Counsel for plaintiffs in a securities fraud lawsuit against Stericyle Inc. had their 25% fee award tossed Wednesday, with the Seventh Circuit remanding the case for “a fresh determination more in line with what an ex ante agreement would have produced.”
The district court didn’t consider an ex ante fee agreement between one of the plaintiff funds and its counsel, the US Court of Appeals for the Seventh Circuit said.
It also failed to give enough weight to prior related litigation involving Stericycle, which reduced counsel’s risk in taking on the matter, or to the early stage at which the litigation resolved.
The prior litigation, which led to settlements totaling more than $325 million, strengthened the plaintiffs’ case and “substantially reduced lead counsel’s risk of nonpayment,” Judge David F. Hamilton wrote for the court.
Objector Mark Petri didn’t challenge the $45 million settlement, which was reached while motions to dismiss were pending, challenging only the fee award and the lower court’s denial of a related discovery request.
The Seventh Circuit uses a market-based approach to determining fee awards, with the goal of approximating what the parties would have agreed to at the outset of the litigation and without the benefit of hindsight.
An ex ante agreement is recognized as “a particularly useful guidepost for determining the market rate,” but the district court didn’t address a 2016 agreement between lead counsel and the Mississippi’s attorney general, Hamilton said.
Had the court applied the sliding scale fee schedule from that agreement, class counsel would have been awarded $5.75 million, or 12.78% of the total settlement, and about half of the now-vacated $11.25 million award.
Class counsel argued, among other things, that no other firm filed a securities class action Stericycle, and that it was evidence of the litigation risk. But another fund seeking appointment as lead plaintiff sought to designate another firm as counsel, so this isn’t a case where there was no one else willing to do the work, Hamilton said.
Counsel also argued that Stericyle had a limited ability to pay, reporting only $52 million in available cash at the time of settlement, but Hamilton said the analysis should be based on the risk that existed at the outset of litigation, not at the time of settlement.
The Seventh Circuit affirmed denial of Petri’s related discovery request, and his request for sanctions for disparaging remarks that class counsel made in their brief about Petri’s lawyer, Theodore Frank.
“Lead counsel’s ad hominem attack on Frank was not professional and served only to emphasize the weakness of lead counsel’s own arguments,” Hamilton said.
The brief referred to Frank, director at the Hamilton Lincoln Law Institute and founder of the Center for Class Action Fairness, as a “notorious professional objector.”
Judges Frank H. Easterbrook and Michael S. Kanne joined the decision.
The class is represented by Bernstein, Litowitz, Berger & Grossmann. Stericycle is represents by Latham & Watkins.
The case is In re Stericycle Sec. Litig., 7th Cir., No. 20-2055, 5/18/22.