October 29, 2020
A recent Law 360 story by Jon Hill, “Borrowers Reject AG’s Atty Fee Critique in $141M Lender Deal,” reports that borrowers looking to clinch a $141 million settlement of illegal lending claims against online lender American Web Loan urged a Virginia federal judge to press ahead with final approval of the deal, defending their request for $32.4 million in attorney fees against criticism from the state's attorney general.
Virginia Attorney General Mark Herring weighed in earlier this month to argue that U.S. District Judge Henry C. Morgan Jr. should reject these requested fees from the proposed settlement because the burden of paying them wouldn't be spread proportionately across the borrower class in line to benefit from the deal, which calls for a $65 million cash payment from AWL and $76 million in debt forgiveness.
A majority of the settlement class members stand to receive a cut of the cash, while a minority would get debt forgiveness. But because the fee request is based on the total recovery amount yet taxed against the cash pot alone, the cash-eligible majority winds up footing the legal bill for the benefits received by the forgiveness-eligible minority, according to the state AG.
But the borrower plaintiffs, which are represented by Berman Tabacco, Gravel & Shea PC and MichieHamlett PLLC, countered that it's consistent with established practice and precedent to treat debt forgiveness as part of a settlement's "common fund" for basing attorney fees. "Attorneys' fees are being spread proportionally across class members who are benefited by receiving a cash award, loan cancellation or both," the borrowers wrote in a response brief. "Indeed, the cash and loan cancellation components of the settlement represent the total recovery."
Unveiled in April, the proposed settlement would cover a class of AWL borrowers stretching back to 2010, ending a 2017 lawsuit accusing AWL and others of an illegal payday lending scheme that exploited tribal immunity to evade state usury laws. The deal comes with no admissions of wrongdoing and stipulates that AWL maintains its business practices "have been lawful and proper."
Judge Morgan preliminary approved the deal in June, and in moving for final approval last month, the borrowers submitted a request for an award of $32.43 million in attorney fees, an amount framed as "23% of the $141 million total settlement value (i.e. the monetary relief component)."
But the Virginia AG said in an Oct. 9 amicus brief that the fee request should "give this court pause." Not only does the fee request take up about half of the cash payment, thereby risking a "perception of class action attorney overcompensation," but it also unfairly shifts an estimated $17.48 million in debt forgiveness-related attorney fees on to "cash-eligible class members who will never see the benefits those fees were expended to create," the state AG said.
The amicus brief also cited two other recent tribal lending litigation settlements in Virginia in which the plaintiffs' attorneys calculated their fee requests based only on the cash compensation included in the deals, leaving out the value of any debt relief obtained. The AWL borrowers argued, however, that those settlements make for poor points of comparison, in part because the underlying cases weren't as risky for the plaintiffs to litigate and didn't result in as much non-monetary relief.
The AWL settlement, by contrast, includes non-monetary provisions addressing issues like loan disclosures, governance and repayment that, when "taken together with the cash, have an overall value of more than $1 billion," according to the borrowers. "Courts award enhanced attorneys' fee percentages based on additional non-monetary benefits," the borrowers said. "To hold otherwise — that is, to entirely discount the value of prospective non-monetary relief — would disincentivize counsel from seeking such far-reaching injunctive relief."