The money stems from a record $3.2-billion settlement of a class-action securities case against Cendant, whose stock plummeted in value after the company publicly revealed accounting irregularities. The 1999 settlement also generated an enormous $262-million fee for the plaintiffs’ law firms, according to a New York Times story.
By one estimate, that amounted to $10,000 an hour for work on what some lawyers viewed as a simple case. That’s because Cendant, which owns brand names like Avis and Howard Johnson, admitted its wrongdoing on its own accord and was still operating, a process that normally requires much more complicated legal council. The New York City funds appealed the fee award and a federal appeals court overturned them, calling them “staggering.”
Lawyer Fees Cut to $55 Million
A renegotiated fee, $55 million, was submitted to the court last December and approved on February 5, Leslie Conason, who oversees securities litigation for the funds, told the Times. “This is probably the most dramatic example of the effect that a responsible institutional investor can have on class-action suits and attorneys’ fees,” Conason told the Times.
But although the city pension funds – along with the New York State Common Retirement Fund and the California Public Employees’ Retirement System – shared lead-plaintiff status in the lawsuit, New York City was the only plaintiff trying to cut the fees.
In the view of the city’s lawyers, they were doing what Congress envisioned when it changed securities litigation in 1995. The new law encouraged large pension funds to spearhead such lawsuits. Unlike small investors, the reasoning went, pension funds had the resources to keep law firms from taking overly large fees. But with the entry of institutional investors, some securities-law experts have complained that the selection of lawyers has become increasingly political, and that politicians have little incentive to negotiate low fees.