Where certain of Altria Group Inc.’s directors and officers reached a settlement with shareholders who alleged they breached their fiduciary duties, the shareholders’ counsel was awarded $15 million in attorney’s fees. Although counsel sought $17.5 million in fees, the amount was reduced because substantial involvement by the court was required to ensure that the settlement agreement amounted to something more than a paper tiger.
This case is a shareholder derivative action arising out of Altria Group Inc.’s 2018 investment in Juul Labs Inc., or JLI. On behalf of Altria shareholders, plaintiffs allege that certain Altria directors and officers breached their fiduciary duties to the company by consciously disregarding the legal, regulatory, reputational and financial risks associated with the JLI investment. Plaintiffs bring additional claims against the Altria defendants for breach of fiduciary duty and waste of corporate assets.
The parties reached a settlement agreement in the spring of 2022. However the court found this initial agreement lacking. Armed with the court’s suggestions as to how to improve the settlement, and with the assistance of a magistrate judge, the parties reached a revised settlement. The court preliminarily approved a revised settlement on Oct. 26, 2022.
After four Altria shareholders filed a joint objection to the proposed settlement, the parties once again amended the proposed settlement. The objectors then informed the court that the proposed settlement “adequately addresse[d]” their concerns, thus resolving the sustained objection. The court therefore granted final approval of the settlement.
Plaintiffs now move for a fee and expense award of $17.5 million. Such an award would represent a 1.5x multiple on plaintiffs’ counsel’s lodestar, which plaintiffs calculate at approximately $11,664,544.50. Plaintiffs’ counsel also incurred $220,614.44 in expenses in litigating the instant suit, though plaintiffs do not seek a separate expense award. Finally, plaintiffs’ counsel requests the court’s approval of a $15,000 service award to each of the five named plaintiffs.
Though the settlement agreement constitutes a victory for Altria shareholders, the court cannot find that the result obtained fully supports plaintiffs’ counsel’s $17.5 million fee request. Rather, plaintiffs’ counsel’s performance, though capable, necessitated substantial involvement by the court to ensure that the settlement agreement amounted to something more than a paper tiger.
Plaintiffs’ counsel negotiated an agreement lacking any enforcement mechanism or independent oversight, necessitating the court’s subsequent efforts to provide these missing elements. Absent the court’s twice-enforced requirement that the parties revise their agreement, the settlement would have conferred far less benefit on Altria’s shareholders. Accordingly, a fee award of $15 million – below plaintiffs’ counsel’s requested amount – proves appropriate.
For the same reasons, the court also assigns lessened weight to the quality, skill and efficiency of the attorneys that comprise plaintiffs’ counsel. Next, the court finds that the risk of nonpayment associated with litigating the instant action proved no more or less significant than the same risk in litigating derivative actions more broadly. And the absence of objections from Altria, JLI and Altria shareholders weighs in favor of plaintiffs’ counsel’s fee request.
The requested fee and expense award, $17.5 million, constitutes approximately 15 percent of the $117 total funding commitment. That percentage increases to 16 percent when excluding the $7 million held in reserve, to be deployed only if the independent monitor deems necessary. While this rough calculation makes no attempt at estimating the value that the $117 million funding commitment will confer on Altria’s shareholders (an impossible exercise), it suggests that plaintiffs’ counsel’s fee request falls within the range generally considered reasonable by courts in the Fourth Circuit.
The complexity and duration of the litigation provide limited support for plaintiffs’ counsel’s requested fee. Next, the court believes that attorneys’ fees of $15 million will prove sufficient to incentivize qualified counsel to expend the significant resources necessary to litigate meritorious actions. At the same time, however, this fee rests at the lower end of awards in similar cases and therefore counteracts any public perception that plaintiffs’ lawyers are overcompensated. Finally, the lodestar cross-check confirms the reasonableness of the court’s $15 million fee award.
The court awards plaintiffs’ counsel $15 million in attorneys’ fees and $220,614.44 in expenses. Furthermore, each named plaintiff shall receive a $15,000 service award.
Plaintiffs’ motion for attorneys’ fees, expenses and service awards granted in part, denied in part.
In re Altria Group Inc. Derivative Litigation, Case No. 3:20-cv-772, Feb. 20, 2023. EDVA at Richmond (Novak). VLW 023-3-083. 16 pp.