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Category: Lodestar / Multiplier

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.

Reprinted with permission from the October 10, 2019 edition of the New York Law Journal © 2019 ALM Media Properties, LLC. All rights reserved.  Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

Michael C. Rakower and Melissa Yang are partners at Rakower Law PLLC, a boutique commercial litigation firm located in New York City.  www.rakowerlaw.com.  

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.

Second Circuit Upholds $300M Fee Award in Forex MDL

November 1, 2019

A recent Law 360 story by Anne Cullen, “2nd Circ. Upholds $300M Atty Fees in Forex Rigging Case,” reports that the Second Circuit downed an objector's efforts to lop more than a third off a $300 million fee award for the firms that scored an investor class billions of dollars in settlements from banks accused of rigging interest rates in the foreign exchange markets.  In a short, unpublished decision, a three-judge panel backed the fee award to lead counsel Scott & Scott Attorneys at Law LLP, Hausfeld LLP and other firms, rejecting arguments from sole objector Keith Kornell, who had insisted the attorneys' cut should have been closer to $190 million.

While Kornell had argued that any risk the firms faced taking on the case disappeared just over a year into the litigation when the investors cut the first deal, the Second Circuit found his theory runs counter to well-settled case law that states "litigation risk must be measured as of when the case is filed."  In addition, the panel said, "this contention ignores that claims against the other defendants remained unresolved."

Kornell had also argued that the lower court made a mistake when it relied on total hours in calculating the lodestar, rather than a breakdown of hours by time, task and defendant.  But the panel rejected that argument as well.  The panel said the Second Circuit previously held that "when a court relies on the lodestar 'as a mere cross-check, the hours documented by counsel need not be exhaustively scrutinized by the district court."'

The litigation kicked off in 2013, when investors accused 16 major banks — including Bank of America, Citigroup and Morgan Stanley — of manipulating the benchmark rates used in forex transactions involving millions of dollars' worth of their assets.  Five years later, after settlements totaling $2.3 billion had been reached with all but one of the banks, a New York federal judge ruled that the investor class' counsel could walk away with 13% of the pot.

The fee award was lower than the $381.4 million the firms had wanted, but Kornell indicated in a December appeal notice that he still believed the award was too high, although investors have expressed doubt about Kornell's motive or actual involvement in the case.

Attorneys Seek $15M in Fees in Wendy’s Data Breach Settlement

October 14, 2019

A recent Law 360 story by Matthew Santoni, “Attorneys Seek $15M From Wendy’s Data Breach Settlement,” reports that attorneys from Carlson Lynch and Scott & Scott want to take home $15 million in fees from a proposed $50 million settlement with Wendy’s over a 2016 data breach, asking a Pennsylvania federal court for final approval of the settlement and fee award.

Carlson Lynch LLP and Scott & Scott Attorneys at Law LLP, the class counsel for 18 financial institutions and five associations of credit unions, asked the U.S. District Court in Pittsburgh to approve awarding the firms 30% of the settlement fund, plus nearly $350,000 in expenses and a total of $120,000 in service awards for the lead plaintiffs in the case, according to a filing.  “The settlement is an excellent result in a complex, high-risk, hard-fought case that provides a substantial financial recovery for payment card issuers that suffered losses as a result of the data breach,” the memorandum supporting the motion for fees said.

Led by First Choice Federal Credit Union, the financial institutions accused Wendy’s of mishandling customers’ payment card information in a way that allowed hackers to steal card numbers and make millions of fraudulent transactions.  The institutions sued Wendy’s in 2016, seeking to recover their expenses from reimbursing cardholders for the fraudulent transactions.

U.S. Magistrate Judge Maureen Kelly gave her preliminary approval to the settlement in February.  The law firms said they spent more than 22,000 hours on the case, including reviewing millions of pages of documents, deposing Wendy’s representatives and defending 16 full days of depositions for the various financial institutions and associations.

At rates ranging from $300 to $950 per hour, that time would have added up to a lodestar of about $11.5 million.  The firms argued that taking 30% of the overall fund, or about 1.3 times the lodestar amount, was reasonable given the hard-fought nature of the case and the risk that Wendy’s could have won and the firms could have gotten nothing from their contingency agreements.

“There is no question that during the more than two-and-a-half years of litigation, plaintiffs faced, and plaintiffs’ counsel resisted, vociferous defenses to liability and damages,” the memo said.  “Wendy’s continues to vehemently deny liability and there is no assurance that plaintiffs would have prevailed at class certification or summary judgment. ... Data breach litigation faces significant legal hurdles related to, inter alia, causation and damages.  The fact that the breached locations were franchisees of Wendy’s also could have been a substantial obstacle in proving liability.”

With as many as 18 million payment cards compromised, the financial institutions would be recovering between $4.41 and $5.10 per card, depending on how many cardholders make claims, the firms said.

“This relief compares favorably with settlements negotiated by financial institution plaintiffs in the Target and Home Depot data breach class actions. Those settlements — both of which received final approval — provided financial institutions with $1.50 and $2.00 fixed per-card recovery, respectively,” the memo said.  Fifteen financial institutions that had employees give depositions during the case will get service awards of $7,500 each, while the three that were not deposed will get $2,500 each, the fee proposal said.