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In an order that, perhaps more than any previously, attacks the benchmark for attorneys’ fees recoveries in securities fraud class actions, San Francisco U.S. District Judge Vaughn Walker on Friday gave lead counsel status to Weiss & Yourman in a stock drop suit involving Fremont, Calif.-based Quintus Corp. Polishing off a lengthy soliloquy on the value of auctioning off lead counsel status in such cases, Walker wrote: “Adherence to an arbitrary 25 percent benchmark does not square with courts’ fiduciary responsibilities to the class in the face of mounting evidence that this benchmark is often too high.” Of course, Walker has provided much of that evidence, as he essentially invented the auction process, which is rare but becoming more popular in other courts. In discussing In re Quintus Securities Litigation, Walker compared the selection of lead counsel to the sale of assets, which would best be achieved through an open market in order to maximize price. However, others have criticized the use of the bidding process, saying it ignores quality and exposes to the defendant the limits of the plaintiffs’ case. In approving the sliding-scale bid of New York’s Weiss & Yourman (calling for attorneys’ fees of anywhere from 5 to 9 percent — after submitting a much higher bid during a previous stage in the case), Walker noted that the firm has vast experience in the field. He also approved of the fact that the attorneys’ fees percentage increased the longer the case progresses. The fee recovery, however, declines as the amount of the settlement increases. The move was a surprise to Milberg Weiss Bershad Hynes & Lerach, which weeks ago submitted a petition for a writ of mandamus to the 9th U.S. Circuit Court of Appeals challenging Walker’s use of the bidding process. “I’m for bidding if the [defendant's attorneys] have to bid also,” partner Patrick Coughlin said. Walker wrote that Milberg Weiss did not submit a bid in his auction, but included their initial proposal anyway. “To say we’re not interested ignores the fact that we submitted a petition for mandamus,” said Milberg Weiss appellate specialist Sanford Svetcov, who wrote the 9th Circuit petition. Walker wrote a letter to the 9th Circuit on May 25 saying he would come out with Friday’s order further explaining the case. Both Svetcov and Coughlin said they had no idea he planned on doing such a thing. Not only is Walker’s order unique in condemning the benchmark, but he somewhat creatively compared the lead counsel bidding process to a market-oriented procedure. “What [the order] does is lay bare the real economics of plaintiffs’ class actions,” said Stanford Law School professor Joseph Grundfest. “Competitive counsel are submitting rates that are significantly … lower [than the benchmark].” The national average for attorneys’ fees in securities fraud class actions is around 30 percent. “Selection of counsel is analogous to the sale of an asset by a trustee or a decision by a corporation’s directors to put the corporation up for sale,” Walker wrote. “In both these instances, the trustees and directors’ fiduciary duties require them to take steps to secure a fair price for the assets being sold.”

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