.R. § 240.l0b-5, by intentionally
manipulating earnings and violating Generally Accepted Accounting Principles
("GAAP"), causing losses to investors.7 Specifically, plaintiffs alleged that the
defendants publicly issued materially false and misleading financial reports and other
statements that artificially inflated the price of F annie Mae"s securities. See Stipulation
of Settlement of Securities Action ("Stipulation") [Dkt. # ]089-2] at 2.
On January 7, 2008, this Court certified a class composed of approximately one
5 For a detailed history ofthis litigation and additional background information, see the Court’s
Memorandum Opinions in fn re Fanriz``e Mae Sec. Litig., 503 F. Supp. 2d 25, 29-30 (D.D.C. 2007), and In
re Fannz``e Mae Sec, Litig., 247 F.R.D. 32, 34-36 (D.D.C, 2008), as well as the joint Declaration of W.B,
l\/larkovits and Joseph T. Deters in Support of(A) Lead Plaintiffs’ Motion for Final Approval of Class
Action Settlement and Approval of Plan of Allocation, and (B) Lead Plaintiffs’ Counsel’s Motion for an
Award of Attorneys’ Fees and Reimbursement of Litigation Expenses [Dkt. # l092-l] 1{1[4-82.
° ln l\/larch 2005, plaintiffs filed a Consolidated Class Action Complaint for Violations of Federal
Securities Laws [Dkt. # 64]; l denied Fannie l\/lae’s motion to dismiss [Dkt. # 77] in February 2006. See
Order, Feb. lO, 2006 [Dkt. # l 15]. ln August 2006, plaintiffs filed a Second Amended Consolidated
Class Action Complaint for Violations of Federal Securities Laws [Dkt. # 204]; l denied KPMG’s motion
to dismiss [Dkt. # 240] in January 2007. See Miiiute Order, Jan. 24, 2007.
7 Plaintiffs also alleged that the individual defendants violated § 20(a) of the Securities Exehange Act of
1934, 15 U.S.C. § 78t(a) (2006).
million purchasers of Fannie l\/lae common stock and call options, and sellers of F annie
l\/lae put options, during the period from April 17, 2001 through December 22, 2004 (the
"Class Period"). Irz re Fannie Mae Sec. Lz'l‘z``g., 247 F.R.D. 32 (D.D.C. 2008). On that
date, the Court also designated Lead Plaintiffs as class representatives, and appointed
lead class counsel. Id. Therealier, the parties engaged in extensive discovery, with fact
discovery concluding on April 29, 2010, and expert discovery concluding on May 26,
2011. And discovery was indeed extensive: together, the parties produced nearly 67
million pages of documents, deposed 123 fact witnesses, and engaged 35 expert
witnesses. See Joint Declaration of W.B. Markovits and Joseph T. Deters in Support of
(A) Lead Plaintiffs’ Motion for Final Approval of Class Action Settlement and Approval
of Plan of Allocation, and (B) Lead Plaintiffs’ Counsel’s Motion for an Award of
Attomeys’ Fees and Reimbursement of Litigation Expenses ("Markovits & Deters Joint
Decl.") [Dkt. # 1092-1] 111 26, 37-49.8
Meanwhile, in September 2008, while discovery was ongoing, the Federal
Housing Finance Agency ("FHFA") placed Fannie l\/[ae into conservatorship, essentially
converting plaintifl``s’ case from one against a private company into a case against the
U.S. government. See z'cz’. jl‘ll 50-51. Then, in July 2009, FHFA proposed a rule that (l)
subordinated securities litigation claims to the lowest level of the statutory priority for
unsecured claims in receivership, and (2) prohibited a regulated entity in conservatorship,
8 The discovery process was prolonged by the Office of Federal Housing Enterprise Oversight’s
("OFHEO") assertion of privileges, which was litigated up to our Circuit Court. See Order, Jan. 22, 2008
[Dkt. # 580], q_/f’a’, 552 F.3d 814 (D.C. Cir. 2009). (Amidst the financial crisis of2008, Congress
established FHFA to replace OFHEO as Fannie l\/Iae’s independent regulator.)
such as Fannie l\/lae, from paying securities litigation claims or making capital
distributions (redefined to include securities litigation claims) without the FHFA
Director’s approval. See Conservatorshzp and Recez``vershzp, 75 Fed. Reg. 39,462
(proposed July 9, 2010); l\/larkovits & Deters Joint Decl. 11 52. Concerned that the rule
might effectively block any recovery for their securities fraud c1aiins, plaintiffs filed a
separate action in this Court challenging the final rule, Conservatorshzp and
Recez'vershzp, 76 Fed. Reg. 35.724 (June 20, 2011), on constitutional and other grounds.
See Compl., Aug. 26, 2011, Ohz``o Pub. Emps. Rer. Sys. v. FHFA, Civil Case No. ll-
0 1 543 [Dkt. # l].g Cross motions for summary judgment in that related case are currently
pending before this Court.
Notwithstanding the parallel proceeding regarding the FHFA rule, the parties filed
eight summary judgment motions in this litigation in August 201 l-two by Lead
Plaintiffs, and six by the defendants. Markovits & Deters .1 oint Decl. 11 64-75. After
hearing oral argument on the motions over four days in June 2012, this Court granted the
summary judgment motions of the three individual defendants and dismissed them from
the case. See ln re Fannie Mae Sec. Lz'tig., 892 F. Supp. 2d 59 (D.D.C. 2012) (Franklin
D. Raines); In re Fannie Mae Sec. Litz``g., 898 F. Supp. 2d 176 (D.D.C. 2012) (.l. Timothy
Howard); lrz re Fannie Mae Sec. Litig., 905 F. Supp. 2d 63 (D.D.C. 2012) (Leanne G.
Spencer). With the remaining five summary judgment motions still pending, the parties
9 ln October 201 l, in support of FHFA’s motion to stay this class action litigation [Dkt. # 944], the Acting
Director of FHFA submitted a declaration invoking the new rule and stating that he would not approve
payment of any of plaintiffs’ claims under his discretionary authority. See Decl. of Edward J. DeMarco
[Dkt. # 944-14] 1111 4, 6. 1 denied FHFA’s motion for a stay in November 201 1. See Minute Order, Nov.
14, 2011; see also l\/larkovits & Deters Joint Decl. \Hl 57-59.
agreed to enter formal mediation in 2011 and appointed Morgan, Lewis & Bockius LLP
partner F red Fie1ding as their inediator. Markovits & Deters Joint Decl. 11 76. After more
than two years of mediation, the parties reached an agreement in principle on March 20,
2013. Id. 11 80. The parties then finalized the terms of the $153 million agreement, and
on May 7, 2013, Lead Plaintiffs filed an Unopposcd Motion for Preliminary Approval of
Class Action Settlement, Approving Forin and l\/Ianner ofNotice, Setting Date for
Hearing on Final Approval of Settlement, and Staying Non-Settlement Related
Proceedings and Memorandum in Support [Dkt. ## 1089, 1089-1], along with a
Stipulation of Settlement of Securities Action [Dkt. # 1089-2].
On June 7, 2013, this Court issued an Order (l) granting preliminary approval of
the settlement; (2) approving the form and manner of notice to the Class; (3) setting a
date for the Fairness Hearing and a procedure for Class Members to make objections to
the settlement; (4) setting a deadline for plaintiffs’ counsel to submit a motion for
attorneys’ fees and expenses; and (5) staying all non-settlement related proceedings. See
Preliminary Approval Order, June 7, 2013 [Dkt. # l090]. Thereafter, the Claims
Administrator mailed notices to more than l.l million potential class members and
nominees. Markovits & Deters Joint Decl. 11 87. Pursuant to F ederal Rule of Civil
Procedure 23(e), the Court held a Fairness Hearing on October 31, 2013 to consider
whether the settlement is f``air, reasonable and adequate, and to hear any objections.
ANALYSIS
A certified class action may not be settled without the Court’s approval. Fed. R.
Civ. P. 23(€). "Before giving its approval, the Court must direct the provision of
adequate notice to all members of the class, conduct a ‘fairness hearing,’ and find, after
notice and a hearing, that the ‘settlement is fair, adequate and reasonable and is not the
product of collusion between the parties."`` ]rz re Black Farmers Discrz``m. Lz'tig., 856 F.
Supp. 2d l, 26 (D.D.C. 201 1) (intcrnal citations omitted). For the reasons explained
below, the Court finds the $153 million settlement, as well as the Plan of Allocation for
distributing those funds to the Class l\/Iembers, to be fair, reasonable, and adequate. The
Court also approves Lead Counsel’s request for attorneys’ fees and reimbursement of
expenses.
I. Notice
As a preliminary matter, the Court finds that notice was adequate. Under Rule 23,
"the court must direct to class members the best notice that is practicable under the
circumstances, including individual notice to all members who can be identified through
reasonable effort." Fed. R. Civ. P. 23(c)(2)(B). Lead Counsel retained The Garden City
Group, lnc. ("GCG"), a firm specializing in class action settlements and claims
processing, to act as both Notice Administrator and Claims Administrator. Decl. of jose
C. Fraga ("Fraga Decl.") [Dkt. # 1092-25] 11 2. Following this Court’s preliminary
approval ofthe settlement in june 2013, GCG mailed l,l49,77l copies ofthe Notice and
Proof of Claim form to potential class members or their nominees. See Supplemental
Declaration of jose C. Fraga (“‘Fraga Suppl. Decl.") [Dkt. # 1107-3] 11 2. GCG also
published notice in the Wall Street journal and PR Newswire, as well as set up a
dedicated website, email address, and telephone helpline. See Markovits & Deters joint
Decl. 1111 88-90; l``~raga Decl. 11'1 10-14.
The Notice advised Class Members of the essential terms of the Settlement
Agreement, the Plan of Allocation, how to make a claim, how to object to the settlement,
and the date, time, and location of the Fairness Hearing. See Markovits & Deters j oint
Decl. 11 84; see also Fraga Decl. Ex. A (Notice; Proof``ofC1aim form). lt also informed
potential Class Meinbers of Lead Counsel’s intention to apply to the Court for an award
of attorneys’ fees of no more than 22% of the Settlement Fund (af``ter deducting costs and
expenses, and adding interest), and reimbursement of expenses of no more than $17
million (plus the costs of settlement administration, plus interest). See Fraga Decl. Ex. A
11 5 (Notice; Proof of Claim forin). Having examined the Notice and Proof of Claim
form, 1 find that notice was adequate.'o
II. The Settlement
Final approval of a proposed class action settlement agreement lies within this
Court’s discretion. Vista Healthplarz v. Warner Hola’z'ngs Co. III, Lta’., 246 F.R.D. 349,
357 (D.D.C. 2007), "ln considering whether to approve a proposed class action
settlement, the Court must strike a balance between a rubber stamp approval and ‘the
detailed and thorough investigation that it would undertake if it were actually trying the
case."’ Ia’. (quoting Um``tea’ States v. Distrz'ct ofColumbz``a, 933 F. Supp. 42, 47 (D.D.C.
1996)). The Court’s role is to act as a fiduciary for class members and determine whether
the proposed settlement is "fair, reasonable, and adequate." See Fed. R. Civ. P. 23(e)(2);
10 The Court received one objection to the adequacy of the Notice, from purported class member Rinis
'l``ravel Service, lnc. Profit Sharing Trust U.A. 6-1-1989 ("Riiiis"). Since Rinis is not, in fact, a class
member and thus lacks standing to object, see Lead Pls.’ Mot. Strike Objeetion of Rinis Travel Service,
lnc. Profit Sharing Trust U.A. 6-l-1989 and l\/lem. Supp. ("Pls.’ l\/lot. Strike Rinis Objection") [Dkt. #
1 1 1 l] at 2-3, I need not formally overrule this purported objection.
Grurzirz v. Irzt’l Hoase ofPanca/ces, 513 F.2d 114, 123 (8th Cir. 1975) ("the district court
acts as a fiduciary who must serve as a guardian of the rights of absent class members").
Nonetheless, "there is a long-standing judicial attitude favoring class action settlements,"
Vz``sta Healthplan, 246 F.R.D. at 357, and "the discretion of the Court to reject a
settlement is restrained by the ‘principle ofpreference’ that encourages settlements," In
re Black Farmers Dz'scrz'rn. Lz``tz``g., 856 F. Supp. 2d at 30. See also Osher v. SCA Really I,
Inc., 945 F. Supp. 298, 304 (D.D.C. 1996) ("lt is well-established that courts assume a
limited role when reviewing a proposed class action settlement. They should not
substitute their judgment for that of`` counsel who negotiated the settlement. Rather,
courts . . . strongly encourage settlements [and] [i]n the context of class actions,
settlement is particularly appropriate given the litigation expenses and judicial resources
required in many such suits.” (internal citations omitted)).
There is no single test in our Circuit for evaluating a proposed class action
settlement under Rule 23(e). Trombley v. Nat’l City Bank, 826 F. Supp. 2d 179, 194
(D.D.C. 201 l). The Court must consider the particular facts and circumstances of the
case, but generally courts in our Circuit have considered the following factors in making
this determination; "(a) whether the settlement is the result of arms-length negotiations;
('b) the terms of the settlement in relation to the strength of [plaintiffs’] case; (c) the stage
of the litigation proceedings at the time of settlement; (d) the reaction of the class; and (e)
the opinion of experienced counsel." Ia’.; see also Vz``sta Healthplan, 246 F.R.D. at 360;
Irz re Lorazepam & Clorazepale Antz``trusl Litig.. No. MDL l290, 2003 WL 22037741, *2
(D.D.C. june 16, 2003) (citing numerous cases). Having carefully considered these
factors and all of the characteristics of this case, 1 easily find this settlement to be fair,
adequate, and reasonable.
A. Arm’s-Length Negotiati0ns
A "presumption of fairness, adequacy, and reasonableness may attach to a class
settlement reached in arrn’s length negotiations between experienced, capable counsel
after meaningful diseovery." Irz re Vz``tamz``rzs Antz'trastLz'tig., 305 F. Supp. 2d 100, 104
(D.D.C. 2004) (quoting Manual for Complex Litigation (Third), § 30.42 (1995)). Lead
Counsel has described the negotiations process and submits that the settlement reached
"is the product of extensive and vigorous arm’s-length bargaining, undertaken in good
faith with full knowledge of the case and its attendant risks." Pls.’ Mot. Final Approval
at 7-8; see also Markovits & Deters j oint Decl. 1111 76-80, 91. 1 agree.
1n 201l, nearly seven years into this litigation and after five years of fact and
expert discovery, the parties agreed to formal mediation and engaged the services of Fred
Fielding, a highly experienced mediator whose distinguished career includes service as
White House Counsel to two U.S, Presidents. Over the span of two years, the parties
conducted eleven joint negotiation sessions in addition to numerous other meetings and
telephone conferences between the mediator and the individual parties. See Pls.’ Mot.
Final Approval at 7-8; Markovits & Deters joint Decl. 1111 76~80; Letter from F. Fielding
(Oct. 21, 2013). Accordingly, the settlement was reached only after the parties had
conducted years of discovery and legal analysis and two years of mediated negotiations.
l\/loreover, Mr. Fielding submitted a letter to the Court attesting that, "in [his]
professional opinion, the negotiations leading to this proposed settlement were very
10
concentrated and conducted at arms’ length," and "[a]ll of the Parties’ counsel were not
only professionals, but also clearly possessed the sufficient discovery and research
materials to make informed decisions." Letter from F. Fielding (Oct. 21, 2013).
Accordingly, 1 have no trouble concluding that this settlement is the product of arm’s-
length negotiations, and there is no evidence of unfairness or collusion. This factor
therefore weighs in favor of approval.
B. Terms of the Settlement in Relation to the Strength of Plaintiffs’ Case
Next, the Court compares the terms of the settlement with the likely recovery
plaintiffs would attain if`` the case proceeded to trial, an exercise which necessarily
involves evaluating the strengths and weaknesses of plaintiffs’ case. Our Circuit Court
has stated that "[t]hc court’s primary task [when considering a settlement under Rule
23(e)] is to evaluate the terms of`` the settlement in relation to the strength of the plaintiffs’
case." Thomas v. Albrz``ght, 139 F.3d 227, 231 (D.C. Cir. 19989). Accordingly, some
courts in our Circuit have deemed this the most important factor. See ]n re Black
Farmers Discrz``m. Lz``lz``g., 856 F. Supp. 2d at 26 ("By far the most important factor is a
comparison of the terms of the compromise or settlement with the likely recovery that
plaintiffs would realize if the case went to trial"); Blackman v. Dz``strz``ct of Columbia, 454
F. Supp. 2d l, 8 (D.D.C. 2006). ln this particular case, 1 find this factor is indeed the
most important. 1n view of the size of the recovery in relation to the facts and
circumstances of this complex case-including the current posture of the litigation and
the relative strength of plaintiffs’ legal claims-the Court finds that the settlement is a
very positive outcome for plaintiffs and thus weighs in favor of approval
ll
As an initial matter, the $153 million settlement amountl' in this case is the largest
securities class action settlement in our Circuit since the PSLRA went into effect in 1996.
Markovits & Deters joint Decl. 11 101, 1:``x. 3 (lnstitutional Shareholder Services 1nc.,
Securities Class Action Services, Top 100 Settlements Senii-Annual Rcport (Jan. 18,
2013)). This remarkable statistic in itself`` tends to indicate the favorability of this
recovery for plaintiffs. l\/loreover, plaintif``fs’ recovery in relation to potential damages is
reasonable Lead Plaintiffs calculate that the $153 million settlement amounts to 4-8% of
the "best case scenario" potential recovery (of $2-4 billion) had they prevailed at trial, as
estimated by their damages expert, see Markovits & Deters joint Decl. 11 127, a
percentage which compares favorably with other cases approving securities class action
settlements. See ]n re Baan Co. Sec. Lin'g., 288 F. Supp. 2d 14, 17 (D.D.C. 2003) (noting
the median settlement "in similar [securities fraud] class actions brought under the
PSLRA" is 3.6°/0 of estimated damages); In re Nen)brz``dge Nena)orks Sec. Litig., No. 94-
1678, 1998 WL 765724, at *2. (D.D.C. Oct. 23, 1998) (fmding "an agreement that
secures roughly six to twelve percent ofa potential trial recovery, while preventing
further expenditures and delays and eliminating the risk that no recovery at all will be
won, seems to be within the targeted range of reasonableness"); In re Rz``ze Aia’ Corp. Sec.
Liz‘z``g., 146 F. Supp. 2d 706, 715 (E.D. Pa. 2001) (noting study showing that securities
ll Lead Plaintiffs’ damages expert has estimated that “approximately 767 inillion shares of Fannie Mae
common stock were purchased during the Class Period and held through a corrective disclosure and
therefore were damaged," and as a result "estiinates that, if valid claims for all damaged shares are
submitted, the average recovery per damaged share of Fannie Mae common stock will be approximately
$0.20 per share before deduction of attorneys’ fccs, costs and expenses awarded by the Court and the
costs of providing notice and administering the Settlement." Fraga Decl. Ex. A, 11 3 (Notice; Proof of
Claim form). A Class l\/lember’s actual recovery, however, will depend on many factors, including how
many claims are ultimately filed. la’.
12
class action settlements since 1995 (when the PSLRA wasienacted) have recovered
between 5.5% and 6.2% of class members’ estimated losses).
But while comparisons to other cases offer helpful reference points, the touchstone
of the inquiry under this factor must be an evaluation of the terms of the settlement in
relation to the strength of the plaintiffs’ claims in this particular case. And in view of the
uncertainties and very significant risks to plaintiffs’ case posed by defendants’ legal
defenses and the FHFA rule, and the concomitant risk of securing no recovery at all for
the class members, 1 find that this factor weighs heavily in favor of approving the
settlement.
Losing at trial is always a risk, of course, but as Lead Counsel coneedes, there
were unique complexities and challenges for plaintiffs in this case that would have made
proceeding to trial costly, and prevailing once there highly uncertain. 1n particular, Lead
Counsel considered:
. . . (b) the difficulties and risks involved in proving the operative
allegations_especially given the fact that the Court has already granted
summary judgment motions filed by the three individual defendants on the
basis that Lead Plaintiffs had offered no evidence to create a genuine issue
of material fact that any of the individual defendants acted with the
requisite level of scienter; (c) the legal uncertainties associated with
proving corporate scienter absent any showing of individual defendant
scienter; (d) the difficulties and risks of demonstrating corporate scienter
with respect to Fannie l\/lae’s implementation of FAS 133; (e) the
difficulties and risks of demonstrating auditor scienter (a heightened
standard) with respect to KPMG’S participation in Fannie l\/lae’s
development and implementation of FAS 133; (f) the difficulties and risks
of proving that the alleged fraud caused the Class’s losses; (g) the
probability that Lead Plaintiffs would be barred from introducing into
evidence the findings and/or conclusions of the Rudman Report, the
OFHEO Report, the 2006 ()FHEO Report, and the Restatement, among
other things; (h) the potential for adverse opinions on the outstanding
13
summary judgment motions; (i) the attendant risks of litigation, especially
in a complex action such as this, including the ability to maintain class
status through to judgment; (j) the uncertainty in Lead Plaintiffs’ theory of
damages, even assuming that Lead Plaintiffs could establish liability as to
the remaining Defendants; (k) the delays and uncertainties inherent in such
litigation, including appeals; (l) the risk that Fannie Mae would be placed
into receivership or liquidated entirely; and (m) the risk that the FHFA Rule
would be upheld, denying the Class any damages to which it would
otherwise be entitled.
Pls.’ Mot. Final Approval at 3-4. Lead Counsel also noted the "distinct risk that the
Court might find no scienter respecting defendant F annie Mae under the ‘corporate
scienter’ theory" because 1 had already granted summary judgment motions by the three
individual defendants and dismissed them from the case in 2012. ld. at 4 n.4. Moreover,
even if plaintiffs had succeeded at trial_which likely would have involved a costly
"battle of the experts"~an appeal likely would have followed, further delaying any
recovery for the class members. See Vz``sta Healthplan, 246 F.R.D. at 362 (noting a likely
appeal of any successful trial verdict for plaintiffs would have delayed final resolution of
the case, whereas settlement provided for relatively prompt recovery).
ln short, plaintiffs faced significant challenges in first surviving summary
judgment and then proving liability and damages at trial But compounding these typical
litigation risks was the atypical circumstance ofpotentially winning at trial and still not
securing any recovery as a result of the FHFA rule, For were that rule to be upheld
(either by this Court, or by our Circuit Court on an appeal), the FHFA Director would be
able to use his discretionary authority to prohibit Fannie Mae from paying any securities
fraud claims in conservatorship, including those of plaintiffs if they succeeded at trial. 1
find that this unusual circumstance tilts this factor further in support of approval here. Cf
14
Trombley, 826 F. Supp. 2d at 195-196, 199 (finding this factor weighed in favor of
settlement approval, in part because l"the legal landscape for [bank overdraft fee
litigation] remains challenging and riddled with uncertainty" where a federal law
preemption issue had not yet been decided by any federal appeals court).
1n light of the significant litigation risks plaintiffs faced in establishing liability
and damages at trial, the risk of no recovery notwithstanding success at trial, and the
benefit to Class Members of``securing recovery now, 1 find that the terms of the settlement
in relation to the strength ofplaintiffs’ case support approval
C. Stage of the Litigation at the Time of Settlement
Based on the history of this case, the Court also has little trouble finding that the
status of this litigation at the time of settlement favors approval This factor guides courts
to assess "whether counsel had sufficient information, through adequate discovery, to
reasonably assess the risks of``litigation vis-a-vis the probability of success and range of
recovery." Vista Healthplan, 246 F.R.D. at 362 (quoting In re Lorazepam, 2003 WL
22037741, at *4). Here, after nearly nine years of litigation-including extensive fact
and expert discovery, motions practice, several appeals to our Circuit Court, and two
years of mediation_there is no question that counsel for both sides had ample
information and sufficient understanding of`` the strengths and weaknesses of their
respective positions to assess the merits of this sett1ement. Thus, the settlement certainly
"do[es] not come too early to be suspicious." In re Vitamt``ns, 305 F. Supp. 2d at 105.
Nor does it come "too late to be a waste of resources," z``d., because significant
outstanding issues loomed in the path even before reaching trial, including the five
15
pending summary judgment motions and plaintiffs’ challenge to the FHFA rule,
Accordingly, 1 find that this factor also weighs in favor of approving the settlement.
D. Reaction of the Class
The Class Members’ reaction to the settlement has been positive and also supports
approval. The Claims Administrator, GCG, mailed 1,149,771 copies of the Notice and
Proof of Claim form to potential class members or their nominees following this Court’s
preliminary approval of the settlement in june 2013. See Fraga Suppl. Decl. 11 2. Prior to
the October 31, 2013 Fairness Hearing, the Claims Administrator received 24,158 Proof
of Claim forms from potential class members (as of October l0, 2013), as well as nearly
4,000 calls to its dedicated telephone helpline and more than 200 emails to its settlement-
specific email address. Ia'. 1111 16, 9, 8. These contacts with potential class members have
indicated that the settlement has been "favorably received." Pls.’ Mot. Final Approval at
9', see also Fairness Hr’g Tr. 30, Oct. 31, 2013 (plaintiffs’ counsel W.B. Markovits
stating there have been "over 4,000 calls, about 3,700 1 believe website visits and e-
mails" and noting "[w]e fielded hundreds of``calls ourselves, and 1 might note that all of
these calls from what 1 hear from the Garden City Group, and from what 1 know of the
calls to us have been supportive of the settlement"). 1n fact, only four objections (or
purported objections) were submitted, which is remarkable for a class as large as this one.
See Bynurn v. Dz'strt``ct ofColurn/)t``a, 412 F. Supp. 2d. 73, 77 (D.D.C. 2006) ("The low
number of opt outs and objectors (or purported objectors) supports the conclusion that the
terms of the settlement were viewed favorably by the overwhelming majority of class
members."). Moreover, of those four submissions, only one objected to the substance of
16
the settlement itself, 12 and it is a meritless objection by a purported class member who, as
it turns out, lacks standing.“
E. Opinion of Experienced Counsel
Finally, the Court considers the opinion of counsel that this settlement is
reasonable and should be approved. The opinion of experienced counsel "‘should be
afforded substantial consideration by a court in evaluating the reasonableness of a
proposed settlement."’ Vz``sta Healthplan, 246 F.R.D. at 363 (quoting In re Lorazeparn,
2003 WL 22037741, at *6). Class counsel obviously believes that the settlement is fair,
'2 Three objections (or purported objections) concerned other aspects of the settlement. Class members
jeff Pechan and Cafco-Gold Equity Fund, L.P objected to the Plan ofAllocation. See infra Part 111.
Purported class member Rinis objected to the adequacy of the notice and the requested attorneys’ fees.
See supra note 10; infra note 19. And purported class member jeffrey M. jacobson submitted a letter to
the Court objecting that the requirements to submit a claim under the Proof of Claim form are too onerous
because class members must submit records going back several years in order to prove their membership.
(l\/lr. jacobson’s letter did not comply with the procedures for filing objections set forth in the Notice, see
Fraga Decl. Ex. A, 1111 72-73 (Notice; Proof ofClaim form), and in any event 1 find his objection
ineritless.)
'3 Ms. Khadija Duma filed a Motion to intervene [Dkt. # 1 1 14] the day before the Fairness Hearing,
asserting that she is a class member and should have received notice ofthe settlement, but did not. Ms.
Duma then appeared in person at the Fairness Hearing, stated she was a former Fannie Mae employee,
and, upon questioning by this Court, raised concerns about the merits of settlement itself. See Faimess
Hr’g Tr. 17-26, 24-25 (l\/ls. Duma stating "l know they manipulated the balances on the books. 1 know
they manipulated the way that the products were . . . l know a lot about that so how do you decide what
the stock was really worth when the accounting was so far off base . . . [‘?j" and "how do you get to a
value that’s fair?"). At the Court``s direction, Lead Counsel contacted l\/ls. Duma after the hearing and
investigated her claim of being a class member, Lead Counsel has since concluded that Ms. Duma is not
a class member according to their records, that she has failed to produce any records sufficient to prove
her class membership, as required by the Notice. and that therefore she lacks standing to object. See
Letter from W.B. Markovits (Nov. 12, 2013) ("Faiiiiie Mae records show that any shares purchased by
l\/ls. Duma through Fannie l\/lae’s Employee Stock Purchase Plan were liquidated as part ofa cashless
exercise when they were awarded [and therefore she could not have suffered damages necessary to render
her a Class l\/lember] because she could not have held purchased stock until the date of a corrective
disclosure made by defendants. . . . l\/loreover, to the extent l\/ls. Duma owned shares in the Employee
Stock Ownership Plan, the plan would receive the notice and have the claim, not her."). Though the
Court need not formally overrule l\/ls. Duma’s objection given her lack of standing, 1 note that 1 have
already found that notice was adequate, and her vague allegations regarding the veracity of certain filings
by certain defendants, and her questioning of the facts underlying this litigation, see Faimess Hr’g Tr. 20,
22, do not give me pause after the parties engaged in such extensive discovery
17
adequate and reasonable, see generally Pls.’ Mot. Final Approval, and among those
multiple plaintiffs’ firms there is a large amount of experience in complex securities and
class action litigation, ia’. at 10; Markovits & Deters joint Decl. Ex. la - lw (counsel
biographies). l\/loreover, the settlement was reached after two years of arm’s-length
negotiations with def``endants’ counsel, who have a wealth of experience in their own
right, which further indicates the reasonableness of the settlemeiit. But there are two
additional circumstances in this case that point to the reasonableness of the settlement:
the Ohio Attorney General supported the settlement agreement, and the boards of Lead
Plaintiffs OPERS and STRS, both sophisticated institutional investors, approved the
settlement. Pls.’ Mot. Final Approval at 10, 10 n.7; see In re Veeco Instrurnents lnc. Sec.
Lz'tz'g., No. 05 MDL 0165, 2007 WL 4115809, at *5 (S.D,N.Y. Nov. 7, 2007) ("under the
PSLRA, a settlement reached . . . under the supervision and with the endorsement of a
sophisticated institutional investor . . . is ‘entitled to an even greater presumption of
reasonableness"’ (citation omitted)). /\ccordingly, this factor also militates in favor of
approval of the settlement.
Thus, after due consideration of the terms of the Settlement Agreement, all papers
filed in connection therewith, the oral presentations of counsel at the Fairness Hearing,
and the factors discussed above, 1 find that the settlement is in the best interests of the
class and is fair, reasonable, and adequate under Federal Rule of Civil Procedure 23(e):
III. The Plan of Allocation
Having found the settlement to be fair, reasonable, and adequate, the Court next
turns to Lead Counsel’s proposed Plan ofAllocation ("POA") for distributing the
18
monetary recovery to class members "As with settlement agreements, courts consider
whether distribution plans are fair, reasonable, and adequate." In re Lorazepam, 2003
WL 22037741, at *7 (citing ]n re Lorazeparn & Clorazepate Antz``trust Lz'tig., 205 F.R.D.
369, 381 (D.D.C. 2002));1)1 re Vt``ta)nz``ns Antz``trust Lz``n``g., No. 99-197, 2000 WL 1737867,
at *6 (D.D.C. Mar. 31, 2000).
Under the proposed POA in this case, settlement funds will be distributed
according to the relative amount of damage suffered by each class member. See Fraga
Decl. Ex. A, 1111 41-45 (Notice; Proof of Claim forin). Based on relevant case law
regarding loss causation and market analyses by Lead Plaintiffs’ damages experts, the
POA is designed to distribute the settlement funds to class members who suffered
economic losses resulting from defendants’ alleged violations of securities laws, rather
than from market or other factors. See Markovits & Deters joint Decl. 11 108. To do this,
. . . Lead Plaintiffs’ damage expert calculated the amount of estimated
artificial inflation in the per share closing prices of Fannie Mae common
stock and call options throughout the Class Period, as well as the artificial
deflation in Fannie Mae put options, that allegedly was proximately caused
by Defendants’ alleged misrepresentations and material omissions. The
damage expert’s analysis entailed studying the price declines in Fannie Mae
common stock in reaction to certain public announcements regarding
Fannie Mae in which alleged misrepresentations and material omissions
were alleged to have been revealed to the market (t``.e., "corrective
disclosures"), adjusted to eliminate the effects attributable to general
market and/or industry conditions. ln this respect, artificial inflation tables
were created and presented as part of the Settlement Notice for every
trading day of the Class Period for both F annie Mae common stock and call
options, as well as an artificial deflation table for F annie Mae put options.
These tables will be utilized in calculating each claimant’s Net1nflation
Losses and/or Gains, and ttltiinately a claimant’s overall Recognized Claim.
Ia’. 11 109. Based on the computations of class members’ Recognized Claims, the
19
settlement funds will be proportionately allocated. Icl. 11 110; see also Fraga Decl. Ex. A,
11 41 (Notice; Proof of Claim form).
The sole validm Class Member objection filed with the Court takes issue with the
POA. Objectors jeff Pechan and Cafco-Gold Equity Fund, L.P. (collectively, "Pechan
and Cafco") contend, based on the analysis of their expert, Greggory A. Brauer, that the
POA "unfairly and improperly rewards option investors at the expense of stock
purchasers." Class Members jeffPechan and Cafco-Gold Equity Fund, L.P.’s Objection
to the Plan of Allocation and l\/lem. Supp. ("Pechan & Cafco Objection") [Dkt. # 1099] at
l. Specifically, Pechan and Cafco dispute how the POA calculates options values: they
argue that the POA overvalues the call options and undervalues the put options, which, in
a pro rata allocation, will have the effect of decreasing the amount of settlement funds
that common stock holder class members reeeive. See Pechan & Cafco Objection at 3.
To be clear, the objectors do not quarrel with the POA’s employment of the commonly-
used Black-Scholes methodology for valuing options. Instead, they focus their criticism
on the input used for one of the six variables in that pricing model-the measure of
volatility. [a’. at 4-5. They claim that the POA’s use of implied volatility was error, and
that plaintiffs’ experts should have used historical volatility instead. Ia’.
To address this objection, the Court need not wade into the depths of options
valuation or join in the skirinish between the parties’ experts.'§ After all, a plan of
'4 See supra notes 12-1 3.
'5 Lead Plaintiffs, marshaling their own experts to respond to the objection, argue that Pechan’s and
Cafco’s expert’s analysis is ‘“rife with error" and assert that, "even if the historical volatility calculation
suggested in the objection were used, the effect would be both the opposite of that asserted [by the
20
allocation "need not be perfect." [n re Gt'ant Interactt've Grp., lnc. Sec. Lz``tig., 279 F.R.D.
151, 163 (S.D.N.Y. 2011). Rathcr, it suffices if`` the plan has "a reasonable, rational basis,
particularly if recommended by experienced and competent class counsel." Id. (citation
omitted); see also In re Inz``tz'al Pablic Ojj"erz``ng Sec. Litz``g., 671 F. Supp. 2d 467, 497
(S.D.N.Y. 2009); ln re TFT-LCD (Flat Panel) Antitrust Lz'tz``g., No. MDL 3:07-1827, 2011
WL 7575004, at *4 (N.D. Cal. Dec. 27, 201 1) (overruling objection to plan of allocation
where class counsel "provided a rational basis for the proposed plan of allocation").
Here, 1 am persuaded that the POA has a reasonable, rational basis because the use
of implied volatility rather than historical volatility to value options is a commonly
accepted method for calculating options damages in securities cases. See Lead Pls.’
Response to Objection and Suppl. l\/lem. in Further Supp. of Pls.’ Mot. F ina1 Approval
("Pls.’ Response to Objection") [Dkt. # 1107] at 7. 1n fact, while Lead Plaintiffs cite a
litany of cases in which implied volatility was used to value options for securities
settlcments, see Declaration of Kenneth N, Kotz and Frank C. Torchio [Dkt. # 1107-2] 11
5, at 3 n.6 (collecting cases), the objectors do not cite a single case, or any other
authority, in their Objection to support the opinion of their expert that historical volatility
is a more appropriate ineasure, see Pls.’ Response to Objection at 7; Fairness Hr’ g Tr. 12.
l\/loreover, the one case the objectors brought to the Court’s attention at the Fairness
Hearing_an unpublished Delaware Court of Chancery opinion in which the court elected
to use historical volatility_actually confirms the reasonableness of the POA here. 1n that
objectors] and a'e rnz``nirnis_effectiiig a change in allocation of far less than l% of total estimated
damages." Lead Pls.’ Response to Objection and Suppl. l\/Iem. in Further Supp. of Pls.’ Mot. Final
Approval [Dkt. # 1 107] at l, 2.
21
case, Lz'llis v. AT&T Corp,, the court expressly noted that "iinplied volatility is the
generally preferred method of valuing options" and "implied volatility is the more pure
economic means to calculate volatility." Lz``llls v. AT&T Corp., No. 717-N, 2007 WL
2110587, at *21 (Del. Ch. july 20, 2007). That court went onto use historical rather than
implied volatility in that particular case (which is not a securities fraud case) due to
unique circumstances that are not present in this case.'é
Finally, the Court notes that the P()A here is based on the work of several
qualified experts, including Prof``essor Gregg A. j arrell, the former chief economist of the
SEC, whose work was repeatedly tested by defendants’ experts during the course of this
litigation without their use of implied volatility ever being questioned. See Fairness Hr’ g
Tr. 12-13. 1n sum, plans of allocation, like this one, "that apportion[] funds according to
the relative amount of damages suffered by class members have repeatedly been deemed
fair and reasonable," In re Vz``tamins, 2000 WL 1737867, at *6, and 1 find that Pechan’s
and Cafco’s largely unsupported critique of one variable underlying the pro rata
distribution calculations here provides no basis to question the reasonableness of this
POA. Accordingly, 1 overrule the Pechan & Cafco Objection and approve ofthe POA.
IV. Attorneys’ Fees and Expenses
Finally, the Court turns to the attorneys’ fees and expense reimbursement
'° The Delaware court concluded that, "[vv]hile implied volatility is the generally preferred method of
valuing options, here historical volatility is the more appropriate measure of volatility for calculating
damages" because (l) implied volatility reflected the market’s short-term view of the company, which
was problematic for valuing employee stock options at issue in the case because they were ofa longer
duration, and (2) implied volatility underpriced the value of plaintiffs’ options in the case because it
accounted for take-out risk priced into publicly traded options resulting from merger speculation. See
Lillz's, 2007 WL 21 10587, at *21-22.
22
requested by Lead Counsel. 1n accordance with Fed. R. Civ. P. 23(h)(1), Lead Counsel
gave notice to the Class Members that they would apply to the Court for attorneys’ fees
of no more than 22% of the Settlement Fund (after deducting costs and expenses, and
adding interest), and expenses of no more than 817 million (plus the costs of settlement
administration, plus interest). See Fraga Decl. Ex. A 11 5 (Notice; Proof of Claim forrn).w
Consistent with that Notice, and pursuant to this Court’s june 7, 2013 Preliminary
Approval Order, Lead Counsel submitted its application on August 16, 2013, requesting
attorneys’ fees in the amount of 22% of the settlement amount and expense
reimbursement of$15.296,349.17 (subsequently revised down to $15,294,860.78). See
Mot. Attorneys’ Fees; Pls,’ Response to Objection at 6 n.10 (revising expense
calculation). Lead Counsel estimates that the requested 22% fee amounts to
$29,152,612.27 (without interest). See Mot. Attorneys’ Fees at 8. The defendants take
no position regarding Lead Plaintiffs’ application. See Stipulation at 20.18
17 Pursuant to the retention agreement between Lead Counsel and the Ohio Attorney General, Lead
Counsel may apply and seek an award of attorneys’ fees and costs in connection with this matter, and that
agreement set a base minimum fee of 7.5°/0-8.5% of the total recovery amount, after costs and expenses.
Lead Counsel has explained that they are now seeking fees above that base minimum "[b]ased on a
number of factors not specifically set forth in the retention agreement-including the unusual length of
this litigation (more than eight years), its difficulty, the extraordinary amount oftime expended by the
Plaintiffs’ Counsel (the fees sought are far less than the lodestar, which is the amount of time expended
multiplied by the hourly rates), and a comparison with fee awards in comparable cases." See Fraga Decl.
Ex. A 11 5 (Notice; Proof ofClaim form).
18 Following any award of attorneys’ fees by this Court, "Lead Counsel shall allocate the attomeys’ fees
among the Plaintiffs’ Counsel authorized to assist in the prosecution of the Consolidated Action in a
manner in which they in good faith believe reflects the contributions of such counsel to the prosecution
and settlement ofthe Consolidated Action." See Stipulation at 20-21. Prior to the Fairness Hearing, two
plaintiffs’ firms-Statman, Harris & Eyrich, LLC and Bernstein Ioiebhard LLP-submitted supplemental
briefs [Dkt. ## 1091, l096] asserting that they are owed specific amounts from any attorneys’ fee award
pursuant to letter agreements with fortner lead counsel Waite, Schneider, Bayless & Chesley Co., LPA.
Subsequently, however, both firms agreed with current Lead Counsel that any dispute over fee allocation
is premature and agreed to defer the issue until after the settlement has been approved. See Pls.’
Response to Objection at 2; Fairness Hr’g Tr. 31-34.
23
A. Attorneys’ Fees
1n a class action suit, "the court may award reasonable attorney’s fees and
nontaxable costs that are authorized by law or by the parties’ agreeinent." Fed. R. Civ. P.
23(h). "Courts have a duty to ensure that claims for attorneys’ fees are reasonable." In
re Black Farmers Dt'scrz'm. Lt'tlg., --- 1*``. Supp. 2d ~--, 2013 WL 3480346, at *4 (D.D.C.
2013) (quoting Trombley, 826 F. Supp. 2d at 204 (internal quotations omitted); see also
Swea’ish Hosp. Corp. v. Slzalala, 1 F.3d 1261, 1265 (D.C. Cir. 1993). And for federal
securities class actions, the PSLRA reiterates this inandate. See 15 U.S.C. § 78u-4(a)(6)
("Total attorneys’ fees and expenses awarded by the court to counsel for the plaintiff
class shall not exceed a reasonable percentage of the amount of any damages and
prejudgment interest actually paid to the class." (emphasis added)).
1n a common fund case, such as this one, our Circuit has joined other circuits in
concluding that "a percentage-of-the-fund method is the appropriate mechanism for
determining the attorney fees award." See Sweclislz Hosp. Corp., 1 F.3d at 1271. While
our Circuit "has not yet developed a formal list of factors to be considered in evaluating
fee requests under the percentage-of-recovery method," In re Lorazepam, 2003 WL
22037741, at *8, courts in this District have often considered the following seven factors:
"(1) the size of the fund created and the number of persons benefited, (2) the presence or
absence of substantial objections by class members to the settlement terms or fees
requested by counse1, (3) the skill and efficiency of the attorneys involved, (4) the
complexity and duration of litigation, (5) the risk of nonpayment, (6) the time devoted to
the case by plaintiffs’ counsel, and (7) awards in similar cases." In re Black Farmers
24
Dz'scrz')n. Lz``tz'g., 2013 WL 3480346, at *5 (quoting Trombley, 826 F. Supp. 2d at 204); see
also In re Lorazeparn, 2003 WL 22037741, at *8.
1n applying these factors here, 1 find that the most significant are the complexity
and duration of the litigation, the amount of time devoted by plaintiffs’ counsel, the risk
of nonpayment, and the skill and performance of the attorneys. 1n order to first place
plaintiffs request in context, however, the Court will begin with awards in similar cases
in order to benchmark the 22% fee requested.
Both nationally and in our Circuit, "a majority of common fund class action fee
awards fall between twenty and thirty percent.’" /n re Black Farrners Dt``scrz'm. Lz'tz``g.,
2013 WL 3480346, at * 14 (citations omitted) (collecting cases); Swecz’z``sh Hosp. Corp., 1
F.3d at 1272; see also 4 Williain B. Rubenstein, Alba Conte & Herbert B. Newberg,
Newberg On Class Actions § 14:6 (4th ed. 2002) ("ln the normal range of common fund
recoveries in securities and antitrust suits, common fee awards fall in the 20 to 33 per
cent range."). Lead Counsel have identified a number of cases in our Circuit in which
courts adhered to this range, and they contend that, if anything, their 22% fee request is at
"the low end of the spectrum" for common fund cases. See Mot. Attorneys’ Fees at 5-6.
Further, according to law professor Brian Fitzpatrick, who submitted a declaration in
support of Lead Counsel’s fee request and who conducted an empirical study of federal
class action settlements and attorneys’ fee awards for the two-year period 2006-2007,
"nearly two-thirds of awards using the percentage-of-the-fund method fell between 25%
and 35%," and he "found the mean award to be 25.4% and the median 25%."
Declaration of Brian T. Fitzpatrick ("Fitzpatrick Dccl.") [Dkt. # 1092-28] 11 ll (citing
25
Brian T. Fitzpatrick, An Empirical Study ofClass Action Settlements and T heir Fee
Awarals, 7 j. Empirical L. Stud. 811, 833-34, 838 (2010) ("Fitzpatrick Empirical
Study")). Accordingly, the requested award falls well within the range of reasonableness
established by other cases.
The Court is nonetheless mindful of the size of the settlement fund in this case
because "[l]arger common funds are typically associated with smaller percentage awards
. . . because even a small percentage of a very large fund yields ‘a very large fee award."’
In re Black Farmers Dz'scrz``)n. Lz``tt``g., 856 F. Supp. 2d at 39 (quoting Wal-Mart Stores,
lnc. v. Vz``sa US.A., Ine., 396 F.3d 96, 122 (2d Cir. 2005)). lndeed, "[w]here the common
fund is worth many millions or even billions of dollars-in so-called ‘megafund’ cases-
an appropriate fee may be considerably less than twenty percent of the fund." Ial.; see
also In re Lorazepam, 2003 WL 22037741, at *7. According to Mr. Fitzpatrick’s own
study of 2006-2007 cases, in settlements involving common funds of $100 million to
$250 million, the mean award was 17.9% and the median was 16.9%. Fitzpatrick Decl. 11
13 (citing Fitzpatrick Empirical Study at 839). 1n comparing plaintiffs’ fee request here
to other cases, however, it may be appropriate to view it as lower than 22% because that
percentage applies to the fund after expenses have been deducted. By contrast, all of the
fee percentages in Mr. Fitzpatrick’s study of2006-2007 settlements were calculated
before expenses were deducted from the settlement. See Fitzpatrick Decl.11 11. When
calculated in that manner. l,ead Counsel are requesting only 19% in fees here, t'd., which
is "‘only slightly above the mean" for settlements of comparable size, z``d. 11 13. The Court
is satisfied, therefore, that the 22% fee request is reasonable at even the preliminary stage
26
of comparing it to awards in other cases.
The flaw with comparisons to fees in other cases, of course, is that they inevitably
tend to focus on averages and inedians and ranges. This case, however, was anything but
average. First, there is no question that this litigation was lengthy, highly complex, and
vigorously contested. As discussed iii greater detail in Part 11 above, this case lasted
nearly a decade, involved extensive discovery and motions praetice, necessitated
numerous experts on both sides, and concerned numerous challenging, and at times sui
generis, legal issues. Plaintiffs’ counsel wrestled with highly complex accounting issues
and Fannie Mae’s placement into conservatorship, as well as initiated a parallel
proceeding challenging an FHFA rule that compounded their risks by potentially cutting
off any recovery even in the event they succeeded at trial-all while facing off against
skilled defense lawyers. 1n the Court’s view, this case was extraordinary in many
respects and merits a substantial fee award. See Fairness Hr’g Tr. 34 (the Court stating
"This was indeed one of the most hard fought, hotly contested and 1 might add fairly
fought pieces of maj or litigation certainly that 1 have seen; and 1 don’t think it would be
an exaggeration to say that’s ever been litigated in this courthouse. Certainly in the 12
years 1 have been here, 1 can’t think of a maj or piece of litigation of this magnitude where
the stakes were as high . . .").
Second, the time devoted by plaintiffs’ counsel and their high risk of
nonpayment-both of which stemmed from the complexity and duration of the case-
also militate in favor of a substantial award here. Over nine years of litigation, plaintiffs’
counsel billed nearly 300,000 uncompensated hours and incurred more than $15 million
27
in litigation expenses, all of which were at risk in the event of an unsuccessful result. See
Mot. Attorneys’ Fees at 16. And again, as discussed in Part 11 above, plaintiffs faced
significant challenges in defeating defendants’ pending summary judgment motions,
establishing liability and damages at trial, and, even if successful there, securing any
recovery in the face of the FHFA rule. In the Court’s view, the amount of work
plaintiffs’ counsel performed in litigating this case was staggering, the hours billed were
proportionate to the legal complexity of the case, and the risk of nonpayment for those
hours and expenses incurred was very high.
Third, the skill and performance of the attorneys also justifies approval of a
substantial fee in this case. Plaintiffs’ counsel included firms and attorneys with a great
deal of experience in complex class action and securities litigation. See Mot. Attorneys’
Fees at ll; Markovits & Deters joint Decl. Ex. la - lw (counsel biographies). But the
best testament to their effectiveness was their ability to successfully resolve this
exceedingly complex case and secure the largest securities class action settlement in our
Circuit (since the PSLRA went into effect) while battling opposing counsel at the very
top of the defense bar. ln the Court’s view, and as 1 stated on the record at the Faimess
Hearing, the lawyering in this case has been, by any standard, exceptional See Fairness
Hr’ g Tr. 35 (the Court noting the "really outstanding lawyering on both sides of the aisle"
and that "the quality of lawyering . . . has been extraordinary and frankly 1 think a credit
to the profession").
Finally, the Court notes that there were no class member objections to the fee
28
request,w and a “lodestar cross-check" confirms the reasonableness of the fee request
here.zo 1n sum, the facts and circumstances of this ease warrant a substantial fee award,
and, in any event, Lead Counsel’s request falls comfortably within the range that has
been established in other cases both in and outside our Circuit. Accordingly, 1 have
concluded that class counsel is entitled to an attorneys’ fee award of 22% of the
Settlement Fund (after deducting costs and expenses, and adding interest).
B. Expenses
"In addition to being entitled to reasonable attorneys’ fees, class counsel in
common fund cases are also entitled to reasonable litigation expenses from that fund." 1n
re Lorazepam, 2003 WL 2203 7741, at * 10 (quotations and citations omitted). Here,
Lead Counsel seek reimbursement for $15,294,860.78 in expenses incurred during the
litigation. See Mot. Attorneys’ Fees; Pls.’ Response to Objection at 6 n.10 (revising
expense calculation). This amount is comprised of expenses incurred by twenty-four
'9 The Court received one objection to the attorneys’ fees requcst, from purported class member Rinis.
Since Rinis is not, in fact, a class member and thus lacks standing to object, see Pls.’ Mot. Strike Rinis
Objection at 2-3, 1 need not formally overrule this purported objection.
20 The "lodestar" is calculated by multiplying the hours reasonably expended in the litigation by a
reasonable hourly fee. "Some circuits that employ the percentage ofthe fund method to calculate
attorneys’ fees in common fund class actions have suggested that district courts cross-check the
percentage award at which they arrive against the results of the lodestar award method, to determine
whether the percentage award roughly reflects the time and expertise the attorneys invested in the case."
In re Black Farmers Dz'sc'rirn. Lilig.. 2013 WL 3480346, at *17 (quotations and citations omitted). While
our Circuit does not require such a lodestar cross-check, z``d., performing one in this case confirms the
reasonableness ofa 22% award. Here, plaintiffs’ counsel’s lodestar (calculated using historical rates) is
$94,132,246.27. See Declaration of W.B. Markovits [Dkt. # 1 107-l] Ex. 10 (Fannie Mae Lead Plaintiffs’
Counsel Cumulative Time and Lodestar Report; Cost and Expense Report). Comparing the requested fee
of 22% (approximately $29 million) to this lodestar produces a multiplier of only 0.31. See Mot.
Attorneys’ Fees at 8. By contrast, "multiples ranging up to ‘four are frequently awarded in common fund
cases when the lodestar method is applied."’ In re Lorazeparn, 2003 WL 2203 7741, at *9 (quoting In re
Prudential Ins. Co. ofA/n. Sales Practlce Lillg., 148 F.3d 283, 341 (3d Cir.l998)); see also 4 Newberg
On Class Actions § 14:7 (4th ed. 2002) ("Generally, multipliers from 1-3 are the norm").
29
different law firms that represented plaintiffs in this wide-ranging litigation. See
Declaration of W.B. Markovits (“‘l\/larkovits Decl.") [Dkt. # 1107-l] Ex. 10 (F annie Mae
Lead Plaintiffs’ Counsel Cumulative Time and Lodestar Report; Cost and Expense
Report).
The most significant expense category relates to plaintiffs’ experts and
consultants. Of`` the total reimbursement sought, $10,027,188.94, or nearly 66%, is for
expert and consultant fees and expenses See Markovits Decl. Ex. 10 (Fannie Mae Lead
Plaintiffs’ Counsel Cumulative Time and Lodestar Report; Cost and Expense Report);
Decl. of Waite, Schneider, Bayless & Chesley Co., LPA [Dkt. # 1092-41 Ex. B (Fannie
Mae Class Action Litigation - Litigation Fund Expense Report). While large, the Court
finds this expense appropriate in the context of a case, such as this one, of extraordinary
complexity and duration, where experts were necessary to assist counsel in addressing
highly complex securities and accounting issues, testing the opposing parties’ numerous
experts, challenging a federal regulation (the FHFA rule) in a parallel legal proceeding,
and preparing the Plan of Allocation. See l\/lot. Attorneys’ Fees at 20.
1n addition, the long duration and magnitude of the case inevitably led to
significant expenditures in categories like document production and management
($3,183,695.82, or 20.8%) and travel ($972,395.92, or 6.4%), all of which were
accumulating over nine years ln view of Lead Counsel’s representations about the steps
they have taken to reduce, standardize, and audit costs across all plaintiffs’ counsel firms,
see Mot. Attorneys’ Fees at 19-22, as well as the inherent incentive in contingency-fee
litigation to minimize expenses due to the risk of failing to secure any recovery, the Court
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is quite satisfied that these expenses are reasonable.
Moreover, the Court notes that plaintiffs’ counsel secured a bargain in at least one
expense category: mediation f``ees. lndeed, l have noted in a very different class action
case that a large mediation fee "might be appropriate . . . in a highly complex case
between two (or at least one) highly financed corporations, where there is a very large
common fund for the settlement." Hubbard v. Dorzahoe, ~-- F. Supp. 2d ---, 2013 WL
3943495, at "‘9 (D.D.C. 2013). This isjust such a case! And yet the parties managed to
secure the services of a highly esteemed lawyer and mediator, Fred Fielding, whose
services proved successful in resolving this hard-fought litigation, for just $71,776.86.
See Markovits & Deters Joint Decl. W 76, 155. Considering the length and complexity
of the litigation, the size of the settlement fund, and the magnitude of the other litigation
expenses incurred, it is hard not to see this particular expense as a bargain for plaintiffs
As such, the Court is easily satisfied that class counsel reasonably expended the
costs claimed in the course of their work on behalf of the class members, and no class
member has objected to the award of expenses. Accordingly, the Court will award the
requested $15,294,860.78 in expenses to class counsel,
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CONCLUSION
For all of the foregoing reasons, the Court grants final approval of the class action
settlement under Federal Rule of Civil Procedure 23(e), approves the Plan of Allocation,
and grants Lead Counsel’s request for attorneys’ fees and reimbursement of expenses.
An Order consistent with this decision accompanies this Memorandum Opinion.
l
MCHARD J. is@_i§
United States District Judge
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