## Facts

- Cendant Corporation issued FELINE PRIDES securities in a public offering valued at about $1.5 billion.
- After Cendant disclosed accounting irregularities, PRIDES investors brought a securities class action.
- Kirby, McInerney & Squire, LLP was appointed lead class counsel.
- Class counsel obtained a settlement valued at about $314 million within roughly nine months, providing exchange rights into properly valued Cendant stock.
- Class counsel sought attorneys’ fees of 10% of the settlement value ($31.4 million) plus expenses, supported by about 5,600 hours and an estimated lodestar of roughly $2.7–$2.8 million.
- The district court approved expenses (about $2.37 million) and awarded fees of about $19.3 million (5.7% of the recovery), without a detailed methodological explanation; the award was about seven times the lodestar.
- Under the settlement structure, any reduction in fees would revert to Cendant rather than increase class members’ recoveries.
- An objecting class member, the Joanne A. Aboff Family Trust, appealed the fee award.

## Issues

1. Whether an objecting class member has standing to appeal a fee award when any fee reduction would revert to the defendant rather than increase class recovery.
2. Whether the district court abused its discretion by awarding a large percentage-of-recovery fee with a high lodestar multiplier without a sufficiently reasoned explanation.
3. What analysis and explanations are required in the Third Circuit when setting attorneys’ fees in common-fund class actions, including use of a lodestar cross-check and treatment of very large funds.

## Decision

- The court held the objecting class member had standing to appeal the fee award despite the reversionary settlement structure.
- The court vacated the approximately $19.3 million fee award as an abuse of discretion.
- The court remanded for recalculation and a fuller explanation consistent with Third Circuit requirements.
- The court left the underlying class settlement intact and addressed only the fee component.

## Legal Principles

- In common-fund cases, the percentage-of-recovery approach is generally appropriate, but courts should perform a lodestar cross-check to test reasonableness.
- District courts must clearly articulate the basis for the selected percentage and any resulting lodestar multiplier, in a manner that permits meaningful appellate review.
- Large funds require special care because small percentage changes can produce very large fees; substantial multipliers require especially careful justification.
- Relevant fee factors include: fund size and number benefited, objections, counsel’s skill and efficiency, litigation complexity and duration, risk of nonpayment, time expended, and awards in comparable cases.
- Class members may appeal fee awards to protect the fairness of the class action process and the proper administration of the recovery, even if fee reductions would revert to the defendant.

## Conclusion

The Third Circuit required transparent, factor-based review of common-fund fee requests, including a lodestar cross-check and justification of any substantial multiplier, and it confirmed that objecting class members may appeal fee awards even when a reduction would not increase their individual recoveries.


In re Cendant Corp. PRIDES Litig., 243 F.3d 722 (3d Cir. 2001)