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Second Circuit Upholds Attorney Fee Reduction in FACTA Settlement

April 10, 2019

A recent New York Law Journal story by Colby Hamilton, “Second Circuit Upholds Judge’s Slashing Attorney Fees in Fair Credit Law Settlement,” reports that the U.S. Court of Appeals for the Second Circuit affirmed a Manhattan federal judge’s order to cut down a fee request in a Fair Credit Reporting Act lawsuit, finding she had properly exercised her discretion, over arguments to the contrary from the plaintiff’s attorneys.  The Second Circuit ruling upheld a decision entered last May in which U.S. District Judge Valerie Caproni of the Southern District of New York refused to allow attorneys to collect approximately $83,000 in fees in their Fair and Accurate Credit Transactions Act (FACTA) case.

The plaintiff in the underlying matter, Joan Pasini, had brought two other suits in Manhattan federal court under the exact same premises.  In the Godiva suit, she ultimately secured a $5,500 settlement with the chocolate maker, after opting out of a class action settlement that would have awarded her up to $80.

As Caproni noted in her order, the Godiva action involved “no motion practice, no discovery, no contested hearings, a single status conference, which lasted less than 30 minutes, two telephone conferences, which also lasted about 15 to 30 minutes each, and one mediation session.”

The district court found there was “nothing reasonable” about the $83,000 figure submitted by Glendale, California, attorney Chant Yedalian and local counsel, attorney Sameer Birring.  Rather, the litigators were using FACTA as a “cudgel to attempt to extract an unreasonable fee.”

“Attorneys who take on consumer protection lawsuits are sometimes pursuing a public good—the individual damages are generally quite modest but there is a public interest in ensuring compliance with federal consumer protection laws,” the district court wrote.  “Counsel is entitled to recover reasonable fees, but this court will not aid and abet extortion.”

The 10-page complaint in the underlying suit replicates claims similar to the other FACTA suits brought by Pasini.  She claimed the chocolatier printed out a receipt for a credit card transaction that included the first six digits and the last four digits of the card number.  Under FACTA, no more than the last five digits of the card number are allowed to be on a receipt provided to the cardholder.

After opting out of the settlement and an initial figure from the chocolatier of the statutory settlement maximum of $1,000, Pasini demanded a $75,000 payment from Godiva, according to court papers.

The suit was filed March 10, 2017. On Sept. 29, the parties alerted the court that the settlement amount for the plaintiff had been agreed to for the far smaller sum of $5,500, but Godiva stated to the court that attorney fees remained an issue.  Attorneys for Godiva argued in opposition to the fees that counsels’ “aim throughout this case has been to generate the maximum amount of attorneys’ fees possible.”

Caproni agreed, finding the hourly rates proposed by opposing counsel in the “exceedingly straightforward case” exorbitant.  She cut Yedalian’s requested fee range of $550 to $650 an hour down to a “generous” $350 an hour, while bringing Birring’s $350 an hour requested rate down to $275.

Similarly, Yedalian’s 152 hours of billable work was “so out of proportion to the tasks he purportedly undertook” that Caproni said she had to “question the accuracy of the bills.”  All but five hours of the claimed time “was spent on low-level work that could have been accomplished by an associate or paralegal; tasks any competent attorney (much less one with 15 years of experience practicing in an area of the law that is neither sophisticated nor intellectually challenging) could have accomplished far more quickly.”

Caproni ultimately cut Yedalian’s hours billable at the new rate by 90 percent, leaving him with an entitled fee of $5,325.83, while Birring was, at a reduction of 65 percent to his hours, granted $1,020.25 in fees.  With the reduced costs of $620 provided to the plaintiff, Caproni’s order amounted to less than 10 percent of what Pasini sought.

On appeal, the panel of Circuit Judges John Walker Jr., José Cabranes and Robert Sack said Caproni was within her right to the substantial reduction “in light of the pervasive errors and exaggerations in the fee application.”  The panel went on to likewise support the district court’s gutting of travel fees for Yedalian, as “there was no reason local counsel could not attend the initial status conference instead of lead counsel from California.”

Class Counsel Seek $45M in Fees in Latest NCAA Antitrust Case

March 27, 2019

A recent The Recorder story by Ross Todd, “Plaintiffs in Latest NCAA Antitrust Case Seek Nearly $45M in Fees,” reports that lawyers who recently won an injunction barring the National Collegiate Athletic Association from capping education-related benefits for certain college athletes are seeking nearly $45 million in attorney fees as a result of what they call “a historic and substantial judgment.”  Co-lead plaintiffs counsel at Winston & Strawn, Hagens Berman Sobol Shapiro, and Pearson, Simon & Warshaw submitted court papers claiming plaintiff lawyers spent more than 51,000 hours on the case, which culminated in a 10-day bench trial last year.

The firms claim they put in the equivalent of about $29,944,894 in hourly billings, but they’re asking U.S. District Senior Judge Claudia Wilken of the Northern District of California to apply a multiplier of 1.5 to that amount, based on the novelty of the case, the risks involved and the quality of the defense counsel representing the NCAA and its member conferences.

“Plaintiffs’ fees are reasonable in light of the substantial defense resources (involving more than a dozen of the top law firms in the world) that they had to overcome, the difficulty and novelty of the many issues presented by this case, the enormous amount of factual discovery and expert work that was required to prosecute the claims, and the substantial economic value of the injunctive relief delivered to the Plaintiff Classes,” plaintiffs counsel wrote.

Wilken earlier this month found the NCAA in violation of federal antitrust law and issued an injunction barring the organization and its member schools and conferences from capping education-related benefits such as computers, science equipment, postgraduate scholarships and aid to study abroad for NCAA Division I women’s and men’s basketball players and football players at schools in the NCAA’s Football Bowl Subdivision.  Plaintiffs submitted estimates from their economic expert which claim the injunction could be worth as much as $100,000 for individual class members over a four-year period—as much as $235 million annually in total.

According to a declaration filed alongside the fee motion, lawyers, paralegals and support staff at Winston & Strawn put in 41,152.05 hours on the case over about five years during the litigation, worth about $24,304,240 at the historical billing rates at the time of the work.  Jeffrey Kessler, co-executive chairman of the firm and co-chair of its antitrust/competition and sports law practices, saw his hourly rate go from $1,180 per hour when the case was initially filed in 2014, to $1,515 per hour for work done this year on the case, according to billing records submitted with the declaration.

Hagens Berman, according to a separate declaration filed, dedicated 5,575.20 hours of lawyer, paralegals and legal staff time to the matter, or $2,742,185 in firm time at historical rates.  Name partner Steve Berman put in 514.4 hours on the case at rates ranging from $950 to $1,025 per hour during the case, for a little more than $500,000 worth of total billings.  Attorneys with Pearson, Simon & Warshaw claim they spent 4,754.20 hours working on the applicable portion of the case, or about $2,754,725 worth of firm time.  The most recent rates for name partners Clifford Pearson, Bruce Simon, and Daniel Warshaw all recently hit $1,150 an hour, according to the firm’s declaration in support of the fee motion.

Elizabeth C. Pritzker of Oakland’s Pritzker Levine, whose firm represented two named plaintiffs who played women’s basketball for the University of California at Berkeley and served as additional plaintiffs counsel, filed a declaration claiming the firm logged 198 attorney hours in the injunctive relief portion of the case, or $143,745 in hourly billings.

In the fee motion, the plaintiffs team noted that, in a prior antitrust class action against the NCAA involving the names, likenesses and images of players, Wilken awarded injunctive relief class counsel about $40,794,246 in lodestar fees—roughly a third more than what’s being sought, timewise, in the current case.  The plaintiffs contend, however, that the more recent case has done more “to bridge the ‘great disparity’ between class members and defendants.”

5 Law Firms to Divide $214M in Fees in $1.5B Syngenta MDL

March 21, 2019

A recent Law 360 story by Ryan Boysen, “5 Firms to Get $214M in $1.5B Syngenta MDL Corn Settlement,” reports that five law firms will receive $214 million in fees from the $1.5 billion Syngenta AG tainted corn settlement after a Kansas federal court adopted those same firms' recommendation on how to allocate some of the money.  Those firms, who all played major leadership roles in guiding the multidistrict litigation to a successful settlement, submitted a report last month on how to allocate a $247 million chunk of the roughly $500 million in total attorneys' fees awarded by U.S. District Judge John W. Lungstrum last year.

In the order, Judge Lungstrum agreed to pay out the $247 million according to the six-tiered structure proposed by those firms, a structure that will see them take home $214 million in fees while the remaining $33 million is split between 59 other firms.  Judge Lungstrum said that despite the "inherent conflict of interest that exists" in having the five lead firms propose the overall allocation, "in that any undercompensation of non-lead counsel would increase [co-lead counsel]'s own share of the fee pool," he nonetheless decided to have those firms take the reins because they "performed the great majority of the substantive work on behalf of plaintiffs in this litigation."

Thus, he added, "they are in the best position to judge the relative contributions by the petitioning attorney to the settlement and the benefit of the settlement class."  Judge Lungstrum said that after reviewing the proposal he found it "fair, reasonable and appropriate," and noted that out of the 64 total firms affected by the proposal only two objected.  The order overruled those objections in the course of approving the report.

The five firms that will split the "Tier 1" award of $214 million are Stueve Siegel Hanson LLP, Gray Ritter & Graham PC, Gray Reed & McGraw LLP and Hare Wynn Newell & Newton, which all served as co-lead class counsel, and Seeger Weiss LLP, which served as settlement class counsel and by all accounts took the lead role during settlement discussions.

The litigation dates back to 2014, when corn farmers and others in the corn industry began filing lawsuits claiming Syngenta caused China to block millions of tons of U.S. corn exports because the Swiss-based agrochemical giant began marketing genetically modified corn seed varieties without prior approval from Chinese regulatory agencies, costing the farmers billions.  The case settled in 2017 for $1.5 billion, and last New Year's Eve Judge Lungstrum entered a controversial order setting aside one-third of that for attorneys' fees and splitting that $500 million fund into four pools.  That order has since spawned fears about how the inevitable appeals resulting from it will be handled.

Those four pools include one that covers the firms involved in the MDL he oversaw in Kansas, one that covers a simultaneous consolidated proceeding in Minnesota state court, one that covers yet another action in Illinois federal court, along with one that will go toward so-called individually retained private attorneys.

The bulk of the overall fund, roughly 50 percent, went toward the Kansas fund, and that's the money Judge Lungstrum asked the co-lead counsel firms and Seeger Weiss to divvy up.  The five Tier 1 firms performed "the great bulk of the work litigating the claims in the MDL," Judge Lungstrum said, in justifying their request to receive $214 million from the $247 million fund.

Tier 2 consists of six firms, "all involved since the beginning of the litigation, whose work focused on litigation of the class and bellwether cases," Judge Lungstrum said.  Those firms will receive a total of $21 million.  Tier 3 consists of "five firms that performed substantive legal work on class and bellwether plaintiff claims," and that group will receive a total of about $6 million.  The 48 firms covered by Tiers 4, 5 and 6 will receive the remaining $6 million.

Weller Green Toups & Terrell, a firm placed in Tiers 4 and 5, objected to its total payout of roughly $1.2 million recommended by the report, claiming it's owed more like $25 million.  Judge Lungstrum shut down that objection, remarking that many of the firm's arguments had been previously denied and were made "largely by cutting and pasting from its previous briefs."

Hossley — Embry LLP also objected, arguing in particular that the $600 per submitted plaintiff fact sheet recommended by the report was too low.  Hossley stands to receive $673,000 for both Tier 4 and Tier 5 work, much of it relating to fact sheets the firm submitted.  Judge Lungstrum rejected that argument, saying it shouldn't have taken more than two or so hours to fill out a plaintiff fact sheet and that the work was easily done by less-experienced attorneys or paralegals, who have lower hourly rates.  The Kansas fund report and its adopting by Judge Lungstrum appeared to be fairly straightforward and agreeable compared with other episodes that have surfaced since the settlement was approved.

One group of 60,000 farmers sued Watts Guerra LLP on civil Racketeer Influenced and Corrupt Organization Act claims last year, alleging the firm conspired to charge them hefty contingency fees on top of what it stood to reap from the $500 million fund that was ultimately established.  Judge Lungstrum dismissed that suit earlier this month, finding that the contingency fees had been voided when Watts Guerra and its clients finally joined the settlement and therefore the farmers didn't ultimately receive any more or less money from the deal than any other firm's clients.

The case is In re: Syngenta AG MIR162 Corn Litigation, case number 2:14-md-02591, in the U.S. District Court for the District of Kansas.

$2.4M Fee Award in CPI Credit Card IPO Action

March 14, 2019

A recent Law 360 story by Matthew Guarnaccia, “Credit Card Co. Investors Score $2.4M in IPO Suit Atty Fees,” reports that the New York federal judge overseeing a class action lawsuit related to CPI Card Group Inc.’s initial public offering awarded lead counsel Labaton Sucharow LLP $2.37 million in attorneys’ fees and costs, stopping short of the total amount requested by investors for work in reaching an $11 million settlement with the credit card company.  In addition to granting final approval of the settlement, U.S. District Judge Lewis A. Kaplan awarded 20.6 percent of the total amount of the deal as attorneys' fees to Labaton.

The award came in below the 25 percent, or $2.75 million, requested by Labaton, with Judge Kaplan saying he had a few reservations about the lodestar claimed by the firm.  The judge did note, however that his concerns were not about the validity or accuracy of the timekeeping figures provided by lead counsel.  In particular, Judge Kaplan said Labaton reported contributions from 19 attorneys and 14 other timekeepers during the case, and that it is likely this work included “some nontrivial amount of duplication or unnecessary effort.”  The overall number of timekeepers also seemed excessive given the amount of work that was actually done on this case, which included drafting the complaint, litigating class certification and dismissal motions, the defense of a deposition, and settlement negotiations, the judge said.

In addition, Judge Kaplan said the requested lodestar was based on current hourly rates of the timekeepers involved, even though the rates for some increased over the course of the litigation.  “Accordingly, the court has adjusted the lodestar to reflect historical hourly rates to the extent that some differ from current rates and considered the use of current hourly rates in considering the multiplier,” Judge Kaplan wrote.

Judge Kaplan’s final consideration in lowering the lodestar was Labaton’s assertion that more than 2,900 hours was dedicated to the case, which he called “relatively straightforward and not heavily litigated.”  As a result, the judge lowered the total hours sought by 10 percent, leaving a lodestar of approximately $1.5 million, and allowing for a 1.5 percent multiplier, as opposed to the 1.64 multiplier requested by Labaton.

The resulting attorneys’ fee figure is around $2.27 million. Judge Kaplan also tacked on around $106,000 in expenses, but said the lead plaintiff in the case was not entitled to a requested $10,000 award for “time and trouble.”  The fee award by Judge Kaplan comes a little more than a month after the judge gave final approval to a deal that ended the shareholder lawsuit led by investor Alex Stewart.

In his lawsuit, Stewart claimed CPI shipped more than 100 million extra cards to its biggest customers before its October 2015 IPO without telling investors.  Orders allegedly plummeted after the offering because of the "bloated" inventory at financial institutions, as did the initial $10-per-share stock price, which stood at $4.70 a share when the suit was filed in June 2016.  CPI produces 35 percent of all payment cards in the U.S. and serves the majority of the top 20 U.S. debit and credit card issuers, including JPMorgan Chase & Co., American Express Co., Bank of America Corp. and Wells Fargo & Co., according to its U.S. Securities and Exchange Commission registration statement.

The case is In Re: CPI Card Group Inc. Securities Litigation, case number 1:16-cv-04531, in the U.S. District Court for the Southern District of New York.

Legal Fees in Puerto Rico Bankruptcy Under Review

March 13, 2019

A recent Caribbean Business story by Eva Llorens Velez, “Legal Fees in Puerto Rico Bankruptcy Drop,” reports that the examiner of fees charged by lawyers and professionals in Puerto Rico’s bankruptcy said fees have dropped to $71 million for the June to September period compared with the previous four-month period.  Fee examiner Brady C. Williamson resubmitted to the court a proposed order imposing additional standards to collect fees.  He also proposed an order setting procedures for interim compensation, all of which he said could be tackled in the omnibus hearing set for April.

At the Dec. 19, 2018, omnibus hearing, the court denied without prejudice the fee examiner’s motion to impose additional presumptive standards.  The new proposal incorporates comments from professionals.  However, it maintained a 5 percent a year limit on rate increases for partners/shareholders and a 7 percent-a-year presumptive limit on “step,” or seniority, increases for associates.

Through the interim period that ended in September, firms subject to the Puerto Rico Oversight, Management and Economic Stability Act’s (Promesa) fee-review process have requested more than $306 million in total interim compensation, at least $5.9 million of the total attributable solely to rate increases, Williamson said.  “That is the amount requested to date that, with or without specific client and Court approval, is the direct result of increases in the hourly rates charged at the outset of each professional’s engagement,” he explained.

Through the third interim period (February through May 2018), the collective and cumulative rate increases totaled almost $4 million.  While the 2018 cost increases for the 50 largest firms exceeded 7 percent, according to a Citi report, Williamson said the goal is not to try to regulate professional revenue or profit, but to suggest boundaries for prospective hourly rate increases that comply with Promesa’s reasonableness standards and seek to manage both the immediate and long-term impact on the cost of the proceedings.

At the December hearing, the court noted the “unique situation” presented to professionals by these proceedings, asking the fee examiner to reconsider the initial rate increase recommendations and noting a 2 percent annual rate of inflation in New York, where most of the law firms are located.

The fee examiner said the Feb. 15 decision by the U.S. Court of Appeals involving the composition of the Promesa-established fiscal oversight board for the island “does not conclude that constitutional litigation, nor have all of its consequences yet been felt or appreciated,” and that he “already has engaged professionals on the continuing need to avoid duplicative efforts with further appeals or related activity involving the legislative and executive branches of the federal or Commonwealth governments.”

Williamson also said a particular difficulty inherent in Promesa’s Title III structure, given the board’s role as debtor representative, has been identifying the “client” of each financial adviser.  For example, Deloitte Financial Advisory Services and Ernst & Young LLP are both financial advisers to the commonwealth, with Ernst & Young LLP reporting to the board and Deloitte FAS reporting to Puerto Rico’s Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym).  Many financial professionals, whether working for a flat fee or an hourly fee, provide advice on one or more aspects of a debtor’s finances.  However, for example, Ankura Consulting Group is the financial adviser to the Puerto Rico Electric Power Authority and no other debtor.