In re Wells Fargo & Company Shareholder Derivative Litigation

Background

The court was considering Plaintiffs’ motions for final approval of a derivative-action settlement and for attorney’s fees and expenses. The fee request included compensation for “contract” or “discovery” attorneys—attorneys who were not full-time employees of the law firms but were hired through an outside agency.

The court explained that attorney’s fees in a common-fund case may be calculated using either the percentage-of-recovery method or the lodestar method. The lodestar is calculated by multiplying the reasonable hours spent on the case by a reasonable hourly rate. Courts may also use the lodestar as a cross-check on a percentage-based fee award.

The Contract-Attorney Rates

Co-Lead Counsel reported 48,367.65 hours and hourly rates ranging from $295 to $415 for contract or discovery attorneys. Counsel calculated a total lodestar of $22,426,479.50, including $9,868,641 for contract-attorney work—44.6 percent of the claimed lodestar. Counsel stated generally that the contract attorneys were paid between $35 and $50 per hour, but did not provide the actual rate paid for the time of any particular contract attorney.

The court observed that this created a substantial difference between the amounts paid to the contract attorneys and the rates included in the lodestar. It reviewed several approaches courts have taken, including using a market rate, treating the payments as costs rather than lodestar fees, adding an overhead amount to the actual cost, or reducing a nominal market rate to account for the attorneys’ contract status.

The court identified another possible approach: determining what paying clients typically pay when law firms use contract attorneys. It reasoned that an actual price agreed upon by a willing buyer and willing seller may better show the market value than a rate proposed by Plaintiffs’ counsel. The court noted that the record did not answer whether firms pass along contract-attorney expenses as costs, add a markup, or bill the work at rates comparable to those for the firms’ own attorneys.

Order to Show Cause

Because the record lacked information needed to determine the market rate, the court ordered the parties to show cause why an expert should not be appointed under Rule 706 of the Federal Rules of Evidence. The proposed expert would address whether firms commonly charge a premium or multiplier when billing clients for contract-attorney services in complex litigation and, if so, the percentage most commonly charged.

The court stated that a Rule 706 expert would not advocate for either side, and the parties could still present their own experts. If appointed, the expert would prepare a report and could be deposed or called to testify. The parties would pay the expert’s costs and expenses in advance, divided equally between the two sides. The court was considering Dr. Daniel J. Acland and stated that he would be compensated at $300 per hour, while allowing the parties to propose other experts.

Responses to the order to show cause were due November 8, 2019. The court did not, in this order, appoint the expert or rule on the motions for settlement approval or attorney’s fees.