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Lawmakers Question $125M Fee Request in 3M Case

March 7, 2018

A recent Bloomberg Law story by Stephen Joyce, “Covington’s $125M Fee for 3M Case ‘A Little Steep’: Lawmaker,” reports that Covington & Burling LLP came under fire March 5 for a $125 million fee it received to represent the state of Minnesota in its $5 billion environmental lawsuit against 3M Co., which settled Feb. 20 for $850 million.

At a March 5 Minnesota House Ways and Means Committee hearing, state Rep. Sarah Anderson (R) questioned the Big Law firm’s contingency arrangement with the state, reached in 2010.

“I’m just curious as to why we are paying a law firm $125 million for seven years of work,” she said. Referring to her own math, she said the sum works out to about $48,000 per day. “That seems a little steep.” She also said all the legal fees are being shipped outside the state because Covington doesn’t have an office in Minnesota.

Jim Knoblach (R), Minnesota Ways and Means Committee chairman, said additional legislation may be needed to ensure the money could be received and spent appropriately.

The underlying case stems from a lawsuit in 2010, when Minnesota sued 3M, alleging it acted with deliberate disregard by dumping perfluorinated chemicals at four Minnesota sites beginning in the 1950s, largely in unlined pits and trenches, contaminating groundwater.

The complaint alleged the company knew about the risks the chemicals posed but concealed those risks from government regulators for decades. The March 5 hearing was called to review the settlement deal, particularly its impact on the state’s finances.

$10 Million in Costs Cited

Lawyer and state Rep. Debra Hilstrom (D), who said she has followed the case for years, told the hearing the litigation involved more than 27 million pages of documents, more than 200 witness depositions, more than 100 judicial hearings and conferences, and about $10 million in environmental tests, fees, and associated costs.

The agreement the state put in place with Covington was a contingency contract, and such deals can result in legal teams reaping up to 40 percent of any eventual settlement, Ben Wogsland, a spokesman for state Attorney General Lori Swanson (D), told Big Law Business. Covington’s fee was about 14 percent of the total settlement amount.

A Dec. 22, 2010, agreement between Minnesota and Covington said the state was not liable to pay Covington compensation other than amounts recovered from 3M. If the final recovery turned out to be less than sufficient to fully reimburse Covington for its costs and expenses, Minnesota would not be responsible to make the law firm whole, the agreement said. The Minnesota Attorney General’s office didn’t provide Big Law Business with a breakdown of the billable hour fees of Covington lawyers working on the case, which was included in the retainer agreement

“Covington has represented the State of Minnesota in environmental matters for more than 20 years, including the NRD [3M] litigation that was recently resolved. Our work on the NRD case involved a contingency fee arrangement, the attendant risk that we might receive no fee whatsoever, and dedicated efforts by our team in hard-fought, complex litigation lasting over seven years,” a Covington spokesman told Big Law Business in an email.

Anderson also questioned why the state didn’t rely on state Attorney General Lori Swanson (D) and her office to litigate the case.

Wogsland said Covington is “a long-time counsel to the state on environmental matters and has represented Minnesota on environmental matters for over 20 years.” Minnesota state agencies also likely didn’t have the wherewithal to litigate the case, he said. “To litigate this case you needed the best experts in the world, from geologists to chemists to engineers, and this firm [Covington] put up that money to pay for all of that,” he said.

Facebook Investors Seek $129M in Attorney Fees

February 20, 2018

A recent Bloomberg Law story by Jacob Rund “Facebook Investors Seek $129M Fee in Fight Over Non-Voting Stock,” reports that lawyers representing Facebook Inc. stockholders who may have caused the company to nix its plan to create a new, non-voting stock class are asking for $129 million in fees.

The shareholders alleged Facebook directors breached their fiduciary duties by backing new Class C shares. Their suit, filed in Delaware Chancery Court, claimed this move would have improperly entrenched Facebook founder and controlling stockholder Mark Zuckerberg.

The chancery court dismissed the case last September after Zuckerberg—days before he was scheduled to testify in court—asked Facebook’s board to drop its attempt at the share reclassification.

A $129 million fee award would be uncommon, although not unheard of, for a case this size when there is a definitive judgment or settlement, business law professors told Bloomberg Law. But because the claims were rendered moot and dismissed, the question of how much the investors’ attorneys should be awarded—if at all—becomes problematic.

The fees requested are “very, very high,” said Brian Fitzpatrick, a Vanderbilt University law professor who specializes in class litigation.

“A fee this large is unusual,” said Geoffrey Miller, a New York University law professor who co-authored a research paper on attorneys’ fees awarded in class actions. “Unless there is something really extraordinary about this case, it’s at the higher end of what you would expect to see.”

The $129 million sought by Facebook investors wouldn’t be the largest granted by a Delaware court. Jill Fisch, a business law professor at the University of Pennsylvania, pointed to a $300 million fee granted by the Delaware Supreme Court in the 2012 shareholder derivative action against Southern Peru Copper Co., where $2 billion in damages were awarded.

For most class and derivative actions in federal court, attorneys’ fees are determined by one of two methods.

“One way is [the courts] give the lawyers a percentage of whatever benefits they have obtained for the class members or shareholders,” said Brian Fitzpatrick, a Vanderbilt University law professor who specializes in class litigation.

That percentage varies depending on the circumstances surrounding the case and the total amount received in settlement or through judgment, Fitzpatrick said.

Courts may also determine attorneys’ fees using the “lodestar” method, where the lawyers’ hourly rates are multiplied by both hours worked and what’s known as a risk multiplier.

But in Delaware Chancery Court, the fees depend “pretty much on what the chancellor, in his or her discretion, decides is appropriate,” Miller said. “The chancellor has huge discretion as to what to award, [and] a lot depends on the nature and the circumstances of the case.”

The Delaware courts mandate that each party to a lawsuit pay its own attorneys’ fees. However, there are some exceptions.

Without a settlement fund to pull a percentage from, the attorneys’ argument “has to be that they have created a benefit” for the class and deserve an award this large, Miller said. “It’s a complicated situation.”

“Intrinsically it’s not an unreasonable fee, but it would require significant justification” to prove a benefit was provided, he said.

The investors’ attorneys’ brief supporting the motion for a fee award was filed Feb. 2 under seal. But exhibits to the brief include a Forbe’s article highlighting that Zuckerberg pulled the plug on the proposal prior to his scheduled testimony.

This could mean the attorneys will try to prove the class action caused Facebook’s board to abandon the new stock class.

“When you don’t have a pot of cash” to take fees from, and you don’t have a court-ordered injunction or a settlement where the defendant agrees to change their practices, “then you are kind of in a land of speculation about why” the company changed its intentions, Fitzpatrick said.

The lack of both clear causation and a pool of cash from either judgment or settlement makes it “a little more complicated to get money,” he added.

Vice Chancellor J. Travis Laster presides over the Facebook class action.

The case is In re Facebook Inc. Class C Reclassification Litig. , Del. Ch., No. 12286-VCL, motion for attorneys’ fees filed 2/2/18.

Fee Request Cut in Chipotle FLSA Case

January 30, 2018

A recent Law 360 story by Bonnie Eslinger, “’Excessive’ Chipotle Class Fee Cut From $3.2M to $600K,” reports that a Minnesota federal judge slashed an attorneys' fee request of $3.2 million to $600,000 in a class action alleging Chipotle required employees to work off the clock, calling the ask “excessive” in light of the results: a $62,000 settlement for two restaurants' workers.

The decision Monday by U.S. District Judge Susan Richard Nelson to reduce the attorneys' fee request by more than 81 percent marked a withering end to Fair Labor Standards Act litigation that once sought to represent nationwide collectives and statewide classes. That result, Chipotle Mexican Grill Inc. told the court, potentially could have encompassed hundreds of thousands of plaintiffs and “untold millions” of dollars in damages. In the end, the number of class members receiving a share of the settlement was 28.

After more than four years of pursuing their case, counsel for the class urged the court to take their contingency-based fee arrangement into consideration when assessing the reasonableness of their fee request. The judge didn’t find that argument very persuasive.

“The court appreciates the risk undertaken by attorneys representing hourly-paid employees suing their corporate employer under the FLSA,” the judge wrote in her 44-page ruling. “However, even considering the contingency-based arrangement here, the total fee request of $3,236,368.50 is excessive.”

The fee request is particularly high, she said, in light of the amount of damages at stake, plaintiffs’ overall success and the $62,000 result.

The judge added that while the plaintiffs’ law firms initially sought to certify a nationwide class, they were ultimately unsuccessful in that effort.

“In consideration of these factors, on balance, the court is persuaded that due to the relatively straightforward nature of the legal issues here, significantly lower awards in similar cases, the results obtained, and the disproportionate relationship between the amount of damages obtained and the fee request,” an overall reduction is reasonable the judge said.

The 81.5 percent reduction of the $3.2 million fee request also incorporated cuts by the judge for hourly billing rates the judge found were above the prevailing rate for comparable work done by other attorneys in the Twin Cities.

Each of the plaintiffs’ law firms billed at hourly rates of $600 for partners, $450 for senior associates with five or more years of experience, $350 for junior associates with less than five years of experience, and $250 for paralegals, the court noted.

Reasonable rates should account for varying levels of experience, the judge said, noting that a partner with 14 years of legal experience billed at the same rate as a partner and lead attorney with three decades under his belt, Kevin Giebel of Giebel and Associates LLC. The court made reductions to most hourly billing rates, including dropping Giebel to $575 per hour and the less-experienced partner to $475.

The judge also shaved the fee request to account for work done by counsel for the plaintiffs involving abandoned claims and unsuccessful efforts to amend the pleadings, for tasks considered administrative or clerical in nature, and for work deemed duplicative or excessive.

The parties reached their settlement during the summer, weeks after Judge Nelson denied a bid by the burrito restaurant chain to decertify the class of employees accusing the company of wage-and-hour violations — and just as the case was set to go to trial.

In rejecting the motion to decertify the class, judge rebuffed Chipotle’s argument that the alleged FLSA violations were attributable to “varied” reasons, including managerial requests to clock out early and continue working, additional cleaning assignments as punishment, “voluntary cleaning parties,” and off-the-clock work to demonstrate loyalty. In her June ruling, she also denied the argument that plaintiffs working as hourly kitchen managers or service managers had a conflict of interest because they were among the employees who directed other plaintiffs to perform off-the-clock work.

The workers were granted conditional collective action certification under the FLSA in September 2014. The suit was first filed in July 2013 against Chipotle by several employees at the restaurant in Crystal, Minnesota. Judge Nelson, however, turned down the employees' request for a nationwide class that would have covered some 100,000 workers, instead certifying a narrower class composed only of workers at the Chipotle in Crystal.

The settlement also resolves the individual claims filed in October 2014 by a former Chipotle employee at its restaurant in Golden Valley, Minnesota.

The cases are Harris et al. v. Chipotle Mexican Grill Inc., case number 0:13-cv-01719, and Woodards v. Chipotle Mexican Grill Inc., case number 0:14-cv-4181, in the U.S. District Court for the District of Minnesota.

Class Counsel Defend $38M Fee Request in Anthem Data Breach Case

January 23, 2018

A recent The Recorder by Amanda Bronstad, “Plaintiffs Lawyers in Anthem Data Breach Settlement Defend $38M in Fees” reports that laintiffs lawyers are fighting accusations by an objector that their $38 million fee request in the Anthem data breach settlement was “outrageous on its face” and required a special master to investigate potential over-billing.

“In effect, objector contends that counsel should have litigated this case on the cheap, rather than devoting the resources (and taking the risks) necessary to litigate it well and protect the class,” wrote co-lead plaintiffs attorneys Eve Cervantez and Andrew Friedman in a response filed Jan. 18. “To put it simply, the lodestar in this case reflects first-rate lawyering that yielded a first-rate result, something this court is well equipped to rule upon.”

As for a special master, there was no need for such “satellite litigation,” which would only delay the case and incur costs, they wrote. “Rhetoric aside,” they wrote of the objector, represented by class action critic Ted Frank, “he identifies no billing improprieties that would raise serious questions about counsel’s fee request and which might make the services of a special master useful to the court.”

U.S. District Judge Lucy Koh of the Northern District of California has scheduled a Feb. 1 hearing for final approval of the $115 million settlement, though a hearing on the special master request is expected to be on April 5.

The settlement provides two years of credit monitoring and identity protection services to more than 78 million people whose personal information was compromised in 2015. It also provides a $15 million fund to compensate for costs such as credit monitoring services and falsified tax returns.

Frank, of the Competitive Enterprise Institute’s Center for Class Action Fairness, filed an objection last month on behalf of Adam Schulman, who is an attorney at his Washington, D.C., organization. He wrote that the fee request, which is 33 percent of the settlement, should be closer to $13.8 million when subtracting $23 million in notice and administration costs.

He also questioned why 49 other firms not appointed by the court stood to earn a total of $13.6 million in fees and “whether there were side agreements to back scratch or trade favors in other MDLs to get work in this MDL.”

But he was especially critical of the average $360 hourly rate for contract attorneys submitted by the four firms, one of which is San Francisco’s Lieff Cabraser Heimann & Bernstein, which was on the plaintiffs steering committee along with Girard Gibbs in San Francisco. A special master in Boston is investigating Lieff Cabraser, along with two other law firms, for potential over-billing for staff attorneys in a $74.5 million fee request in securities class action settlements with State Street. The special master’s report is due in March.

Cervantez, of San Francisco’s Altshuler Berzon, and Friedman, of Washington, D.C.-based Cohen Milstein Sellers & Toll, wrote in their response that there are no similarities between the two cases.

“There is absolutely no indication that counsel’s fee application here suffers from the perceived irregularities that have prompted some trial courts to enlist the assistance of a special master,” they wrote. In State Street, a special master was appointed after class counsel admitted their lodestar was initially overstated due to a mistake in double counting time for contract attorneys. “Here, to the contrary, there is no suggestion that counsel duplicated any amount of the lodestar, inadvertently or otherwise,” they wrote.

But in a declaration, Cervantez said she had discovered “three clerical errors”: One associate at Scott + Scott was incorrectly identified as a contract attorney, as were staff attorneys at Lieff Cabraser, and the rate for an associate at Goldman, Scarlato Penny in Conshohocken, Pennsylvania, should have been $495, not $595, per hour.

In declarations filed with the court, Friedman, Cervantez, Lieff Cabraser’s Michael Sobol and Eric Gibbs of Girard Gibbs insisted they had not “made any agreements to exchange work or fees in this case for work or support for leadership positions in another MDL or in any other case.” Friedman and Cervantez added that they made all work assignments to other firms “on the basis of efficiency and relevant experience and expertise.”

Friedman, Cervantez, Sobol and Gibbs did not respond to a request for comment.

Frank said: “There are the same problems here that the State Street special master is investigating. The declarations were fascinating: the claim is that dozens of law firms allegedly ​did as much as $1.5 M of lodestar work on spec without any promise or tacit understanding of how they would be paid. I can’t even hire a local counsel for a couple of thousand dollars without signing a lengthy retainer agreement.”

Koh has been especially critical of fees, trimming the number of plaintiffs firms leading the Anthem case and slashing compensation in other cases involving Lieff Cabraser and Cohen Milstein.

Delaware Governor Seeks Fee Reduction in State Court Party Balance Case

January 12, 2018

A recent Delaware Law Weekly story by Tom McParland, “Carney Asks for Fee Reduction in Case Striking State Court Party Balance Mandate” reports that attorneys for Governor John Carney are asking a federal judge in Wilmington to slash a request for attorney fees in the case of a New Castle County lawyer who successfully challenged a provision of the Delaware Constitution requiring political balance on the state’s courts.

Carney, who has appealed the decision said that a ruling on James R. Adams’ fee request should be tabled until the U.S. Court of Appeals for the Third Circuit can weigh in.  But the governor also argued that any award the court grants should be reduced by 40 percent because Adams had only achieved partial success.

Adams, who is represented by Finger & Slanina partner David L. Finger, last month requested $22,900 to cover the cost of litigating the case through summary judgment.  U.S. Chief Magistrate Judge Mary Pat Thynge of the District of Delaware on Dec. 6, 2017, ruled in favor of Adams, a graduate of Widener University Delaware Law School, who argued the 120-year-old requirement violated the First Amendment of the U.S. Constitution by restricting government employment based on party affiliation.

Carney, who is responsible for nominating judges, did not dispute that Adams had prevailed in the case.  However, Carney challenged Adams’ assertion that he had secured a “complete victory,” saying that Thynge’s ruling did not specifically address constitutional provisions preventing one political party from being represented by more than a “bare majority” of the judges on Delaware’s courts.

“Because plaintiff did not achieve success in challenging the constitutional provisions relating to the Family Court and the Court of Common Pleas, or in challenging the bare majority provisions for the Delaware Supreme Court, the Superior Court or the Court of Chancery, defendant requests a 40 percent reduction in any award the court may choose to grant, as such a reduction would reflect plaintiff’s partial success in challenging Delaware’s constitutional provisions governing the composition of its courts” Carney’s Young Conaway Stargatt & Taylor attorneys wrote in an 8-page brief.

Finger, meanwhile, said in an interview that reduction of attorney fees was not warranted in any case where a plaintiff has won “substantial” relief from the court.  “We won a very substantial issue,” he said. “Moreover, the issue [of party balance] will apply to Family Court and the Court of Common Pleas because the bare majority requirement still requires making political party a determining factor [in nominating judges],” Finger said.

Adams, a registered independent, said he’s been prevented in the past from applying for judgeships because of the constitutional mandate that judicial seats be split between Republicans and Democrats.

Proponents of the provision—codified in Article IV, Section 3 of the state constitution—have said it safeguards a fair, independent and impartial judiciary that attracts talent to serve in its ranks.  But Adams and others have argued the mandate improperly boxes out independents and creates the impression the state’s judiciary is tinged with political bias.

Attorneys Want to Depose NFL Fee Expert

December 22, 2017

A recent Legal Intelligencer story, by Max Mitchell, “Lawyers Want to Depose NFL Fee Expert Over Slashed Attorney Fees,” reports that attorneys from five law firms have asked the court presiding...

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