## Facts

- Purchasers of Activision, Inc. securities brought consolidated securities-fraud class actions against Activision, its officers and directors, underwriters, accountants, and certain selling shareholders.
- The litigation involved extensive motion practice and discovery over roughly three years.
- As trial approached, the parties settled, creating a common fund to pay class members, attorneys’ fees, and litigation expenses.
- Class counsel sought attorneys’ fees and expense reimbursement from the fund, supported by time and expense records.
- A special master reviewed the submissions and recommended approximately $1.161 million in fees (about 22% of the fund) and nearly $400,000 in expenses (totaling about 32.8% of the fund).
- The court addressed the proper methodology for awarding fees and the reasonable amount to award from a common fund.

## Issues

1. In a class action settlement creating a common fund, should attorneys’ fees be calculated primarily by the lodestar method or as a percentage of the fund?
2. If a percentage method is used, what percentage is a reasonable benchmark and how should it be adjusted based on case-specific factors?
3. What role, if any, should the lodestar play in evaluating the reasonableness of a percentage-based award, and how should expenses be treated?

## Decision

- The court awarded attorneys’ fees from the settlement fund using a percentage-of-the-fund approach rather than a purely lodestar-based approach.
- The court adopted approximately 30% of the common fund as a generally reasonable benchmark for common-fund fee awards, subject to adjustment.
- The court treated litigation expenses as separately reimbursable but payable from the same common fund, approving reimbursement to the extent reasonable.
- The court used the lodestar analysis as a cross-check on the percentage award to guard against unreasonable results.

## Legal Principles

- In common-fund class actions, courts have discretion to award attorneys’ fees as a reasonable percentage of the fund.
- A percentage-of-the-fund methodology is generally preferable to a lodestar methodology in common-fund cases because it ties compensation more directly to results and reduces fee-related litigation burdens.
- A benchmark of roughly 30% of the common fund is a reasonable starting point for fee awards, adjustable based on factors such as results achieved, risk assumed, complexity, and quality of representation.
- The lodestar may be used as a secondary reasonableness check on a percentage award, rather than serving as the primary measure of fees.
- Reasonable litigation expenses may be reimbursed from the common fund in addition to attorneys’ fees.

## Conclusion

The court endorsed a percentage-of-the-fund approach for awarding attorneys’ fees in common-fund class action settlements, using a 30% benchmark subject to adjustment and applying the lodestar only as a cross-check, while permitting reimbursement of reasonable expenses from the fund.


In re Activision Sec. Litig., 723 F. Supp. 1373 (N.D. Cal. 1989)