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Full Opinion
243 F.3d 722 (3rd Cir. 2001)
IN RE: CENDANT CORPORATION PRIDES LITIGATION,
WELCH & FORBES, INC., AN INSTITUTIONAL INVESTMENT MANAGER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
v.
CENDANT CORPORATION, MERRILL LYNCH & CO.; CHASE SECURITIES, INC.; HENRY R. SILVERMAN; WALTER A. FORBES; COSMO CORIGLIANO JOANNE A. ABOFF FAMILY TRUST, APPELLANT
Pursuant to Rule 12a
No. 99-5555
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
Argued December 15, 2000
Filed March 21, 2001
On Appeal from the United States District Court for the District of New Jersey District Judge: Honorable William H. Walls[Copyrighted Material Omitted][Copyrighted Material Omitted]
Howard B. Sirota (argued) Sirota & Sirota Llp 110 Wall Street, 21st Floor New York, New York 10005, Counsel for Appellant
Roger Kirby (argued) Kirby McInerney & Squire Llp 830 Third Avenue, 10th Floor New York, New York 10022, Counsel for Plaintiffs-Appellees
Samuel Kadet (argued) Skadden, Arps, Slate, Meagher & Flom Llp Four Times Square New York, New York 10036, Counsel for Defendants-Appellees
Before: Scirica, Fuentes and Garth, Circuit Judges
OPINION OF THE COURT
Garth, Circuit Judge
This appeal arises out of a class action filed on behalf of investors in Cendant Corporation ("Cendant") after Cendant disclosed prior "accounting irregularities" on April 15, 1998.1 Several actions were filed as a result of this disclosure, including an action commenced on June 15, 1998 on behalf of purchasers of Cendant's Feline PRIDES shares. The PRIDES litigation was subsequently consolidated with the other pending Cendant actions. However, on August 4, 1998, the District Court ruled that separate lead plaintiffs and lead counsel were to represent the interests of the PRIDES shareholders, as distinct from the rest of the Cendant class. (JA1300-01.)
The firm of Kirby, McInerney & Squire, formerly Kaufman, Malchman, Kirby & Squire, ("Kirby") was appointed as lead counsel of the Cendant PRIDES class. On November 12, 1998, Kirby filed a motion for class certification, for summary judgment on the claims under S 11 of the Securities Act, and for injunctive relief. On behalf of the PRIDES class, Kirby entered into a proposed settlement agreement with Cendant on March 17, 1999--three and a half months after Kirby's motions were filed and no more than nine months after the action had been started.
Under the settlement agreement, Cendant agreed to issue Rights to new PRIDES, with a stated value of $11.71. (JA576-79.) Those rights were in trade for existing PRIDES. The total possible number and amount of Rights to be distributed pursuant to the agreement was 29,161,474, with an approximate stated value of $341,500,000. (JA590.) Regarding Kirby's attorneys' fees, the settlement agreement provided: "Cendant... will take no position on an application by Lead Counsel for an award of fees and expenses provided that such application shall not request fees in excess of 10% percent [sic] of the aggregate Stated Value of 29,161,474 Rights, which is approximately $341,500,000, plus reasonable expenses incurred by Lead Counsel in connection with this Action." (JA590.)
The Notice of Pendency of Class Action summarized the proposed settlement of the PRIDES litigation. (JA239-52.) In connection with "Lead Counsel's fees and expenses," the Notice stated: "Lead Counsel has notified the other signatories hereto that it intends to apply to the Court for an award of fees, in an amount not to exceed 10% of the aggregate Stated Value of 29,161,474 Rights, or approximately $34.1 million, plus reasonable expenses." (JA247.) The Notice went on to explain how the attorneys' fees would be paid, first out of "Unclaimed Rights,"2 then out of "Opt Out Rights," then out of the rights of class members with claims.3
The Notice also asserted:
You also should know that the lead counsel appointment process included a court-mandated bidding process. This was intend to assure that the largest possible portion of any recovery remained with participating class members, or conversely that qualified lead counsel took the least possible sums from the benefits to be obtained by participating class members. In Lead Counsel's view, under the fee mechanism proposed by Lead Counsel and described herein, there is a substantial likelihood that a substantial part, if not all, of the fees sought will be obtained from Unclaimed Rights and Opt Out Rights. As a consequence, in Lead Counsel's view, those Class Members who become Authorized Claimants will not have to pay any of Lead Counsel's fees, or if they do, there is a substantial likelihood that it will be less than the amount otherwise payable under the bids approved by the Court in the process of appointing lead counsel.
(JA247.)
On May 4, 1999, the Joanne A. Aboff Trust ("Trust") filed several objections to the notice of settlement, all of which pertained to Kirby's representation and fee request,4 as well as a notice of its intention to appear at the settlement hearing. (JA38-78.) At the settlement hearing on May 18, 1999, lead counsel stated that "[t]here is no objection to the settlement," (JA736), and the Trust's attorneys objected only to selection of class counsel and Kirby's request for attorneys' fees.
On June 15, 1999, the District Court signed an Opinion and Order approving the settlement, stating: "The Court considers the settlement to be eminently fair and reasonable. The class is made completely whole by such compensation. There are no objections voiced to the settlement--only to the request for attorney fees. The proposed settlement is approved subject to the following modifications to the attorneys' fees." In re Cendant Corp. PRIDES Litig., 51 F.Supp.2d 537, 541 (D.N.J. 1999).
The District Court granted Kirby's request for expenses, finding that the requested expenses of $2,367,493 were "reasonable and necessary to the prosecution of this litigation." 51 F.Supp.2d at 542. Then the Court found that, for attorneys' fees, Kirby should receive a number of Rights equivalent to 5.7% of the balance of Rights received by the Class. That percentage amounts to 1,650,680 Rights, valued at approximately $19,329,463. The District Court directed "Lead Counsel to seek to satisfy payment of these awards of expenses and fees from any unclaimed Rights. Then, and only then, to the extent that such fees and expenses have not been satisfied by unclaimed Rights, shall any deficiency be assessed against and borne by the class." 51 F.Supp.2d at 542. The Court went on to instruct that "[a]ny rights unclaimed after authorized class claimants and Lead Counsel have been issued their entitled Rights shall be canceled by Cendant Corporation." 51 F.Supp.2d at 542.
On June 15, 1999, the District Court entered an Order and Judgment5 certifying the PRIDES class for settlement, approving the settlement "and the distribution of Rights and New PRIDES to Authorized Claimants set forth therein," dismissing with prejudice all settled claims, and awarding Lead Counsel 1,650,680 Rights as reasonable attorneys' fees and 202,177 Rights as reimbursement of Lead Counsel's reasonable expenses. (JA728-30.) On the same date and as part of its opinion, the District Court denied the Trust's application for attorneys' fees. On July 22, 1999, the Trust timely appealed the District Court's June 15 Orders and Judgment.
We have jurisdiction over this appeal pursuant to the final order doctrine of 28 U.S.C. S 1291, and we review the District Court's award of attorneys' fees for an abuse of discretion, "which can occur `if the judge fails to apply the proper legal standard or to follow proper procedures in making the determination, or bases an award upon findings of fact that are clearly erroneous.' " Zolfo, Cooper & Co. v. Sunbeam-Oster Co., 50 F.3d 253, 257 (3d Cir. 1995) (quoting Electro-Wire Prods., Inc. v. Sirote & Permutt, P.C. (In re Prince), 40 F.3d 356, 359 (11th Cir. 1994)).
On August 27, 1999, Kirby filed a Motion in this court to dismiss the Trust's appeal for lack of standing, as well as presenting the standing issue in its appellate brief.
I.
Before we consider the merits of the Trust's appeal, a threshold question must be answered: does the Trust have standing to challenge the District Court's award of attorneys' fees to Kirby? See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998) (stating that "[t]he requirement that jurisdiction be established as a threshold matter `spring[s] from the nature and limits of the judicial power of the United States' and `is inflexible and without exception' "). Because "the core component of standing is an essential and unchanging part of the case-or-controversy requirement of Article III," Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), we may not hear this appeal if the Trust does not have standing.
"Ordinarily, only a party aggrieved by a judgment or order of a district court may exercise the statutory right to appeal therefrom. A party who receives all that he has sought generally is not aggrieved by the judgment affording the relief and cannot appeal from it." Deposit Guar. Nat'l Bank v. Roper, 445 U.S. 326, 333 (1980) (emphasis added). In Ace Heating & Plumbing Co. v. Crane Co., the Third Circuit explicated the application of this principle to class actions, holding: "aggrieved class members may appeal any final order of a district court in proceedings held pursuant to Rule 23. This general proposition holds true even though such class members have the right to exclude themselves from the class." 453 F.2d 30, 32 (3d Cir. 1971) (emphasis added).
The standing question in this case is troublesome, because it appears as if the PRIDES settlement has provided the class members with full recovery and because any reduction in the amount of attorneys' fees to Kirby will not be distributed among the class members, but instead those rights will be returned to and canceled by Cendant. Therefore, Kirby argues, the Trust is not aggrieved by the award of attorneys' fees and has no standing to appeal.
While this argument admittedly has a superficial attraction because the PRIDES class members will seemingly recover a "dollar-for -dollar" return for their claims and Kirby's fees will not reduce their recovery, we nevertheless hold that the Trust does have standing to appeal the award of attorneys' fees.6 We base this holding on two related concepts: 1) the nature of the relationship between class plaintiffs, class counsel, and defendants in class actions requires that the "aggrieved" requirement be construed broadly in class action cases; and 2) the judiciary's independent authority over the appointment of class counsel, the grant of attorneys' fees, and the review of attorneys' fee awards in class actions. In connection with these two principles, we require that district courts conduct an extensive analysis and inquiry before determining the amount of fees, because we have an independent interest in monitoring district courts' fee awards, particularly those awards stemming from Rule 23 class actions. See, e.g., Zucker v. Occidental Petroleum Corp., 192 F.3d 1323, 1328 (9th Cir. 1999); see generally Advisory Committee's Notes on Fed. R. Civ. P. 23, 28 U.S.C., Notes following Rule 23 (addressing, inter alia, "the question of the measures that might be taken during the course of the action to assure procedural fairness"). Indeed, we are in effect third parties to the fee award process, albeit silent parties for the most part until the award is finalized and reviewed.
A.
Ostensibly, lead class counsel represents all class plaintiffs. However, in attempting to settle a large class action, class counsel must often spend more time negotiating with and interacting with the defendants than with their own clients. This situation presents several dangers. First, as we observed in Prandini v. National Tea Co., "a defendant is interested only in disposing of the total claims asserted against it[, and] the allocation between the class payment and the attorneys' fees is of little or no interest to the defense." 557 F.2d 1015, 1020 (3d Cir. 1977). Moreover, the "divergence in [class members' and class counsel's] financial incentives... creates the `danger... that the lawyers might urge a class settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment for fees.' " In r e General Motors Corp. Pick-Up Truck Fuel Tank Prod. Liab. Litig. (hereinafter "In re GM Trucks"), 55 F.3d 768, 820 (3d Cir. 1995) (quoting Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 524 (1st Cir. 1991)).
This unique relationship among plaintiffs' counsel, plaintiffs, and defendants in class actions imposes a special responsibility upon appellate courts to hear challenges to fee awards by class members whose claims may have been reduced or in some way affected in exchange for large fee awards. See In re GM Trucks, 55 F.3d at 819-21. This is so even in this case, where the Trust presumably will not benefit from a reduction in Kirby's attorneys' fees, because the PRIDES settlement was structured so that any remaining Rights will be returned to Cendant.
The Ninth Circuit addressed a similar situation in Zucker v. Occidental Petroleum Corp., 192 F.3d 1323 (9th Cir. 1999), pointing out in its discussion that, even where the plaintiff "gets the same money whether the fee is cut or not,... a client whose attorney accepts payment, without his consent, from the defendants he is suing, may have a remedy, and this remedy may extend to a plaintiff class whose class attorneys accept payment from the defendants the class is suing." 192 F.3d at 1326.
The Ninth Circuit took this reasoning a step further in Lobatz v. U.S. West Cellular of Calif., in which the court, holding that a class member had standing to appeal an attorneys' fee award "even though that award was payable independent of the class settlement," stated:
If... class counsel agreed to accept excessive fees and costs to the detriment of class plaintiffs, then class counsel breached their fiduciary duty to the class[, and] any excessive award could be consider ed property of the class plaintiffs, and any injury they suffered could be at least partially redressed by allocating to them a portion of that award.
Lobatz, 222 F.3d 1142, 1147 (9th Cir. 2000).
Under the Ninth Circuit's analysis, therefore, the Trust need not benefit from a reduction in Kirby's fee to have standing to appeal. Moreover, the Ninth Circuit suggested in Zucker that the requirement that class plaintiffs be aggrieved should be construed broadly, citing Judge Sneed's observation in his dissent in In re First Capital Holdings "that `[a]rguably, a class member always retains an interest in attorney fees, even when her claims have been met in full.' " Zucker, 192 F.3d at 1328 (quoting In re First Capital Holdings Corp. Fin. Prods. Sec. Litig., 33 F.3d 29, 31 (9th Cir. 1994) (Sneed, J., dissenting)).
As a class member, the Trust was eligible to receive "one Right, a marketable security freely tradeable until February 14, 2001, having the terms described herein for each Income PRIDES and Growth PRIDES ($50.00 face amount) beneficially owned by Class members at the close of business on April 15, 1998 if such Class member submits a valid and timely proof of claim form." (JA239.) The Notice of the Proposed Settlement stated that "[e]ach Right will be designed to have a stated or theoretical value of $11.71," but acknowledged that "the Rights may trade in the market at a price below their theoretical value." (JA239.) Moreover, the Notice stated that "Cendant believes that recoverable damages (if any) per share could be lower or higher than the per PRIDES damages estimated by lead counsel for the Class." (JA239.)7
Though Kirby asserts that each class member received full recovery from this settlement, in which case, it is contended, the Trust would not be aggrieved by the fee award, the description of the settlement in the Notice and its ultimate implementation by class members is uncertain as to class members' actual recovery. Because class members received rights which must be traded on the market to be liquidated, a number of factors could contribute to class members not receiving the theoretical $11.71 per Right. It is noteworthy that the settlement provided class members with no immediate cash payment, but rather left class members in the position of relying on the marketability of their new Rights for reimbursement of their claims. That reliance, apart from any other market risks, might itself be chancy in light of Cendant's history of "accounting irregularities" and in light of the recent market and economy slow down.
Nor does even a "dollar-for-dollar" recovery in cash undermine our power and jurisdiction and our special responsibility to review fee awards. Indeed, though the fact of market fluctuation and its effect on the value of class members' recovery influences our decision that the Trust has standing, we are equally convinced of our appellate jurisdiction over class settlements in which plaintiffs received a "dollar-for-dollar" recovery in cash. Indeed, it would be preposterous to hold that, even where a district court awarded a fee of 75% of the recovery to class counsel, we would have no power to review such an inappropriate and outrageous award in the absence of an objector whose claims had been directly reduced as a result of the award. Our oversight and supervisory function would necessarily come into play to correct such a decree. This duty of review with which we are vested will be discussed in more detail in the next section.
B.
As indicated above, we are convinced of our obligation to vacate the District Court's order awarding fees by the special position of the courts in connection with class action settlements and attorneys' fee awards. As we observed in In re GM Trucks, "a thorough review of fee applications is required in all class action settlements." 55 F.3d at 819. Specifically, the danger inherent in the relationship among the class, class counsel, and defendants "generates an especially acute need for close judicial scrutiny of fee arrangements" in class action settlements.8 55 F.3d at 820. In discussing this duty of district courts to oversee class settlements in In re GM Trucks, we explained:
the court's oversight task is considerably complicated by the fact that these attorney-class conflicts are often difficult to discern in the class action context, "where full disclosure and consent are many times difficult and frequently impractical to obtain." Finally, we emphasize that the court's oversight function serves not only to detect instances of "the actual abuse [that potential attorney-class conflicts] may cause, but also [the] potential public misunderstandings they may cultivate in regard to the interests of class counsel."
55 F.3d at 820 (quoting In re Agent Orange Prod. Liab. Litig., 818 F.2d 216, 224, 225 (2d Cir. 1987)). In other words, we indicated in In re GM Trucks the importance of the judicial role in finalizing class action settlements, and we suggested that this importance derived from general concerns about "potential public misunderstandings" as much as from a desire to protect the plaintiffs in the particular class.
In Zucker, in asserting that the district court was required to review the award of attorneys' fees regardless of whether anyone had standing to challenge the award, the Ninth Circuit stated:
In a class action, whether the attorneys' fees come from a common fund or are otherwise paid, the district court must exercise its inherent authority to assure that the amount and mode of payment of attorneys' fees are fair and proper. This duty of the court exists independently of any objection. Therefore it exists, a fortiori, regardless of whether an objector has a remediable economic stake in the court's decision. Because the district court had the authority and duty to pass upon the fairness of the attorneys' fees settlement independently of whether there was objection, we need not decide whether the objector had standing.
The court in Zucker further explained that "[n]o Article III case or controversy is needed with regard to attorneys' fees as such, because they are but an ancillary matter over which the district court retains equitable jurisdiction." 192 F.3d at 1329. The Ninth Circuit found support for this proposition in the reasoning of the Eighth Circuit that "because `the reasonableness of attorneys' fees is within the overall supervisory authority' of the court in a class action, the court did not need to reach the question of whether an objector has standing." Zucker, 192 F.3d at 1329 (quoting Grunin v. Int'l House of Pancakes, 513 F.2d 114, 127 n.13 (8th Cir. 1975)).
While the statements in In re GM Trucks and Zucker refer to the authority of district, not appellate, courts in connection with class action settlements, the cases make clear that reviewing courts retain an interest--a most special and predominant interest--in the fairness of class action settlements and attorneys' fee awards. Accordingly, our interest as a reviewing court in ensuring that district courts fulfill their obligations and comply with the instructions and guidelines in this area bolsters our determination that the Trust has standing to challenge Kirby's fee award.
Nor is our responsibility in connection with class action matters restricted to reviewing the final fee determination made by the District Court. Our interest and supervisory role is pervasive and extends not only to the final fee award but also to the manner by which class counsel is selected and the manner by which attorneys' fee conditions are established.
Here, the District Court employed a sealed-bid auction to select class counsel. That process, which occurred virtually at the inception of the instant class action, is itself fee-driven. As such, it invites, indeed requires, judicial examination and, hence, our jurisdiction. This is so both because of the unique relationship between class members, class counsel, and the defendants in class actions and because of our strong interest in the fair ness of class settlements and the cost of achieving such settlements. See, e.g., John C. Coffee, Jr., National Law Journal, Sept. 14, 1998, at B6 (discussing selection of lead counsel through auctions and "bidding rules").
Because it is the district court's function to participate in the litigation process in this way, as the District Court did here, and because, as noted, our judicial scrutiny reaches to all corners of the class action process including the selection of class counsel--a selection which impacts on the final fee award and fairness of the settlement--we would be remiss if we failed to exercise our jurisdiction in this area.
An analogy, albeit one that is far afield from class action fees, is helpful to illustrate and emphasize the court's interest and the role that our interest plays in our decision to hear this appeal. In Powers v. Ohio, a post-Batson case,9 the Supreme Court held that a white criminal defendant had standing to object to and appeal the exclusion of black jurors through peremptory challenges, even though the defendant and the potential jurors were of different races. 499 U.S. 400 (1991). In its discussion of standing, the Court stated:
The discriminatory use of peremptory challenges by the prosecution causes a criminal defendant cognizable injury, and the defendant has a concrete interest in challenging the practice. This is not because the individual jurors dismissed by the prosecution may have been predisposed to favor the defendant; if that were true, the jurors might have been excused for cause. Rather, it is because racial discrimination in the selection of jurors "casts doubt on the integrity of the judicial process," and places the fair ness of a criminal proceeding in doubt.
Powers, 499 U.S. at 411 (internal citations omitted).
Likewise, just as discriminatory selection of jurors "casts doubt on the integrity of the judicial process" such that the defendant in Powers had standing to appeal, the integrity and fairness of class settlements is threatened by excessive attorneys' fee awards such that class plaintiffs have standing to challenge excessive fee awards, even when they have received dollar-for-dollar recovery in the class settlement.
Because of the possible injury to the Trust as well as other class members from the fee award in this case and, more importantly, because of our overarching interest in class fee awards, we therefore hold that the Trust has standing to appeal the fee award. Accordingly, we now turn to the fee award that the District Court granted to Kirby and review that award for an abuse of discretion. See In re GM Trucks, 55 F.3d 768, 782 (3d Cir. 1995).
II.
There are two primary methods for calculating attorneys' fees: the percentage-of-recovery method10 and the lodestar method.11 "The percentage-of-recovery method is generally favored in cases involving a common fund,12 and is designed to allow courts to award fees from the fund `in a manner that rewards counsel for success and penalizes it for failure.' " In re Prudential, 148 F.3d at 333. "The lodestar method is more commonly applied in statutory fee-shifting cases, and is designed to reward counsel for undertaking socially beneficial litigation in cases where the expected relief has a small enough monetary value that a percentage-of-recovery method would provide inadequate compensation." 148 F.3d at 333.
The total settlement in this case was valued at $341,500,000, and the District Court granted attorneys' fees in the amount of $19,329,463.13 As the District Court noted, this amount constitutes 5.7% of the class's total recovery. In connection with the lodestar calculation, the District Court observed that "Lead Counsel, through its principal partners, associates, and paralegals expended approximately 5,600 hours, and its senior partners have a regular hourly rate of $495." 51 F.Supp.2d at 542. Using the $495 hourly rate, the lodestar multiplier14 for the District Court's fee award is 7.15
Two primary principles govern our review of the District Court's fee award to Kirby: 1) did the District Court provide sufficient explanation for granting the fee award of $19.3 million?; and 2) was the award so unreasonably high that the District Court abused its discretion in granting that amount in attorneys' fees?
A.
In Gunter v. Ridgewood Energy Corp., we considered a district court's award of attorneys' fees in a class action settlement. 223 F.3d 190 (3d Cir. 2000). That case involved a $9.5 million settlement, out of which the district court allowed attorneys' fees amounting to 18% of the settlement fund, significantly less than the one-third requested by the attorneys. 223 F.3d at 191. The district court in Gunter explained its decision as follows: "The nature of this litigation, its resolution at this stage without the necessity of trial, the nature of the settlement, and its value, convince the court that it would place a reasonable bur den on the class to award attorneys' fees of 18% of the Settlement Fund, or $1,700,000." 223 F.3d at 192 (citing Gunter v. Ridgewood Energy Corp., Civ. No. 95-438 (WHW), at 3 (D.N.J. Nov. 16, 1999)). The attorneys appealed the district court's reduction of their fee request.
In reviewing the district court's fee award in Gunter, we stated that "[w]e give [a] great deal of deference to a district court's decision to set fees." 223 F.3d at 195. However, we noted, "[n]otwithstanding our deferential standard of review, it is incumbent upon a district court to make its reasoning and application of the fee-awards jurisprudence clear, so that we, as a reviewing court, have a sufficient basis to review for abuse of discretion." 223 F.3d at 196. Therefore, "if the district court's fee-award opinion is so terse, vague, or conclusory that we have no basis to review it, we must vacate the fee-award order and remand for further proceedings." 223 F.3d at 196. In addition, "if a district court does not fulfill its duty to apply the relevant legal precepts to a fee application, it abuses its discretion by not exercising it." 223 F.3d at 196.
In Gunter, we vacated the district court's fee award because the district court "dealt with the fee-award issue in a cursory and conclusory fashion" and did not employ the factors which this Court has stated that district courts should consider in awarding fees using the percentage-of-recovery method in common-fund class actions. See Gunter, 223 F.3d at 196-97. These factors were set forth in Gunter in a footnote:
Among other things, these factors include: (1) the size of the fund created and the number of persons benefitted; (2) the presence or absence of substantial objections by members of the class to the settlement terms and/or fees requested by counsel; (3) the skill and efficiency of the attorneys involved; (4) the complexity and duration of the litigation; (5) the risk of nonpayment; (6) the amount of time devoted to the case by plaintiffs' counsel; and (7) the awards in similar cases.
Gunter, 223 F.3d at 195 n.1 (citing In re Prudential, 148 F.3d 283, 336-40 (3d Cir. 1998); In re GM Trucks, 55 F.3d 768, 819-22 (3d Cir. 1995)).
As in Gunter, the District Court's fee opinion in this case was too cursory for us to "have a sufficient basis to review for abuse of discretion." Gunter, 223 F.3d at 196. The District Court did not even specify whether it was using the percentage-of-recovery method or the lodestar method to set attorneys' fees. Nor, if the District Court intended to utilize the lodestar method, did it calculate the lodestar multiplier. Rather, the District Court, in a conclusory paragraph bereft of analysis, stated:
This Court has examined the time expended by Lead Counsel and the regular hourly rates of its services. Lead Counsel, through its principal partners, associates, and paralegals expended approximately 5,600 hours, and its senior partners have a regular hourly rate of $495. This represents significant effort. But the Court is more impressed by the quality of result than the quantity of effort. The class will receive its full entitlement. And resolution of this matter was greatly accelerated by the creative dynamism of counsel. For this, counsel should not be penalized by a slavish application of the lodestar. We have seen the gifted execution of responsibilities by a lead counsel.
51 F.Supp.2d at 542. Despite the District Court's obvious dissatisfaction with the lodestar method, the court did not even address the percentage-of-recovery method, except to the extent that it calculated that the fee award constituted 5.7% of the total class recovery.
The percentage-of-recovery method has long been used in this Circuit in common-fund cases. Indeed, in the 1985 Third Circuit Task Force report entitled Court Awarded Attorney Fees, the Task Force discussed the problems with the lodestar method in detail. "Accordingly, the Task Force recommend[ed] that in the traditional common-fund situation..., the district court... should attempt to establish a percentage fee arrangement." Task Force Report, 108 F.R.D. 237, 255 (1985). Since that time, we have several times reaffirmed that application of a percentage-of-recovery method is appropriate in common-fund cases. See, e.g., Gunter v. Ridgewood Energy Corp., 223 F.3d 190, 195 n.1 (3d Cir. 2000); Brytus v. Spang & Co., 203 F.3d 238, 243 (3d Cir. 2000); In re Prudential, 148 F.3d 283, 333-34 (3d Cir. 1998); In re GM Trucks, 55 F.3d 768, 821 (3d Cir. 1995).
Though this is not a traditional common-fund case, because the unclaimed portion of the settlement fund is returned to Cendant and because the plaintiffs who recover may not be affected by the attorneys' fee award (depending on the number of plaintiffs who recover rights from the fund), use of the percentage-of-recovery method is appropriate in this case. Since the District Court highlighted the inadequacy of the lodestar method, it can be assumed that that court also perceived that the percentage method was a better method of calculating attorneys' fees in this case. This is consistent with the District Court's opinion awarding attorneys' fees in the larger and separate Cendant settlement, in which it did declare, "[f]ollowing established Third Circuit law..., the Court will award fees by a percentage-of-recovery method." In re Cendant Corp. Litig., 109 F.Supp.2d 285, 298 (D.N.J. 2000).16
As discussed above, we have articulated at least seven factors to be considered by district courts in setting percentage fee awards in common fund cases. See Gunter, 223 F.3d 190, 195 n.1 (3d Cir. 2000). The District Court, however, did not explicitly consider any of these factors.17 In addition to rejecting the lodestar method, the District Court stated: "The Court appreciates Lead Counsel's verve and the eminently satisfactory results it obtained for the class. There are no objections to the settlement agreement." 51 F.Supp.2d at 541. In addition, the District Court mentioned the initial sealed bidding process and referred to the resulting bid to which Kirby agr