A recent Law.com story by Avalon Zoppo, “Attorney Fees Cannot Exceed Value to Class, 9th Circuit Makes Clear in Copyright Case,” reports that the U.S. Court of Appeals for the Ninth Circuit made clear its view that class action plaintiffs lawyers generally should not be awarded fees that exceed the amount their clients get from a settlement as the court struck down a $1.7 million fee award in which the class received less than $53,000 in a royalties dispute settlement.
The three-judge panel, in a presidential decision last week, said the lower court wrongly calculated fees for plaintiffs’ counsel in a copyright case based on a settlement that provided for a fund of up to $20 million for class payouts. The district court should have instead looked at the amount actually obtained by those who made claims, here $52,841.05, the Ninth Circuit said.
Judge Kenneth Lee, writing for the panel, said the $1.7 million award is one that will “likely make the average person shake her head in disbelief.” “Except in extraordinary cases, a fee award should not exceed the value that the litigation provided to the class,” Lee wrote. ”No rational person would spend, say, $1 million in legal fees— and endure the hassles and headaches of litigation — to recover only relief that is a small fraction of that amount.”
‘A Significant Decision’
Alexander Smith, a class action defense partner at Jenner & Block, said the opinion is the circuit’s clearest statement so far that the main principle for determining the reasonableness of attorney fees under Federal Rule of Civil Procedure 23 is the benefit to the class. “It’s certainly a significant decision, and sort of crystallizes a point that the Ninth Circuit indirectly made over the years, which is that we are not going to tolerate class settlements that pay a disproportionate benefit to attorneys as opposed to the class members that they purport to represent,” said Smith, noting that the court has made similar rulings over the past few years.
Michelman & Robinson represented a class of musical composition holders in the lawsuit against streaming service Rhapsody International, now branded as Napster, accusing the company of infringing their copyrights by sharing songs without a license. The district court approved $1.7 million in fees based on Rhapsody’s promise to set aside up to $20 million for class members who submit claims. But the Ninth Circuit said the lower court should have focused its analysis on how much the class ended up taking home, adding that there was no meaningful injunctive or non-monetary relief justifying the fee award.
In a statement to Law.com, Mona Hanna, Michelman & Robinson’s Orange County office managing partner, said the court did not give enough weight to non-monetary benefits for plaintiffs that resulted from the lawsuit and that the firm is “considering our options moving forward.”
“There is no dispute that after years of failing to pay artists their legally mandated royalties, Rhapsody ceased that practice, entered into a settlement with the National Music Publishers’ Association, and created an internal artist board to watch over Rhapsody’s conduct and confirm compliance with the new procedures. This lawsuit contributed to these significant changes and resulted in a settlement providing up to $20 million to eligible class members and other non-monetary benefits,” Hanna said. “We believe the Ninth Circuit opinion does not appropriately acknowledge the benefits to the class and does not comport with prior authority.”
In reversing the award, the panel pointed to its 2021 holding in Kim v. Allison that courts must compare the amount anticipated to be paid and not the maximum payable amount. In the civil rights class action against Tinder where a $1.2 million award was vacated, the company agreed to a theoretical settlement cap of up to $6 million but only $45,000 was paid out.
But leading plaintiffs class action lawyer Jay Edelson said lower courts, and the magistrate judge here in particular, did not view the circuit’s past rulings in this area as establishing a bright-line rule on the question. The circuit now has cleared up that confusion, he said. The panel, composed of Lee and Judges Milan Smith and Daniel Collins, said explicitly that “what matters most is the result for the class members.”
Edelson said the decision will have an outsized effect beyond the Ninth Circuit, where plaintiffs lawyers will be forced to grapple with the court’s logic. “It’s very hard now for [class action plaintiffs lawyers] to make arguments in other courts, even outside the Ninth Circuit, and say, ‘No, it’s OK that we’re keeping 95% of the money,’” said Edelson, founder of Edelson PC. “They’re going to have to try to explain why the Ninth Circuit’s logic was wrong. And I don’t think that’s possible to do.” Meanwhile, Smith predicted that the decision may push class action plaintiffs attorneys to negotiate common fund settlements over claims-made settlements.
Beyond Copyright?
Kian Hudson of Barnes & Thornburg said the court’s decision also touches beyond copyright cases. But Hudson also said the court gestured toward a possible narrow exception for civil rights class actions. The panel noted that fees awarded in civil rights cases “need not be strictly proportional to monetary damages” because they can benefit society through non-monetary relief such as ending civil rights abuses.
“Although this case arose in the copyright context, it’s important to note that the Ninth Circuit was applying Rule 23(h), which imposes a ‘reasonableness’ requirement to attorney fee awards in class-action cases regardless of the nature of the lawsuit,” Hudson said in an email. “It thus seems clear that the court intends its approach to be applied across many substantive areas of law.”
Edelson said the Ninth Circuit made a similar holding in the context of a consumer class action against ConAgra over alleged false labeling on its Wesson vegetable oil as “100% all natural.” Lee also authored that 2021 opinion, in which the court reversed $7 million in attorney fees for plaintiffs counsel based on a claims-made settlement where the food company put up a maximum of $70 million for claims but a little less than $1 million was paid out.