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New York City Wednesday submitted legal papers challenging as “astronomical” the $262 million fee request — set under a court auction procedure — that was submitted by the law firms that negotiated the record breaking $3.1 billion settlement in the Cendant case. In resisting the fee request, the New York City pension fund contended the retainer negotiated by it and two other co-lead plaintiffs — the New York State and California pension systems — had capped legal fees at $186 million, which is $76 million less than the amount under the formula adopted in the court-sponsored auction. Neither California nor New York State joined New York City in opposing the fee request submitted by the two lead law firms, Bernstein Litowitz Berger & Grossman in Manhattan and Barrack, Rodos & Bacine in Philadelphia. Theresa Bourgeois, a spokeswoman for the New York State pension system, said that it had not joined New York City and would leave the decision to U.S. Judge William H. Walls, who presided over the settlement in the District Court for New Jersey. Brad Pacheco, a spokesman for the California system, said its general counsel, Kayla Gillian, is still weighing whether to back the City’s position. In its brief, New York City argued that the huge fee under the auction formula was particularly unwarranted because Cendant, which franchises Ramada Inn Hotels and Avis car rental agencies, had “confessed” responsibility for the 63 percent nosedive its stock took in April 1998, costing shareholders $14.4 billion in losses on paper in a single day. Four months later, Cendant Corp. acknowledged that the income of one of two companies that merged to form Cendant in 1997 had overstated its income by $640 million for three years prior to the merger. That company was CUC International, an on-line and telephone shopping services company. $10,861 PER HOUR New York City faulted the auction formula for yielding a result that came to $10,861 for each of the 24,123 hours counsel put into the case. The hourly rate produced by that formula exceeded the lodestar amount, which is hours time fee rates, by a factor of 32.7, according to the City’s brief. By contrast, the retainer agreement negotiated between the three pension systems and the two lead counsel firms would have capped fees at $7,710 an hour or a lodestar multiplier of 23.2. The retainer produces a 5.87 percent “contingency” recovery compared with 8.27 percent under the auction formula, the City stated. Neither Max Berger of Bernstein Litowitz nor Leonard Rodos of Barrack Rodos, the two lead attorneys for their respective firms, were available for comment Wednesday. AUCTION FAULTED New York City also criticized Walls for conducting the auction as an “unnecessary incursion” into the responsibility of lead plaintiffs to control class action security fraud lawsuits as envisioned by the Private Securities Litigation Reform Act of 1995, 15 U.S.C. �78u-4(2000). The retainer agreement negotiated by the three pension systems that collectively claimed losses of $89 million in a single day, set a grid to determine attorneys fees depending on the amount of the recovery and the stage of the litigation when the settlement was reached. The case was settled last December after the filing of several pre-trial motions but before any depositions had been taken. Walls, however, in August 1998, ruled that he would not be bound by the lead plaintiffs’ choice of counsel, but instead would conduct an auction and allow the lead plaintiffs’ counsel the option of meeting the lowest responsible bid. Bernstein Litowitz and Barrack Rodos took that route. But the formula presented by the lowest responsible bidder was apparently significantly more liberal than the retainer formula, given the $76 million difference in outcomes. That $76 million discrepancy, the City noted, “exposes the pitfalls inherent in the court’s substituting its judgment for that of an actively involved and well-motivated lead institutional plaintiff.” The City added, however, that neither formula could have foreseen the size of the settlement and the resulting fee award. For that reason, the City contended, it was important that the retainer only set the formula as a ceiling and explicitly reserved to the plaintiffs the right to negotiate a fee lower than that yielded by the formula. In fact, the City contended that the retainer agreement remains binding and prohibits both firms from submitting any fee request without first getting the plaintiffs’ approval. Given those provisions, the City asked Walls to either set the fee at a “reasonable” amount as specified by the 1995 act, or to let the plaintiffs negotiate an appropriate fee in light of the $3.1 billion recovery. The recovery should allow class members to recoup 37 percent of their losses though lead counsel estimate that, because some members may fail to file claims, the recovery percentage may exceed 50 percent.

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