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Category: Fee Scholarship

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.

Study: Washington, DC Outpaces Peer Cities on Hourly Rate Growth

February 15, 2024

A recent Law.com story by Abigail Adcox “ ‘D.C. Was Our Best-Performing Region’: Billing Rate Increases and Demand Growth Drive Strong Year in the Beltway”, reports that law firms based in Washington, D.C., finished out 2023 with a strong financial performance, propelled by billing rate increases, expense control and robust demand within regulatory and litigation practices, according to results from a bank survey.

Among D.C.-based firms, gross revenue was up 7.6% in 2023 over the previous year, higher than the industry average of 6%, as the average billing rates in the region rose 8.8% compared with the industry average of 8.3%, according to Wells Fargo’s Legal Specialty Group’s year-end survey results.  Those results included eight firms headquartered in the D.C. region.

“D.C. was our best-performing region,” said Owen Burman, senior consultant and managing director with the Wells Fargo Legal Specialty Group.  “When talking to firms to really find out what drove it, the regulatory side was on fire for so many firms. And litigation overall has been supporting many firms this past year.”  In average revenue growth, D.C. firms exceeded peers in New York City (7%), California (6.6%), Texas (6.3%), Florida (5.9%), Chicago (5.2%), Philadelphia (4.7%) and Atlanta (4.4%), according to Wells Fargo data.

“The practice mix was very much in favor of D.C.-headquartered firms” in 2023, Burman said, citing robust demand within restructuring, antitrust and litigation practices, as other firms saw the impact of slowdowns in the transactional market.  It follows a lackluster 2022 for D.C. firms, which “underperformed,” as anticipated enforcement activities under the Biden administration didn’t come to fruition as expected, according to Burman.

However, in 2023, as demand picked up within regulatory and litigation practices, D.C. firms were able to control expenses and were less aggressive in hiring, contributing to their revenue growth.  Profits per equity partner were up 10.7%, compared with the industry average of 4.9%.  The number of full-time equivalent lawyers at D.C. firms also grew by 2%, slightly below the industry average of 2.8%. However, productivity at D.C. firms was down 1%, still better than the industry average (down 2.1%).

Demand among all lawyers was also slightly better at D.C. firms (0.9%) than the industry average (0.7%), but fell short of peers in New York City, which saw a 2% increase in demand.

Controlling Expenses

Meanwhile, total expenses grew 4.1%, the best out of all eight regions tracked, and above the industry average of 6%.  “They were able to control the expense growth much better than peers,” Burman said.  “Last year they were able to control the lawyer compensation pressures a bit more than other markets.”

Billing rate increases were in large part able to compensate for increases in lawyer compensation at D.C. firms last year.  “All together the rate increases are covering it.  The problem is that they were hoping it would cover other investments and now they have to redirect that money into supporting the lawyer compensation,” said Burman, adding that artificial intelligence and innovation investments are other top priorities for firm expenses.

Because of these expenses and other priorities, in 2024, D.C.-based firms may see more expense pressure, and they may be more in line with the industry averages in expense growth, he said.  Still, entering the year, D.C. firms are “optimistic,” Burman added, expecting strong demand within litigation and regulatory practices to continue.  “Their growth estimates are quite optimistic,” Burman said.  “Litigation, restructuring practices are still quite strong.  So those haven’t tailed off as we’re anticipating this rebound in transactions.”

ALM Covers NALFA’s 2023 Litigation Hourly Rate Survey & Report

February 2, 2024

A recent Law.com story by Michael Mora, “Where Miami Ranks in States Litigators Charge Highest Attorney Fee Rates,” reports on NALFA's 2023 Litigation Hourly Rate Survey & Report.  The story reads:

The National Association of Legal Fee Analysis released new intelligence providing micro and macro data of hourly rate ranges for both defense and plaintiff lawyers, which one attorney-fees expert said is the confluence of the coronavirus pandemic changing the geography in which people are living and working and the emergence of Miami on the national scene.

And that expert, Edward Mullins, a partner at Reed Smith in Miami, is not involved in the study.  The Am Law 100 firm attorney said he was surprised by the portion of all rates in Miami being at 18% in the most expensive tier and suspected that it is due to the influx of major law firms entering into the market in the last few years.

“Many of the new lawyers coming in are working not on local work, but more likely are doing work that is based in other areas like New York or other areas from where they are emigrating,” Mullins said.  “These new lawyers are integrating their N.Y. rates into the market and increasing the rates, but I don’t think that the rates charged for local work are increasing at the same pace.”

The NALFA empirical survey and report provides that micro and macro data, which, in addition to ranging from defense and plaintiff attorneys, does so at various experience levels, from the largest law firms to solo shops, in regular and complex litigation, and in the nation’s largest markets.  Over 24,800 qualified litigators participated in the survey.

Here, there are four categories: tier one, which ranges from $250 to $450; tier two, which runs from $451 to $700; tier three, which ranges from $701 to $950; and, tier four, which runs from $951 to over $1,300.

Nationally, Washington, DC, has the largest tier four percentage at 25%; then falling to a tie in second at 18% with Miami and New York.  For tier three, Washington has the highest percentage by far, at 51%; with San Francisco in second at 32%, and New York tied for third at 30% with multiple cities, including Boston and Los Angeles.

As for tier two, New Orleans and Las Vegas garnered the highest percentage at 44%; followed by Phoenix, Arizona, and San Francisco, at 43%; and, several cities fell closely behind, including Dallas and Denver with 42%.  And, for tier one, New Orleans has the most, standing at 39%, while Phoenix sits at 35% followed by Las Vegas at 33%.

Disrupting the Class: Objections to Class Action Settlements

January 17, 2024

A recent Law.com article by Adam J. Levitt, Arguing Class Actions: Objections to Class Action Settlements” reports on the role of class action objectors in the settlement process.  This article was posted with permission.  The article reads:

After years of litigating and negotiating, the parties and their counsel seek approval from the court of a class action settlement.  All parties are eager for final approval but objections start flowing in.  But final approval and ultimate disbursement of much-needed relief to class members is delayed for months, if not years, as the objectors appeal.  This scene has played out time and time again, particularly in the case of large, well-publicized class action settlements.

Federal Rule of Civil Procedure 23(e) guarantees each class member who does not opt out the right to object to a class action settlement. Fed. R. Civ. P. 23(e)(4), (5).  Objectors can sometimes play a role in helping the court or the parties evaluate a settlement.  Indeed, one court noted that objectors can add value to the class action settlement process by: “(1) transforming the fairness hearing into a truly adversarial proceeding; (2) supplying the Court with both precedent and argument to gauge the reasonableness of the settlement and lead counsel’s fee request; and (3) preventing collusion between lead plaintiff and defendants.” In re Cardinal Health, Inc. Sec. Litig., 550 F. Supp. 3d 751, 753 (S.D. Ohio 2008).  Objections may also address uniquely-situated class members with independent, unusual circumstances that may affect the adequacy of their recovery under the proposed settlement.

But all too often, objectors only object to class action settlements for personal gain, an individual (often undefined) animus toward the class action mechanism, or for purportedly policy-based or “principled” reasons that are generally ham-fisted attacks on the plaintiffs’ bar in general.  These bad-faith objectors are often referred to as “professional objectors.”  Professional objectors file meritless objections, seeking, in a small number of cases, to extract a payoff in exchange for withdrawing the objection.  Other “professional objectors” have a well-known agenda and animus against class action attorneys, filing “gotcha” appeals which do nothing to materially improve settlements, but instead prolong when settlement payments are made.  Either flavor of professional objector is bad.  The first kind puts pressure on class counsel to engage in blackmail to finalize settlements so that class members can get paid.  The second kind only helps defense counsel, who are paid hourly, while advancing the personal view of one person and holding up payments to potentially millions of others who are happy with the settlement.

Courts across the United States have noted the havoc that professional objectors can wreak on the settlement approval process.  One court held that “settlement funds of $147 million, the product of four years of hard-fought litigation, have hung in limbo for more than eight months because a person who knows he has no right to object to the settlement nonetheless refuses to withdraw his meritless Objection.” In re Polyurethane Foam Antitrust Litig., 165 F. Supp. 3d 664, 670–71 (N.D. Ohio 2015).  Another referenced professional objectors as “a pariah to the functionality of class action lawsuits.” Snell v. Allianz Life Ins. Co. of N. Am., No. 97-cv-2786, 2000 WL 133640, at *9 (D. Minn. Sep. 8, 2000).  In a particularly egregious case, an objector sent class counsel a letter stating “[s]ettle with me for $10,000 and not a penny more or a penny less to remove me and only me from the equation of the case. . . You have one week to decide.”  The judge ordered the objector to show cause “why his communications with class counsel should not be referred to the United States Attorneys Office” for possible wire or mail fraud. Junge v. Geron Corp., No. C 20-00547, 2023 WL 2940048, at *1 (N.D. Cal. Apr. 13, 2023)).  Any objector still has the ability to appeal approval of a class settlement, regardless of a district court’s findings about their motivations.  For example, a settlement that would resolve antitrust claims against Blue Cross Blue Shield of Michigan was held up for over a year before the United States Court of Appeals for the Sixth Circuit was able to address an objector’s “raft of objections, many of them undeveloped, all of them meritless.” Shane Grp., Inc. v. Blue Cross Blue Shield of Michigan, 833 F. App’x 430, 431 (6th Cir. 2021).  Even after an appellate court ruling, objectors can still file a petition for a writ of certiorari with the United States Supreme Court, and the class has to wait until the petition is rejected before any settlement relief becomes available—a process which, itself, could take yet another year.  By way of example, members of my firm helped to resolve the class action against Equifax related to its 2017 data breach in April 2019.  The settlement was upheld, but an endless litany of objectors’ spurious appeals resulted in payments being delayed until January 2022. See, e.g., In re Equifax Inc. Customer Data Sec. Breach Litig., 999 F.3d 1247 (11th Cir. 2021), cert. denied sub nom. Huang v. Spector, 142 S. Ct. 431 (2021), and cert. denied sub nom. Watkins v. Spector, 142 S. Ct. 765 (2022).

Both the plaintiff and defense class action bar agree on the need to reform the objection process.  The April 2016 Minutes from the Meeting of the Civil Rules Advisory Committee note that “there was virtually unanimous agreement that something should be done to address the problem of ‘bad’ objectors.” Civ. Rules Advisory Comm., Draft Minutes, at 13 (Apr. 14, 2016). On December 1, 2018, new language was added to the Federal Rules of Civil Procedure to address professional objectors.  Rule 23(e)(5) now requires objectors to: (1) state “with specificity the grounds for the objection;” and (2) requires court approval for “forgoing or withdrawing an objection” or “forgoing, dismissing, or abandoning an appeal from a judgement approving the proposal.” Fed. R. Civ. P. 23(e)(5).

While it appears these changes have resulted in some reduction in the number of frivolous objections, courts have continued to approve side payments to professional objectors. See Brian Fitzpatrick, Objector Blackmail Update: What Have the 2018 Amendments Done?, 89 Fordham L. Rev. 437, 437-38 (2020). More can still be done.

The difficulty in reforming the objection process is balancing the approach so that good-faith objectors are not deterred while professional objectors are sufficiently deterred.  For example, barring side payments to objectors, as proposed by Professor Brian Fitzpatrick, id., would potentially eliminate the professional objector problem, but others have voiced the concern that it would also discourage good-faith objectors from raising objections that might improve the settlement agreement.  See Robert Klonoff, Class Action Objectors: The Good, The Bad, and The Ugly, 89 Fordham L. Rev. 475, 492-93 n.99 (2020).

One oft-proposed reform is requiring objectors to post an appeals bond under Federal Rule of Appellate Procedure 7.  Requiring hefty appeals bonds for frivolous appeals could deter professional objectors but again there is a concern that this could deter good-faith objectors (i.e., those without any agenda or personal bent against class actions, but who legitimately want to make the settlement materially better, rather than engage in seriatim “gotcha” appeals) who may be pro se and have limited funds. Id. at 497.  Courts, however, can use their discretion to assess whether the objection is in good faith and determine whether an appeals bond is appropriate.

Class counsel can also request that courts conduct an expedited review of objections and appeals.  For example, if an objector files an appeal, class counsel and the defendant can file a motion for summary affirmance where “no substantial question is presented” in the objection. See id. at 501 n.160.  This would allow the appellate court to quickly dismiss a frivolous appeal without full briefing.  Both the Seventh and Ninth Circuits have recently granted summary affirmance in cases involving professional objectors. Id. at 502.  Another option is simply for the parties to move for expedited review with an accelerated briefing and oral argument schedule.

Courts can take a more active role in sanctioning and barring professional objectors from practicing in their jurisdiction.  Reform along these lines has been somewhat limited, as a judge in one federal district court cannot bar a professional objector from practicing before another court.  This practice could be aided if courts coordinated at the national level to maintain a list of problematic professional objectors, along with information about the number of times each has objected and whether the objector has been barred from practicing in any court. See id. at 499.  This list could then be easily cited by class counsel in an objection response or sanctions motion.  Such a database could also assist courts in determining whether to require an appeals bond and if expedited review is appropriate.  If managed well, it may be the most promising mechanism for deterring serial professional objectors without deterring good faith objections.

Finally, another reform that can serve as an effective check on settlement objectors is adopting provisions in settlement agreements that allow for the payment of fees and expenses before objector appeals are resolved.  While settlement objectors and other class action opponents characterize these as “quick pay” provisions, they are actually anything but—as settlements usually only come after a significant amount of time and resources are spent litigating a case without any guarantee of recovery.  Provisions for fee payments before objector appeals are resolved serve to deter professional objectors, because enabling plaintiffs’ counsel to be paid for their work in achieving a settlement removes the ransom payment tool from the objector’s extortionate toolbox.  A survey from the Western Alliance Bank Class Action Law Forum in April 2021 found that nearly two-thirds of the survey’s respondents had participated in class action settlements permitting timely payments to settling plaintiffs’ counsel.

Complex issues such as navigating objections to class action settlements require complex, balanced, and intersectional solutions.  We encourage judges and class action practitioners to use their creativity and judgment to address the continuing problem of professional objectors—as well as the problem of purported “principled objectors,” whose sole “principle” is to undermine the class action process for their own political ends—and to point out and criticize this bad behavior in the hopes of deterrence.  And, in the future, we would also encourage the Rules Committee to consider additional measures—such as requiring objectors to successfully intervene before they may file an objection, which prevents the class from being paid after an already long wait.

Adam J. Levitt is a founding partner of DiCello Levitt, where he heads the firm’s class action and public client practice groups.

NALFA Releases 2023 Litigation Hourly Rate Survey & Report

December 27, 2023

Every year, NALFA conducts a survey of prevailing market rates in civil litigation in the U.S.  Today, NALFA has released the results from its 2023 hourly rate survey.  The survey results, published in the 2023 Litigation Hourly Rate Survey & Report, shows billing rate data on the factors that correlate to hourly rates in litigation:

City / Geography
Years of Litigation Experience / Seniority
Position / Title
Practice Area / Complexity of Case
Law Firm / Law Office Size

This empirical survey and report provides micro and macro data of current hourly rate ranges for both defense and plaintiffs' litigators, at various experience levels, from large law firms to solo shops, in regular and complex litigation, and in the nation's largest markets.  This data-intensive survey contains hundreds of data sets and thousands of data points covering all relevant billing rate categories and variables.  This is the nation's largest and most comprehensive survey or study of hourly billing rates in litigation.

This is the fourth year in a row NALFA has conducted this hourly rate survey.  The 2023 Litigation Hourly Rate Survey & Report contains additional categories and more accurate variables.  These updated features allow NALFA to capture new and more precise billing rate data.

Through its propriety email database and digital infrastructure, NALFA surveyed over 495,000 attorneys from thousands of law firms and law offices from across the U.S.  Over 24,800 qualified litigators participated in this hourly rate survey over a 10-month period.  This data-rich survey was designed to aid litigators in proving prevailing market rates in court and comparing their billing rates to their litigation peers.