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Attorney Fees Report Draws Critics in Anthem Data Breach Case

May 16, 2018 | Posted in : Fee Expert / Member

A recent NLJ story by Amanda Bronstad, “Anthem Data Breach Attorney Fees Report Faulted by Plaintiffs Lawyers and Objector,reports that plaintiffs lawyers in the Anthem data breach settlement have objected to the report of a court-appointed special master, which found what it said was inappropriate billing and recommended their $38 million fee request be slashed by nearly 24 percent.  The report was also faulted by Ted Frank, an advocate for reining in class-action litigation.

In a court filing late Tuesday night, lead counsel Eve Cervantez of Altshuler Berzon and Andrew Friedman of Cohen Milstein Sellers & Toll — along with plaintiffs steering committee lawyers Michael Sobol of Lieff Cabraser Heimann & Bernstein and Eric Gibbs of Girard Gibbs — wrote that special master James Kleinberg should abandon his findings. They stuck to their original fee request, which compensated 49 additional law firms.

“The court should defer to counsel’s judgment here as to the number of hours required to reach the $115 million settlement and achieve the significant changes in business practices,” they wrote. “Because plaintiffs have shown that the hours spent in the case were reasonable and nonduplicative, the court should not reduce the requested fee award based on the number of law firms that billed for those reasonable hours.”

Frank, representing an objector to the settlement who had asked for a special master, called the report “a disappointingly superficial review” of lead plaintiffs attorneys’ billing, according to an objection he filed on Tuesday.

“As an initial matter, the special master’s report did not accomplish what the court assigned the special master to do,” wrote Frank, of the Competitive Enterprise Institute’s Center for Class Action Fairness. “The special master’s rough review failed to determine the propriety of the hours billed and is insufficient to uncover the extent of the duplication and inefficiencies that this court sought.”

U.S. District Judge Lucy Koh has set a hearing for June 14.

Koh appointed a special master earlier this year to look into potential overbilling, stating that she was “deeply disappointed” in the fee request. She was particularly troubled that the request was made for 53 law firms, particularly since she had explicitly wanted a lean leadership team in the case.

On April 24, Kleinberg, a retired Santa Clara County Superior Court judge who is now a mediator and arbitrator at JAMS, recommended a fee award of about $28 million in his report. Most of the reduction came from cutting the rates of 33 contract attorneys and shaving 10 percent due to potentially duplicative billing.

As to the contract attorneys, Kleinberg found their billing rates to be “inappropriate.” Plaintiffs lawyers paid them $25 to $65 per hour but, in their fee request, asked for an average of nearly $360 per hour for those lawyers. His report lowered the rate to $156 per hour — that of a paralegal.

He also chastised a “virtual army of billers.”

“The special master is not accusing plaintiffs’ counsel of deliberate overbilling,” he wrote. “However, every time a new law firm was added to the group, those lawyers had to spend time learning the history, issues and facts being litigated. Thus, the inevitable result of 53 firm billing participants presents at least a strong probability of duplication and unreasonable hours.”

His report also looked at the percentage of the fund and the 25 percent benchmark in the U.S. Court of Appeals for the Ninth Circuit.

Plaintiffs attorneys noted in their objection that the report found that an average hourly rate of $455 per biller was not excessive. And they continued to emphasize that the case was novel and complex. As to the 53 law firms, they wrote “the question is not how many firms a paying client would retain, but how much the client would pay to have the work done.”

The additional 49 firms “were forbidden to bill for any start-up time learning the facts and law of the case,” they wrote, and had $1.5 million already cut from their lodestar.

The special master’s reduction of contract attorney rates was also unreasonable, they wrote.

“This recommendation was in error, and plaintiffs are not aware of any court to have adopted this approach,” they wrote. “Plaintiffs are aware of no authority supporting the proposition that it would be permissible, let alone reasonable, to delegate such crucial legal work to paralegals.”

They also criticized the special master’s deduction of their expenses and service awards from the fee amount.

Frank, in his objection, said Kleinberg should have followed case law on fee awards in settlements of similar size, which often are between 10 to 20 percent. That would put an appropriate Anthem award at closer to $13.8 million, which is 15 percent of the fund after excluding $23 million in notice and administrative expenses.

He also said that Kleinberg did not reduce enough on the contract attorney rates.

“The special master’s report completely sidesteps ethical and market considerations, and should not be adopted,” Frank wrote.

In a footnote, Frank noted that the contract attorney issue would be “comprehensively addressed” by a special master in Boston who is investigating Lieff Cabraser, along with two other law firms, for potential overbilling in a $75 million fee request in securities class action settlements with State Street. “Indeed, three of the very same contract attorneys billed in this case were billed by counsel in State Street,” he wrote.

The State Street special master filed his report Monday under seal. On Tuesday, U.S. District Judge Mark Wolf issued an order saying he sealed the report “temporarily to permit the parties to propose redactions.”

Finally, Frank wrote, Kleinberg’s 10 percent “haircut” did little to address what he said was at least $8.8 million in wasteful billing.

“Contrary to the court’s instruction, not one hour is deducted as excessive, unnecessary, or duplicative,” he wrote. “The special master does not provide a calculation of reasonable hours, but simply takes class counsel’s fee request as a baseline and provides minimal adjustments to these figures. Indeed, there would be no reason for the court to have ordered disclosure of the billing records to the special master if he had no obligation to scrutinize them.”