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Judge: Attorneys Can’t Be Paid Before Class Members

February 5, 2020 | Posted in : Class Action / MDL, Fee Agreements

A recent Law.com story by Max Mitchell, “US Judge Swats Attorney Fee Provisions in Rejecting Pest Repeller Class Settlement,” reports that a federal judge has refused to approve a class action settlement, saying that he could not sign off on the proposed attorney fee arrangement, which allowed lawyers to be paid before the class members.  U.S. District Judge William Pauley of the Southern District of New York denied preliminary approval of the proposed class settlement in Hart v. BHH LLC.

According to Pauley, the settlement included reimbursements for people who purchased ultrasonic pest repellers made and sold by BHH, but the deal also included a so-called “quick-pay” fee provision that allowed lawyers to be paid before the class members, and would have an arbitrator determine the ultimate amount of attorney fees.

Although the “quick-pay” provision was included in a supposed effort to cut down on frivolous challenges to the class action settlement, Pauley said sanctions would be a better way to deal with those issues, and that paying lawyers before the parties conflicted with the court’s mandate of “fairness, reasonableness and adequacy” to claimants under the class action rules.

“If there are objectors and appeals, counsel would be paid in full while the class waits.  Notably, plaintiffs’ proposal provides that counsel be paid before class members even if there are no objectors,” Pauley said.  “How this would serve plaintiffs’ purported goal to deter baseless objections strains credulity.  Indeed, the entire purpose of the lawsuit is to compensate the class—not the lawyers.”

According to Pauley, the claims stemmed from the 2.48 million repeller devices that BHH sold between 2011 and 2016, which the plaintiffs Joanne Hart and Sandra Bueno argued were ineffective.  The settlement, Pauley said, included the company reimbursing the claimants $15 per unit for up to six units if they could provide a receipt, or up to two units if the person was unable to provide a receipt.  Pauley’s order did not wade into the substance of the compensation, but rather focused on the attorney fee provision of the proposal, which he said contained “two unique features.”

Pauley first addressed the “quick-pay” provision, which said that, if there were no objections, attorneys would be paid five days before claimants, and that, if there were challenges, class members would be paid “an indeterminate period after counsel,” according to Pauley.

Plaintiffs counsel cited rulings from the U.S. Court of Appeals for the Sixth Circuit and the Northern District of Ohio, which held that paying lawyers before class members did not harm the claimants.  Counsel also cited seven cases from the Southern District of New York where judges have signed off on quick-pay provisions.  Pauley, however, said he did not agree that the provisions did not harm the class, and that none of the Southern District cases were persuasive, since they all appeared to be orders written by attorneys that the judges later simply signed off on.