(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

Third Circuit: Lead Plaintiff Decides Attorney Fees

Three law firms that represented members in the Cendant class action litigation, but did not have lead-counsel status, were not entitled to compensation from the class recovery. The 3rd U.S. Circuit Court of Appeals decided that under the Private Securities Litigation Act, a presumption of correctness is granted to the lead plaintiff’s decision not to compensate non-lead counsel for work done after appointment of the lead plaintiff. The law firms claimed their work benefitted the class, and that they were entitled to compensation under the common fund doctrine. The court disagreed, saying "the PSLRA has significantly altered the landscape of attorneys’ fee awards in securities class actions."

Judge Becker wrote for the third circuit panel that "the historic common fund doctrine, which has traditionally governed the compensation of lead counsel in all class actions, has yielded, in PSLRA cases, to a paradigm in which the plaintiff with the largest stake in the case, usually a large and sophisticated institution, is accorded the status of lead plaintiff and assigned the right to appoint and duty to monitor lead counsel for the class." The court concluded that this right extends to allow lead plaintiff and their counsel to decide the compensation of non-lead counsel.

The court also concluded that representation of individual class members, and in particular monitoring of litigation for those individuals, is not compensable out of the class common recovery fund. Lawyers who claim to represent uncertified subclasses are also not entitled to compensation from the class recovery. 

In re Cendant Corp. Securities Litigation (3rdCir) is reported at Fed Sec L Rep ¶93,211.