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Category: Practice Area: Class Action / Mass Tort / MDL

Tesla Investors Weigh in on $5B Alternative Fee Proposal

March 13, 2024

A recent Law 360 story by Jeff Montgomery, “Tesla Investors Weigh In On $5B Fee Proposed For Class Attys”, reports that Tesla Inc. stockholders are sounding off to Delaware's chancellor after class attorneys sought a stock-based fee potentially worth more than $5 billion at current share prices following the Court of Chancery's reversal of Elon Musk's $55.8 billion stock-based pay plan on Jan. 30.  Chancellor Kathaleen St. J. McCormick said in a letter that the judicial code bars her from considering communications outside the case process.  But she directed attorneys for the class to come up with a method for "handling" the stockholder communications ahead of a yet to be scheduled hearing and argument on the fee.

Nothing in the chancellor's letter characterized the aims or identities of those attempting to contact the court.  Founder Elon Musk owns 20% of Tesla's shares followed by institutional investors, with individuals accounting for less than 1%.  The proposed fee seeks just over 11% of the total formerly earmarked for Musk and now available for company use, well below the 33% sometimes awarded in complex cases that proceed through a full trial.

"I have not read these communications because, as you all are aware, Rule 2.9 of the Delaware Judges' Code of Judicial Conduct prohibits me from considering ex parte communications concerning a pending proceeding," the chancellor wrote in the latest entry of a derivative action launched in 2018.  Some of the letters apparently originated with small stockholders, some of whom have gravitated to X, formerly known as Twitter, to share thoughts on Tesla, Musk, the case, the fee and letters sent to the chancellor.  Some, using the hashtag #DelawareCourt81, have proposed sending letters directly to the parties or to Tesla for forwarding.

Tesla's top five institutional holders hold about 19% of the business, led by The Vanguard Group at nearly 7%.  Blackrock accounts for 5.8%, with State Street Corp. at 3.3%, Geode Capital Management at about 1.6% and Capital World Investors at about 1.3%.  None of the top five immediately responded to requests for comment and counsel for the stockholders did not provide details.

Lawrence Hamermesh, former director of the University of Pennsylvania Carey Law School's Institute for Law and Economics and professor emeritus at Widener University Delaware Law School, said he would not be surprised if the letters Chancellor McCormick referred to were sent by larger investors opposing the requested fee.

"That'd be my guess," Hamermesh said. "Without knowing everything about it, I harbor a certain lack of sympathy with them.  The upshot of the case is they're avoiding dilution" that would have resulted had Musk won.  "The award would dilute them back in a real small way, at least in terms of proportional interest. They're way better off" with the decision.  Nevertheless, Hamermesh said, given the 29,402,900-share cut of the 266,947,208 shares freed up by Chancellor McCormick's decision, the court is certain to be pondering the billions involved.

"She has to be thinking to herself: 'There's no case, no effort, no measure of success that's worth that much to lawyers. You don't need to give them that much to incentivize them to take this case."  In the absence of precedent or clear rules, he added, "it's a gut-level, gut-check thing. How much is enough? Either they become more rich, or fabulously rich."

Chancellor McCormick put the fee in play with an order rescinding Musk's 12-tranche, all-stock compensation plan on Jan. 30 after a week-long trial in November 2022. The ruling cited disclosure failures, murky terms, conflicted director architects and Musk's own conflicted influence in Tesla's creation of a mountain of fast-triggering stock options.

At the time of the ruling, Tesla's stock was trading at more than $191 per share, putting the potential maximum award at around $5.6 billion.  Slipping since has pruned the potential maximum by hundreds of millions.  Costs for the derivative case included more than $13.6 million in attorney fees and more than $1.1 million in expenses during the multi-year Chancery action.  Requested fees would equal a $288,888 hourly rate that the fee motion said was justified by the case's complexity, results and attorney skill levels, among other factors.

Article: Why the Catalyst Theory Matters in Class Actions

March 11, 2024

A recent Law.com article by Adam J. Levitt, “Arguing Class Actions: Why the Catalyst Theory Matters”, examines the catalyst theory in class action litigation.  This article was posted with permission.  The article reads:

The story presents a conundrum.  Plaintiffs file a class action, which the defendant initially resists.  Plaintiffs counsel spends hundreds of thousands of dollars (or more) in lodestar and costs prosecuting the case, but after potentially years of hotly contested litigation, the defendant issues a recall or announces a refund program that fixes the problem and then argues that the case is moot.  The question: Should those who filed this case, and consequently induced (or “catalyzed”) the defendant to fix the problem, be paid?

The right answer is obvious.  Of course the plaintiffs lawyers should be paid.  Without plaintiffs counsel’s actions and active litigation threat, the defendant would have never changed its behavior, ultimately for consumers’ benefit.  The law routinely rewards those who confer benefits on others, even in the absence of, say, a contractual guarantee (as with the doctrine of quantum meruit).  In short, nobody works for free.  Nobody, as some would have it, except plaintiffs lawyers.

The Rise and Fall of the Catalyst Theory

Rewarding lawyers for catalyzing a change used to be noncontroversial. See, e.g., Marbley v. Bane, 57 F.3d 224 (2d Cir. 1995) (“a plaintiff whose lawsuit has been the catalyst in bringing about a goal sought in litigation, by threat of victory … has prevailed for purposes of an attorney’s fee claim…”); Pembroke v. Wood Cnty., Texas, 981 F.2d 225, 231 (5th Cir. 1993) (recognizing viability of catalyst theory); Wheeler v. Towanda Area Sch. Dist., 950 F.2d 128, 132 (3d Cir. 1991) (same).

But the law became murkier in May 2001, with the U.S. Supreme Court’s decision in Buckhannon Bd. & Care Home v. W. Virginia Dep’t of Health & Hum. Res., 532 U.S. 598 (2001).  There, an assisted living facility sued West Virginia, arguing that a regulation violated the Fair Housing Amendments Act.  After the suit was filed, the Legislature removed the regulation, mooting the case.

In a 5-4 decision, the Supreme Court ruled that the plaintiff was not a “prevailing party” for purposes of the applicable fee-shifting statute.  Discarding the “catalyst theory,” it ruled that: “A defendant’s voluntary change in conduct, although perhaps accomplishing what the plaintiff sought to achieve by the lawsuit, lacks the necessary judicial imprimatur on the change” sufficient to make the plaintiff a “prevailing party.” Id. at 605.  As Justice Ruth Bader Ginsburg explained in her dissent, the Buckhannon decision frustrates the goals of the catalyst theory because it “allows a defendant to escape a statutory obligation to pay a plaintiff’s counsel fees, even though the suit’s merit led the defendant to abandon the fray, to switch rather than fight on, to accord plaintiff sooner rather than later the principal redress sought in the complaint.” Id. at 622 (Ginsburg, J., dissenting).

The Catalyst Theory Today

Notwithstanding the Buckhannon decision, the catalyst theory remains a powerful tool outside of Buckhannon’s specific context.

First, Buckhannon has no bearing on state causes of action.  In California, Cal. Code Civ. Proc. §1021.5 allows a court to award fees to a “successful” party.  The California Supreme Court has explained it takes a “broad, pragmatic view of what constitutes a ‘successful party,’” Graham v. DaimlerChrysler, 34 Cal. 4th 553, 565 (2004), and explicitly endorsed the “catalyst theory [as] an application of the … principle that courts look to the practical impact of the public interest litigation in order to determine whether the party was successful.” Id. at 566.  In short, it disagreed with the U.S. Supreme Court regarding what it means to “prevail” or “succeed” in a litigation.

The catalyst theory has also largely survived in the context of favorable settlements.  For example, in Mady v. DaimlerChrysler, 59 So.3d 1129 (Fla. 2011), the Supreme Court of Florida considered an award of attorney fees to a consumer who accepted defendant’s offer of judgment, an offer that neither conceded liability nor plaintiff’s entitlement to fees, in a case filed under the Magnuson Moss Warranty Act (MMWA), which guarantees fees to a “prevailing party.” Id. at 1131.  Explicitly considering and distinguishing Buckhannon, the court found that a party may “prevail” with a settlement.  In doing so, it rearticulated the logic underpinning the catalyst theory:

[The plaintiff] achieved the same result with a monetary settlement only after being forced to bear all of the costs and expenses associated with litigation and facing the statutory penalty if the offer of judgment had not been accepted. DaimlerChrysler could have resolved this dispute during the “informal dispute settlement” phase, but instead waited until after [plaintiff] was forced to commence this action and incur the expenses of this litigation. Id. at 1133.

Further, even in federal court, attorney fees may be awarded under statutes other than those limiting such awards to “prevailing” parties.  For example, in Templin v. Indep. Blue Cross, 785 F.3d 861 (3d Cir. 2015), the Third Circuit explained that a fee may be awarded for an Employee Retirement Income Security Act claim under the catalyst theory, because ERISA does not limit fee awards to the “prevailing party.” 785 F.3d at 865.  Including the Third Circuit, at least five circuits have endorsed the catalyst theory under such statutes: Scarangella v. Group Health, 731 F.3d 146, 154–55 (2d Cir. 2013); Ohio River Valley Env’l Coalition v. Green Valley Coal, 511 F.3d 407, 414 (4th Cir. 2007); Sierra Club v. Env’l Protection Agency, 322 F.3d 718, 726 (D.C. Cir. 2003); Loggerhead Turtle v. Cty. Council, 307 F.3d 1318, 1325 (11th Cir. 2002).

Despite the ongoing recognition of the catalyst theory in many contexts, there remains the risk that courts may apply the catalyst theory narrowly, or that defendants may find a way around it. Consider Gordon v. Tootsie Roll Indus., 810 F. App’x 495, 496 (9th Cir. 2020), a “slack-fill” case in which the plaintiff alleged that the defendant’s boxes of Junior Mints were mostly air.  After the plaintiff moved for class certification, the defendant changed the box’s label.  The plaintiffs dismissed and moved for fees.

The fee application was denied because “Gordon’s theory of the case was that the size of the box was itself misleading, and that Tootsie Roll should either fill the Products’ box with more candy to account for the size of the box … or shrink the box to accurately represent the amount of the candy product therein[, and] Tootsie Roll did not make either of these changes.” Id. at 497 (internal quotation omitted).  Considering the disincentives (or, conversely, the moral hazards) that arise from this type of narrow application of the catalyst theory, courts should take a decidedly more equitable view when adjudicating this important issue.

A Way Forward

For practitioners, a few lessons come out of this case law and history.  First, in writing their complaint, attorneys must think through the various paths that a company might take to remedy the purported harm.  Recall that in Gordon, the plaintiff focused entirely on the misleading box, but not on the misleading labeling. Second, favorable settlements and offers of judgment remain viable tools, and may support a catalyst theory attorney-fee payment even if the defendant resists paying fees in the settlement itself.  Finally, despite Buckhannon, the catalyst theory remains readily available under a host of statutes (state and federal).  In relying on citing those statutes, plaintiffs should not shy away from the catalyst theory’s compelling logic.  Courts understand that basic fairness requires that attorneys be paid if their lawsuit ultimately confers a significant benefit.  Nobody should work for free.  Not even plaintiffs lawyers.

Adam J. Levitt is a founding partner of DiCello Levitt, where he heads the firm’s class action and public client practice groups.  DiCello Levitt senior counsel Daniel Schwartz also contributed to this article.

Second $185M Attorney Fee Request Called ‘Indefensible’

March 6, 2024

A recent Law 360 story by Jack Karp, “Quinn Emanuel’s 2nd $185M Fee Bid Blasted as ‘Indefensible’”, reports that Quinn Emanuel Urquhart & Sullivan LLP's second attempt to win $185 million in attorney fees in $3.7 billion litigation over the Affordable Care Act still fails to justify the "indefensible" amount and barely pays "lip service" to a reevaluation ordered by the Federal Circuit, health insurers told the federal claims court.

The Federal Circuit already wiped out the $185 million attorney fee that the U.S. Court of Federal Claims awarded to Quinn Emanuel and directed the claims court to reexamine objecting class members' insistence that the firm hadn't justified its fee request, Kaiser Foundation Health Plan Inc. and UnitedHealthcare Insurance Co. said.

"Despite this clear direction, class counsel's second petition again fails to justify its lodestar and again seeks to avoid a lodestar cross-check.  It instead asks the court to rubberstamp the same $185 million award," the health insurers said in their opposition to the firm's latest motion for approval of its fee request.

That motion for approval fails to support the 10,000 hours Quinn Emanuel says it spent on the case, suggests that the firm double-counted hours by including time spent on a separate multibillion-dollar class, and tries to skew its rates higher by seeking 2023 rates, even though its first fee petition was filed in 2020, according to the insurers.

"Trying to reverse-engineer defenses for its indefensible fee demand, class counsel uses inflated and unproven hours, multiplies those alleged hours by unprecedented rates, and then proposes a multiplier that is miles outside accepted norms.  That is akin to applying no cross-check at all," the insurers said.

Quinn Emanuel and a group of healthcare plan insurers the firm represents have insisted the firm used a novel claim and achieved a 100% recovery for the class in litigation over so-called risk corridor payments under the ACA.  But objectors Kaiser Foundation, UnitedHealthcare and others have argued that class counsel was entitled to just $8.8 million after a lodestar cross-check.

A Court of Federal Claims judge granted Quinn Emanuel's request for $185 million, or 5% of the total $3.7 billion settlement, in 2021 finding that a lodestar cross-check was unnecessary.  But that conclusion "was legal error," according to the Federal Circuit, which vacated the award in 2023.

That $185 million amount was inconsistent with promises made in class opt-in notices, and the "extraordinarily high award" wasn't justified, the three-judge panel ruled, ordering the fees to be recalculated.  But Quinn Emanuel's renewed request for $185 million "does little more than pay lip service" to the Federal Circuit's order, according to the insurers.

While the insurers still think their original $8.8 million fee request is reasonable, they are willing to agree to a fee award between $11.77 million and $23.14 million in "the interest of finality," they told the claims court.  "[T]he objectors sincerely want class counsel to be handsomely rewarded.  $11.77 [million] to $23.14 million represents an incredibly large fee award that also fulfills class counsel's promise of a lodestar cross-check," the insurers said.

Roundup MDL Lead Counsel Defend Fee Allocations

February 19, 2024

A recent Law.com story by Amanda Bronstad, “Roundup MDL Lead Counsel Defend Fee Allocations: ‘Limited Funds Available’”, reports that lawyers doling out fees in Roundup litigation stood by their decisions on how to allocate the funds, despite objections raised by other firms.

The fee committee, which is comprised of the three lead plaintiffs firms in the Roundup multidistrict litigation, allocated 81% to themselves and the rest to four other firms, including those who helped win the only bellwether trial, which ended in an $80 million verdict in 2019.  Three of those firms objected to their share of the so-called common benefit fund, which totaled $20.23 million.

Lead counsel originally had sought an order that would have granted about $800 million in common benefit fees, enough for the firms to “each afford to buy their own island,” U.S. District Judge Vince Chhabria wrote in a 2021 order significantly trimming the scope of common benefit fees in the Roundup litigation.

Several firms had objected to the original request, which they called a “money grab,” but lead counsel insisted that Bayer, which owns Monsanto, would not have entered into settlements but for their work.  In 2020, Bayer announced it planned to settle about 125,000 Roundup claims for an estimated $10.9 billion, but thousands of cases remained unsettled.

The significant reduction in the common benefit fund appeared to influence the committee’s allocation amounts.  For instance, San Francisco’s Andrus Anderson, whose partner Lori Andrus served as co-liaison counsel in the Roundup multidistrict litigation, had wanted closer to $550,000, the amount the firm actually billed, rather than the allocated $200,000, or 1% of the common benefit fees.  The committee, in a response, acknowledged that Andrus Anderson’s request was reasonable.  “But, unfortunately, the limited funds available for distribution in this litigation do not allow this to happen,” the committee wrote.

The committee members are co-lead counsel Aimee Wagstaff, of Wagstaff Law Firm in Denver; Robin Greenwald, of New York’s Weitz & Luxenberg; and David Dickens, who took over following partner Michael Miller’s 2021 death, at the Miller Firm in Orange, Virginia.  Among the fee committee members, Wagstaff Law Firm is set to receive the most, with 30%.

‘Thousands of Hours of Common Benefit Work’

Common benefit fees are used in multidistrict litigation to compensate lead counsel for costs and fees associated with discovery, trials and settlements, while preventing “free riders,” or lawyers who collect fees on cases they generate but don’t necessarily litigate.  Lawyers with related state court cases, in past years, have challenged common benefit fees, which are funded through assessments against their settlements.

Chhabria, in the Northern District of California, called common benefit fees in multidistrict litigation “totally out of control,” sending shock waves through the mass tort bar.  In his Roundup order, he excluded a large amount of the legal work, including state court cases, from being reimbursed through common benefit fees.

Los Angeles-based Wisner Baum and its predecessor, Baum Hedlund Aristei & Goldman, focused heavily on Roundup cases in California state courts, where partner R. Brent Wisner won verdicts of $289 million, in 2018, and $2 billion, in 2019.  But the firm is set to receive 10% of the fees because “no other firm contributed more to the common benefit of the MDL,” according to the committee’s response, filed on Friday.

The allocation, the committee wrote, is based on Wisner Baum’s “good faith effort” to estimate its time.  But the firm didn’t have adequate billing records that divided up the hours tied to the multidistrict litigation versus state court cases.  The fee committee, as a result, was forced to reduce Wisner Baum’s requested amount.  “Applying such a reduction is consistent with how courts typically handle attorney fee determinations for firms that have failed to submit time records,” the committee wrote.

Jennifer Moore, of Moore Law Group, based in Louisville, Kentucky, was co-lead counsel with Wagstaff in the bellwether trial, which Monsanto appealed all the way to the U.S. Supreme Court.  Moore had argued that 6% was not enough given her work in that case or the $3.4 million her firm contributed to the common benefit fund, but the fee committee countered that the Miller Firm and Weitz & Luxenberg, both lead counsel firms, also anticipate receiving less than they paid.

“Moore Law contributed to the advancement of this MDL.  There is no question about that,” the committee wrote.  “But Moore Law also greatly benefitted from the thousands of hours of common benefit work that was done before it had any involvement in this MDL.”

Another objection came from David Diamond, of Diamond Law in Tucson, Arizona, who insisted he did not rely on lead counsel’s work in his Roundup cases.  He was joined by David Bricker, of Thornton Law Firm in Beverly Hills, California.  Diamond suggested returning the money to lawyers, like them, who took their own risks.

But the committee disputed his characterization.  “Diamond Law was able to resolve 300 MDL cases without having to draft and issue general discovery, brief and argue preemption and other general dispositive motions, depose a single Monsanto employee, or retain general experts in epidemiology, toxicology, pathology, and regulatory affairs,” the committee wrote.  “With this backdrop, it is difficult to comprehend how Diamond Law can boldly declare that it received no assistance from MDL leadership.”

Flint Water Crisis Law Firms Agree to End Fee Dispute

February 13, 2024

A recent Law 360 story by Aaron West, “Flint Water Crisis Firms Agree To End Settlement Fee Dispute”, reports that three law firms that negotiated a $626 million settlement related to the Flint, Michigan, water crisis reached a settlement of their own after McAlpine PC agreed to end claims that Cohen Milstein Sellers & Toll PC and Pitt McGehee Palmer Bonanni & Rivers PC unfairly cut it out of their original co-counsel agreement.

The Michigan-based firms agreed to dismiss the lawsuit without prejudice or costs, according to an order signed by U.S. District Judge Judith E. Levy.  The judge's order follows the defendant firms urging the court in October to dismiss McAlpine's lawsuit against them after it "sat on its hands for years" before bringing a claim over the settlement split, according to court documents.

The dispute, which McAlpine initially filed in state court, claimed that the Auburn Hills-based firm was only paid a paltry sum by its co-counsel for its contributions to the underlying litigation.  McAlpine argued its work was instrumental to the lawsuit, contributing about $16 million worth of labor, or about 24% of the total lodestar figure of $84.5 million.  But Cohen Milstein and Pitt McGehee offered to pay just $500,000, McAlpine said.

"Defendants breached the co-counsel agreement by failing to distribute an attorney fee award reflecting McAlpine's respective lodestar, in favor of distributing a greater share to themselves," the firm alleged in its complaint.  The defendants argued in a subsequent filing that McAlpine was too late in bringing its claims.  "McAlpine had a full and fair opportunity to litigate the amount of any attorneys fee award in the appropriate place to do so — the federal Flint class action," the defendants said.

The class action at the heart of the law firms' dispute was settled in 2021 when Judge Levy gave final approval to a $626 million settlement, a deal expected to provide payments to more than 100,000 people affected by lead-contaminated water.  Government officials were accused of switching the city's water supply to the Flint River despite information cautioning them against doing so, and working to cover up the ensuing public health crisis.

In December, McAlpine said that the court should deny the firms' request to toss the fees case because it wasn't suing for recovery from the common benefit award, as Cohen Milstein and Pitt McGehee argued. Rather, McAlpine's claims were centered on "breaches of obligations" between the firms that were independent of the Court's order, the firm said.  The defendants' reply said what McAlpine was requesting went against their original agreement.

"McAlpine's argument is not supported anywhere," the defendants wrote.  "To the contrary, McAlpine agreed to work under the supervision of Co-Lead Counsel and the Executive Committee, and never challenged Co-Lead Counsel's authority to apportion fees among class counsel based on their respective roles in the litigation and contributions to the settlement until after the common benefit fee was distributed."