## Facts

- Investors filed federal securities class claims against Stericycle, Inc., certain officers/directors, and underwriters after disclosures and related proceedings concerning allegedly improper billing and price increases.
- The district court approved a $45 million class settlement in the Northern District of Illinois.
- Class counsel sought attorney’s fees equal to 25% of the common fund, plus expenses.
- A class member objected that 25% was excessive because the case settled early and counsel benefited from substantial factual and legal work developed in earlier investigations and litigation.
- The objector also sought discovery into possible “pay-to-play” arrangements, alleging political and financial connections (including campaign contributions) between class counsel and a public-pension lead plaintiff or affiliated officials.
- The district court awarded the 25% fee using a percentage-of-the-fund approach and denied the objector’s discovery request.

## Issues

1. Whether the district court abused its discretion by awarding 25% of the $45 million common fund without adequately analyzing market-based fee evidence, the case’s risk, early settlement posture, and the extent of work inherited from prior proceedings.
2. Whether the district court abused its discretion by denying the objector’s request for discovery into alleged pay-to-play relationships in light of the PSLRA and the objector’s factual showing.

## Decision

- The court of appeals vacated the fee award and remanded for reconsideration and a fuller explanation grounded in market evidence and case-specific risk and effort.
- The court of appeals affirmed the denial of the objector’s discovery request.
- The court held the district court gave insufficient weight to (i) evidence of ex ante fee arrangements or comparable market indicators, (ii) the benefits class counsel inherited from earlier litigation and investigations, and (iii) the early stage at which settlement was reached.
- The court held the objector’s pay-to-play allegations were too speculative to justify discovery, particularly given the PSLRA’s limits on discovery and the district court’s discretion to manage settlement-related proceedings.

## Legal Principles

- In common-fund class actions, fee awards must approximate the market price for legal services, considering the risk of nonpayment and prevailing market compensation.
- Percentage-of-the-fund and lodestar methodologies are permissible tools, but neither substitutes for a market-rate inquiry tailored to the case.
- Courts should give significant weight to probative evidence of ex ante fee arrangements negotiated by sophisticated clients, rather than relying on a fixed “benchmark” percentage.
- In setting fees, courts should account for case-specific factors affecting risk and effort, including early settlement and preexisting work product from earlier litigation or investigations that reduces counsel’s burden and risk.
- A lodestar cross-check is not mandatory, but may be useful to test whether a percentage award is reasonable given the work performed and risk assumed.
- Objector discovery in securities class actions may be denied absent a concrete, non-speculative factual predicate, especially where broad discovery would conflict with the PSLRA’s policy of limiting costly discovery before dismissal-stage thresholds are met.
- District courts have broad discretion to control discovery and manage objections during settlement and fee approval.

## Conclusion

The Seventh Circuit required a reassessment of the class counsel fee because the district court’s 25% award was not adequately justified by market-rate evidence and case-specific risk and effort, while upholding the denial of objector discovery into alleged pay-to-play ties due to an insufficient factual basis and the PSLRA’s constraints on discovery.


In re Stericycle Sec. Litig., 35 F.4th 555 (7th Cir. 2022)