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Category: Lawyering

New Class Action Guidelines Address Attorney Fee Issues in N.D. Cal.

November 7, 2018

A recent The Recorder story by Amanda Bronstad, “New Class Action Guidelines in Northern District of California Prompt Commendation and Concerns,” reports that the Northern District of California’s new procedural guidance for class action settlements is among the most detailed in the nation, prompting welcome relief to critics but raising fresh concerns for some practitioners.  The guidance, announced on Nov. 1, comes as little surprise to lawyers who practice in the Northern District of California, which is home to numerous consumer class actions and judges who have spoken out about reforms.  The guidance also mimics proposed changes to the Federal Rules 23 of Civil Procedure.

But the Northern District’s guidance seeks to implement some of the most far-reaching revisions in the country.  Many lawyers said it creates transparency that’s been long needed in the class action process.  “It’s a good first step,” said Joel Fleming, a partner at Block & Leviton in Boston.  “Sunlight is the best disinfectant and, generally speaking, having more information to the courts and the class is a good thing.”

Defense attorneys and law professors who have called for more transparency in the class action process praised the new procedures.  “They’ve done a wonderful job of figuring out what are the most important things to worry about, and let’s make sure every judge has a checklist,” said Brian Fitzpatrick, a professor at Vanderbilt University Law School.  “They are wise to focus on what happens to the money after the settlement’s approved because we don’t know.”

The guidelines apply to all of the district’s judges, some of whom already have detailed standing orders on class action settlements.  Others have raised numerous questions about class action settlements before approving them.  “It’s been my experience that the judges in the Northern District of California have been more attentive to these issues than others in the country,” said William Rubenstein, a professor at Harvard Law School.

Among other things, the guidance asks lawyers to provide billing calculations in class counsel’s fee request, identify the process used to select the settlement administrator, consider social media and a marketing specialist for the notice program, disclose relationships between the parties and cy pres recipients, and file an accounting of the settlement 21 days after distributing the fund to the class.  Most of the concerns, such as poor claims rates or leftover settlement funds that revert to the defendants, focus on consumer class actions, not securities fraud cases, Fleming said.  For most lawyers, he said, the guidelines shouldn’t impact how they do their jobs.

“If a settlement is reached that would benefit the attorneys more than class members, this information being required will probably serve as a deterrent because it’s getting at information that’s useful for class members to know,” Fleming said.  “But for plaintiffs’ lawyers doing their jobs, and keeping the best interests of class members at heart, I don’t think any of this would change the way you’d litigate your case or change the way you’d structure a settlement.  It will require careful review of your materials to make sure you’re complying, but it won’t have a strategic impact.”

The biggest change in the guidelines is the accounting guidance.  That revision is noteworthy because, in most cases, judges don’t keep up with what happens to a class action settlement after granting final approval.  And there’s a slew of information that lawyers are supposed to post on the settlement’s website: The number of notices sent to class members, claim forms submitted, opt-outs and objections, for example, and the average, largest and smallest amounts paid to class members, methods of notice and payment, number and amount of checks not cashed—all in an “easy-to-read chart.”

The accounting revision is similar to a requirement tucked into a class action reform bill that the U.S. House of Representative passed last year.  “It’s very hard to determine whether class settlements are doing what they’re supposed to be doing if you don’t know where the money goes and where it winds up, and you don’t know how much of the class gets paid,” said Andrew Trask, of counsel at Shook Hardy & Bacon in San Francisco.  “In the past, it’s the propriety information of the settlement vendor.  So the defendant might see that information in a few cases, but usually they don’t.  To the degree we continue to have debates over what class certification ought to be and what class settlement ought to look like, having that information publicly available is better than not having it.”

Fitzpatrick said the data also would help law professors who study class action trends.  “The data that we will be able to gather from these new guidelines will help inform a lot of debate and discussions about whether the class action system is working as intended,” he said.  “They’re making a great contribution to the public understanding of class actions by requiring the lawyers to be transparent and return to the court with this data.”  But the guidelines haven’t come without new concerns.  Rubenstein said the guidance could “dissuade lawyers from filing in the Northern District because it feels like more hoops to jump through.”

Fitzpatrick specifically flagged the revisions prompting plaintiffs attorneys to turn over their lodestar billing, which are the hours they worked on the case multiplied by their hourly rate.  He said such a mandate could encourage more judges to use the lodestar when assessing an attorney fee request that is based on a percentage of the settlement fund. That’s not required in the U.S. Court of Appeals for the Ninth Circuit, he said.

More importantly, he said, the practice raised concerns about the motivations of plaintiffs attorneys in settling class actions.  “The more and more courts that are doing lodestar cross-checks, the more lawyers are going to worry they need to bill a bunch of hours in order to get a decent fee award instead of focusing on the most important thing, which is getting the most recovery for the class,” Fitzpatrick said.  Fleming agreed that requiring lodestar could create “misaligned incentives” but, in most cases, plaintiffs lawyers are prepared to submit billing records as part of their fee requests in the event judges use them as cross-checks.

For more on the N.D. Cal.'s new class action guidelines, visit https://www.cand.uscourts.gov/ClassActionSettlementGuidance

Judge Calls $2.5M Fee Request ‘Pretty High’ in Uber Bias Settlement

November 6, 2018

A recent Law 360 story by Dorothy Atkins, “Judge Calls Atty Fee Bid in $10M Uber Bias Deal ‘Pretty High’,” reports that a California federal judge granted final approval to a $10 million deal resolving claims Uber discriminates against female and minority software engineers, but held off on awarding attorneys' fees, calling Outten & Golden LLP’s $2.5 million fee request "pretty high."

During a hearing in Oakland, U.S. District Judge Yvonne Gonzalez Rogers said she would approve the settlement, under which approximately 421 class members would receive an average payout of between $10,000 and $15,000.  But the judge said the 25 percent fee award was high when cross-checked with the lodestar, which is calculated using the attorneys' rates and the number of hours they worked on the case.  "I cannot tell how much efficiency there was ... with respect to the work done that was charged for the class," the judge said.

If approved, the settlement will resolve a putative class action that Uber software engineers Ingrid Avendaño, Roxana del Toro Lopez and Ana Medina launched in October 2017.  The suit claims Uber had an "unchecked, hyper-alpha culture" and discriminated against women and engineers of color, and the amended complaint asserts claims under the Fair Labor Standards Act, the California Equal Pay Act and the Private Attorneys General Act.  In March, the parties struck the $10 million deal to resolve all the claims, including $50,000 to resolve the PAGA claims.  Uber also agreed to work with an outside consultant to make changes to its systems for evaluating workers.

Judge Gonzalez Rogers preliminarily approved the deal in April and set a final fairness hearing.  During the hearing, the judge took issue with the firm's billing rates and asked class counsel, Jahan C. Sagafi of Outten & Golden, why six attorneys listed in the firm's billing records weren't named on its website.  She also asked the firm how much they were paid.  Sagafi replied that they're either contract attorneys or staff attorneys, and those attorneys were paid between $25 and $75 per hour, but some received benefits and annual bonuses.  The judge said in that case, the firm is billing the class up to 10 times the amount that they're paying their contract attorneys.

"Plaintiffs lawyers charging multiples of 10, I for one do not find it acceptable," the judge said.  "If you want to bring them on as full-time employees with all of the benefits that come with that, that's fine," she said.  "But I don't think it's appropriate that you charge the class even five times [the amount they're getting paid]."  Sagafi said he understood the judge's concern, but said reducing the billed hours for those attorneys would make a "minimal" difference in the attorneys' fees analysis.

Overall, he argued that the 25 percent fee award was warranted, since this is the only class settlement he knows of addressing these specific claims and there was likely a valid, enforceable arbitration agreement that the class members signed.  He also noted that no one objected to the deal and only two class members opted out of it.  Judge Gonzalez Rogers took the arguments regarding attorneys' fees under submission and said she would "get to it as quickly as I can."

The case is Del Toro Lopez v. Uber Technologies Inc., case number 4:17-cv-06255, in the U.S. District Court for the Northern District of California.

Law 360 Covers NALFA CLE Program

October 25, 2018

A recent Law 360 story by Bonnie Eslinger, “Excessive Attys’ Fee Bids Can Backfire, Judges Say,” reported on a NALFA CLE program hosted today, “View From the Bench: Awarding Attorney Fees in Federal Litigation”.  This live, remote, and multi-state CLE featured an all-judicial panel of sitting U.S. District Court judges.  The story reads:

A prevailing party seeking to recover legal fees should resist asking for excessive or unnecessary hours, federal judges said in a panel discussion Thursday, with one jurist noting such entries send up a red flag that makes him "skeptical of the entire application."  Speaking on a conference call organized by the National Association of Legal Fee Analysis, U.S. District Judges Virginia A. Phillips and Gene E.K. Pratter and Magistrate Judge William Matthewman all spotlighted examples of fee requests that didn't align with the U.S. Supreme Court’s opinion that fees should only be awarded for hours "reasonably expended" on a case.

Judge Phillips of the Central District of California said that judges spend substantial time combing through billing entries, adding, "Surprising things show up when you take a careful look at the bills."  Judge Pratter of the Eastern District of Pennsylvania agreed, saying the most amusing item she once found in an attorney's billing sheet was a calculation that he did 27 hours of work within one day.  It turned out the lawyer had failed to take into account the time zone changes when flying, she said.  The court's review of an attorney's fee request "sometimes requires a check on reality and then a check on Greenwich mean time," Judge Pratter said, chuckling.

Judge Matthewman of the Southern District of Florida said that lawyers shouldn't try to include excessive, redundant or unnecessary hours in their fee bid.  "That comes up constantly with me, where I will see perhaps excessive hours on reading a docket entry … or looking at the local rules, or opening mail, or doing administrative tasks, or really doing things that are unnecessary, such as preparing for a press conference, or perhaps there's a lot of client handholding in the case," Judge Matthewman said. "Things of that nature."

"Lawyers would do much better on these applications if they themselves would sort of police themselves and exclude excessive or redundant, unnecessary hours, so we see less of it or none of it, and we have more comfort in the application.  Once we start seeing a lot of these excessive and unnecessary requests for fees, it sort makes us skeptical of the entire application," the judge added.

Judge Phillips also noted that if an attorney is asking for a high hourly rate, based on his or her experience, then she's looking to see how much time the lawyer is spending on simple tasks.  "If you're entitled to a high hourly rate because of your immense experience, then you shouldn't really have to be spending a lot of time looking at the local rules of civil procedure," the judge said.

When fighting a fee request by the prevailing party, opposing counsel would do well to look for such concerns and make precise objections, Judge Matthewman said.  But avoid pejoratives, Judge Pratter suggested.  "There's no reason to call you opponent avaricious," she said.  Judge Matthewman agreed, saying those kinds of comments will hurt a party's fee request.

Attorneys seeking reimbursement of their fees also don't pay enough attention to requirements that they base their billing on reasonable, prevailing hourly rates, the judges said.  Often, attorneys don't provide enough information to justify their rates, Judge Phillips said.  "Ideally, under the case law, we should have a survey, some survey evidence, a declaration from someone who's qualified to opine on what the prevailing rate is in that community for this type of case," the judge said.  "But often I get nothing but the declaration of the party, of the attorney who's seeking the fees, saying, 'This is when I graduated and these are all the Best Lawyers awards I've ever gotten.'" 

Judge Matthewman added that it's irksome when attorneys from an expensive jurisdiction, such as New York City, come down to Florida for a case and then seek to be reimbursed for an hourly rate they would get in Manhattan.  Later in the discussion, Judge Matthewman said that when considering a fee request, he takes into consideration the quality of the attorney's work and representation.  "If you have a case where the fee applicant's attorney has been overly litigious, very difficult in the discovery process, very difficult on everything, agreeing on nothing, the court understands and knows that this increases the attorneys' fees that are incurred by both sides in the case," the judge said.  "And I think that's a factor that's taken into account."

On the flip side, an attorney who "makes the flow easy," gets rewarded by the court, he added.  Judge Phillips agreed, saying she frequently deals with top lawyers who may have high rates but get good results with "lean" hours.  "Lawyers who are really good, then, don't drop the ball on their fee petitions," Judge Pratter added.  "And lawyers who still have a ways to go somehow, miraculously, don't do so good on their fee petitions either."  The Pennsylvania judge also noted during the panel hearing that the Third Circuit guidelines direct judges to make fee reductions based on meritorious objections from the opposing party and not necessarily to rule sua sponte.

But later on in the discussion, Judge Pratter noted that there are times when the court should lean in with its own judgment, such as when there is a settlement in a class action lawsuit.  The court has a responsibility to look out for the class, she said.  "You cannot rely on the defendants to be acting as a brake on the fees," the judge said.  "The defendants come in, and they and the plaintiff's lawyers are all friendly and hugging each other about how important everybody's work was.  So that's always a flashing light for the court to become particularly attentive to its duties to the absent class members."

Ultimately, the judge said, attorneys should know that judges are not trying to be "mean-spirited" when they are scrutinizing attorney fee requests.  Nor are they jealous of the lawyers, she said.  They're just trying to carry out their duty.  "Most of us, we've been there," Judge Pratter said.  "We understand what it means to have to keep track of time.  I'll tell you, by the way, that's one of the best things about coming over to the other side, [giving] up time sheets."

$3M in Attorney Fees Sought in $17M Opus Bank Settlement

October 15, 2018

A recent Law 360 story by Dean Seal, “Cohen Milstein Seeks $2.9M in Fees in $17M Opus Bank Deal,” reports that lead counsel for an investor that reached a $17 million settlement with Opus Bank over claims it misled investors about the quality of its loans has asked a California federal judge for a fee award of $2.89 million, more than $1 million less than the maximum amount the Cohen Milstein attorneys previously said they would seek.  The amount sought comes in at 17 percent of a settlement amount that came about after what the attorneys called a “complex and hard-fought litigation” to which they devoted approximately 2,441 hours and burned through nearly $100,000 in expenses, which they’ve also asked to recoup from the settlement fund.

“Absent lead counsel’s willingness to accept the risks inherent in pursuing complex litigation on a contingency basis, the class likely would not have received any recovery and certainly would not have received the settlement presently before the court,” lead counsel said.  “Thus, lead counsel respectfully submits that the substantial benefit achieved, as well as the significant financial risk lead counsel took in pursuing this action, warrants the requested 17 percent fee.”

The $17 million all-cash settlement, made public in January, resolves claims that the bank and its executives falsely represented that Opus had a disciplined and conservative approach to extending credit and instead repeatedly deviated from underwriting standards and extended credit guidelines.  The suit was initially launched in October 2016 after Opus announced that loan charge-offs would impact quarterly earnings; on the same day of the announcement, the company’s share price fell 21 percent.

The bank attempted to fend of the putative class action in June 2017, but before its arguments could be taken up in court, the parties entered into settlement negotiations and reached the proposed deal in November 2017.  After the January motion for preliminary settlement was filed, Cohen Milstein attorney Steven J. Toll told Law360 the proposed settlement was a good recovery for the proposed class of investors who purchased Opus stock between Jan. 26, 2015, and Jan. 30, 2017, and that the firm would seek no more than 25 percent of the settlement fund, or $4.25 million.

According to the filing, the $2.89 million fee request comes after lead counsel engaged in significant discovery that included the review of over 2,000 pages of documents, interviews with 30 witnesses and the deposition of Opus’ chief operating officer.  Of the 18,714 potential class members that received notice of the settlement and the fees and expenses request, none has objected and the lead plaintiff, the Arkansas Public Employees Retirement System, is in support of the request, lead counsel said.

The case is Schwartz v. Opus Bank et al., case number 2:16-cv-07991, in the U.S. District Court for the Central District of California.

Judge Erred By Limiting Attorney Fees in Probate Matter in California

September 7, 2018

A recent Metropolitan News story, “Judge Erred By Limiting Fee to 10 Percent of Minors’ Recovery,” reports that the law firm founded by veteran personal injury Ian “Buddy” Herzog was shortchanged by a Los Angeles Superior Court who awarded it only 10 percent of the $18 million settlement it negotiated for its minor clients, despite a contingency fee agreement calling for 40 percent, the Court of Appeal for this district has held.

The unpublished opinion was filed Wednesday.  In it, Presiding Justice Frances Rothschild of Div. One noted that under Probate Code §3600 and §3601, a court, in approving the compromise of a minor’s claim, must determine what are “reasonable” attorney fees, and pointed to California Rules of Court, rule 7.955, which sets forth guidance for trial judges in determining reasonableness.  A 10 percent fee, she said, was unreasonable in light of the contingency fee agreement, the risk the company took in taking the case on a contingency basis, and other factors.

Herzog, Yuhas, Ehrlich & Ardell of Santa Monica represented the wife and four minor children of Rainer Schulz in a wrongful death suit, after the wealthy German businessman crashed his Cessna 750 jet while attempting to land at a small German airport.  The action against various companies was brought on a products liability theory.  Los Angeles Superior Court Judge William F. Fahey apportioned $1 to Schulz’s widow, Silke Schulz, and the remainder of the $18,125,000 to the couple’s four minor sons.

He did not credit the contingency fee agreement which the widow and the chief executive of a company the Schulzes owned negotiated with the Herzog firm.  Under it, the firm was to receive 31 percent of the proceeds if the case were settled at least 30 days before trial and 40 percent after that point.  Although settlement came a few days before trial, the Herzog firm indicated its willingness to accept a 31 percent share.

Fahey said:  “Turning to the issue of attorney’s fees, the Court is not bound by a contingency agreement when considering the best interests of the minors.  Attorney fees must be carefully scrutinized and adjusted if warranted.  Here, the attorneys hired by Silke did a good job in investigating this case.”  He added:“But paying these attorneys their requested $5 million in fees out of the settlement proceeds would be excessive, to the substantial detriment of Rainer’s sons and contrary to this Court’s duty [to] assure that no injustice is done to them.”

Two of the Schulzes’s sons have permanent disabilities as a result of being born prematurely.  Rule 7.955(a)(2) sets forth: “The court must give consideration to the terms of any representation agreement made between the attorney and the representative of the minor.…”

Rule 7.955(b) lists 14 non-exclusive factors for courts to consider when determining what fee will be reasonable, including the amount of the fee in proportion to the value of services, the experience of the attorney and the amount of time and labor involved.

Rothschild declared: “We conclude the trial court gave too little consideration to California Rules of Court, rule 7.955(a)(2).…In addition, the court did not acknowledge the factors listed in California Rules of Court, rule 7.955(b).  Although these factors are not mandatory, they provide a guide to the considerations relevant to determining whether a fee protects the interests of a minor while allowing an attorney to obtain a fair recovery.”

She continued: “All of these factors support a recovery greater than 10 percent.  One of the two attorneys who primarily worked on the case, Ian Herzog, had 47 years of experience in aviation accident cases, and the other, Thomas Yuhas, had 37 years of experience.  Both attorneys also have many years of experience as pilots, which undoubtedly gave them insight as to the causes of the crash.  In this case, both sides agree that the risk of loss was substantial.  When viewed from the perspective of the time it was signed, the representation agreement thus realistically evaluated the high risk that there could be no recovery at all or one substantially lower than was achieved.”

She noted that the firm advanced more than $300,000 in costs.  In determining the potential for a minor being taken advantage of, the rule counsels, the court should look to the “relative sophistication of the attorney and the representative of the minor.  Rothschild said that Silke Schulz is a highly sophisticated executive who took over the company after her husband’s death.  And who made an informed decision to enlist the services of a firm willing to take the case on a contingency basis.

The jurist noted that rule 7.955 had superseded prior local rules setting the baseline contingency award for minor clients, often at 25 percent.  She drew an analogy to class action attorney fee awards, which have a 25 percent starting point in the Ninth U.S. Circuit and some California courts.  She wrote: “We acknowledge that what is reasonable in applying the factors in California Rules of Court, rule 7.955 in any particular case may comprise a range of percentages.  Under the facts of this case, however, 10 percent was not within that reasonable range.  Although the trial court would be acting within its discretion to award less than 31 percent, we note that 31 percent is not out of line with awards in class actions, which, like this case, involve attorney fees to be paid by a protected class and that require court approval.”

The case is Schulz v. Jeppesen Sanderson, Inc., B277493.