On Feb. 29, U.S. District Judge Melinda Harmon held a hearing on the $7.2 billion Enron class-action settlement and a record $688 million attorneys' fee request, but she did not immediately issue a ruling.

During the 4 1/2 hour fairness hearing in Houston, Harmon heard arguments for and against final approval of the distribution plan and attorneys' fee award. The judge said she would issue her ruling as soon as possible, according to news reports.

The hearing is the latest chapter in investors' efforts to recover the more than $40 billion they lost after Enron, once the seventh-largest U.S. company, collapsed into bankruptcy in 2001. The bulk ($6.6 billion) of the $7.227 billion settlement would be funded by three of the energy company's former investment banks: Citigroup, Canadian Imperial Bank of Commerce, and JP Morgan Chase. Other settling defendants include former Enron auditor Arthur Andersen, Andersen's worldwide affiliate, Bank of America, Lehman Brothers, Enron's former outside directors, and the law firm of Kirkland & Ellis.

Patrick Coughlin, a partner with Coughlin Stoia Geller Rudman & Robbins who represents the class of investors, argued that the settlement is fair and reasonable given the complexity of the lawsuit and the firm's risk in taking on the case. While the fee award would be the largest ever in a securities case, Coughlin noted that the award would amount to 9.52 percent of the total settlement. “This is the largest class (action) settlement ever. There is no case comparable to this result,” he said.

Coughlin told the judge that his firm spent $100 million while researching and preparing the case against Enron's banks; the firm billed 247,000 hours, took more than 300 depositions from witnesses, submitted 5,700 filings, and reviewed 70 million documents. “The one thing we could not do was settle it for a nominal amount. We went all out,” Coughlin said, according to Bloomberg News. “We risked $100 million, and we could've gotten zero.”

The fee request was based on a retainer agreement that the San Diego-based law firm reached with the lead plaintiff, the University of California. The agreement provided for a sliding fee scale from 8 to 10 percent, with the fee percentage increasing based on the size of the recovery.

Ari Garbow, an attorney for Fiduciary Counselors, which oversees Enron's retirement and savings plans, said the fee request is “grossly out of sync with comparable cases,” according to the Houston Chronicle. He proposed that the award be cut to about $400 million, or 5.65 percent of the settlement. In the WorldCom class action, the $336.1 million fee award amounted to 5.5 percent of the overall $6.1 billion settlement.

Lawrence Schonbrun, a lawyer for an individual investor, said the fee request was “an affront to every working person in this country,” according to the Associated Press.

Coughlin Stoia bolstered its fee request with supporting declarations from Columbia University Law Professor John C. Coffee Jr., Harvard University Law Professor Lucian Bebchuk, a former federal judge, and several officials with the University of California.

In his declaration, Coffee said the Enron case was risky for Coughlin Stoia to bring because the investor plaintiffs were relying on a novel “scheme to defraud” theory that had been rejected by other federal courts (and was later rejected by U.S. Court of Appeals for the Fifth Circuit, which oversees appeals from the federal courts in Texas). The firm “was able to induce some of the largest, most sophisticated financial institutions in the world to settle for record amounts, based on a novel theory that other plaintiffs' counsel might have overlooked or been unable to articulate convincingly,” Coffee wrote. “Unlike other recent mega-fund cases--most notably WorldCom--[Coughlin Stoia] lacked the overwhelming legal leverage in this case that compelled the defendants in WorldCom to settle.”

Coffee noted that Coughlin Stoia helped Enron investors recover 8.3 percent of their market capitalization losses, 2.86 times the 2.9 percent recovery obtained by WorldCom investors. He pointed out that only 20.9 percent of the WorldCom settlement “was actually paid to shareholders”--the rest of the settlement went to note purchasers. “Viewed in this light, [the Enron settlement] recovered for shareholders almost six times as much as WorldCom--and in the face of higher risk,” he concluded. To review Coffee's declaration and other settlement documents, click here.

The Enron settlement is open to investors who bought company stock or related securities between Sept. 9, 1997, and Dec. 2, 2001. Under the distribution plan, holders of Enron's common shares would receive $6.79 per share, while holders of preferred stock would get $168.50 per share.

The investors are still pursuing claims against Merrill Lynch, Credit Suisse Group, and Barclays. On Jan. 22, the U.S. Supreme Court rejected the investors' request to review the Fifth Circuit ruling that barred them from bringing class-action claims against three banks. The high court's decision wasn't a surprise after the justices ruled in a separate case that Charter Communications shareholders could not sue two of the company's former vendors.

Trey Davis, a spokesman for the University of California, said the investor plaintiffs are considering their options and will present them to Judge Harmon, the Houston Chronicle reported. The Enron investors also have claims pending against former CEO Jeff Skilling, ex-Chief Accounting Officer Richard Causey, the Royal Bank of Canada, Royal Bank of Scotland, and Toronto-Dominion Bank. On Feb. 5, the university announced a $11.5 million settlement with Goldman Sachs over notes issued by Enron.