Dissenting Judge Concerned About Claim Response Rates and Clear Sailing/Reverter Clauses.
Laguna v. Singh, Case No. 12-55479 (9th Cir. June 3, 2014) (published) was a case which shows the divergent views of federal jurists on class action settlements where the common fund value is not of a fully liquidated nature.
The majority decision affirmed a $994,800 attorney’s fees award to class counsel in a franchisee misclassification class action, even though the settlement was a coupon settlement structured with clear sailings/reverter clauses. The majority found that the lodestar was the best method to fix fees where primarily injunctive relief was involved, with the award being about a third of the actual $3 million in fees incurred by class counsel. The percentage-of-recovery “cross check” was less certain, but the district court believed that the settlement might be worth $4 million, so 25% of that matched up with the lodestar analysis.
Because it is difficult to value injunctive relief, the majority put a lot of stock in the arms-length negotiations to rebut a concern about settlement collusiveness.
In dissent, District Judge Chen (N.D. Cal.) believed that the settlement had some serious red flags, with the settlement value being the upfront concern.
Raising red flags. Carol M. Highsmith, photographer. 2010. Library of Congress.
He believed that in light of an actual 9% payout rate on a coupon type settlement, only $82,025 was the value to the class—hardly justifying a $1 million payout to class counsel. Given that the fees were not tied to actual distributions, in tandem with the existence of clear sailing/reverter provisions, he had serious troubles with endorsing the settlement and fees award.
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