April 12, 2021
A recent Metropolitan News story, “$6 Million Attorney Fee Award Would Not Create ‘Windfall’,” reports that the Ninth U.S. Circuit Court of Appeals, in a 2-1 decision, has reversed an order for a $4 million payment to the attorneys for the plaintiffs in a class action against Experian Information Solutions, Inc., a consumer credit reporting company, that resulted in the creation of a $24 million settlement fund, holding that the District Court judge failed to adequately explain why he was departing from the standard 25 percent cut for the lawyers. Signing the majority opinion were Ninth Circuit Judge Andrew D. Hurwitz and Sixth Circuit Judge Eugene E. Siler, sitting by designation. Judge Daniel P. Collins dissented.
The settlement was reached in a case that was initially dismissed with prejudice by the judge then handling it, Andrew J. Guilford of the Central District of California, now retired. After the Ninth Circuit on May 17, 2019, reversed the dismissal, Guilford certified a class of about 100,000 persons whose credit histories were damaged by reports of unpaid debts to a loan company, although the debts were disputed and the company, which was facing possible criminal prosecutions, had gone out of business.
The defendant, headquartered in Orange County’s City of Costa Mesa, agreed to a settlement of the action brought against it by Demeta Reyes, a resident of Georgia, under the federal Fair Credit Reporting Act (“FCRA”). Replacing Guilford as the judge presiding in the case was Stephen V. Wilson. An award of 25 percent of the recovery—which would be $6 million—would give the lawyers a windfall, noting that the lodestar value of their services was $2,085,843.50.
To award them $6 million, he noted, would mean use of a multiplier of 2.88, while an award of $4 million would entail “a more reasonable lodestar multiplier of 1.92.” “By any measure, class counsel was successful,” Hurwitz and Siler wrote in a memorandum opinion. They quoted an expert witness as saying that the settlement’s “structure...is the FCRA gold standard,” with class members each receiving a check for at least $270 without having to make a claim.
“To reach that result, class counsel assumed significant risk,” the majority opinion says, noting that contingency representation stretched over a four-year period, counsel advanced more than $100,000 in costs and expenses, and other work had to be declined. “Experian deleted more than 56,000 delinquent loan accounts after this litigation began,” the opinion notes. “Before deletion, those delinquent accounts depressed class members’ credit scores.”
It goes on to say: “The 16.67% fee award falls below the market rate fee award in FCRA class action settlements. And no windfall is apparent. Assuming a 25% award, the lodestar crosscheck returns a multiplier of 2.88. Similar lodestars are routinely approved by this court.”
It adds: “The district court’s reliance on megafund and wage and hour cases to find a windfall for class counsel was somewhat inappropriate here. First, megafund cases are usually those with settlements exceeding $100 million….Here, the settlement is about a quarter of that. Megafunds are more often a reflection of class size than class counsel’s efforts….Moreover, the complexity of this case is similar to a wage and hour dispute the district court cited where a 2.87 lodestar multiplier was approved, but not the ‘ordinary wage-and-hour dispute’ that the district court also cited.” The memorandum opinion does not expressly direct an award of $6 million, instead remanding “for further proceedings not inconsistent with this opinion.”
Collins said in his dissent: “The majority nonetheless concludes that the district court abused its discretion because the settlement here was under $100 million and because multipliers of 2.88 or more have been allowed in other cases….But the fact that we have upheld higher multipliers in some cases does not mean that district courts lack discretion to conclude that a lower multiplier would be more reasonable in a given case. By essentially ordering the district court to allow this high multiplier, the majority usurps the discretion that we have said belongs to the district court.
“Because the district court had discretion to conclude that a benchmark award that was nearly three tunes the lodestar amount would be unreasonable, and that a smaller (but still generous) multiplier was more appropriate, the district court did not abuse its discretion by ordering a $4,000,000 fee.” Guilford set forth Reyes’s factual contentions in his order certifying the class.