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A federal judge has once again awarded more than $31 million in attorney fees to the team of lawyers who secured a $126 million settlement from the accounting firm KPMG for its alleged failure to blow the whistle on financial shenanigans at Rite Aid Corp. The ruling by U.S. District Judge Stewart Dalzell of the Eastern District of Pennsylvania comes just two months after an appeals court ruled that the fee award may have been too generous because Dalzell erred in his application of a lodestar “crosscheck” by focusing only on the hourly rates for the top lawyers. The appellate panel found that “in all respects but one,” Dalzell had “performed an exemplary analysis” in his rulings on the fee award, and rejected nearly all of the challenges to the fee lodged by a sole objector. Although Dalzell had correctly followed the “percentage-of-recovery” approach in deciding that the plaintiffs’ lawyers were entitled to 25 percent of the fund, the appellate panel found that his application of a lodestar “crosscheck” was miscalculated since it wasn’t based on the billing rates of all the plaintiffs lawyers. “Had the hourly rates been properly blended, taking into account the approximate hourly billing rates of the partners and associates who worked on the case, the multiplier would have been a higher figure, alerting the trial court to reconsider the propriety of its fee award,” 3rd Circuit Judge Anthony J. Scirica wrote in In re Rite Aid Corp. Securities Litigation. The lodestar is calculated by multiplying the number of hours reasonably worked on a case by a reasonable hourly billing rate for such services based on the given geographical area, the nature of the services provided and the experience of the attorneys. Although the 3rd Circuit prefers the percentage-of-recovery method for deciding class-action fee awards, the court has also said it is “sensible” for trial judges to “crosscheck” the percentage fee award against the lodestar method. Once a lodestar is calculated, the court can assess how much more the lawyers will be getting under the percentage-of-recovery approach. That figure is known as the “multiplier.” For example, where a $1 million fee was requested and the lodestar was $200,000, the multiplier would be 5. In sending the case back to Dalzell, the appeals court insisted that the lodestar crosscheck must be based on the hourly rates of all of the plaintiffs lawyers so that it will accurately reflect how much of a “multiplier” the fee award represents. Now Dalzell has ruled that although the multiplier is now higher, the 25 percent fee is still justified. In his original award, Dalzell said that a multiplier of about 4 gave him no pause since the work by the plaintiff’s lawyers led to excellent results. On remand, the plaintiffs lawyers recalculated the lodestar at about $4.5 million. Based on that figure, Dalzell found that the multiplier had risen to 6.96. He then turned to the question of whether, with the higher multiplier, the 25 percent fee award must now be considered “unreasonably large.” The plaintiffs’ lawyers and objector Walter Kaufmann filed briefs that cited a bevy of “comparable” cases. While the plaintiffs insisted that the fee was in line with those cases, Kauffman insisted that his cases showed that the fee was too generous. But Dalzell found that the cases were less than helpful. “The facts of this case, where counsel obtained a nine-figure settlement of a securities class action mostly from an auditor, are undeniably unique,” Dalzell wrote in his eight-page opinion. “Auditors are rarely defendants in securities class actions; no more than 6 percent of the securities class actions filed in 2003 and 2004 even named auditors as defendants. Among this rare breed, this case appears to involve the largest class recovery on record against an auditor in a 10b-5 action,” Dalzell wrote. Dalzell noted that the plaintiffs lawyers “obtained these unprecedented results without relying on the fruits of any official investigation.” Continuing in his showering of praise, Dalzell said “through the exercise of their considerable skill, plaintiffs’ counsel obtained a historic recovery for the class in a rare and complex kind of case where victory at trial would have been, at best, remote and uncertain.” As a result, Dalzell said, “our recalculation of the multiplier does not alter our original conclusion.” Rite Aid’s $1.6 billion accounting scandal sparked shareholder suits that ultimately led to settlements totaling more than $334 million. It also led to criminal charges against several of the company’s former top executives, including five who pleaded guilty and former general counsel Franklin Brown who was convicted at trial in October 2003. The first settlement in the shareholder litigation, worth $207 million, led to a fee award of $48.25 million. In the second settlement, KPMG paid $125 million and former Rite Aid CEO Martin Grass paid $1.4 million. Court records show that 34 plaintiffs’ firms will share in the fees, but that more than 80 percent will go to the two lead firms that together logged more than 11,000 hours on the case — Berger & Montague in Philadelphia and Milberg Weiss Bershad Hynes & Lerach in New York. Berger & Montague’s team was led by Sherrie R. Savett and included Carole R. Broderick and Robin Switzenbaum. The Milberg Weiss team was led by David J. Bershad and included William C. Fredericks, Brian C. Kerr, Susan M. Greenwood and Christian Siebott.

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