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In the world of mega class actions, it hardly raises an eyebrow if the lawyers who secure a $100 million settlement walk away with 30 percent of the fund, or $30 million. But when Eastern District of Pennsylvania Judge John R. Padova took a close look at just such a fee request in a class action antitrust suit over the pricing of the anti-depressant drug Paxil, he concluded that the lawyers were simply asking for too much in light of the relatively small number of hours they had logged on the case. If the lawyers were paid the full amount they requested, Padova said, they would end up earning more than 23 times their ordinary hourly billing rates for the 4,239 hours they worked. After surveying fee awards in other mega class actions, Padova concluded that a “multiplier” of 23.59 is “unprecedented,” and that most fees resulted in a multiplier in the single digits. Padova’s decision was the result of a so-called “lodestar cross-check.” Although class-action settlement fees are routinely awarded on a “percentage-of-the-fund” basis, courts are also required to perform a lodestar cross-check in which they compare the fee to the amount the lawyers would have earned at their ordinary billing rates. Having concluded that a multiplier of more than 23 was too high, Padova was forced to decide on his own what a reasonable fee would be. As a result, Padova cut the request by one-third and awarded the lawyers $20 million, noting that it still resulted in a multiplier of more than 15. But despite finding that a 30 percent fee would be “unreasonable,” Padova also had strong words of praise for the plaintiffs lawyers when explaining why he awarded a 20 percent fee. “The court finds that plaintiffs’ counsel obtained an early and excellent result in an extremely complex and risky case. The size of the fund is substantial and, as a percentage of estimated damages, well within the norm for cases which present the degree of risk undertaken by plaintiffs’ counsel in this case,” Padova wrote. Sharing in the fee will be a team of lawyers led by attorneys Jeffrey L. Kodroff of Spector Roseman & Kodroff in Philadelphia and Thomas M. Sobol of Hagens Berman in Boston. So far, the Paxil antitrust cases have cost the drug’s maker, SmithKline Beecham, more than $165 million in class action settlements, as well as untold millions more paid out in confidential settlements with some of the largest drug wholesalers who opted out of the class action. Padova, who is handling all of the cases, last month approved a $65 million settlement in Nichols v. SmithKline Beecham Corp., a suit brought on behalf of “indirect” purchasers. In the same ruling, Padova awarded $19.5 million in attorney fees to a team of plaintiffs lawyers who logged more than 17,000 hours on the case since December 2000. Padova also approved a $100 million settlement in Kodroff’s case — The Stop & Shop Supermarket Co. v. Smithkline Beecham Corp. — a class action brought on behalf of direct purchasers, such as drug wholesalers. Eight corporations which could have been members of the direct purchaser class opted out of the case and struck their own settlements with SmithKline. Together, the eight companies — CVS Meridian Inc., Rite Aid Corp., Walgreen Co., Eckerd Corp., Albertson’s Inc., The Kroger Co., Safeway Inc. and Hy-Vee Inc. — account for slightly more than one-third of the purchases of Paxil by direct purchasers. In the suits, plaintiffs alleged that SmithKline illegally maintained a monopoly for Paxil by filing a series of “sham” patent lawsuits that were designed to delay any generic version of the drug from reaching the market. The filing of a patent suit delays a generic drug from entering the market by 30 months, according to court papers. SmithKline admitted no liability in the settlements and maintained its position that its litigation efforts were not designed to cause any delay. But plaintiffs lawyers alleged that SmithKline attempted to monopolize the Paxil market by filing “sham” patent litigation against Apotex Inc. and TorPharm Inc., both of Weston, Ontario, soon after the generic manufacturers notified SmithKline that they were seeking approval from the Food & Drug Administration to copy Paxil. The suits came on the heels of news reports that said the Federal Trade Commission was investigating SmithKline for possible antitrust violations. But the FTC investigation was later closed without any government action against SmithKline. Paxil is the third-best-selling drug in the burgeoning category of anti-depressants that affect the “re-uptake” of serotonin, a neurotransmitter. Since its discovery in the 1950s, researchers have found mounting evidence that one of serotonin’s roles is to mediate emotions and judgment. With annual sales of $1.4 billion in 1999, Paxil was outsold only by Prozac, made by Eli Lilly, and Zoloft, made by Pfizer. When Padova approved the $100 million settlement in the direct purchaser case, he put off the issue of attorney fees due to a then-recent decision from the 3rd U.S. Circuit Court of Appeals that discussed the lodestar cross-check. Now, in a 46-page decision, Padova has concluded that the $30 million fee request was too high considering the relatively small number of hours devoted to the case. As settlements approach the $100 million level, Padova said, the 3rd Circuit has instructed that courts should consider reducing the percentage awarded to the lawyers to avoid an unreasonably large fee. In the 1985 3rd Circuit Task Force Report on Court Awarded Attorney Fees, Padova said the appellate court instructed the district courts that “ordinarily, the percentage of a recovery devoted to attorneys fees should decrease as the size of the overall settlement or recovery increases.” But in published decisions, Padova said, the 3rd Circuit has also advised that “there is no rule that a district court must apply a declining percentage reduction in every settlement involving a sizable fund.” Padova found there were also several factors that weighed in favor of awarding the full 30 percent fee requested. “Although the settlement class in this case is relatively small and consists of sophisticated businesses, not one member of the settlement class objected to the requested fee,” Padova noted. The case was also especially risky, Padova found, since there was no prior government investigation, or prior finding of civil or criminal liability based on antitrust violations. But Padova found that the amount of attorney time devoted to this litigation was “quite small in relationship to the requested fee.” In the indirect purchaser case, the plaintiffs lawyers logged about 17,000 hours and were awarded $19.5 million in fees, Padova noted. By contrast, he said, the lawyers in the direct purchaser case logged just about 4,200 hours. “The court recognizes that plaintiffs’ counsel should not be penalized for prosecuting this case in an efficient manner, or for keeping down the number of hours which they were required to devote to this case by coordinating merits discovery with plaintiffs’ counsel in [the indirect purchaser case]. Nonetheless, in considering whether a particular percentage of the common fund is an appropriate fee, the court may consider the amount of time devoted to a case by counsel as disfavoring the requested fee,” Padova wrote. Comparing the requested fee to the fees awarded in other “megafund” cases, Padova found that “the percentage requested in this case is among the highest that has ever been awarded in megafund cases.” In megafund cases in which the lawyers logged less than 10,000 hours, Padova noted, the highest percentage of the common fund awarded as an attorney fee was 5.5 percent. And in the four megafund cases in which fees of 30 percent or more of the common fund were awarded, Padova found that “not one involved the expenditure of less than 28,000 hours.” Turning to the lodestar cross-check, Padova found that the plaintiffs lawyers had logged hours that would have resulted in fees of more than $1.2 million at their ordinary billing rates. As a result, he said, the requested fee of $30 million would result in a multiplier of 23.59 — far greater than any multiplier yet approved by any court. “The court concludes that the percentage-of-recovery attorney fee requested in this case would lead to a lodestar multiplier that is extraordinarily and unjustifiably high,” Padova wrote. Having rejected the request, Padova was forced to decide the fee on his own and concluded that a 20-percent fee was reasonable. “This award is justified by the high caliber of plaintiffs’ counsels’ work in this case, even though the percentage of recovery represented by the fee in this case is greater than the average percentage of recovery awarded as a fee in megafund cases,” Padova wrote. Although the multiplier was still a high one — 15.6 — Padova found that fact was “neutralized” by the “extraordinary support” that the class members showed for the fee. “Not one member of the settlement class, which is made up of approximately 90 sophisticated businesses, objected to the [fee petition],” Padova wrote. In-house lawyers for some of the companies went so far as to file court papers urging the judge to approve the full 30-percent fee. “The court has taken such support as a clear indicator that the market supports a dramatic bonus for work so timely and well done,” Padova wrote.

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