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The Fifth Circuit for a long time has seemed to insist on paying class counsel on a pure lodestar basis — hours x hourly rates. It looked to have stuck itself to the old-style lodestar method under Johnson v. Ga. Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974).

That contrasts with other circuits' belief in letting district courts have the option of basing fee awards in common fund cases on a percentage of the common fund instead of a strict lodestar method.

But the Fifth Circuit's seeming view largely went away this week.

In Union Asset Mgmt. Holding A.G. v. Dell Inc., No. 08-51163 (5th Cir. Feb. 7, 2012), the court upheld a $40 million class action settlement of claims that Dell inflated its share price by making false statements about revenues and other things. The panel ruled that the district court didn't abuse its discretion when it granted class counsel a $7.2 million fee, which came to 18 percent of the common fund. It said:

The objectors argue that the lodestar method is the only way to calculate attorneys’ fees in this Circuit. They understandably point to the following sentence from a 2008 case: “This circuit requires district courts to use the ‘lodestar method’ to ‘assess attorneys’ fees in class action suits.’” But that sentence overstates the case it quotes, which said that the Circuit “uses” the lodestar method rather than “requires” it, did not involve a traditional common fund, and implied that the percentage method might be proper in other circumstances. Moreover, the 2008 case, which was not a securities case, only addressed how to allocate a lump-sum attorneys’ fee award among the plaintiffs’ multiple attorneys rather than how to allocate a common fund between class counsel and the class itself, as here. The fact is that the Fifth Circuit has never reversed a district court's decision to use the percentage method, and none of our cases preclude its use.

Given the Fifth Circuit's stance on choice of method, the district court did not abuse its discretion by using the percentage method with a meticulous Johnson analysis. To be clear, we endorse the district courts' continued use of the percentage method cross checked with the Johnson factors. We join the majority of circuits in allowing our district courts the flexibility to choose between the percentage and lodestar methods in common fund cases, with their analyses under either approach informed by the Johnson considerations.

Id. at 13-14 (omitting footnotes).

Some may say the court limits the percentage method to cases under the Private Securities Litigation Reform Act, but the language doesn't support that view.