Class Action/Common Fund: Reasoning By N.D. California District Judge Might Aid State Court Practitioners Arguing Percentage Of Fund, Rather Than Lodestar, Should Be The Approach In Common Fund Cases Even At The State Level

 

Around $13.25 Million, 25% Of $53 Million Settlement Fund (After Deducting Class Action Administration Expenses), Is Awarded To Class Counsel.

     Generally, California uses the lodestar as the fee-setting approach in the class action context, “cross-checked” by the percentage of recovery approach. However, reasoning by U.S. District Judge Richard Seeborg in his fee award in In re Apple iPhone/IPad Warranty Litigation, Case No. C 10-1610-RS (N.D. Cal., Doc. No. 146 Apr. 14, 2014) may provide future assistance to California state court practitioners urging that the percentage of fund, rather than lodestar, approach should be used in settlements involving a common fund.

     The litigation arose out of class claims that Apple had improperly denied warranty coverage to iPhone and iPad users relating to a faulty liquid submersion indicator. Eventually, a settlement was hammered out between Apple and the class by which a $53 settlement fund was created, with about 132,000 class members getting an average of $211 per device (full or more than full replacement value) and another 43,000 class members receiving different payments depending on the verifications they could produce.

     Plaintiffs’ attorneys sought to recoup $15.9 million, which would be 30% of the settlement fund. Apple gasped and said only $8.78 million was reasonable, arguing that the lodestar formulation under California law had to be used and resulted in a much smaller fee award.

     District Judge Seeborg, after observing that the Ninth Circuit allows district judges to use either the lodestar or percentage of fund approach (In re Bluetooth, 654 F.3d 935, 942 (9^th Cir. 2001)), awarded 25% of the settlement fund based on a Ninth Circuit benchmark delineated in prior decisions. So, plaintiffs’ counsel received a little under $13.25 million, because the 25% was the number after deduction of class action settlement administration expenses.

     After a scholarly survey of California state jurisprudence on the subject, he found that California law did not absolutely require use of the lodestar approach where a common fund was involved—opting to use the percentage of fund approach because the lodestar would not have resulted in a $13.25 million award which he deemed in order.

     This decision is interesting reading for state court practitioners who would like to urge that state jurists use the percentage of recovery as the fee approach in common fund cases.