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Class Counsel Seek Recommended Fees in Chipotle Data Breach Case

November 8, 2019

A recent Law 360 story by Joyce Hanson, “Chipotle Customers Want $1.2M Atty Fees in Data Breach Suit,” reports that customers in a class action suit over a 2017 Chipotle data breach that exposed their names and payment card numbers to hackers asked a Colorado federal judge for $1.2 million in attorney fees, saying a mediator proposed that figure as the parties were settling.

The Chipotle Mexican Grill Inc. customers' unopposed motion calls for fees of $1,165,782 after about $34,000 in expenses are deducted, based on class counsel's 2,406 hours of investigation, prosecution and litigation settlement, according to a brief filed.  Also under the fee proposal, six class representatives led by Todd Gordon and five other plaintiffs will each receive an incentive award of $2,500.

Settlement class members would be eligible for out-of-pocket reimbursement of up to $250, including an automatic payment for each affected card, payment for customers' time spent dealing with fraud issues and reimbursement for credit monitoring and identity theft insurance, the brief said.  In addition, class members who suffered other "extraordinary" unreimbursed monetary losses because of compromised information can make a claim for reimbursement of up to $10,000, according to the proposed settlement.

"Without these individuals' investment of time, and their courage to step forward and vindicate the class' rights against a large institution, the class would not have obtained the substantial relief offered by the settlement," the customers said.

Chipotle revealed in April 2017 that it had detected a data security breach in its electronic processing and transmission of confidential customer and employee information.  The burrito chain acknowledged at the time that it may be subject to lawsuits because of the breach that reportedly affected transactions from March 24 through April 18 of that year.

Financial institutions that sued over the breach told the court in March that the parties had reached a confidential settlement agreement.  On June 19, U.S. District Judge Christine M. Arguello granted the customers' June 13 unopposed motion for preliminary approval of the settlement, conditionally certifying the class.

Bennett G. Picker of Stradley Ronon Stevens & Young LLP served as a private mediator after the customers sent their settlement demand to Chipotle in November 2018, according to the brief.  The parties first held several phone calls with Picker before sitting down with him in a full-day mediation session in Florida, the customers said.

After agreeing on the data breach settlement's material terms, the parties turned to the question of attorney fees and costs, according to the brief.  When they reached an impasse and couldn't agree despite significant negotiation, Picker submitted a mediator's proposal that both sides finally accepted, the brief said.

The customers said the requested fee award is consistent with attorney fees approved in the court and in other data breach settlements.  Class counsel's lodestar of $1.44 million through Oct. 31 represents a 0.83 negative multiplier, which "supports the reasonableness of the fee requested," the customers said.

An Exception to the American Rule: Attorney Fees Under ERISA §502(G)(1)

November 7, 2019

A recent New York Law Journal article by Michael C. Rakower and Melissa Yang of Rakower PLLC in New York, “Attorney Fees Under ERISA §502(G)(1): An Exception to the American Rule,” report on ERISA §502(g)(1).  This federal statute vests courts with discretion to award attorney fees and costs in an action brought by a plan participant, beneficiary or fiduciary.  This article examines the standards courts apply when assessing motions for these discretionary awards.  This article was posted with permission.  The article reads:

The Employee Retirement Income Security Act (ERISA) marks one of those rare instances where Congress chose to depart from the American Rule to grant litigants an opportunity to seek attorney fees. ERISA §502(g)(1) vests courts with discretion to award attorney fees and costs in an action brought by a plan participant, beneficiary or fiduciary.  This article examines the standards courts apply when assessing motions for these discretionary awards.

‘Some Degree of Success on the Merits’

In 2010, the U.S. Supreme Court issued an opinion in Hardt v. Reliance Standard Life Ins. Co., clarifying the standard under ERISA §502(g)(1). 560 U.S. 242 (2010).  A litigant need not be a “prevailing party” to be eligible for a fee award; rather, the litigant must establish “some degree of success on the merits.” Id. at 254-55.  According to the Second Circuit, this is “the sole factor that a court must consider in exercising its discretion.” Donachie v. Liberty Life Assurance Co. of Boston, 745 F.3d 41, 46 (2d Cir. 2014) (emphasis in original).

The “some degree of success on the merits” standard is met when a claimant obtains a “favorable judicial action on the merits.” Scarangella v. Grp. Health, 731 F.3d 146, 152 (2d Cir. 2013).  A summary judgment or trial verdict can, of course, meet this standard, see, e.g., Buckley v. Slocum Dickson Med. Grp., PLLC, 585 Fed. App’x 789, 794 (2d Cir. 2014) (stating employee entitled to seek attorney fees under ERISA §502(g)(1) after prevailing on summary judgment); Toussaint v. JJ Weiser, 648 F.3d 108, 110 (2d Cir. 2011) (acknowledging some degree of success requirement was met when summary judgment was affirmed in favor of the directors of ERISA plan sponsor), as can a favorable out-of-court settlement if it is triggered by court action, see, e.g., Scarangella, 731 F.3d at 154 (citing to Perez v. Westchester Cnty. Dep’t of Corr., 587 F.3d 143, 150-51 (2d Cir. 2009)).  Even a remand to the plan administrator can qualify where it is premised upon a determination that the administrator’s prior assessment of a claim was deficient or rendered in an arbitrary or capricious manner.  See, e.g., Gross v. Sun Life Assurance Co. of Canada, 763 F.3d 73, 79 (1st Cir. 2014); McKay v. Reliance Standard Life Ins. Co., 428 F. App’x 537, 546-47 (6th Cir. 2011); Valentine v. Aetna Life Ins. Co., 2016 WL 4544036, at *4 (E.D.N.Y. Aug. 31, 2016); Delprado v. Sedgwick Claims Mgmt. Servs., No. 1:12-CV-00673 BKS, 2015 WL 1780883, at *41 (N.D.N.Y. April 20, 2015) (concluding plaintiff obtained “some degree of success on the merits” when plaintiff’s claim was remanded back to plan administrator because prior denial of disability benefits was arbitrary and capricious).

In contrast, “trivial success on the merits” or a “purely procedural victory” is insufficient to merit an award of attorney fees. Hardt, 560 U.S. at 255.  Accordingly, obtaining “relief due to the voluntary conduct of another party after minimal litigation” will not warrant a discretionary award. Scarangella, 731 F.3d at 155.

Favorable Slant Toward Plaintiffs

Case law shows that a court’s discretion is guided by Congress’ intent to encourage participants and beneficiaries to enforce their statutory rights under ERISA. Salovaara v. Eckert, 222 F.3d 19, 28 (2d Cir. 2000).  As a result, even though ERISA §502(g)(1) contemplates that an award may be imposed against “either party,” courts have construed attorney fee motions with a “favorable slant towards ERISA plaintiffs … to prevent the chilling of suits brought in good faith … .” Id. (internal citation omitted); see, e.g., Critelli v. Fidelity Nat’l Title Ins. Co. of New York, 554 F. Supp. 2d. 360 (E.D.N.Y. 2008) (declining to award attorney fees to employer because plaintiff did not act in bad faith and a fee award to employer could act as a disincentive to potentially meritorious ERISA actions).  Rarely does a court award attorney fees against a participant or beneficiary; such instances tend to arise when a court not only rules against the claimant, but also deems the action to be frivolous.  See, e.g., Garlock v. Nelson, No. 96-CV-1096(FJS), 1998 WL 315089, at *1 (N.D.N.Y. June 9, 1998) (considering defendant’s application for fees after concluding defendant is entitled to a fee award because participant’s claims under ERISA are frivolous).

(Discretionary) ‘Chambless’ Factors

Upon a finding of “some degree of success on the merits,” a court in New York may (but is not required to) consider five additional factors to determine whether to grant a fee award.  Hardt, 560 U.S. at 255 n.8 (“[A] court may consider the five factors adopted by the Court of Appeals … in deciding whether to award attorney fees.”); Donachie, 745 F.3d at 46 (“Although a court may, without further inquiry, award attorney fees to a plaintiff who has had ‘some degree of success on the merits,’ Hardt also made clear that courts retain discretion to ‘consider [] five [additional] factors … in deciding whether to award attorney’s [sic] fees.”).  These factors, known as the “Chambless Factors,” are set forth in Chambless v. Masters, Mates & Pilots Pension Plan, 815 F.2d 869, 871 (2d Cir. 1987) as follows:

(1) the degree of the offending party’s culpability or bad faith, (2) the ability of the offending party to satisfy an award of attorney’s fees, (3) whether an award of fees would deter other persons from acting similarly under like circumstances, (4) the relative merits of the parties’ positions, and (5) whether the action conferred a common benefit on a group of pension plan participants.

If the court looks to the Chambless Factors, then it must consider all of the factors; it cannot selectively weigh certain factors and disregard others. Donachie, 745 F.3d at 47.  However, a court may grant a fee award after considering all of the Chambless Factors even if all factors do not weigh in favor of the award. Locher v. Unum Life Ins. Co. of Am., 389 F.3d 288, 299 (2d Cir. 2004) (concluding that failure to satisfy fifth Chambless factor does not preclude an award of fees).

Interim Awards

While the majority of litigants seek attorney fees and costs at the conclusion of a litigation, parties who face financial adversity during the course of the litigation may seek an interim award so long as they can satisfy the “some success on the merits” standard.  See, e.g., Pagovich v. Moskowitz, 865 F. Supp. 130, 139 (S.D.N.Y. 1994) (granting interim attorney fees to plaintiff after defendant admitted to liability for some benefits owed to plaintiff under the plan); Aronoff v. Serv. Employees Local 32-BJ AFL-CIO, No. 02-CIV-5386, 2003 WL 1900832, at *2 (S.D.N.Y. April 16, 2003) (acknowledging court’s authority under ERISA to award interim attorney fees but declining to do so under the facts of the case).  However, practically speaking, any litigant contemplating a motion for interim relief should recognize that establishing sufficient success to warrant discretionary relief will likely be more difficult in the middle of the case than at the end.

Recoverable Costs

Under ERISA §502(g)(1), litigants can recover attorney fees and other reasonable out-of-pocket expenses incurred by their attorneys, such as filing fees, service of process fees, courier charges and printing costs.  Algie v. RCA Glob. Commc’ns, 891 F. Supp. 875, 898 n.13 (S.D.N.Y. 1994) (“Section 502(g)(1) of ERISA refers to an award of ‘costs’, but that term apparently covers not only taxable costs under 28 U.S.C. §1920, but also other disbursements that are customarily charged to the client.”); Severstal Wheeling v. WPN, No. 10CIV954LTSGWG, 2016 WL 1611501, at *4 (S.D.N.Y. April 21, 2016); Cohen v. Metro. Life Ins. Co., No. 00 CIV 6112 LTS FM, 2007 WL 4208979, at *2 (S.D.N.Y. Nov. 21, 2007), aff’d in part, 334 F. App’x 375 (2d Cir. 2009); Taaffe v. Life Ins. Co. of N. Am., 769 F. Supp. 2d 530, 544-45 (S.D.N.Y. 2011).  These costs must have been incurred in connection with the prosecution or defense of a lawsuit in court.  Peterson v. Cont’l Cas. Co., 282 F.3d 112, 119 (2d Cir. 2002).  Thus, pre-litigation costs incurred by litigants to exhaust their administrative remedies or to attempt a negotiated settlement are not recoverable.  See Aminoff v. Ally & Gargano, No. 95 CIV. 10535 (MGC), 1996 WL 675789, at *4 (S.D.N.Y. Nov. 21, 1996) (disallowing fee award to plaintiffs who expended resources to settle retirement plan dispute because no litigation was commenced).  However, “fees incurred during an administrative remand ordered by the district court and over which the court retains jurisdiction are authorized by the statute.” Id. at 122.  (“The fact that a court orders additional fact finding or proceedings to occur at the administrative level does not alter the fact that those proceedings are part of the ‘action’ as defined by ERISA.”)

Factors Affecting the Size of the Award

Any fee award under ERISA §502(g)(1) must be reasonable.  In New York, courts generally apply the lodestar method, which multiplies the number of hours reasonably expended in the action by attorneys and paralegals against a reasonable hourly rate for each such timekeeper.  Conners v. Connecticut General Life Ins. Co., No. 98-CV-8522(JSM), 2003 WL 1888726, at *1 (S.D.N.Y. April 15, 2003).  After determining the lodestar, the court may in its discretion deduct from that amount the cost of legal services rendered in connection with unsuccessful aspects of the case. Id. at *2.  In this way, hours expended on failed claims wholly unrelated to the successful ones may be excluded from the fee award. Grant v. Martinez, 973 F.2d 96, (2d Cir. 1992). See also Conners, 2003 WL 1888726, at *2 (defining claims as unrelated if they are based on “‘different claims for relief that are based on different facts and legal theories’”) (quoting Hensley v. Eckerhart, 461 U.S. 424, 434 (1983)).  But if all of the claims are interrelated (i.e., the claims involve a “common core of facts” or are “based on related legal theories”), then the court should “focus on the significance of the overall relief obtained” to determine whether any reduction to the lodestar is warranted.  Conners, 2003 WL 1888726, at *2 (internal quotation marks and citation omitted).  Of course, courts are always free to adjust a lodestar award by comparing it to the size of the plaintiff’s recovery, even if no reduction for unsuccessful claims is warranted.  In doing so, courts discharge their obligation to consider whether “[t]he amount of fees awarded [are] reasonable in relation to the results obtained.” Id.

Aside from the lodestar, courts may use their discretion to award an appropriate sum to further the goals of ERISA.  This seems most apt in the case of fee award to a defendant who successfully defends against a frivolous action. Weighing the deterrent value of a fee award against a plaintiff for filing frivolous claims with the chilling effect that award would have on potential plaintiffs, courts have discretion to grant a defendant an award lower than the lodestar would support.  See, e.g., Christian v. Honeywell Retirement Ben. Plan, No. 13-CV-4144, 2014 WL 1652222, *8 (E.D. Penn. April 24, 2014) (concluding that an award of $10,000 to defendant serves the purpose of protecting pension benefits and deterring conduct at odds with ERISA’s purpose even though defendant incurred approximately $76,779.18 in succeeding on its motion to dismiss).  Courts are also free to adjust the lodestar upward if, for example, a party’s counsel exhibits superior work product and exceeds the expectation of the party and normal levels of competence.  Feinstein v. Saint Luke’s Hosp., No. 10-CV-4050, 2012 WL 4364641, at *6 (E.D. Penn. Sept. 25, 2012) (citing Rode v. Dellarciprete, 892 F.2d 1177, 1184 (3d Cir. 1990).)

Conclusion

ERISA §502(g)(1) offers an exception to the American Rule to encourage participants, beneficiaries and fiduciaries of ERISA-governed plans to vindicate their rights in court.  A court’s discretionary right to grant a fee award under this provision arises when a party achieves “some degree of success on the merits.”  Courts apply a plaintiff-friendly slant to motions for attorney fees in recognition of ERISA’s fundamental purpose, which is to protect employees’ rights.  This approach generally insulates plaintiffs unsuccessful in litigation from the pain of an adverse fee award, but offers a valuable incentive to a party who may have been wrongly denied an applicable benefit.

Michael C. Rakower and Melissa Yang are partners at Rakower Law PLLC in New York.

5 Law Firms Seek Fees in GNC ‘Phantom Markdown’ Settlement

November 4, 2019

A recent Law 360 story by Matthew Santoni, “5 Law Firms Seek $1.5M in Fees in GNC ‘Phantom Markdown’ Deal,” reports that five law firms representing customers in a $6 million settlement with General Nutrition Centers over the company’s alleged “phantom markdowns” online have asked a Pittsburgh federal judge for $1.5 million in fees and costs.

Attorneys from Ahdoot & Wolfson, Carlson Lynch, Finkelstein & Krinsk, Barbat Mansour & Suciu and Nathan & Associates represented an estimated 3.6 million GNC customers who can get their choice of cash refunds or vouchers for goods on GNC’s website that it claimed were marked down from an inflated “regular” price.

“Despite the risk and uncertainty of class certification and continued litigation, the settlement provides the very remedies that plaintiffs sought in their first amended complaint: monetary relief for the alleged represented discounts and an actual discount of GNC’s everyday pricing that they advertised,” their motion for attorney fees said.  GNC had agreed not to object to the fee request when the parties submitted the proposed settlement in August; U.S. District Judge Mark R. Hornak gave the deal his preliminary approval in September.

In the fee motion, the consumers’ attorneys said they had collectively spent more than 1,800 hours over three years working on the case.  They had attempted mediation in 2017 and could not reach an agreement, but kept working on the potential settlement, the motion said.

“Even though class counsel were experienced in false-discount class actions such as this, navigating through the issues raised required exhaustive investigation of the facts and underlying events relating to the claims, as well as the applicable legal principles bearing on this litigation,” the motion said.  “Class counsel spent significant time reviewing and analyzing thousands of pages of documents and data produced by GNC, which included extensive records regarding thousands of pages relating to the alleged false-pricing scheme during the class period, competitor pricing, pricing history, transactional history, pricing calendars, and advertisements.”

The firms asked for about $1.45 million in fees and $50,000 in costs, which they attributed mostly to hiring the mediator and experts.  The outcome of the settlement compared favorably to numerous other “phantom markdown” suits that had recently been settled, the motion said, including a $4.9 million deal with Michael Kors LLC in 2015.  At rates of $300 to $950 per hour for each attorney’s time, the proposed fee award also compared favorably to the $1.05 million “lodestar” the firms would get if they had charged by the hour, the motion said.

$77.5M in Fees Sought in Equifax Data Breach Settlement

October 31, 2019

A recent Law 360 story by Dean Seal, “Class Attys Seek $77.5M in Fees For Equifax Breach Deal,” reports that the attorneys who secured a $380.5 million cash fund for victims of Equifax Inc.'s massive 2017 data breach in Georgia federal court are asking for just over 20% of that fund in fees and another $1.2 million to cover expenses.

More than a dozen firms serving as co-lead counsel, co-liaison counsel, the plaintiffs' steering committee and their state court coordinating counsel all signed off on the request for $77.5 million in fees to compensate them for more than 31,000 hours of work that went into resolving the nationwide multidistrict litigation.

The amount comes in just under the $80.5 million allotted in the cash fund for attorney fees and expenses under the terms of the deal, considered to be the largest data breach settlement in history.  "The requested fee is in line with — if not substantially lower than — awards in other class actions that have resulted in similarly impressive settlements," the firms told the judge.

The settlement, which received preliminary approval in July, also resolved investigations by the Federal Trade Commission, the Consumer Financial Protection Bureau and nearly every U.S. state attorney general into the 2017 breach that exposed Social Security numbers and other personal data of nearly 150 million people.  The deal provided affected customers who filed claims with the option to accept either a cash payment of restitution or a decade of free credit monitoring.

While the FTC originally announced that the payout option would net claimants with a $125 payment, which had been set aside for those who already had credit monitoring services, it followed up in late July with an announcement that "overwhelming interest" in that option would substantially lower the per-person payout.  Of the $300 million set aside for customers in the compensation fund, only $31 million had been allotted for the cash option, the agency said, with the remaining going toward the free credit monitoring — an option the FTC implored consumers to take, even if they already had credit monitoring services.

"This monitoring service is probably stronger and more helpful than any you may have already, because it monitors your credit report at all three nationwide credit reporting agencies, and it comes with up to $1 million in identity theft insurance and individualized identity restoration services," Robert Schoshinski, the assistant director of the FTC's Division of Privacy and Identity Protection, said in late July.

The deal also provided the CFPB with $100 million in civil penalties and $175 million to 48 U.S. states — all but Massachusetts and Indiana, which have filed their own suits against Equifax — as well as to the District of Columbia and Puerto Rico.

U.S. District Judge Thomas W. Thrash Jr. plans to hold a fairness hearing for the proposed deal on Dec. 12 — with a deadline for objectors and challengers set for Nov. 19 — but class counsel said on Oct. 29 that it expects its work to continue well after the deal gets final approval, as it will have to monitor the claims verification process, communicate with impacted class members and participate in any additional dispute resolution.

"Class counsel's oversight obligations and other responsibilities will continue until the settlement is fully implemented, which will not occur until many years in the future," the attorneys said, estimating that they will have to spend at least 10,000 additional hours over the next seven years on closing out the settlement.  The attorneys said their requested fees are reasonable as a percentage of the customers' recovery, in light of the hours of work put in and given the complexity and importance of the case.

Justices Won’t Hear Fee Allocation Dispute in VW Settlement

October 21, 2019

A recent Law 360 story by Ryan Boysen, “Justices Won’t Hear Firms’ Fee Dispute in $10B VW Settlement,” reports that Nagel Rice LLP and a dozen other firms that claim they were unfairly cut out of the $175 million awarded to class counsel in the $10 billion Volkswagen AG emissions cheating settlement have hit the end of the line, after the U.S. Supreme Court declined to take up their case.  Nagel Rice LLP, Hyde & Swigart and other smaller firms suing alongside them filed a petition for a writ of certiorari in May, arguing the Ninth Circuit overlooked decisions by its sister circuits that supported their position and created a "glaring paradox" by deciding against them in February.

The Supreme Court announced that it wouldn't take up the petition, however, meaning the Ninth Circuit's decision to fully deny them a cut of the $175 million award will stand.

In an emailed statement, Elizabeth Cabraser of Lieff Cabraser Heimann & Bernstein LLP told Law360 she was pleased the Supreme Court had declined to take up the case.  "On behalf of plaintiffs' class counsel, the plaintiffs' steering committee, and the dozens of law firms who stepped up to perform important work for the common benefit of the VW 'clean diesel' classes in compliance with [U.S. District Judge Charles R. Breyer's] case management and common benefit orders, we are pleased that the Ninth Circuit and district court decisions on this matter will stand as guidance in future MDL and class proceedings," she said.

Nagel Rice and the other firms say they led the charge in filing some of the first consumer lawsuits against Volkswagen in 2015, after initial revelations that the auto giant had systematically gamed emissions regulations by outfitting its diesel engine cars with special software known as "defeat devices" to trick inspectors.  Those suits were later consolidated into a sprawling Volkswagen multidistrict litigation.

In 2016, that MDL was settled for $10 billion, with Lieff Cabraser having secured the top spot as lead counsel for the case. Lieff Cabraser's request for $175 million in attorney fees and costs was ultimately granted, with Lieff Cabraser then doling out some of that money to several dozen other firms of its choosing, whom Nagel Rice has derided as "the chosen ones."

Lieff Cabraser later received an additional $125 million in class counsel fees for its work on a second, closely related $1.2 billion VW emissions cheating settlement.

Nagel Rice claims the suits it filed, the meetings it organized to keep the MDL on track, the consolidated complaints it helped to draft and other work it performed on the Volkswagen case was identical to what Lieff Cabraser did.  The only difference, Nagel Rice and the other firms claim, is that they had failed to secure the all-important "lead counsel" title.  That meant they were ultimately unable to bill for their work at all, an outcome made all the more painful by the $2,000-an-hour rates some Lieff Cabraser attorneys were able to submit, according to their petition.

In affirming Judge Breyer's March 2017 order denying the nonclass attorney fees applications, however, the Ninth Circuit said it was clear they had not performed "work that benefited the class, and that they neglected to follow the protocol mandated by the district court."

In their petition, Nagel Rice and the other firms said that decision clashes with the Tenth Circuit's 1994 decision in Gottlieb v. Barry and the Third Circuit's 2005 decision in In re: Cendant.  They quoted the Gottlieb panel's remark that "we fail to see why the work of counsel later designated as class counsel should be fully compensated while the work of counsel who were not later designated class counsel … should be wholly uncompensated."

Nagel Rice and the other firms also argued that the Ninth Circuit's decision had created "two unequal plaintiff classes: one whose recovery is reduced by attorneys' fees and costs and another, represented by select counsel, who get the full benefit of the recovery with no reduction for fees and costs."

They went on to say that the Ninth Circuit's decision was built atop a "glaring paradox" and a "stark anomaly," namely their claim that "the efforts of non-class counsel in the pre-appointment stage of the case had the exact same benefit for the class as the efforts and work product of those firms that were later appointed to lead the litigation."