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Three years ago, when U.S. District Judge Alfred Wolin of New Jersey awarded $90 million in fees and costs to the plaintiffs’ lawyers in the Prudential fraud case, objectors howled that it was an undeserved windfall for class-action counsel who could have done a better job. Now that the case is wrapping up, the award has turned out to be a bargain, Wolin suggested in a final fee award opinion filed in Newark, N.J., on Tuesday. Not only is the fee 4.8 percent of the clients’ recovery — a smaller bite than lawyers have taken in similar cases — but the money will come from Prudential, not from the 600,000 or so class members receiving benefits, Wolin says. By his reckoning, an award of more than $135 million could have been justified. He also noted that a lawyer who objected to the $90 million has dropped his opposition. Subject to Wolin’s approval, that lawyer, Michael Malakoff of Pittsburgh, Penn.’s Malakoff Doyle & Finberg, says he is in line for $2.25 million of the fee. Given the final outcome, maybe the 27 firms that will share the award should have received even more than $90 million, says a partner in the plaintiffs’ lead firm, Brad Friedman of New York’s Milberg Weiss Bershad Hynes & Lerach. “I think when all is said and done, we were horribly underpaid,” Friedman says. However, he won’t say how the award will be divided or how much of the fee, after $5 million in disbursements, represents profit to his firm. Name partner Melvyn Weiss, noting that Prudential will pay the fee on top of the recovery, says, “There is no question this was a windfall for the clients.” It’s impossible to say how much of the award is profit because the firm is involved in a multitude of class-action cases in which fees from one success are used to finance litigation that may come to nothing. “Do you know how many cases go down the tubes?” he asks. Milberg Weiss and its co-counsel represented a class of 10.7 million policyholders who allegedly were victimized by fraudulent sales practices by the Prudential Insurance Co. of America. Under the 1997 settlement, the company agreed to reimburse policyholders with cash, upgraded policies, or both, and instituted an alternate dispute resolution system to resolve customers’ claims. The settlement also included Prudential’s payment of $90 million to the plaintiffs’ lawyers. Wolin approved the deal, but the 3rd U.S. Circuit Court of Appeals adopted some of Malakoff’s objections and remanded the award in 1998 in the decision In re Prudential Ins. Co. of America Sales Practices Litigation, 148 F.3d 284 (3d Cir. 1998, cert denied, 525 U.S. 1114, 1999). The appeals court asked, in effect: how could Wolin give the lawyers $90 million before knowing how much the class would actually receive and how much the work by Milberg Weiss and its co-counsel contributed to the recovery? Now we know, Wolin said in the final opinion re-instituting the $90 million award and requiring Prudential to pay the final installment of $35.4 million. Wolin said that claims of individuals holding 645,000 policies had been processed through the ADR system and that benefits were received by the holders of 565,000 policies. In addition, as of May 31, Prudential has issued more than $3.3 billion in relief through ADR: $2.75 billion cash; $13 million in restored values of previous policies; and more than $589 million in premium adjustments. After adjustments for benefits that weren’t created by the class-action counsels’ work, notably benefits to policyholders who opted out of the settlement, Wolin estimated that the value of the settlement exceeded $2.5 billion. He chose, however, to peg the benefit at $1.8 billion, a more conservative mark proposed by an outside consultant, who said the sums received by opt-out claimants and benefits engineered by a multi-state task force of insurance regulators shouldn’t be included in the benefits attributable to Milberg Weiss and its colleagues. Wolin said that, after examining awards in similar cases, it would have been reasonable to award the lawyers 7.5 percent of the recovery. That would have led to a $135 million award. But he chose to stick to the $90 million. That, minus disbursements, represents 4.8 percent of the $1.8 billion benefit to the class. Wolin said the percentage award was comparable to an award using the so-called “lodestar” method, which computes hourly billings and rates and adds a multiplier for degree of difficulty of the task. “Class counsel’s decision to take on the world’s largest insurance company, and its highly qualified sophisticated team of inside and outside counsel, represents the type of substantial risk that warrants a multiplier,” Wolin said. He also noted that the award will come from the company, not the class. “If the Court were to reduce class counsel’s fee, that would not confer a greater benefit on the class, but instead would benefit only Prudential,” Wolin said. In his opposition to the fee award two years ago, Malakoff questioned whether the class-action lawyers should be given so much credit. Though the potential payout was huge, the number of claimants represented only about five percent of the policyholders who allegedly were defrauded, he noted in the pleadings. There also has been post-settlement litigation alleging that the ADR process was stacked in Prudential’s favor, though Wolin has found that Prudential lived up to the settlement. Last year, Malakoff dropped his objection to the fee award. It became clear that the ADR process would, in fact, create huge benefits to the class and that the attorneys’ work had been responsible, he now says. Malakoff also says that, under an agreement with other counsel in the case, it was determined that his firm’s advocacy of an even stronger deal with Prudential was worth about $55 million in benefits to the class and that his firm will receive $2.25 million of the $90 million award. It’s not all gravy for him, though. Last September, U.S. District Judge William Walls of New Jersey found that Malakoff had filed frivolous pleadings that delayed the case and cost Milberg Weiss litigation expenses. Malakoff is appealing the finding and a $100,000 sanction. In that appeal, he says, “politically it helps us” to have won a fee award that recognizes the firm’s contribution to the class benefits. More important, he says, is the substance of the appeal, which shows that his pleadings in the case were far from frivolous.

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