## Facts

- A certified investor class sued Cabletron Systems, Inc. and certain officers/directors under the Securities Exchange Act and Rule 10b-5 for alleged misstatements and omissions.
- The litigation lasted about seven years and included dismissal in the district court and a partial reversal by the First Circuit, followed by extensive discovery and settlement negotiations.
- The parties reached a class-wide settlement creating a $10.5 million cash common fund.
- After final settlement approval, class counsel moved for attorneys’ fees equal to 30% of the fund ($3.15 million) and reimbursement of approximately $915,414.01 in litigation expenses.
- Counsel reported 22,397 hours of work on the matter and asserted substantial contingent risk of nonpayment given PSLRA pleading and merits hurdles.

## Issues

1. Whether a 30% percentage-of-the-fund fee award from a $10.5 million common fund was reasonable under the common-fund doctrine and First Circuit standards, as confirmed by a lodestar cross-check.
2. Whether the requested litigation expenses of approximately $915,414.01 were reasonable, necessary, and properly payable from the common fund.

## Decision

- The court granted class counsel’s motion for attorneys’ fees, awarding 30% of the $10.5 million common fund (about $3.15 million).
- The court approved reimbursement of the requested litigation expenses in essentially the requested amount, finding them reasonable and necessary.
- The court used the percentage-of-the-fund method as the primary approach and employed a lodestar cross-check to confirm the award’s reasonableness.

## Legal Principles

- When counsel’s efforts create a common fund for a class, counsel is entitled to a reasonable fee set by the court and paid from the fund.
- In common-fund class actions, the percentage-of-the-fund method is an accepted primary approach; reasonableness is evaluated using factors such as the result achieved, litigation risk, quality of representation, complexity and duration, contingency, and awards in comparable cases.
- A lodestar cross-check may be used to test whether a percentage award is reasonable and not a windfall; multipliers within ranges commonly approved in similar class actions support reasonableness.
- Out-of-pocket litigation expenses may be reimbursed from the fund when they are reasonable, necessary to prosecution, and of a type ordinarily billed to a paying client.

## Conclusion

The court held that, given the settlement result, extended duration, contingent risk, and comparable market benchmarks, a 30% fee from the $10.5 million common fund was reasonable and was supported by a lodestar cross-check, and it approved reimbursement of counsel’s litigation expenses as reasonable and necessary.


In re Cabletron Sys., Inc. Sec. Litig., 239 F.R.D. 30 (D.N.H. 2006)