Friedman v. Microsoft – 8/24/2006

August 29, 2006

Arizona Court of Appeals Division One, Upholds, In Large Part, Trial Court’s Grant of Attorneys’ Fees to Class Counsel In Antitrust Action Against Microsoft.

In consolidated class actions, the Arizona class members alleged that Microsoft had violated Arizona law by asserting wrongful monopoly power and engaging in anti-competitive conduct. The Arizona class action was initiated after a federal judge made extensive findings of fact supporting the conclusion that Microsoft had engaged in improper use of monopoly power and violated federal antitrust laws. 84 F.Supp.2d 9 (D.D.C. 1999) For that reason, Microsoft referred to the Arizona class action as a “tag-along action.” However, Microsoft and the class members litigated for over four years before settlement ensued, and during that time, class counsel certified the class and defended against dismissal based on federal precedent that indirect purchasers could not recover under federal antitrust law.

The settlement agreement provided that Microsoft agreed to pay reasonable attorneys’ fees “calculated on a common fund basis” for work performed by all counsel for plaintiffs. The trial court applied a 3.42 multiplier to the lodestar figure (calculated by “reasonable hours times a reasonable fee”), awarding class counsel $19,132,728 in attorneys’ fees. Microsoft appealed that award, arguing that the superior court erred both in its calculation of the lodestar figure and in applying a 3.42 multiplier.

While expressing “concerns” with the amount of fees awarded, the Court of Appeals affirmed most of the attorney’s fees awarded. The court affirmed the use of a 3.42 multiplier but found the trial court erred by applying it to post-settlement work and in calculating the lodestar by including fees for litigation not expressly included in the settlement agreement. In so holding, the Court emphasized that Microsoft agreed in the settlement agreement to determine attorneys’ fees using the common fund doctrine, and the majority view is that the rationales for not using a multiplier in other attorneys’ fees contexts is inapplicable in the common fund context. The Court also noted that in Microsoft’s opposition to the fee application, its experts argued that a multiplier between 1.5 and 2. 3 could be used.

Judge Kessler authored the opinion; Judge Orozco and Gemmill concurred.