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When the lawyer who won a huge settlement for Cendant Corp. stockholders asked New Jersey U.S. District Judge William Walls for a $34 million fee award two years ago, Walls cited new rules designed to prevent unwarranted windfalls for class action attorneys and sliced the award to $19.4 million. He should have cut it even more, the 3rd U.S. Circuit Court of Appeals ruled on March 21. The judges, saying they were deeply troubled by Walls’ largesse and that he “turned a blind eye” to correct fee-setting procedure, reversed the award to New York’s Kirby McInerney & Squire. The firm actually deserved $8.3 million or less for its work, the court figured. While not ordering Walls to award that amount on remand, the judges said they “strongly suggest” it. At issue in In re Cendant Corp. Prides Litigation, No. 99-5555, was whether Cendant was liable — and to what extent — to the holders of one class of Cendant securities, the so-called Feline PRIDES shares. The shares fell in the dramatic April 1998 plunge that hit all Cendant securities when the company disclosed accounting irregularities. The appeals court ruled that given Cendant’s concession of liability almost from the start of the case and the number of hours devoted to what turned out to be a relatively easy victory for the class, Walls abused his discretion by awarding $19.4 million. The original fee award represented 5.7 percent of the potential settlement of $341.5 million and seven times Kirby McInerney’s hourly billings. “In allowing such a high multiplier in this case without even calculating it, much less explaining how it is justified, the District Court strayed from all responsible discretionary parameters in the awarding of Kirby’s attorneys’ fees,” the court said. The judges also reversed Walls’ decision denying any fee whatsoever to another New York class action lawyer in the case, Howard Sirota of Sirota & Sirota, lawyer for the Aboff Trust, holder of Cendant shares. The panel said Sirota’s clients should be rewarded for bringing Walls’ overgenerosity to the attention of a higher authority. “Our review of the District Court’s attorneys’ fee award to Kirby would not have come about had it not been for the Trust’s appeal,” the judges said. That means Sirota is in line for reimbursement for his appeal work and maybe for laying the groundwork for the appeal in District Court. Unfortunately for Sirota, the panel affirmed Walls’ decision to cut him out of a percentage of the class action fee. Sirota had argued that his proposal to select lead counsel by auction contributed to a dampening of fees and warranted his getting a piece of the award. Walls did use such an auction to select Kirby. But the judge ruled that the auction was his own idea, not Sirota’s, and the 3rd Circuit affirmed his findings. In a telephone interview last week, Sirota chose his words carefully because the 3rd Circuit is still reviewing his appeal of a $1,000 sanction Walls imposed after Sirota allegedly violated a confidentiality agreement in the case. “I agree with the learned opinion of the 3rd U.S. Circuit Court of Appeals that he abused his discretion,” Sirota said. He said he agreed with the findings that the case wasn’t as difficult as other class action matters. “Kirby acts as if he found the Holy Grail,” Sirota said. “It was the easiest case.” Kirby did not return a telephone call. In its opinion, written by Judge Leonard Garth, the appeals court said Walls erred by not applying a set of tests that have evolved over the years in federal rulings, including a 3rd Circuit decision last year in Gunter v. Ridgewood Energy Corp., 223 F.3d 190. That case lays out seven factors to be taken into consideration: the size of the settlement, the number of objections, the skill and efficiency of the lawyers, the complexity and length of the litigation, the risk of nonpayment, the amount of time devoted to the case and awards in similar cases. “In setting Kirby’s fee award, the District Court apparently turned a blind eye to the following factors,” and the appeals court listed five of them. They said the proofs were simple, and Cendant conceded liability quickly and settled within three-and-a-half months of the class’s certification. There was a minimal amount of motion practice, discovery was nonexistent and Kirby spent little time on the case compared with what lawyers in other class actions had done. The $8.3 million figure suggested by the court represents a 3 percent multiplier of Kirby’s lodestar amount, the value of the actual work performed, “although a lower multiplier may be applied in the District Court’s discretion,” the court added. Joining Garth in the decision were Judges Anthony Scirica and Julio Fuentes, a former colleague of Walls’ on the Essex County Superior Court bench in the late 1980s and early 1990s.

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