Circuit Judge Posner Disturbed With Valuation, Reversion (“Kicker”) Clauses, And Convoluted Claim Forms.
Circuit Judge Posner, on behalf of a 3-0 panel, authored an opinion in Pearson v. NBTY, Inc., Nos. 14-1198 et seq. (7th Cir. Nov. 19, 2014) in which a class action fee award was scuttled because it was too high—finding that a previous substantial reduction in fees by the district judge was still not enough, agreeing with objectors’ arguments.
The class action involved defendant’s alleged false claims for glucosamine’s efficacy, involving six cases which were consolidated under a “cluster” action. The settlement preliminarily approved contemplated awarding $4.5 million in fees to class counsel, with any nonawarded fees from this amount reverting back to defendants under a reversion (sometimes known as “kicker”) clause. Eventually, however, the district judge approved a settlement awarding $1.93 million in fees to class counsel, about $180,000 for class counsel expenses, $1.5 million for class notice/administration costs, $1.13 million cy pres amount to a research foundation, $865,284 to 20,245 class members (about one quarter of one percent of class members making claims under a settlement-mandated claims process), and $3,000 in incentive payments to six named plaintiffs.
Daytona Beach, Florida. Bethune-Cookman College. 'Dusty' Jennings, star kicker on Bethune-Cookman's champion football team. Gordon Parks, photographer. 1943. Library of Congress.
The district judge’s award was based on a $20.2 million settlement valuation for the benefits to the class, premised on class members receiving $14.2 million (if everyone of them put in for a $3 claim), $1.5 million in class administration costs, and $4.5 million in fees to class counsel (with any of the nonawarded amount of fees reverting back to the defense under the settlement kicker clause). The district judge did not consider the cy pres recovery and valued the injunctive provision at zero. Because he reduced the fees from the initial $4.5 million to $1.93 million, the lower court found the $1.93 million was reasonable—being 9.6% of the $20.2 million settlement valuation adopted in justifying the fee award.
Judge Posner and his colleagues had many problems with the fee award, concurring with objectors that the district judge should have awarded much less. If the true $865,284 class distribution figure was used, the fees actually awarded were 69%. There was no actual settlement fund, which diluted class counsel’s argument for trying to create value from a claim process that was convoluted in nature. If one used the class distribution figure plus amount going to class counsel, $436,642 to $865,284 was the range for fees using between a one-third to one-half mathematical division—much different than the $1.93 million awarded or the initial $4.5 million amount preliminarily approved.
This one was reversed, with the panel heavily criticizing the use of “kicker” clauses.
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