Citigroup Inc. Securities Litigation
In 2013, CCAF (now part of CEI) objected to the fees in a securities class action in which class counsel sought an outsized percentage of the $590 settlement fund. Class counsel had submitted a $100.3 million fee request, which they claimed represented a lodestar (time they spent on the case multiplied by their hourly billing rates) of $51.4 million. But in reality, class counsel greatly exaggerated its lodestar by attributing $500-per-hour billing rates to temporary, $25-32-per-hour attorneys doing basic administrative work. To put it in perspective, the fee request would have amounted to over $900-per-hour spend on the case by temporary contract attorneys making $25-per-hour. And over 15 percent of the fee request was billed after the case had settled.
Based on CEI’s objection, the U.S. District Court for the Southern District of New York reduced the fees substantially in August 2013, returning $26.7 million to the class. The case received national publicity and encouraged other courts to scrutinize fee requests more closely.
After settlement funds were distributed to shareholder class members over several years, class counsel returned to court on February 5, 2016 to request distribution of the remaining amount, $374,000, to three third party advocacy groups. The court granted this request on February 16, before allowing only 14 days for interested parties to file an opposition under the rules. CEI moved to reconsider the order and objected to the distribution, arguing that the advocacy groups chosen by class counsel did not meet the legal standards for cy pres as the “next best” recipients. “Next best” means people, after class members themselves, who best represent the interests of the class – in this case, Citigroup shareholders.
Unfortunately, the district court declined to reconsider the order. So CEI appealed that ruling to the U.S. Court of Appeals for the Second Circuit, arguing that the cy pres groups did not reflect the interest of the class, that class counsel gave no notice to the class that a cy pres distribution was proposed, and that class counsel did not disclose a preexisting relationship as a donor to one of the chosen third party groups – an organization that actually litigates against Citigroup. The other two groups selected by class counsel take controversial stands on political issues that many class members disagree with.
On February 1, 2017, class counsel abruptly announced that the remaining dollars in the settlement fund could be distributed to class members, after all. Under their proposal, the leftover money will go to the U.S. Securities and Exchange Commission (SEC), due to the fact that the SEC is already poised to distribute funds to class members related to a different case. This outcome is a win for class members, who will now receive settlement dollars that would have otherwise gone to third-party advocacy groups. In March, the district court vacated the cy pres order, clearing the distribution of residual funds to the class.