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Category: Fee Issues on Appeal

Judge Cites New Ninth Circuit Ruling When Considering Fee Calculation

November 12, 2020

A recent Law 360 story by Dorothy Atkins, “Koh Rips Kellogg Attys ‘Kitchen Sink’ Litigation Tactics,” reports that U.S. District Judge Lucy Koh rejected a revised $20 million deal to resolve claims Kellogg falsely labeled its sugar-loaded cereals and slammed class counsel for their "kitchen sink" approach to litigation, saying "the way you've litigated this case throughout has been overly burdensome on the court."  At the start of a hearing held via Zoom, Judge Koh took issue with a lengthy, now-mooted motion to enforce the settlement that class counsel filed after Kellogg purportedly threatened not to cooperate with a renewed bid for preliminary approval.

If approved, the proposed deal would resolve lead plaintiff Stephen Hadley's August 2016 lawsuit that alleges Kellogg Sales Co. falsely advertises its sugar-loaded Raisin Bran, Frosted Mini-Wheats and Smart Start cereals and Nutri-Grain breakfast bars as healthy.  Judge Koh told class counsel, Jack Fitzgerald, that she spent considerable time deciding the motion to enforce the settlement, which had 64 exhibits attached and included confidential information from the settlement negotiations, which Judge Koh repeatedly said isn't allowed.

But Kellogg ultimately did not oppose the class's renewed motion for preliminary settlement approval, so now the motion to enforce is moot, Judge Koh said, and the work and time she spent deciding it was a waste.  She added that she would have denied the motion.  Judge Koh noted that the motions to dismiss in the case were over 65 pages long "each time" and the lengthy motions practice is "a constant problem."  She also warned repeatedly that she'll remember how the attorneys overburdened the court if she decides to award attorney fees.

The discussion came during an hours-long hearing on the second attempt by the parties to get the deal preliminarily approved in hotly contested litigation over Kellogg's labels. For example, the Frosted Mini-Wheats and Smart Start labels say "lightly sweetened" and the Nutri-Grain bars say "wholesome goodness," which Hadley said implies those products are low in sugar, even though they contain 18% to 40% added sugars.

In February, Judge Koh rejected an initial $31.5 million class action settlement, finding the deal contained several troubling provisions and outright legal errors.  The parties went back to the negotiating table, but in July, class counsel filed a renewed motion for preliminary approval along with a motion to enforce the settlement, which Kellogg opposed.  But during the lengthy hearing on the motions, Judge Koh pointed out that the motion to enforce attached privileged mediation communication between defense counsel, class counsel and the mediator.

Judge Koh also took issue with the "mechanics" of how the proposed deal calculates attorney fees. The judge pointed out that as it is proposed, fees would need to be approved before a cash settlement is distributed, but the fees depend on how many class members choose to redeem coupons compared to those who choose cash payments, and class members need to know how much they would receive in a cash payment in order to decide whether to opt for a coupon or cash.

"It seems a bit circular," she said.  Judge Koh added that in light of the Ninth Circuit's ruling earlier this week in Chambers et al. v. Whirlpool Corp. et al., she is "more confident" that this deal qualifies as a coupon settlement for the purposes of determining attorney fees.  But Fitzgerald argued that even under Chambers, the court has the discretion to award fees and he proposed to base the fee award on using a lodestar that's calculated after they determine how many class members will redeem a coupon versus cash payment.

Ninth Circuit Clarifies Fee Calculation Method in Class Coupon Settlements

November 11, 2020

A recent Law 360 story by Dave Simpson, “9th Circ. Nixes $14.8M Atty Fees in Dishwasher Defect Deal,” reports that the Ninth Circuit sent back a lower court's approval of $14.8 million in fees for the attorneys representing a class of millions of owners of allegedly defective Sears and Whirlpool dishwashers, ordering it to determine the value of the settlement, which provides coupons to much of the class.

In a unanimous, published decision penned by U.S. Circuit Judge Kenneth K. Lee, the panel said that while U.S. District Judge Fernando M. Olguin was right to approve the California federal court settlement, the attorney fees were off-base.  He shouldn't have used a lodestar-only calculation, or a calculation based on attorneys' hours worked and their rates, for the coupon portion of the settlement, the panel said.  The judge should have, instead, attempted to determine the value of the coupons and based the attorney fees on that calculation, the panel said.  They remanded the approval of the attorney fees and ordered the judge to recalculate.

Further, it said, the judge was wrong to multiply the attorneys' lodestar by 1.68, disagreeing with, among other things, the judge's lauding of the settlement as "impressive."  "While observing that the parties' respective valuations of the settlement ranged from $4,220,000 to $116,700,000, the court declined to determine where in that spectrum the actual value fell," the panel said.  "Given this enormous spread, without at least estimating the settlement value, the court could not have conducted the necessary evaluation between 'the extent of success and the amount of the fee award.'"

In the case of California residents David and Bach-Tuyet Brown, their KitchenAid dishwasher overheated while they were sleeping in April 2010, filling the house with smoke and causing them to spend $70,000 to replace the entire kitchen and to lose an additional $3,000 in rental income as a result of having to vacate the property for three weeks, according to the complaint.

In September 2015, the parties reached a proposed settlement that was open-ended and involved several elements for owners, court records show. If a person had already had to repair their unit, they would get $200, or more if they saved their repair receipt showing they paid more to have it fixed, according to the deal.  And Sears and Whirlpool also agreed to repair dishwashers that weren't even part of the class but also had fire problems, according to filings in the case.

In August 2016, the lawyers duked it out in court over whether the $15 million fee request baked into the settlement up for final approval was too much. Attorneys for Sears and Whirlpool said that the plaintiffs' attorneys had worked hard, but deserved a fee award of $2 million to $3 million.  The requested amount, the defendants said, would dwarf the benefits received by the class.  The class lawyers fought back, saying the potential value of the uncapped deal was enormous and may cover between 15% and 20% of all U.S. households.

In October 2016, Judge Olguin shut down arguments by Sears Holdings Corp. and Whirlpool Corp. that attorneys at the five firms that worked to litigate the case and reach a deal last year over the allegedly defective washers were asking too much, finding that the arrangement the lawyers reached for the class — cash payments to owners of Kenmore, KitchenAid and Whirlpool home dishwashers to cover repairs or rebates toward buying a new model, plus some insurance-like deals and other protections — was highly beneficial.

The panel quickly shot down the attorneys' arguments that the Class Action Fairness Act is preempted by corresponding state law, noting that the plain language of CAFA makes clear that its attorney fees provisions top any state laws and apply to all federal court class actions.  "Indeed, it would be highly incongruous for Congress to expand federal jurisdiction for class action lawsuits based on diversity jurisdiction, but then in the same statute prevent CAFA's attorney's fee provisions from applying in those diversity jurisdiction-based cases," it said.

The panel then pointed out that precedent mandates the use of a percentage-of-value calculation for any "portion" an award "attributable to the award of the coupons."  The court's decision to use a lodestar calculation for the coupon portion of the deal was, therefore, an error, the panel found.  The panel also shot down the plaintiff attorneys' argument that the settlement provides a "rebate" rather than a "coupon."  It is a coupon, "despite the settlement agreement's refusal to use that term," the panel said.

"To use the 'rebate,' class members must spend hundreds of out-of-pocket dollars to purchase a new dishwasher," the panel said.  "And the rebates expire in 120 days, a third of the useful life of the [credits].  Given that a dishwasher typically lasts at least several years, most consumers likely will not redeem their coupons within 120 days."

Finally, the panel turned to the 1.68 lodestar multiplier, finding that the judge wrongly included the value of the coupon portion of the settlement in determining the 1.68 multiplier for the lodestar value, and also several of its reasons for enhancing the attorney fees cannot be justified, the panel said.  The judge was wrong, for instance, to find that the case was "undesirable" for attorneys to pursue, noting that this very notion is undercut by the fact that five different law firms pursued the claims for many years.

"If the mere fact that the defendants are 'large corporations' were sufficient, then most class action fee awards would automatically qualify for enhancement — contrary to the rule that multipliers are for 'rare and exceptional circumstances,'" the panel said.  "In practice, deep pockets often create an incentive to sue, particularly in the class action context."

The district court had said that the wide gap between the parties' estimated valuations for the deal meant that any attempt to determine a value of the deal "would be imprecise to the point of uselessness."  The panel ordered the court to attempt to determine a value for the deal and to consider whether, as Whirlpool argues, a negative multiplier should apply to the attorney fees.

"It becomes even more critical to crosscheck the lodestar valuation if the parties present widely divergent settlement valuation estimates," the panel said.  "It may admittedly be difficult to determine that amount with precision, but courts must try to do so to ensure the fees are not excessive."

Full Eleventh Circuit Urged to Buck Ban on Class Incentive Awards

October 28, 2020

A recent Law 360 story by Allison Grande, “Full 11th Circ. Urged to Buck Ban on Class Incentive Awards,” reports that the full Eleventh Circuit is being pressed to review a panel decision in a dispute over a $1.4 million robocall settlement that found class representatives can't recover routine incentive awards, with the lead plaintiff arguing that this categorical ban would hobble class action litigation and an objector to the deal taking issue with the calculation of class counsel's fees.

Lead plaintiff Charles Johnson and objector Jenna Dickenson in separate petitions filed seized on differing rationales in attempting to convince the appellate court to reconsider a panel ruling handed down last month that directed the lower court to revisit its approval of the contested class action settlement in a dispute accusing medical debt collector NPAS Solutions LLC of violating the Telephone Consumer Protection Act.

In a divided decision, the panel concluded that a pair of U.S. Supreme Court rulings from the 1880s prohibited Johnson from being awarded $6,000 for his role in the litigation and that the district court had failed to provide a sufficient explanation for signing off on the deal or class counsel's request to recover 30% of the settlement fund.

Johnson argued that the panel's clearly incorrect decision to categorically prohibit the common practice of awarding incentive payments to named plaintiffs established a precedent that not only conflicted with every other circuit but also upended long-standing class action practice.

"No court in the last century has ever held that incentive awards are categorically impermissible," Johnson argued.  "That incentive awards are a universally accepted practice provides ample reason for the full court to consider whether such an established aspect of class-action settlements should be held per se unlawful."

Contending that the panel's decision "effects a sea change in class action practice," Johnson stressed the importance of incentive awards in encouraging plaintiffs to step forward to lead lawsuits that enable redress for widespread harm that's "inflicted in small increments" on a large group of individuals that aren't willing or able to bring claims separately.

 "If few plaintiffs would suffer litigation for the hope of a tiny recovery, fewer still would do so for the same possible award alongside the added burdens — including, potentially, paying a defendant's costs — and fiduciary responsibilities that attend litigating on behalf of a class," Johnson argued.  "Incentive payments help attract class representatives willing to shoulder those burdens."

Johnson urged the full Eleventh Circuit to order the parties to provide "full, targeted briefing" on this "vital issue," noting that the parties have barely addressed the topic to date since courts have repeatedly approved incentive awards without incident.  He also argued that the more than century-old Supreme Court cases on which the panel relied to buck this trend "provide no authority" for its novel conclusion.  "The panel majority broke from all other circuits and remade the landscape of class-action litigation on the premise that Supreme Court precedent so required," Johnson added.  "That precedent — if it applies — requires nothing of the sort."

Dickenson, who was the lone objector to the TCPA deal and appealed its approval to the Eleventh Circuit, asserted in her own brief that the full appellate should take a look at the case to clarify the appropriate standard for calculating attorney fees in such disputes.  While the panel held that the lower court hadn't provided enough information about why the fee request was reasonable, it backed the method of calculating and awarding fees as a percentage of the settlement fund, concluding that an Eleventh Circuit case from 1991 that endorsed this practice was still "good law."

Dickenson argued that this holding conflicts with Supreme Court precedent, most notably its 2010 holding in Perdue v. Kenny A. ex rel. Winn, which "directly repudiated" the use of the factors relied on by the Eleventh Circuit and directed lower courts "to recognize a strong presumption that attorneys' unenhanced lodestars — i.e., their hourly rates times the hours expended — provide them a reasonable fee that is sufficient both to attract capable counsel and to equitably compensate them."

Therefore, it's imperative for the full Eleventh Circuit to step in to clearly announce whether lower courts should award class counsel fees based on attorneys' actual time and billings or as a percentage of the common class settlement fund, according to Dickenson.  "Attorney's fees are a critical issue in class-action litigation, and uniform rules governing their calculation are a matter of overriding national importance," Dickenson argued.

Hagens Berman Says It Earned Every Penny of $48M Fee Request

October 27, 2020

A recent Law 360 story by Emily Lever, “Hagens Berman Says It Earned Every Penny of $48M Fees,” reports that Hagens Berman Sobol Shapiro LLP continued to defend its demand for $48 million in attorney fees from optical disk drive price-fixing settlements, saying the litigation was high risk and they deserve a high reward.  Hagens Berman, the lead counsel for a class action accusing Samsung, Toshiba, Panasonic and others of colluding to inflate the cost of optical disk drives, hit back at an objector from the class who said they should get nothing.  "This litigation was extremely risky and it obtained an exceptional result," Hagens Berman said in a brief.

The multidistrict litigation, consolidated in 2010, resulted in three rounds of settlements totaling $205 million.  The firm initially secured $48 million in attorney fees, but the Ninth Circuit nixed the award, saying it was much steeper than the original $21 million bid the firm submitted and it needed to provide "further explanation."

The firm is holding on to the $48 million while the San Francisco federal court takes a second look.  But Hagens Berman should have returned the money, and their "defiant" conduct should lead to their fees getting zeroed out, according to objector Connor Erwin.  "They have no legal entitlement to the funds, which belong to the class," Erwin told the court.

Hagens Berman took exception to what they called Erwin's "vacillating arguments."  The firm argues that regardless of whether the lower court ultimately invalidates the award or finds "some impropriety in the fee arrangement," they remain entitled to recovering the value of their services.  And the value of those services is high, they contend, given that they were extraordinarily successful.

The case ended up being much more difficult than Hagens Berman could have reasonably predicted when it bid for a mere $21 million in attorney fees 10 years ago at the outset of the case, the firm argued.  Hagens Berman said that contrary to Erwin's claim that the length and complexity of the case were par for the course and should have been expected, the case was unusually long and treacherous.  The class was denied certification on the first attempt, and the second attempt was only successful because of the firm's hard work, it said.

Hagens Berman also contested Erwin's claim that it was trying to "manufacture" the appearance that it was receiving a lesser amount than it really was by factoring in litigation expenses into its demand after earlier saying it would waive them.  Just because they are waiving expenses does not mean the court shouldn't consider counsel's net gain or loss when assessing what an appropriate fee should be, Hagens Berman said.

Virgin Flight Attendants Defend $6M Fee Award in Ninth Circuit

October 21, 2020

A recent Law 360 story by Linda Chiem, “Virgin Flight Attendants Defend $6M Atty Fees in 9th Circ.,” reports that Virgin America Inc. flight attendants told the Ninth Circuit that their attorneys were properly awarded $6 million in fees and expenses after they won $77 million in a long-running dispute over California pay and rest breaks, saying their fees were already trimmed down.  The certified class of flight attendants, represented by Olivier Schreiber & Chao LLP, Kosinski & Thiagaraj LLP and Shepherd Finkelman Miller & Shah LLP, filed an answering brief urging the Ninth Circuit to affirm U.S. District Judge Jon S. Tigar's January order awarding them $5.75 million in attorney fees and $250,775.81 in expense reimbursements.

Virgin America Inc., which merged with Alaska Airlines Inc., had appealed the fee award by arguing that Judge Tigar didn't meaningfully assess or dig into whether the flight attendants' attorneys properly justified their hours and calculations.  But the flight attendants argued that Virgin is merely engaging in "rank speculation" and "conjecture" to push for more cuts to the class counsel fees even though the district court already imposed a "haircut" reduction in their hours and compensation after Virgin's earlier gripes.

"The fundamental problem with this attack is that it ignores that the district court upheld Virgin's specific objections below and, as a result, ultimately reduced class counsel's lodestar more than Virgin proposed," the flight attendants argued.  "It is thus judicially estopped from claiming error here."  The flight attendants argued that the district court acted well within its discretion after carefully and appropriately reviewing their submissions, Virgin's objections, and considering the court's own experience with the action and the relevant law in reaching its determination.

The flight attendants' attorneys had initially requested $13.2 million but were awarded less than half that.  They said Judge Tigar cut down the 5,128 hours of billable time that was compensable to 4,723.345 hours, adjusted some of the hourly rates the class counsel had claimed, and reduced their lodestar, according to the brief.  "The record reveals no grounds to disturb the district court's order," the flight attendants said.  "The court, intimately familiar with this multiyear class action litigation marked by Virgin's own litigation choices that 'undoubtedly contributed to its length and its tone,' was in the best position to assess the fees and expenses to which plaintiffs are entitled under California's fee-shifting statutes."

Named plaintiff Julia Bernstein and flight attendants spearheading the long-running dispute have alleged that Virgin America flouted California labor laws by not paying them for all hours worked, including overtime, and denying them state-mandated meal and rest breaks.

Virgin's appeal of the class counsel fees is separate from its ongoing Ninth Circuit appeal seeking to vacate the $77 million damages the flight attendants won in January 2019.  The Ninth Circuit is considering scheduling oral arguments in that appeal for early 2021, court records show.

Judge Tigar, who rebuffed Virgin's earlier attempts to dismiss the litigation, granted the flight attendants summary judgment on most of their claims in 2018, setting the stage for the subsequent fight over damages.  The judge found that California labor law applied to all work that happened in California and in situations where employment policies were decided from Virgin's previous headquarters in the Golden State.  Seattle-based Alaska Airlines acquired Virgin in 2016.

In his order on the class counsel fees earlier this year, Judge Tigar had acknowledged that the plaintiffs' attorney fee application was too vague, saying "the level of specificity at which plaintiffs have documented their time makes it difficult or impossible for Virgin to raise certain challenges that courts have found justified partial reductions in other cases."  Virgin had argued on appeal that despite that critical flaw, the judge accepted all of the hours that the plaintiffs' counsel claimed and awarded a $5.7 million fee award that was subject to only a 5% general reduction in hours.

But the flight attendants said in their answering brief that they provided the court with detailed charts and summaries of their work.  "In light of the detailed records provided, Virgin's claim that plaintiffs' submissions were 'threadbare' is disingenuous at best," they said.  "This documentation was more than sufficient evidence for the district court to address, as Virgin contends is 'critical,' 'whether the case was overstaffed, how much time the attorneys spent on particular claims, and whether the hours were reasonably expended.'"

Moreover, Virgin argued that the class counsel's flawed lodestar consisted of nearly 4,500 hours of billable time — most of which was billed at an absolute "top of the market" rate of $750 per hour — and the $251,000 in court-related expenses wasn't justified.

"Most of the expenses that the district court awarded were for 'expert fees,' which are not recoverable under black-letter California law," the airline said.  "In addition, the district court erred by ignoring the rule that a party cannot recover expenses without submitting an itemized list and accompanying receipts.  The district court did not identify any exception to this rule, and it candidly acknowledged that plaintiffs' counsel failed to comply with it.  But the court awarded expenses anyway."

But the flight attendants rejected the airline's arguments, saying in the brief that Virgin never raised that argument in the district court so it cannot raise it on appeal.  On top of that, there is no such prohibition on expert fees under California law, they said.

If Virgin wants to play that game concerning attorneys' purportedly inflated hours, then the plaintiffs can "likewise, speculate as to Virgin's reticence to submit its counsel's hours as a benchmark," the flight attendants said, noting Virgin took a "gratuitously contentious approach toward litigation, including unnecessary motion practice."

"Perhaps its counsel assigns partners to do simple tasks; perhaps a significant amount of time was spent pursuing questionable strategies; perhaps its counsel's hourly rates are significantly above its peers in the market," they said.  "Regardless, that Virgin refuses to provide a clear reference point of the expense of litigating this action — which it can easily do — speaks volumes as to the [lack of] merits of its objections."