CALIFORNIA ATTORNEY'S FEES

Class Actions: With Respect to Removed Matters From State Court, Prospective Attorney’s Fees Allowable Under A Statute Or Contract Are To Be Considered For Determining Amount In Controversy For Removal Purposes

Ninth Circuit So Holds, Even Though There Does Seem To Be A Split Among Other District Courts.

            In Arias v. Residence Inn by Marriott, No. 19-55803 (9^th Cir. Sept. 3, 2019) (published), defendant filed a notice of removal of a state court wage/hour class action case to federal court.  It did so under the Class Action Fairness Act based on its estimate of damages and prospective attorney’s fees allowed under various labor statutes.  The district judge sua sponte remanded back to state court based on its view that the CAFA removal amount-in-controversy requirement was not met.  The Ninth Circuit reversed, determining defendant should have had the opportunity to present some proof on the amount-in-controversy threshold.  It also found that, notwithstanding a split among district courts, it had, in a prior opinion, countenanced the inclusion of prospective attorney’s fees allowable under a statute of contract for purposes of determining the amount in controversy.  (Fritsch v. Swift Transp. Co. of Ariz., LLC, 899 F.3d 785, 788, 794 (9^th Cir. 2018).) 

Class Action: Ninth Circuit Affirms Awarding Only 15% Settlement Fund Fee Recovery, Half That Requested By Class Counsel, Based On Deferential Abuse Of Discretion Standard

2-1 Majority Also Found Denying Motion For Reconsideration Did Not Require A Different Result; Dissenting Circuit Judge Thought The 50% Reduction Was Too Much Without More Explanation, And The Unopposed Reconsideration Request Should Been Considered.

           Schwartz (Kaplan Fox & Kilsheimer LLP) v. Arena Pharmaceuticals, Inc., et al., No. 18-55618 (9^th Cir. Aug. 20, 2019) (unpublished Memorandum Decision) is an interesting 2-1 Ninth Circuit decision showing how circuit judges apply the abuse of discretion standard to a reduced fee award even where there was a clear sailing clause in a class action settlement.

            A $24 million settlement was reached in a class action case in which the district judge acknowledged that excellent results were achieved in a difficult matter.  However, she only awarded 15% of the settlement fund as attorney’s fees rather than the 30% requested—awarding $3.6 million rather than the requested $7.2 million—even though the settlement agreement had a “clear sailing” provision.  The Ninth Circuit affirmed in a 2-1 decision, determining that the district court has wide discretion in determining the percentage-of-fund number in class actions, had no great lodestar “check” because class counsel failed to provide reliable evidence (rates or hours), and did discuss the relevant guidelines enough so that no more specificity was required. 

            Class Counsel filed an unopposed reconsideration motion with expert declarations and records to support the requested fees, unlike the presentation in the opening motion.  The Ninth Circuit majority found that the district court did not err in denying the reconsideration motion, because this same information was available for counsel to present earlier and the motion is not a substitute for presenting the right evidence in the first instance.  (Am. Ironworks & Erectors, Inc. v. N. Am. Const. Corp., 248 F.3d 892, 899 (9^th Cir. 2001); In re Wash. Pub. Power Supply Sys. Sec. Litig., 19 F.3d 1291, 1306 (9^th Cir. 1994).) 

            Although not discussed in this Memorandum Decision, the district court also cut the claimed $251,313.10 in costs and expenses by $32,712.33 with respect to “Travel/Meals” and $65,095 with respect to “Experts/Consultants,” leaving $152,781.44 as the awarded costs.

            In dissent, Circuit Judge Rawlinson found that the 50% reduction was too much without a more detailed explanation.  (Stanger v. China Elec. Motor, Inc., 812 F.3d 734, 739 (9^th Cir. 2016).)  Also, she believed that it was error not to reconsider the request in light of the unopposed reconsideration motion with additional documentation.

Class Action, Multipliers: Eleventh Circuit Court Of Appeals Affirms Most Of Class Counsel Award In Home Depot Data Breach Case, But Reverses 1.3 Positive Multiplier Enhancement

Federal Appellate Court Provides Scholarly Analysis Of Differences Between Common Fund, Constructive Common Fund, And Contractual Fee-Shifting Cases.

            In In re:  Home Depot Inc. Customer Data Security Litig., No. 17-14741 (11^th Cir. July 25, 2019) (published), the Eleventh Circuit faced review of a $15.3 million fee award to class counsel in a class action stemming from Home Depot’s 2014 data security breach which exposed the credit card information to improper use for tens of millions of customers.  It eventually agreed to settle by paying $25 million into a settlement fund, paying smaller banks an additional $2.25 million (after paying about $134.5 million--$120 million set by the banks under contractual agreements with Home Depot and a $14.5 million premium to other banks on top of that--under a card-brand recovery process), and agreeing to data breach security measures of an on-going nature.  The settlement agreement also confirmed class counsel was entitled to reasonable attorney’s fees, but it set no amount for fees in the agreement and allowed this determination to be made by the district judge.  The fees would be paid by Home Depot separate from the other settlement payments.  The district judge awarded class counsel $15.3 million in fees, calculated this way:  (1) a lodestar of $11.7 million enhanced by a positive 1.3 multiplier based on risk; and (2) cross-checked by the percentage method, based on an addition of the $27.25 million settlement payments, the $14.5 bank premium, and about $700,000 in expenses (about a $42.5 million total “percentage”), with the award being slightly higher than a third of the “percentage” (which was close to the 20-30% generally allowed in the Eleventh Circuit).  Class counsel had asked for $18 million, while Home Depot suggested only $5.6 million should be the fee award.

            The Eleventh Circuit affirmed most of the fee award, although reversing the grant of the 1.3 positive enhancement.

            The key threshold determination was to decide whether the case was a constructive common fund or contractual fee-shifting case, with the latter being the characterization adopted by the federal appeals court.  The reason for this was that the settlement agreement had a fees clause, no fees were specified or capped as under clear sailing provisions, and the fee determination was left to the district court’s decision-making authority.  This smacked of a contract fee-shifting situation, unlike a common fund where fees are actually taken out of the class recovery such that they are paid by the “client” (the class). 

            The multiplier was infirm because federal precedents (such as Perdue and Dague) are hostile to enhancements, because it is assumed that the lodestar factors subsume the multiplier considerations for further enhancement.  Given that risk is not a factor to consider for enhancement in statutory fee-shifting cases, the appeals court found no reason that the same logic should not apply to contract fee-shifting cases. 

            The Eleventh Circuit also found that compensating class counsel for the card-brand recovery work and time spent in vetting class representatives was appropriate.  Clearly, the class litigation was a catalyst which drove Home Depot to pay the banks and narrow the class exposure in the overall sense. 

            The district judge’s decision did provide sufficient detail, especially given that Home Depot failed to make specific objections.

            The class cross-appealed.  It argued that it was error for the district judge to not include the attorney’s fees in the “percentage” cross-check total.  The appeals court disagreed, concluding that it would be impractical to guess what fees might have been awarded in a contract fee-shifting context.  It also found some balance here:  fees on fees are not awardable in common fund cases, but they are awardable in contract fee-shifting cases. 

            BLOG COMMENT—Same result in California state courts?  Likely no.  Although novelty, complexity, and counsel special skill lodestar factors cannot be counted twice for multiplier analysis, risk is a factor which can be considered separately.  (Ramos v. Countrywide Home Loans, 82 Cal.App.4^th 615, 625 (2000).)  Beyond that, California does not take the dim view that Perdue/federal precedents do on enhancements in statutory fee-shifting cases.  (Khazan v. Braynin (Khazan III), Case No. A128536 (1^st Dist., Div. 4 June 12, 2012), rev. den. [reviewed in our September 15, 2012 post].) 

Class Action: July 2019 Paper By Three Law Professors Study Fee Award Trends In Mega-Settlement Federal Class Action Securities Cases

Multiplier Trends And Attorney “Make Work” Conclusion Are Among The Takeaways.

            Right around July 16, 2019, three law professors—Stephen J. Choi, Jessica Erickson and A.C. Pritchard--published a paper exploring fee recovery in federal securities cases involving big company defendants which result in mega-settlements.  They surveyed 1,719 federal securities cases between 2005 and 2016.   We link their paper here and summarize the findings which we found to be of interest:

• Institutional investors have reduced fee percentage recovery by plaintiffs’ counsel over time, but they have not been the active watchdogs intended by Congress.
• Judges award the fees requested by plaintiffs’ counsel in 85% of the cases.
• Judges award larger fees when the lodestar cross-check is done, rather than just using the percentage of recovery method alone.
• Average hourly rate in these cases is $688.
• The median multiplier is 1.105.
• The largest securities cases with respect to settlement amounts receive more scrutiny by district judges.
• Multipliers show an upward trend with the defendant company size.
• Multipliers go up if the case is likely to settle.
• Courts generally award multipliers in more egregious fraud cases, based on the conduct of the defense rather than for risk (especially in cases where dismissal is unlikely).
• Because district judges tend to award lower percentages of recovery in mega-settlement cases, the professors found that there was a larger frequency of “make work”—hours billed not to advance the case but support a big fee award—especially where multiple lead counsel is involved.
• They conclude: “Overall, our results suggest that plaintiffs’ attorneys are receiving windfall fee awards from mega-settlement cases at shareholders’ expense.”

Class Action: 2/3 DCA, In A 2-1 Opinion, Reverses An Award Of $5,886.50 To Class Counsel In Wage Statement Class Action Where Parties Had Stipulated To $85,000 In Fees To Class Counsel Under Settlement Agreement “Clear Sailing” Provision

Dissent Found That Most Of Counsel’s Efforts Were Trivial On Wage Statement Claim, With Most Of Fees Expended On An Unsuccessful Meal/Rest Break Claim.

            Just to show you how class actions producing a lack of real-life benefits draw very different judicial reactions, one needs to go no farther than Ebo v. The TJX Companies, Inc., Case No. B285404 (2d Dist., Div. 3 June 28, 2019) (unpublished).

            There, a former employee/putative class representative sued clothing retailer TJ Maxx/Marshalls for meal/rest break alleged violations and failure to provide accurate itemized wage statements.  Class certification was denied on the meal/rest break claims, but certification on the wage statement claim was granted although limited to non-exempt employees of Marshalls.  Ultimately, with the help of a settlement judgment, the action was settled by which the defense agreed to a “clear sailing” provision to not challenge an $85,000 fee award to class counsel, given that the class counsel lodestar was $588,650 (obviously, quite a bit on the meal/rest break claims).  The trial court preliminarily approved the settlement agreement, but soon changed courses when the final fee approval hearing came to bat.

            Based on the claims experience, where no class member could prove any injury from the wage statement claim, the lower court thought there was zero value to the settlement and only awarded $5,886.50 in fees, a 99% reduction of the $588,650 lodestar. 

            Plaintiff appealed and, based on a 2-1 opinion, was granted another shot at it.  The majority determined there was value in the settlement, given that the defense changed its wage statement policies.  It also believed that the final approval fee reduction was contradictory of the prior preliminary approval determination finding the settlement was in good faith and reasonable. 

            Justice Egerton dissented and would have affirmed the fee award.  He observed that a lot of the lodestar time was consumed on the unsuccessful meal/rest break claims.  If one did some math on the amounts of the lodestar devoted to the wage statement claim, they supported what the trial court did in awarding fees, according to the dissenting justice.  Here are his ending thoughts: “But when courts reward lawyers who file class actions with little or no merit by awarding tens of thousands of dollars in attorney fees, the result will be more class actions with little or no merit.  The public will begin to view class actions with skepticism and cynicism.  Here, ultimately, the individuals who will pay the $92,500 Ebo and Van Vleck seek [i.e., fees for class counsel and a $7,500 enhancement fee for the class representative] are Marshalls shoppers—the teen buying a dress for the school dance, the single mother outfitting her three children for Easter.” 

Class Action: $41,732,889 Fee And $3,184,274.38 Expense Awards To Class Counsel In NCAA Grant-In-Aid Cap Antitrust Litigation Affirmed By Ninth Circuit

20% Settlement Fund Fee Award Was No Abuse Of Discretion, Cross-Checked By Lodestar.

           A class of college student athletes sued the NCAA over its capped maximum grant-in-aid prior policy which did not cover the full cost of school attendance. Both sides reached a settlement under which a mega-fund settlement of $208.664 million was reached, which would make payouts to 53,000 class members and, for students playing all four years in college, would produce a payout of $6,000 each. Class counsel moved for recovery of fees and expenses. The district judge supervising the case awarded $41,732,889 in fees and $3,184,274.38 in expenses. The fee award was 20% of the gross settlement fund and was the product of a 3.66 positive multiplier applied to a lodestar of about $11.4 million. One student objected in an appeal to the Ninth Circuit.

            On April 17, 2019, the Ninth Circuit affirmed in In re National Collegiate Athletic Assn. Athlete Grand-In-Aid Cap Antitrust Litig., No. 8-15054 (9^th Cir. April 17, 2019) (unpublished memorandum decision).

            Given that the Ninth Circuit follows a 25% percentage-of-recovery benchmark, the 20% award in this case was no abuse of discretion. It also was cross-checked by detailed billing records which justified an enhancement to the lodestar. Finally, with respect to expenses, the objector argued that those had to be subtracted from the gross settlement for purposes of the ultimate fee calculation. However, the Ninth Circuit rejected that argument because the district court had discretion to base the fee award on either the gross or net settlement funds figure.   (In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 953 (9^th Cir. 2015).)

Class Action, In The News: Class Attorneys In Chinese Drywall MDL Settlement Reap $111.4 Million

This Amount Awarded Even Though District Judge Chided Them For Vitriolic Fee Requests.

            We can report that a Louisiana federal district judge has given approval to a $111.4 million fees/expenses award to class counsel in the Chinese Drywall MDL litigation settlement, even though chiding class attorneys for “vitriolic” fee requests. If you want to know what attorneys got what, there is an article on Law360 today which can provide you that information.

Class Action: Non-Class Counsel Has Standing To Appeal Denial Of Fees, But Record Reflected That They Did Not Provide A Substantial Benefit To The Class Versus Individual Client Class Members

244 Non-Class Counsel Fee Motions Resolved On Appeal In The Volkswagen Class Action.

            In In re Volkswagen “Clean Diesel“ Litig., Case Nos. 17-16020 et al. (9th Cir. Jan. 22, 2019) (published), the Ninth Circuit was facing 244 fee motions by non-class counsel seeking fees in the settlement of the VW “clean diesel” action where the lower court had earlier approved a $10 billion settlement (not a common fund) and awarded class counsel $175 million in fees. Needless to say, the non-class counsel filed attorney’s liens on their individual class member recovery and initiated enforcement proceedings against individual clients, with the district court enjoining this at earlier stages of the matter. Eventually, a class action settlement was entered into, with specific provisions by which VW paid fees only to class counsel and under which individual clients would have to bear their own expenses if they utilized counsel other than class counsel. Because non-class counsel wanted to get paid, they moved to enforce attorney’s liens under retention agreements against individual class members, with the supervising district court enjoining those efforts, only to later remove the injunction later on during the case. Non-class counsel moved to recover fees, but the lower court denied them based on the ground their efforts did not result in a substantial benefit to the class.

            The Ninth Circuit affirmed.

            VW challenged the non-class counsel’s standing to appeal, but—in a first impression case—decided that non-class parties/counsel deprived of fees did show an injury worthy of standing to appeal the adverse fee denial order.

           However, that is as good as it got. After carefully analyzing the efforts of non-class counsel (especially calibrated to the settlement provisions on what VW would pay—only class counsel efforts), the federal court of appeals decided that the district did not err in concluding that the non-class counsel efforts did not result in a substantial benefit to the class. With respect to the attorney’s lien issues, this was moot because the lower court vacated the injunction such that individual class members will have to duke it out with their attorneys as what should (or should not) be paid.  

Class Action: Class Counsel Awarded Full Request In Requested Fees--$74,775,000—In Class Action Against Ford Motor Co. For Defective Takada Air Bags

Fee Award Was 25% Of The Common Fund, But A Lower 14% If Value Of Customer Support Was Factored Into The Analysis.

            In In re Takada Airbag Products Liab. Litig., Case No. 1:15-md-02599 (S.D. Fla. 2018), a $299 million settlement was approved by District Judge Federico Moreno in a class action against Ford Motor Co. for defective Takada air bags by which each class member will be reimbursed for documented out-of-pocket expenses, up to $500 in undocumented expenses, and provided with a rental car to bridge the gap when the car is being repaired. Also, free customer service is provided by Ford to class members. The district judge approved class counsel’s full fee request of $74.775 million, which was 25% of the common fund but was actually closer to 14% of the percentage of recovery if the value of customer service was factored into the analysis.

Class Action: Trial Judge’s Reduction Of Class Action Counsel Fees From $250,000 To $180,000 Was No Abuse Of Discretion

Lower Court Does Not Have To Agree To Maximum Amount Ceiling In “Clear Sailing” Provision Under Settlement Agreement And Does Not Have To Award Percentage of Recovery Fees.

            Orozco v. Pebble Beach Co., Case No. H044232 (6^th Dist. Dec. 14, 2018) (unpublished) demonstrates that lower courts do not have to award percentage of recovery class counsel fees in class action cases under Laffitte v. Robert Half Internat., Inc., 1 Cal.5th 480 (2016) [our Leading Case No. 17]. What happened here is that parties agreed to a “clear sailings” clause in a wage/hour class action settlement that the defense should not challenge fees “up to” $250,000, one-third of the gross settlement common fund. However, the trial court awarded only $180,000 based on hourly rates it deemed excessive and based on its perception that the hours claimed were not commensurate with work seen on like cases.   The Sixth District affirmed, because Laffitte does not mandate that a percentage-of-recovery fee recovery has to be made as a matter of law. The “clear sailings” provision did not require otherwise, given that only an award “up to” the $250,000 had to be considered—it did not hamper the trial judge from making a lower award. Lower fee award affirmed.

Class Action: New Amendments To F.R. Civ. P. 23 Became Effective 12/1/18

Among Others, District Judge Has To Approve Payment Or Consideration To Objectors Or Their Counsel For Withdrawing Objections Or Abandoning Appeals.

            Effective December 1, 2018, Federal Rules of Civil Procedure, rule 23 was amended in several respects to clarify notice requirements relating to class action settlements, bulk up “preliminary approval” standards with added clarity, amplify on “final approval” procedures, and iterate there are no appeals from preliminary approval orders.

            As it related to our blog, there were some amendments to rule 23(e)(5) relating to objectors in class action cases, inspired by concerns that some objectors (mainly professional objectors) try to “hold up” settlement distributions to the class in order to obtain payoffs to themselves and/or their counsel. To address these concerns, subdivision (e)(5) was amended to provide that any agreement where payment or consideration to an objector is involved (including payment to an attorney) such that an objection is withdrawn or an appeal is abandoned, the district judge must approve such an agreement even if the settlement occurred after an appeal was taken. In the latter situation, the district court must give an “indicative ruling” under F. R. Civ. P. 62.1. Some commentators along the way have suggested that objectors should be required to post an undertaking on appeal, but this reform was not adopted—even though district judges have ordered it in unusual circumstances.

            If you want to know more about these amendments, John M. Barkett of Shook, Hardy & Bacon L.L.P. of Miami, Florida has written a good article entitled “The 2018 Amendments to the Federal Class Action Rule,” which easily can be found for reading on the Internet.

Class Action, Costs, Lodestar, Reasonableness Of Fees, Section 998: Trial Judge Properly Awarded Class $333,000 In Attorney’s Fees Out Of Requested $780,845.62

However, Lower Court Did Properly Award Voluntary Mediation Expenses And Expert Fees Incurred By The Class After Rejection Of A CCP § 998 Offer.

            In Diaz v. Grill Concepts Service, Inc., Case No. B284146 (2d Dist., Div. 2 Oct. 19, 2018) (unpublished), former restaurant employees of a Daily Grill brought a class action for being paid less than a “living wage” and eventually won a judgment of $300,751.31 after restaurant admitted a major degree of liability. The trial judge awarded the class $9,775 in voluntary mediation expenses and $7,497.80 in expert witness fees incurred by the class after restaurant rejected a CCP § 998 offer of $499,999 inclusive of fees and costs. The class moved to recoup $780,845.62 in attorney’s fees (which included a 1.5 multiplier) under CCP § 1021.5 and Labor Code § 218.5. However, the lower court only awarded $333,000 in fees, after reducing for duplication and block billing, consisting of a $222,000 lodestar augmented by a 1.5 multiplier. As a cross-check, the lower court found the fees reasonable because they equaled 71% of the benefits obtained by the class (which was well above a 33% contingency threshold).

            The restaurant appealed the costs awards, while the class appealed the fee award.

            Nothing changed on appeal.

          The lower court had discretion to determine the voluntary mediation expenses were “reasonably necessary” to the litigation, and no discretion was abused in this case. With respect to the expert witness fees, restaurant did reject a 998 offer which did not outstrip the judgment plus total fees and costs awarded (given the wording of the 998 offer). The fact that the 998 offer was structured as a firm number plus future fees/costs did not make the offer uncertain, given there is some “estimation uncertainty” always present in such offers. (Elite Show Services, Inc. v. Staffpro, Inc., 119 Cal.App.4^th 263, 266-270 (2004).)

            That shifted attention to the class fee award. Here is what the appellate court had to say in affirming the lower court’s ruling:

• The lower court did not have to accept, carte blanche, the requested fees numbers by a fee applicant, with the court making sufficiently clear why it made certain reductions based on duplication, block billing, and unreasonable hourly rates;
• Although opposing counsel’s work effort can be probative, it was not error to fail to compare defense work to the class work because the opposition work was not reviewed by the lower court for duplication, inefficiencies, and block billing;
• Use of a “blended rate” for class counsel is not per se impermissible and was not so in this case;
• Class counsel’s use of declarations from fellow “friends” did not have to be automatically credited but could be discounted based on bias; and
• Although the lower court “cross-checked” by the class benefits (not including the fee recovery), no sole methodology is proper; but, in any case, even if the benefits plus fee recovery was used, the fee recovery was still 41% of the total recovery—well above a 33% contingency or percentage-of-recovery measure.

Class Action: Tenth Circuit Court Of Appeal Dismisses Challenge By Three Employee, Non-Equity Lawyers To Fee Allocations Made In Long-Time Class Action Case

They Lacked Standing, Federal Court Of Appeals Rules.

            In Roselle, et al. v. Berger & Montague, P.C., Case No. 17-1328 (10th Cir. Oct. 11, 2018) (nonprecedential), the Tenth Circuit dismissed an appeal by three attorney-employees of the now-defunct law firm of Waite, Schneider, Bayless & Chesley (WSBC) seeking personal compensation for work in a 27-year class action litigation. It concluded that the three attorneys lacked standing to challenge the fee allocation made by the district judge given they were only employees, not partners or equity-shareholders in the law firm.

Class Action: $8.7 Million Class Action Fee Recovery In Limited Credit Settlement Was Reversed And Remanded Because Coupons Were At Issue And Redemption Rate Needed To Be Factored In

CAFA Coupon Feature Needed To Be Analyzed.

            In re EasySaver Rewards Litig., No. 16-56307 (9^th Cir. Oct. 3, 2018) (published) involved a $12.5 million approved settlement by which “credits” would be provided by the defendant for a limited list of products, with $8.7 million allocated as fees to class counsel and $3.5 million available for class distributions through credits.   The district court valued the “credit” settlement at $38 million. The Ninth Circuit reversed the fee award for two reasons: (1) the “credit” was actually a “coupon” settlement such that it had to be reevaluated under the Class Action Fairness Act (CAFA); and (2) redemption rates had to be factored into valuation of what the settlement was worth.

Class Action: Attorneys’ Failure To Disclose Separate Settlement For Fee Recovery With Defendant W/O Court Approval Gave Lower Court Exclusive Concurrent Jurisdiction To Order Disgorgement Of $5M Court-Escrowed Fees To Class Members Rather Than Attys.

Class Action Fiduciary Duties and Court’s Continuing Equitable Authority To Do Justice Justified The Lower Court’s Decision To Award Attorneys Nothing.

            Lofton v. Wells Fargo Home Mortgage, Case No. A146282 (1^st Dist., Div. 3 Sept. 28, 2018) (published) is a stark reminder to attorneys that trial courts have broad jurisdiction to administer justice and make sure that “secret” fee deals of a separate nature are cut in a related class action context unless there is court approval.

            What happened in a prior appeal was that the appellate court affirmed a TRO by which attorneys were ordered to deposit into court over $5 million in settlement proceeds claimed as attorney’s fees in cases brought against Wells Fargo, based on the theory that the attorneys were compensating themselves out of a separate settlement without court approval which really related to representing a class action which was resolved through a separate $15 million settlement. The appellate court in that prior appeal also remanded, based on the trial court’s continuing jurisdiction under various grounds (including the equitable authority to administer justice), to gauge whether disgorgement of all or some of the $5 million was in order.

            The lower court decided that no fees should be awarded to attorneys; instead, it ordered the escrowed moneys paid to class members who filed claims in the settled class action matter.

            Attorneys’ appeal did not disrupt the trial judge’s injunctive relief/disgorgement orders. The reason was that the trial judge did have exclusive concurrent jurisdiction given that a common fund settlement was at issue, since the settlement money belonged to the class subject to fee allocation to attorneys to prevent unjust enrichment by the court. The attorneys did not ask for fees, but really only challenged jurisdiction. Coupled with their nondisclosure of the separate agreement not subject to court approval, plenty of equities justified the disgorgement ordered by the lower court.

Class Action: Seventh Circuit Court Of Appeals Determines, Unless Settlement Agreement Has A Bar, Settlement Agreement Should Not Be Read To Bar Objectors From Requesting Fees For Adding Value To Settlement Based On Equitable And Common Fund Principles

Federal Appeals Court Ordered An End To The Litigation, With Class Counsel To Pay Objector’s Fees Adding Value To Class Settlement.

            We like the near conclusion to the next federal circuit court case we post on: “Despite our remand [ordering a class objector’s fees paid from class counsel fee recovery], our message is clear: we expect this case to end ‘so that the tail can stop wagging the dog.’” (Quoting Estate of Enoch v. Tienor, 570 F.3d 821, 823 (7^th Cir. 2009).) This sounds a lot like the quote from our blog Mission Statement: "All too often attorney fees become the tail that wags the dog in litigation."  Deane Gardenhome Assn. v. Dentkas, 13 Cal.App.4th 1394, 1399 (1993). Who says federal and state jurists do not agree on issues? Not us, although it may depend on the issue.

            What happened in In re Southwest Airlines Voucher Litig., No. 17-3541 (7^th Cir. Aug. 2, 2018) was that an objector had some challenges to supplemental class counsel fees which were found meritorious and led to a rejiggling of the settlement in favor of the class in an airline drink voucher case. The objector wanted a modest $80,000 in fees, less than 5% of class counsel’s total award. Nothing in the settlement agreement addressed objectors’ fees.

            The Seventh Circuit agreed the litigation should end, with objector’s fees paid by class counsel—reversing a district judge’s denial of fees to objector.   Unless something in the settlement agreement said otherwise, settlement agreement should not be read to bar attorney’s fees for objectors adding genuine value to a class action settlement, all the more so based on equitable and common fund principles which would support the award of fees in this situation.

            BLOG OBSERVATION—This does raise a gnarly question as to whether settlement agreements will address objector’s fee claims. It is our experience that this is not addressed and only addressed depending upon the result of approval hearings/subsequent appeals on a pragmatic, negotiated basis.   Although we are aware of “blow” provisions for excessive opt-outs, maybe there can be a threshold “blow” provision which nullifies the settlement if claimed objector fees reach a certain level. We doubt this will happen, but this opinion does seem to indicate that counsel in class actions can negotiate what happens with respect to the “objector fee” possibilities if they wish to do so in class settlement agreements.

Class Action, Private Attorney General: $100,000 CCP § 1021.5 Fee Award To Two Plaintiffs’ Counsel In Foreign Driver’s Case With Limited Success Affirmed On Appeal

Plaintiffs Sought $1.7 Million (Inclusive Of Multiplier), But Went Home With Much Less.

            Sancandi v. City of Los Angeles, Case No. B268839 (2d Dist., Div. 7 July 31, 2018) (unpublished) is a case which illustrates the principles that limited success in a non-certified class action, combined with an inflated request by the marginally-winning two plaintiffs, will result in a reduced fee award to plaintiffs’ counsel.

            In this one, three groups of plaintiffs appealed in a non-certified class action challenging a determination that driving with a foreign driver’s license should be recognized by California as a valid driver’s license. They had very limited success in federal and state court litigation, although somewhat vindicating a City of Los Angeles impound policy and obtaining an $8,000 recovery total for two plaintiffs, even though their class certification action was denied. Plaintiffs sought recovery of almost $1.7 million in attorney’s fees, inclusive of a two times positive multiplier, as against the defense based on the $8,000 victory. Instead, the trial judge awarded $100,000 in plaintiffs’ favor.

            Both sides appealed, but the fee award retained intact—plaintiffs wanted more; the defense wanted no fees ordered. Plaintiffs were entitled to private attorney general fees under the “catalyst theory,” because they did get Los Angeles to adopt a special order on foreign licenses and any settlement efforts would have been futile given Los Angeles’ position that a foreign license was irrelevant to the legal issues being adjudicated. Plaintiffs had limited success—no class certification; very limited success on the merits (at best, mixed). Given that the plaintiffs only got $4,000 each, no problem that attorney’s fees were limited to $100,000.

Class Action, Common Fund: Seventh Circuit Determines That “Up To” Dollar Amount Does Not Create Common Fund Such That District Court Can Base Fee Recovery On Claims Actually Made

Case May Suggest Drafting Tips For Class Counsel But Might Signal A More Ominous Trend, Although Facts Limited To Quick Settlement Achieved After A “Paucity Of Effort.”

            Although a federal case, class action practitioners involving smaller settlements resultant from little work may need to pay attention to the reasoning of Camp Drug Store, Inc. v. Cochran Wholesale Pharmaceutical, Inc., No. 17-2086 (7^th Cir. July 27, 2018), which suggests that a common fund might be somewhat of a “flexible” term depending on the results achieved and that using language such as “up to” for a potential common fund may present a basis to award reduced fees to class counsel, especially in the case of a quick settlement with a small expenditure of effort by class counsel.

            In this one, a class and defendant settled a Telephone Consumer Protection Act (TCPA) class action, relating to faxing unsolicited advertisements to class members, for “up to $700,000 available to settle the case,” subject to class members submitting a claim for $125 (with a pro-rata reduction if the claims exceeded the $700,000 ceiling), along with any unclaimed funds reverting to the defense, with an incentive award of $15,000 each to representative plaintiffs, and with class counsel to be paid one-third of the $700,000 settlement fund to the tune of $233,333.33 (with the actual lodestar being a claimed $156,000). The district judge was concerned with this settlement, but preliminarily approved the settlement. The settlement administrator garnered 1,765 class member returned claim forms out of a 17,000 member potential class, with no one filing objections and only 12 class members requesting to be excluded—in total, the total amount of funds that defendant paid to claimants was $220,625. At the final approval hearing, the district judge awarded $ 1,000 as an incentive award to the named plaintiffs and awarded $73,468.13 in fees to class counsel, with the fee award being one-third of the returned claims. The district judge did not feel there was a true common fund given the reversion and no guaranty that the “up to” $700,000 commitment was anything more than a security deposit.

            The Seventh Circuit affirmed the fees award, much to the chagrin of class counsel.

            The appellate court did not believe that a true common fund was involved based on the “up to” language in the settlement agreement (not a sum certain); rather, it was a “claims-made” settlement where funds should be gauged against what claims were actually returned. It distinguished Boeing Co. v. Van Gemert, 444 U.S. 472 (1980) on this basis, but then went further. Boeing does not dictate a percentage-of-recovery approach from a common fund because the fee award must still be reasonable. The problem here was that there was no real litigation in the case—no paper discovery; no depositions; no substantive motion, just an early settlement after the filing of a complaint. The “paucity of effort” expended by class counsel justified the district judge award, which is a key distinction we believe pro-class practitioners will embrace in the future but also highlights that fees, in the end, must be reasonable.

Class Action: Ninth Circuit Decides To Rehear Hyundai Kia Fuel Economy Litigation Case En Banc

2-1 Circuit Decision Going For A Larger Viewing, Including Fee Relook Decision.

            On January 24, 2018, we posted on In re Hyundai & Kia Fuel Economy Litig., No. 15-56014 et al., where the Ninth Circuit had a 2-1 split over awarding class counsel $8.9 million in fees even though some merits determinations were involved. The big dispute was over fees. We can report that this case cannot be cited as precedent because, on July 27, 2018, the matter was ordered to be reheard en banc.

Appealability, Class Action: Class Representative’s Appeal Of Fee Award Against Her Counsel Was Dismissed

Class Representative Was Not Aggrieved To Have Standing To Appeal.

            A class representative in a misclassification wage/hour class action appealed a fee award against one of her attorneys. The appeal was dismissed because the class representative was not aggrieved, with the impacted attorney not appealing so as to preserve the issue for review.   The case is Flores v. Opus Bank, Case No. B278309 (2d Dist., Div. 6 July 25, 2018) (unpublished) for readers interested in the standing issue.

Class Action: Ninth Circuit Affirms VW “Clean Diesel” Settlement Approval, Addressing Whether Reversion Provision Showed Possible Collusion Between Defense/Class Counsel And Whether Timing Of The Fee Motion Was Fair To Class Members/Objectors

VW’s Exemplary Performance Of Settlement Terms And District Court’s Allowing Six Weeks For Fee Motion Challenges Were Big Factors Leading To Affirmance.

            Volkswagen reached a settlement in a class action where it admitted installing “defeat devices” in certain 2.0-liter diesel cars. Under the terms of the settlement (brokered by settlement master Robert Mueller, now special counsel in the Russian interference probe), VW promised to pay a little over $10 billion to car owners to remedy problems, including a buyback option for some eligible car owners. The district court approved the settlement, and then set a date for the filing of a fee/expense motion by class counsel, followed by a date six weeks later for class members or objectors to challenge the fee motion. Subsequently, the district judge awarded $175 million to class counsel out of a requested $333 million in fees and expenses (roughly half, the subject of some separate appeals). Several objectors filed a “hodgepodge of challenges” ultimately rejected by the district judge, prompting some of them to file a multi-pronged appellate challenge to the settlement agreement and timing of the fee motion in In re Volkswagen “Clean Diesel” Marketing, etc. Litig., Nos. 16-17157 et al. (9^th Cir. July 9, 2018) (published).

            The Ninth Circuit affirmed Northern California District Judge Charles R. Breyer’s judgments certifying the class, approving the settlement, and denying an opt out motion by one class member. By the time of the decision in this case, VW had removed 83.8% of the unsafe cars from the road and had paid $7.4 billion to 350,000 class members (with an indication that it would pay or would be paying $8.1 billion to 450,000 class members total). With respect to fee issues, two challenges were rejected by the Court of Appeals.

            The first challenge was to a reversion provision in the settlement, providing that any leftover money after the expiration of the claims deadlines went back to VW. Objectors argued that this showed a specter of collusion between VW and class counsel, because it lowered the amount to be paid by the defense in return for a higher common fund from which a higher percentage of fees could be claimed. Although theoretically true, the Ninth Circuit found no signs of collusion in this case, especially given VW’s exemplary performance in the class action settlement process (returning lots of money to car owners) and the fee order which was roughly half of what was asked for by class counsel.

            The second challenge was to the timing and notice of the fee motion by class counsel. Although FRCP 23(h) is silent on the timing of a fee motion, it implicitly dictates that objectors must have a chance to challenge the fee motion. However, nothing in Rule 23(h) indicates that the fee motion cannot be heard after the settlement final approval motion on the merits. In this instance, the district court gave objectors six weeks after the post-settlement approval fee motion was filed, more than enough time from a due process perspective. With respect to the fee motion notice issue, that was dispatched based on the fact that it dealt with the fee order (not the settlement approval order), which was the subject of other appeals.

           BLOG KUDOOS—We commend the Ninth Circuit panel for starting its opinion by quoting from Shakespeare, King Lear, act 2, scene 4: “Striving to better, oft we mar what’s well.”

Class Action: N.D. Cal. District Judge Approves $45 Million In Fees/Costs To Class Counsel In Antitrust Lithium Ion Battery Class Action

$139.3 Million Was The Settlement “Package” Amount.

             On May 8, 2018, U.S. District Judge Yvonne Gonzalez Rogers of the Northern District of California, in In re Lithium Ion Batteries Antitrust Litig., Case No. 13-md-02420-YGR (MDL No. 2420) (N.D. Cal.), approved an award of fees and costs to class counsel in the amount of about $45 million in an antitrust price-fixing class action against various lithium ion battery makers. She found that the amount was justified, after further briefing on reasonableness of the requests, in a $139.3 million settlement involving direct buyer class members.

Class Action: N.D. California District Judge Trims Class Action Counsel Payout In Fitbit Heart Rate Tracker Investor Lawsuit

25% Percentage Of Recovery Too Rich For This Case, Plus District Judge Earlier Required More Detail On Expenses.

            Federal district judges are the ultimate gatekeepers on class action settlements, making sure that any settlements are fair to the class and class counsel fees are reasonable in nature.

            Fitbit was sued in a class action by investors alleging that it hid problems with its heart rate monitoring trackers.  A $33 million settlement was reached, with class counsel requesting an attorney’s fees award of 25% (a percentage of recovery approach endorsed by the Ninth Circuit for the normal case) and reimbursement of $272,402 in expenses.

            U.S. District Judge Susan Illston of the Northern District of California earlier had ordered that class counsel provide more detail on expenses to make sure no filet mignon dinners or first-class plane travel was involved.  Later, in an order issued May 3, 2018, she trimmed the $8.25 million request down to an award of $5.75 million, finding that the normal benchmark was too rich for this particular case.  She obviously took her gatekeeping duties seriously.

Cases Under Review/Class Actions: SCOTUS Grants Certiorari To Decide Whether Class Settlement Where $8.5 Million Was To Be Divided By Class Counsel And Cy Pres Recipients Was Fair In Nature

Certiorari Granted On April 30, 2018.

            In Frank v. Gaos, No. 17-961 (U.S. Supreme Court), certiorari was sought by objectors to a class action settlement in a plaintiff class action against Google for alleged federal privacy violations over its search engine.  The settlement provided that nothing would go to class members, but $8.5 million would be divided between class counsel and cy pres recipients (with the latter being third-party charities).  This settlement was approved by the N.D. California federal court, and that approval later was affirmed by the Ninth Circuit.  On April 30, 2018, SCOTUS granted certiorari, with the issue for resolution framed this way: “Whether, or in what circumstances, a cy pres award of class action proceeds that provides no direct relief to class members supports class certification and comports with the requirement that a settlement binding class members must be ‘fair, reasonable, and adequate.’”

Class Action/Costs/Section 998: CSU Student Class Representatives Properly Assessed With Some Mandatory Costs After Class Action Loss Under CCP § 998, But Denial Of Expert Witness Fees To Defense Was Proper Given The Differences In Damages Among Subcla

End Result Was Four Class Representatives Were Hit With Routine Costs Of $123,134.94.

            Class action practitioners should read this next post on how CCP § 998 costs shifting can result in routine costs exposure to class representatives, especially where “pocketbook” financial evidence is not properly presented.

            In Keller v. Bd. of Trustees, Cal. State University (CSU), Case Nos. A147029/A147941 (1^st Dist., Div. 2 Apr. 19, 2018) (unpublished), plaintiff students, in an eventually certified subclass, lost an action where they sued for non-resident tuition fee increases by CSU.  CSU then sought $477,613.25 in routine costs, $329,981.44 of which happened to be expert witness fees after plaintiffs rejected a CCP § 998 offer by CSU.  The trial court refused to award the expert witness fees, reducing the costs request somewhat to eventually award $123,134.94 against four named class representatives.  Cross-appeals by both sides did not change the result on appeal.

            With respect to the $123,134.94 award against the class representatives, the appellate court found that the routine costs were mandatory in nature and the trial judge was not out of bounds to reject that there was unfairness to the representatives, especially given the lack of specific proof that they would be financially distressed by the award.  Here is what the appellate court said: “Plaintiffs have failed to provide authority that a court abuses its discretion in refusing to limit recoverable costs in a class action to either the named plaintiffs’ maximum potential recovery or to the amount of costs incurred defending against individual claims. In refusing to require absent class members to shoulder a proportionate share of costs, California authority has recognized that it may be appropriate to hold class representatives responsible for costs that may outstrip their personal potential recovery. “‘While imposition of the entire cost burden on the named plaintiffs may have a chilling effect on the willingness of plaintiffs to bring class action suits, this effect easily may be outweighed by the potential recovery. All potential litigants [i.e., the representative plaintiffs] must weigh costs of suit against likelihood of success and possible recovery before deciding to file suit. Those who choose to take the risks of litigation should be the ones who bear the cost when they are unsuccessful, not those who did not make the choice.’ (Van de Kamp v. Bank of America, [(1988)] 204 Cal.App.3d [819,] 869.)” (Earley v. Superior Court (2000) 79 Cal.App.4th 1420, 1433– 1434.) Plaintiffs’ arguments to the contrary are more properly addressed to the Legislature.”  [Keep in mind this award had no relationship to the rejected 998 offer.]

            Concern then shifted to CSU’s cross-appeal challenging the failure to award it expert witness fees based on the 998 offer.  The lower court did not err in declining expert witness fees because the plaintiff subclass members had different damages such that it was impossible to evaluate the defense offer on this specific issue—the offer was invalid based on the failure to apportion.

Class Action: N.D. California District Judge Appoints Special Master To Review Fee Requests By 331 Billers From 53 Law Firms In Anthem Data Breach Class Action Settlement

Class Attorneys Seeking $37.95 In Fees, 33% Of The $115 Million Settlement Fund.

            U.S. District Judge Lucy H. Koh of the Northern District of California recently issued an order in In re Anthem, Inc. Data Breach Litig., Case No. 15-MD-02617-LHK (N.D. Cal. Feb 2, 2018, Doc. 972) by which she appointed a special master to review the class attorney fee submissions in the case.  In this data breach privacy class action against Anthem, the parties reached a settlement with a $115 million settlement fund.  With respect to fee requests, 331 billers from 53 law firms requested a total of $37.95 million in fees, 33% of the settlement fund.  District Judge Koh, in issuing the special master order, expressed some concerns that there were unnecessarily duplicative or inefficient work based on so many billers and that close scrutiny was required given only 1.68% of the class submitted claims, although she did not argue that a bad result was obtained (in light of the act that this is the largest settlement reached in a U.S. data breach class action so far). 

            Here is a copy of her order for readers who want more detail.

Class Action: Hyundai Fuel Efficiency Class Action Settlement Remanded For Class Settlement Reconsideration, Including Fee Award

Ninth Circuit Also Gives Some Clues Relating To Approved Fee Settlement On Remand, In 2-1 Decision.

            The Ninth Circuit, in In re Hyundai & Kia Fuel Economy Litig., Case Nos. 15-56014 et al. (9^th Cir. Jan. 23, 2018) (published), faced an appeal of a class action settlement in the Hyundai fuel efficiency litigation.  Among other things, the district judge approved $8.9 million in fees to a series of class counsel, with a positive multiplier of 1.22 – 1.5521 depending on the counsel involved.  On appeal, the settlement got remanded mainly on settlement class certification merits bases, but the majority did have some guidance for the district court when relooking at the fee recovery—over a dissent by Circuit Judge Nguyen. 

            The majority decision faulted the district court with not making a finding regarding the settlement value given that various figures were reported – ranging from $44 million to $210 million, but with no express determination of valuation being made by the district judge.  Although the district judge found the matter was complex so as to justify a positive multiplier, the majority was not so sure given the belief the class action benefit was modest and given that the fees were to be paid separately such as to raise an inference of collusion.  Circuit Judge Nguyen, in her dissent, articulated that the majority determinations were interesting because (1) objectors below only challenged the awarded multipliers, (2) the majority used a $44 million claims-made number as of a certain date, ignoring $65 million in pending claims afterwards, and (3) the $8.9 million fee award was only 14% of the pending $65 million in claims, which was well below the presumptive 25% benchmark approved many times by the Ninth Circuit already.

Class Action: Plaintiff’s Class Action Specialist Offers Tips On Presenting Fee Petitions In Class Actions

David J. Goldsmith Does So In An Article Published In The December 2017/January 2018 Practical Law—The Journal.

            In the December 2017/January 2018 edition of Practical Law – The Journal (published by West), David J. Goldsmith, partner at Labaton Sucharow LLP and a plaintiff class action specialist, has written an article on class action settlement tips.  Among other things, he addresses the issue of what strategies class counsel should consider when seeking an award of attorney’s fees.  Here are his tips and ending comment:

• Class counsel should research the fee award decisions of the particular judge in previous class actions;
• If class attorneys believe that they have legitimate reasons to seek an award outside of a particular judge’s fee gestalt, they need to show why the settlement is unusual and why the fee request is reasonable/appropriate in the particular case;
• The fee submissions should show that requested fee requests fall within the range of fees awarded in similar cases by other courts within the relevant jurisdiction (through a nicely-designed chart) and by academic studies on class action fees outside the relevant jurisdiction (one study he found helpful is Brian T. Fitzpatrick, An Empirical Study of Class Action Settlements and Their Fee Awards, 7 J. Empirical Legal Stud. 811 (2010)); and
• “A small number of class counsel have espoused a strategy of seeking fees at the outer limits of reasonableness, on the theory that the court will never award more and can always award less. This ‘you don’t ask, you don’t get’ approach tends to draw objections and backfire with the court, and reflects badly on class counsel generally.  Reasonableness is the watchword not only for courts in determining an appropriate fee award, but also for class counsel in preparing an appropriate fee petition.”

            We would echo that the “reasonableness” watchword message, in our opinion, also relates to fee petitions submitted in federal and California state court cases in general.

Class Action: N.D. Cal. District Judge Approves NCAA/Student-Athlete Scholarship Class Action, Awarding About $45 Million In Fees, Costs, And Expenses To Class Counsel

Total Settlement Value Was $209 Million.

            On Friday, November 17, 2017, U.S. District  Judge Claudia Wilken of the Northern District of California gave final approval to the settlement reached in a class action involving the NCAA, 11 athletic conferences, and certain student-athletes over alleged anti-competitive caps on student scholarships.  Class counsel was awarded about $45 million in fees, costs, and expenses by District Judge Wilken. 

Class Action, Common Fund, Employment, Lodestar, Multiplier: N.D. Cal. District Judge Ilston Awards Wage/Hour Class Action Counsel $15,200,002.90 In Hybrid Statutory Fee/Common Fund Case Against Wal-Mart

District Judge Confronts Multiple Issues In Reaching Fee Award.

            U.S. District Judge Susan Ilston in Ridgeway v. Wal-Mart Stores, Inc., Case No. 08-cv-05221-SI (N.D. Cal. Sept. 14, 2017 Doc. #606) confronted numerous issues in deciding the appropriate award to class counsel in a truck driver employee class action case against Wal-Mart for wage hour violations, with a judgment producing a $60.8 million common fund available for distribution to class members.  Eventually, as we detail below, District Judge Ilston awarded $15,200,002.90, 25% of the common fund, although she did an analysis under both the fee-shifting statute (California Labor Code section 1194(a)) and the common fund doctrine.

            As an overview, District Judge Ilston characterized this as a “hybrid action,” involving potential fee recovery under a specific fee-shifting statute and the common fund doctrine.  Class counsel wanted a fee recovery of $20,266,670.50 (one-third of the common fund), while Wal-Mart argued that no more than $2,831,149.09 should be awarded—quite a discrepancy. 

            On the Labor Code fee-shifting front, she found that the hourly rates requested were acceptable, decided to make no reductions for vague time entries, and did not reduce for block billed entries under the circumstances.  District Judge Ilston also found that 64% time billing by higher level partners was appropriate for the case, determined that most of the time on lost or abandoned claims were interrelated to successful claims (doing a minor reduction for meal break claims), and put an imprimatur on continuing education work which aided class counsel in their work.  However, she did make reduction for these items:  (1) 30% reduction in travel time for class counsel from mainly Fresno to the San Francisco court venue; (2) a 5% across-the-board reduction proposed by class counsel for redundant work, plus a little more too [HINT TO PRACTITIONERS—class counsel was wise to propose this reduction even though they did not have to, the district judge accepting this as overall reasonable in nature]; and (3) no allowance for class counsel’s legislative lobbying efforts.  That brought the lodestar request down to $6,491,662.12 (down from the requested $7,320,454.75).  Class counsel requested a 2.71 positive multiplier and Wal-Mart advocated zero.  After agreeing that contingent risk, results obtained (each class member would likely get around $70,000), complexity, and preclusion of employment factors tilted in favor of a positive multiplier, District Judge Ilston granted a 2.0 positive multiplier, for a total statutory-fee award of $12,983,324.25. 

            That shifted things to fee recovery under the common fund doctrine.  She acknowledged that the Ninth Circuit has a 25% presumptive percentage-of-recovery award in common fund cases, although this had not been adopted conclusively by California state courts (given that diversity law applied).  Plaintiff asked for one-third, but District Judge Ilston decided to go with the 25% benchmark.  So, that meant that the total fee award based on the 25% was $15,200,002.90, with an offset allowed for the prior $12,983,324.25 statutory fee award, such that an additional $2,216,678.65 was added through the common fund doctrine.  When all the math is done, $15,200,002.90 is the result, plus some additional costs and litigation expenses.

Class Action: Seventh Circuit Reverses Fee Award In Subway Footlong Sandwich Class Action

Appellate Court Found Class Benefits Worthless, Meaning Case Should Have Been Dismissed Early On--$520,000 In Fees Go POOF!

Library of Congress.  Wm. C. Greene, photographer.  1946

        In In re Subway Footlong Sandwich Marketing and Sales Practice Litig., MDL No. 13-02439 (7^th Cir. Aug. 25, 2017), a lower court had approved a settlement over an objector’s challenge in a class action claiming that Subway did not provide customers with a footlong bun.  Along the way, the proof showed that minor variations in baking conditions sometimes produced an under footlong bun, but the customer still got all the meat and condiments in ordered sandwiches.  Given that some buns were a foot and some were under, individualized hearings would be required to show commonality as well as possibly materiality.  Class counsel then shifted from a damages class to an injunctive relief class.  The parties reached a settlement where Subway agreed to measure the sandwiches and undertake other protocols but admitted it could never guarantee that an exact foot bun would be the results.  It also agreed to class counsel fees capped at $520,000.

            The Seventh Circuit reversed and remanded with instruction to dismiss.  It found the action provided worthless benefits to the class such that it was a “racket” only providing fees to counsel. 

CLASS ACTION: $2.125 Million Fee Award To Class Counsel In Cy Pres-Only Settlement Was Proper

Award Was 25% Of Settlement Fund, Cross-Checked By Lodestar Totaling Ultimate Award.

            In re Google Referrer Header Privacy Litig., No. 15-15858 (9^th Cir. Aug. 22, 2017) (published) is a case involving approval of a class action settlement involving a cy-press only settlement with respect to Internet privacy claims.  There was a $8.5 million settlement fund, with $3.2 million set aside for attorney’s fees, administration costs, and incentive payments and with the remaining $5.3 million or so allocated to six cy pres recipients (certain organizations, law school divisions, and forums) given that each class member would only receive 4 cents (which made distributions unrealistic).  This case has a good discussion of cy pres-only settlements and whether the recipients’ connections with class counsel were disqualifying in nature (producing a 2-1 panel split).  However, over challenges by objectors, all three circuit judges agreed that the $2.125 million in awarded fees to class counsel was reasonable based on two factors:  (1) the fees were 25% of the settlement fund, closely hewed to amounts awarded in similar Internet privacy actions; and (2) the fees were close to class counsel’s $2.126 million lodestar calculation. 

Class Action: Seventh Circuit Court Of Appeals, In A Posner-Authored Decision, Reverses Class Counsel Fee Award To Lodestar Found Reasonable

Nixes A 1.75 Positive Multiplier Based On Complexity And Class “Return.

            Just to show you that class action fee awards are coming under increased appellate scrutiny, Circuit Judge Posner’s decision in In re Sears, Roebuck and Co. Front-Loading Washer Products Liability Litig., No. 16-3554 (7^th Cir. Aug. 14, 2017) (published) on behalf of a Seventh Circuit panel demonstrates this quite emphatically.

            The case involved allegations of control unit defects and mold problems associated with certain washers sold by Sears.  A class action settlement was reached, with the parties agreeing to a provision whereby class counsel would not seek fees in excess of $6 million.  Well, that is what they sought based upon a lodestar augmented by a 1.85 multiplier.  The magistrate judge assigned to determine fees awarded a $2.7 million lodestar augmented by a 1.75 positive multiplier, for a total award of around $4.8 million.  The judge credited that only about $900,000 would be received by the class and then gave puzzling indications of whether the case was really that complex so as to justify a multiplier.

            The Seventh Circuit found the fee award was too much.  After observing the equivocation on the complexity issue and the fact that a .88 multiplier is awarded nationwide for class recoveries less than $1.1 million, the federal appeals court determined that the $2.7 million lodestar awarded by the magistrate judge was the reasonable fee award—especially given that class counsel had to battle a large company.

Class Action: Seventh Circuit Court Of Appeals, In A Posner-Authored Decision, Reverses Class Counsel Fee Award To Lodestar Found Reasonable

Nixes A 1.75 Positive Multiplier Based On Complexity And Class “Return.

            Just to show you that class action fee awards are coming under increased appellate scrutiny, Circuit Judge Posner’s decision in In re Sears, Roebuck and Co. Front-Loading Washer Products Liability Litig., No. 16-3554 (7^th Cir. Aug. 14, 2017) (published) on behalf of a Seventh Circuit panel demonstrates this quite emphatically.

            The case involved allegations of control unit defects and mold problems associated with certain washers sold by Sears.  A class action settlement was reached, with the parties agreeing to a provision whereby class counsel would not seek fees in excess of $6 million.  Well, that is what they sought based upon a lodestar augmented by a 1.85 multiplier.  The magistrate judge assigned to determine fees awarded a $2.7 million lodestar augmented by a 1.75 positive multiplier, for a total award of around $4.8 million.  The judge credited that only about $900,000 would be received by the class and then gave puzzling indications of whether the case was really that complex so as to justify a multiplier.

            The Seventh Circuit found the fee award was too much.  After observing the equivocation on the complexity issue and the fact that a .88 multiplier is awarded nationwide for class recoveries less than $1.1 million, the federal appeals court determined that the $2.7 million lodestar awarded by the magistrate judge was the reasonable fee award—especially given that class counsel had to battle a large company.

Class Action/Lodestar: Recent 2017 Article Suggests N.D. Cal. Federal District Judges Are Using Lodestar Rather Than Percentage Of Recovery Fee Methodology In Class Action Mega Settlement Cases

Three Federal Judges Opted To Use Lodestar Method In Recent Cases.

        National Association of Legal Fee Analysis (NALFA) recently summarized a recent Reuters article suggesting that some federal judges in the Northern District of California have opted to use the lodestar approach to awarding fees, versus the percentage of recovery method, in mega-class actions with sizable settlements.

        Here are the specifics:

• District Judge Lucy Koh in a Disney/Dreamworks case awarded fees of $18.5 million (lodestar plus a “doubling” multiplier), although class action counsel had requested $31.5 (21% of the $150 million settlement);
• District Judge William Alsup used the lodestar approach in awarding fees in a $200 million settlement against Wells Fargo in 2015; and
• District Judge Charles Breyer, in the VW dealer wing of the clean diesel class action litigation, awarded $3 million to class counsel (using the $1.5 million lodestar, but doubling to $3 million) as opposed to the $28.6 million request based on a 2.4% recovery by dealers in a billion dollar settlement context.

        We will say that the California Supreme Court provided state court judges with flexibility to use either approach in the Lafitte decision, 1 Cal.5th 480 (2016) [one of our top 20 2016 Year-End decisions]. Looks like federal judges are using discretion to deviate from the normative practice of utilizing the percentage of recovery methodology at the federal level, depending on the case circumstances.

Common Fund/Class Action: What Happens When Class Action Fee Recovery Justified Under Both Common Fund And Contractual Fees Clause?

 

Eighth Circuit Court Of Appeals Gives Us Some Hints—Contractual Fee Recovery First, And Then Equitable Consideration Of Common Fund Recovery.

 

    Although outside of California, we do report on nationwide decisions which may have some impact on attorney's fees in different substantive areas of the law. McKeage v. TMBC, LLC, 847 F.3d 992 (8th Cir. 2017) is one of those cases.

 

    The issue presented in McKeage, in a class action context, is how does a district judge deal with a contract's fee-shifting provision when fee recovery is also allowable under a common fund doctrine. As we read the decision, unless there is some statutory scheme dictating otherwise, the district judge first awards under the contractual fees provision and then uses equitable discretion to see if any adjustment in fees is necessary under the common fund doctrine. Equity was the end result in this one.

Class Action/In The News . . . . Federal Judge Approves Hefty Fee For Class Counsel In 2.0 Liter Diesel Emissions Class Action

 

VW Plant, Wolfsburg, Germany. En.wikipedia. User: HighContrast. Creative Commons licnese.

 

    According to Law360, a California federal judge recently approved $167 million in fees and $8 million in costs to class counsel in the Volkswagen emissions class action, relating to the part of the case which involved 2.0 liter VW diesel cars. Stay tuned, there is likely more to come in this continuing saga.

Class Action: Special Master May Be Appointed In Class Action Where Media And Class Counsel Agreed That Issue Was Presented On Billings For Staff Attorneys

 

$75 Million Was The Tentative Class Counsel Fee Recovery, But $4 Million In Suspect Lodestar Billings Raised A Flag For Further Review.

 

    In Arkansas Teacher Retirement System v. State Street Bank and Trust Co., Case No. 11-cv-10230-MLW (D. Mass. Feb. 6, 2017) (Doc. #117) (Memorandum and Order), a Massachusetts federal district judge issued an interesting order in a class action case, one likely prompted by some media articles and lead class counsel sending a letter to the district judge admitting to an overstatement of the lodestar request.

 

    What happened here was that the district judge had approved a $300 million settlement and used the common fund method of recovery to tentatively award class counsel attorney's fee of almost $75 million, 25% of the common fund but critically cross-checked against a $41.323 million lodestar together with a 1.8 multiplier.

 

     But wait, the story does not end here as you likely surmised. After some media flurry, class counsel wrote a letter to the district judge indicating that the lodestar might have been inflated to the tune of $4 million because staff attorneys were paid very small rates but billed out at much higher rates. This brought into question the hourly rates that class counsel attributed to staff attorneys in calculating the "cross-check" lodestar. The district judge proposed to appoint a special master to examine the reasonableness of claimed fees, even proposing a judicial candidate who could be an appropriate special master if the parties got past one possible "conflict of interest."

 

    So, it looks there will be more examination of the fee issue …. but see our BLOG COMMENT BELOW.

 

    BLOG COMMENT—What we liked about this case, especially, is that the proposed special master did file an affidavit about the possible "conflict of interest" concern. However, we liked paragraph 15 of the proposed special master's affidavit, which said: "That this affidavit is made under pain and penalty of perjury." There you go—that may say it all!

    

    Dr. Smith's pain.

 

Class Action: N.D. Cal. Adopts Standing Order Requirement That Class Counsel Disclose Third Party Litigation Funding In Class Actions

 

Rule Came Down On January 23, 2017.

     U.S. District Judge Susan Illston, in Gbarabe v. Chevron Corp. (a class action relating to a gas explosion off the coast of Nigeria), ordered plaintiff to produce a funding agreement in the class action in a late 2016 order in response to a motion by Chevron.

     The disclosure did not end in just that case. On January 23, 2017, the Northern District of California Civil Rules Committee adopted a revision to the district court’s standing order (Civil LR 3-15) which states “[i]n any proposed class, collective, or representative action, the required disclosure includes any person or entity that is funding the prosecution of any claim or counterclaim.” There is a lot of debate on the pros and cons of such a disclosure, but looks like it is here to stay and may spread based on the Northern District’s deep experience with class actions.

Class Action: Objector In Separate Action Claiming Substantial Benefit Entitlement To Fees Denied Fees Because Fee Request Was Untimely And Objector Did Not Substantially Add Value To Class Action Settlement

 

$5 Million Fee Request Snubbed At Both Trial And Appellate Levels.

     Credit/Debit Card Tying Cases, Case No. A145891 (1^st Dist., Div. 4 Jan. 12, 2017) (unpublished) concerned an objector’s challenge to an award of fees and costs to class counsel in a main action, although objector was involved in a separate, more peripheral action. Objector sought to recover over $5 million in claimed fees based on the theory that he added benefit in a separate action, although class attorneys in the main class action obtained a $31 million settlement fund and were awarded about $9.3 million in fees/costs under a “clear sailing” class action settlement provision.

     The trial court denied objector’s fees request as untimely and as lacking merit because objector did not add any substantial benefit to the ultimate class action settlement fund recovery.

     Those determinations were affirmed on appeal.

     First of all, objector blew the deadlines set by two judges during the course of protracted proceedings to file fee applications in the class action case. The appellate court found it would be unfair to allow objector to ignore the deadlines because (1) it would allow objector to bypass the mandatory review process for fees applicable to all attorneys in the class action case, and (2) it would deprive the class of the opportunity to object to objector’s fees in belated junctures of the case.

     On the merits, the appellate court, as did the trial court, agreed that objector’s work did not contribute to the creation or augmentation of the settlement fund, such that the “substantial benefit” basis for fee entitlement was not satisfied.