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Article: Why the Catalyst Theory Matters in Class Actions

March 11, 2024

A recent Law.com article by Adam J. Levitt, “Arguing Class Actions: Why the Catalyst Theory Matters”, examines the catalyst theory in class action litigation.  This article was posted with permission.  The article reads:

The story presents a conundrum.  Plaintiffs file a class action, which the defendant initially resists.  Plaintiffs counsel spends hundreds of thousands of dollars (or more) in lodestar and costs prosecuting the case, but after potentially years of hotly contested litigation, the defendant issues a recall or announces a refund program that fixes the problem and then argues that the case is moot.  The question: Should those who filed this case, and consequently induced (or “catalyzed”) the defendant to fix the problem, be paid?

The right answer is obvious.  Of course the plaintiffs lawyers should be paid.  Without plaintiffs counsel’s actions and active litigation threat, the defendant would have never changed its behavior, ultimately for consumers’ benefit.  The law routinely rewards those who confer benefits on others, even in the absence of, say, a contractual guarantee (as with the doctrine of quantum meruit).  In short, nobody works for free.  Nobody, as some would have it, except plaintiffs lawyers.

The Rise and Fall of the Catalyst Theory

Rewarding lawyers for catalyzing a change used to be noncontroversial. See, e.g., Marbley v. Bane, 57 F.3d 224 (2d Cir. 1995) (“a plaintiff whose lawsuit has been the catalyst in bringing about a goal sought in litigation, by threat of victory … has prevailed for purposes of an attorney’s fee claim…”); Pembroke v. Wood Cnty., Texas, 981 F.2d 225, 231 (5th Cir. 1993) (recognizing viability of catalyst theory); Wheeler v. Towanda Area Sch. Dist., 950 F.2d 128, 132 (3d Cir. 1991) (same).

But the law became murkier in May 2001, with the U.S. Supreme Court’s decision in Buckhannon Bd. & Care Home v. W. Virginia Dep’t of Health & Hum. Res., 532 U.S. 598 (2001).  There, an assisted living facility sued West Virginia, arguing that a regulation violated the Fair Housing Amendments Act.  After the suit was filed, the Legislature removed the regulation, mooting the case.

In a 5-4 decision, the Supreme Court ruled that the plaintiff was not a “prevailing party” for purposes of the applicable fee-shifting statute.  Discarding the “catalyst theory,” it ruled that: “A defendant’s voluntary change in conduct, although perhaps accomplishing what the plaintiff sought to achieve by the lawsuit, lacks the necessary judicial imprimatur on the change” sufficient to make the plaintiff a “prevailing party.” Id. at 605.  As Justice Ruth Bader Ginsburg explained in her dissent, the Buckhannon decision frustrates the goals of the catalyst theory because it “allows a defendant to escape a statutory obligation to pay a plaintiff’s counsel fees, even though the suit’s merit led the defendant to abandon the fray, to switch rather than fight on, to accord plaintiff sooner rather than later the principal redress sought in the complaint.” Id. at 622 (Ginsburg, J., dissenting).

The Catalyst Theory Today

Notwithstanding the Buckhannon decision, the catalyst theory remains a powerful tool outside of Buckhannon’s specific context.

First, Buckhannon has no bearing on state causes of action.  In California, Cal. Code Civ. Proc. §1021.5 allows a court to award fees to a “successful” party.  The California Supreme Court has explained it takes a “broad, pragmatic view of what constitutes a ‘successful party,’” Graham v. DaimlerChrysler, 34 Cal. 4th 553, 565 (2004), and explicitly endorsed the “catalyst theory [as] an application of the … principle that courts look to the practical impact of the public interest litigation in order to determine whether the party was successful.” Id. at 566.  In short, it disagreed with the U.S. Supreme Court regarding what it means to “prevail” or “succeed” in a litigation.

The catalyst theory has also largely survived in the context of favorable settlements.  For example, in Mady v. DaimlerChrysler, 59 So.3d 1129 (Fla. 2011), the Supreme Court of Florida considered an award of attorney fees to a consumer who accepted defendant’s offer of judgment, an offer that neither conceded liability nor plaintiff’s entitlement to fees, in a case filed under the Magnuson Moss Warranty Act (MMWA), which guarantees fees to a “prevailing party.” Id. at 1131.  Explicitly considering and distinguishing Buckhannon, the court found that a party may “prevail” with a settlement.  In doing so, it rearticulated the logic underpinning the catalyst theory:

[The plaintiff] achieved the same result with a monetary settlement only after being forced to bear all of the costs and expenses associated with litigation and facing the statutory penalty if the offer of judgment had not been accepted. DaimlerChrysler could have resolved this dispute during the “informal dispute settlement” phase, but instead waited until after [plaintiff] was forced to commence this action and incur the expenses of this litigation. Id. at 1133.

Further, even in federal court, attorney fees may be awarded under statutes other than those limiting such awards to “prevailing” parties.  For example, in Templin v. Indep. Blue Cross, 785 F.3d 861 (3d Cir. 2015), the Third Circuit explained that a fee may be awarded for an Employee Retirement Income Security Act claim under the catalyst theory, because ERISA does not limit fee awards to the “prevailing party.” 785 F.3d at 865.  Including the Third Circuit, at least five circuits have endorsed the catalyst theory under such statutes: Scarangella v. Group Health, 731 F.3d 146, 154–55 (2d Cir. 2013); Ohio River Valley Env’l Coalition v. Green Valley Coal, 511 F.3d 407, 414 (4th Cir. 2007); Sierra Club v. Env’l Protection Agency, 322 F.3d 718, 726 (D.C. Cir. 2003); Loggerhead Turtle v. Cty. Council, 307 F.3d 1318, 1325 (11th Cir. 2002).

Despite the ongoing recognition of the catalyst theory in many contexts, there remains the risk that courts may apply the catalyst theory narrowly, or that defendants may find a way around it. Consider Gordon v. Tootsie Roll Indus., 810 F. App’x 495, 496 (9th Cir. 2020), a “slack-fill” case in which the plaintiff alleged that the defendant’s boxes of Junior Mints were mostly air.  After the plaintiff moved for class certification, the defendant changed the box’s label.  The plaintiffs dismissed and moved for fees.

The fee application was denied because “Gordon’s theory of the case was that the size of the box was itself misleading, and that Tootsie Roll should either fill the Products’ box with more candy to account for the size of the box … or shrink the box to accurately represent the amount of the candy product therein[, and] Tootsie Roll did not make either of these changes.” Id. at 497 (internal quotation omitted).  Considering the disincentives (or, conversely, the moral hazards) that arise from this type of narrow application of the catalyst theory, courts should take a decidedly more equitable view when adjudicating this important issue.

A Way Forward

For practitioners, a few lessons come out of this case law and history.  First, in writing their complaint, attorneys must think through the various paths that a company might take to remedy the purported harm.  Recall that in Gordon, the plaintiff focused entirely on the misleading box, but not on the misleading labeling. Second, favorable settlements and offers of judgment remain viable tools, and may support a catalyst theory attorney-fee payment even if the defendant resists paying fees in the settlement itself.  Finally, despite Buckhannon, the catalyst theory remains readily available under a host of statutes (state and federal).  In relying on citing those statutes, plaintiffs should not shy away from the catalyst theory’s compelling logic.  Courts understand that basic fairness requires that attorneys be paid if their lawsuit ultimately confers a significant benefit.  Nobody should work for free.  Not even plaintiffs lawyers.

Adam J. Levitt is a founding partner of DiCello Levitt, where he heads the firm’s class action and public client practice groups.  DiCello Levitt senior counsel Daniel Schwartz also contributed to this article.

Disrupting the Class: Objections to Class Action Settlements

January 17, 2024

A recent Law.com article by Adam J. Levitt, Arguing Class Actions: Objections to Class Action Settlements” reports on the role of class action objectors in the settlement process.  This article was posted with permission.  The article reads:

After years of litigating and negotiating, the parties and their counsel seek approval from the court of a class action settlement.  All parties are eager for final approval but objections start flowing in.  But final approval and ultimate disbursement of much-needed relief to class members is delayed for months, if not years, as the objectors appeal.  This scene has played out time and time again, particularly in the case of large, well-publicized class action settlements.

Federal Rule of Civil Procedure 23(e) guarantees each class member who does not opt out the right to object to a class action settlement. Fed. R. Civ. P. 23(e)(4), (5).  Objectors can sometimes play a role in helping the court or the parties evaluate a settlement.  Indeed, one court noted that objectors can add value to the class action settlement process by: “(1) transforming the fairness hearing into a truly adversarial proceeding; (2) supplying the Court with both precedent and argument to gauge the reasonableness of the settlement and lead counsel’s fee request; and (3) preventing collusion between lead plaintiff and defendants.” In re Cardinal Health, Inc. Sec. Litig., 550 F. Supp. 3d 751, 753 (S.D. Ohio 2008).  Objections may also address uniquely-situated class members with independent, unusual circumstances that may affect the adequacy of their recovery under the proposed settlement.

But all too often, objectors only object to class action settlements for personal gain, an individual (often undefined) animus toward the class action mechanism, or for purportedly policy-based or “principled” reasons that are generally ham-fisted attacks on the plaintiffs’ bar in general.  These bad-faith objectors are often referred to as “professional objectors.”  Professional objectors file meritless objections, seeking, in a small number of cases, to extract a payoff in exchange for withdrawing the objection.  Other “professional objectors” have a well-known agenda and animus against class action attorneys, filing “gotcha” appeals which do nothing to materially improve settlements, but instead prolong when settlement payments are made.  Either flavor of professional objector is bad.  The first kind puts pressure on class counsel to engage in blackmail to finalize settlements so that class members can get paid.  The second kind only helps defense counsel, who are paid hourly, while advancing the personal view of one person and holding up payments to potentially millions of others who are happy with the settlement.

Courts across the United States have noted the havoc that professional objectors can wreak on the settlement approval process.  One court held that “settlement funds of $147 million, the product of four years of hard-fought litigation, have hung in limbo for more than eight months because a person who knows he has no right to object to the settlement nonetheless refuses to withdraw his meritless Objection.” In re Polyurethane Foam Antitrust Litig., 165 F. Supp. 3d 664, 670–71 (N.D. Ohio 2015).  Another referenced professional objectors as “a pariah to the functionality of class action lawsuits.” Snell v. Allianz Life Ins. Co. of N. Am., No. 97-cv-2786, 2000 WL 133640, at *9 (D. Minn. Sep. 8, 2000).  In a particularly egregious case, an objector sent class counsel a letter stating “[s]ettle with me for $10,000 and not a penny more or a penny less to remove me and only me from the equation of the case. . . You have one week to decide.”  The judge ordered the objector to show cause “why his communications with class counsel should not be referred to the United States Attorneys Office” for possible wire or mail fraud. Junge v. Geron Corp., No. C 20-00547, 2023 WL 2940048, at *1 (N.D. Cal. Apr. 13, 2023)).  Any objector still has the ability to appeal approval of a class settlement, regardless of a district court’s findings about their motivations.  For example, a settlement that would resolve antitrust claims against Blue Cross Blue Shield of Michigan was held up for over a year before the United States Court of Appeals for the Sixth Circuit was able to address an objector’s “raft of objections, many of them undeveloped, all of them meritless.” Shane Grp., Inc. v. Blue Cross Blue Shield of Michigan, 833 F. App’x 430, 431 (6th Cir. 2021).  Even after an appellate court ruling, objectors can still file a petition for a writ of certiorari with the United States Supreme Court, and the class has to wait until the petition is rejected before any settlement relief becomes available—a process which, itself, could take yet another year.  By way of example, members of my firm helped to resolve the class action against Equifax related to its 2017 data breach in April 2019.  The settlement was upheld, but an endless litany of objectors’ spurious appeals resulted in payments being delayed until January 2022. See, e.g., In re Equifax Inc. Customer Data Sec. Breach Litig., 999 F.3d 1247 (11th Cir. 2021), cert. denied sub nom. Huang v. Spector, 142 S. Ct. 431 (2021), and cert. denied sub nom. Watkins v. Spector, 142 S. Ct. 765 (2022).

Both the plaintiff and defense class action bar agree on the need to reform the objection process.  The April 2016 Minutes from the Meeting of the Civil Rules Advisory Committee note that “there was virtually unanimous agreement that something should be done to address the problem of ‘bad’ objectors.” Civ. Rules Advisory Comm., Draft Minutes, at 13 (Apr. 14, 2016). On December 1, 2018, new language was added to the Federal Rules of Civil Procedure to address professional objectors.  Rule 23(e)(5) now requires objectors to: (1) state “with specificity the grounds for the objection;” and (2) requires court approval for “forgoing or withdrawing an objection” or “forgoing, dismissing, or abandoning an appeal from a judgement approving the proposal.” Fed. R. Civ. P. 23(e)(5).

While it appears these changes have resulted in some reduction in the number of frivolous objections, courts have continued to approve side payments to professional objectors. See Brian Fitzpatrick, Objector Blackmail Update: What Have the 2018 Amendments Done?, 89 Fordham L. Rev. 437, 437-38 (2020). More can still be done.

The difficulty in reforming the objection process is balancing the approach so that good-faith objectors are not deterred while professional objectors are sufficiently deterred.  For example, barring side payments to objectors, as proposed by Professor Brian Fitzpatrick, id., would potentially eliminate the professional objector problem, but others have voiced the concern that it would also discourage good-faith objectors from raising objections that might improve the settlement agreement.  See Robert Klonoff, Class Action Objectors: The Good, The Bad, and The Ugly, 89 Fordham L. Rev. 475, 492-93 n.99 (2020).

One oft-proposed reform is requiring objectors to post an appeals bond under Federal Rule of Appellate Procedure 7.  Requiring hefty appeals bonds for frivolous appeals could deter professional objectors but again there is a concern that this could deter good-faith objectors (i.e., those without any agenda or personal bent against class actions, but who legitimately want to make the settlement materially better, rather than engage in seriatim “gotcha” appeals) who may be pro se and have limited funds. Id. at 497.  Courts, however, can use their discretion to assess whether the objection is in good faith and determine whether an appeals bond is appropriate.

Class counsel can also request that courts conduct an expedited review of objections and appeals.  For example, if an objector files an appeal, class counsel and the defendant can file a motion for summary affirmance where “no substantial question is presented” in the objection. See id. at 501 n.160.  This would allow the appellate court to quickly dismiss a frivolous appeal without full briefing.  Both the Seventh and Ninth Circuits have recently granted summary affirmance in cases involving professional objectors. Id. at 502.  Another option is simply for the parties to move for expedited review with an accelerated briefing and oral argument schedule.

Courts can take a more active role in sanctioning and barring professional objectors from practicing in their jurisdiction.  Reform along these lines has been somewhat limited, as a judge in one federal district court cannot bar a professional objector from practicing before another court.  This practice could be aided if courts coordinated at the national level to maintain a list of problematic professional objectors, along with information about the number of times each has objected and whether the objector has been barred from practicing in any court. See id. at 499.  This list could then be easily cited by class counsel in an objection response or sanctions motion.  Such a database could also assist courts in determining whether to require an appeals bond and if expedited review is appropriate.  If managed well, it may be the most promising mechanism for deterring serial professional objectors without deterring good faith objections.

Finally, another reform that can serve as an effective check on settlement objectors is adopting provisions in settlement agreements that allow for the payment of fees and expenses before objector appeals are resolved.  While settlement objectors and other class action opponents characterize these as “quick pay” provisions, they are actually anything but—as settlements usually only come after a significant amount of time and resources are spent litigating a case without any guarantee of recovery.  Provisions for fee payments before objector appeals are resolved serve to deter professional objectors, because enabling plaintiffs’ counsel to be paid for their work in achieving a settlement removes the ransom payment tool from the objector’s extortionate toolbox.  A survey from the Western Alliance Bank Class Action Law Forum in April 2021 found that nearly two-thirds of the survey’s respondents had participated in class action settlements permitting timely payments to settling plaintiffs’ counsel.

Complex issues such as navigating objections to class action settlements require complex, balanced, and intersectional solutions.  We encourage judges and class action practitioners to use their creativity and judgment to address the continuing problem of professional objectors—as well as the problem of purported “principled objectors,” whose sole “principle” is to undermine the class action process for their own political ends—and to point out and criticize this bad behavior in the hopes of deterrence.  And, in the future, we would also encourage the Rules Committee to consider additional measures—such as requiring objectors to successfully intervene before they may file an objection, which prevents the class from being paid after an already long wait.

Adam J. Levitt is a founding partner of DiCello Levitt, where he heads the firm’s class action and public client practice groups.

Article: Seven Key Metrics to Evaluate Spend on Outside Counsel

January 8, 2024

A recent Law.com article by Rosemarie Griffin, “Seven Key Metrics to Evaluate Spend on Outside Counsel”, reports on metrics to monitor outside legal spend.  This article was posted with permission.  The article reads:

Gartner research shows that external spend comprises approximately 45% of overall spend for the median legal department, yet legal leaders often have trouble understanding where much of that spend originates.  Legal leaders continue to invest in spend management solutions to improve their insights into external spend data.  However, many of these same leaders find it difficult to translate that data into insights to inform decision making, even when spend data is accessible in dashboards or reports. 

When it comes to improving how external spend is evaluated, legal leaders should first determine the goals they want to achieve (e.g., reducing costs or improving quality) and then identify and track data to inform strategic decisions.

Gartner experts have prepared seven example metrics that legal leaders can use to inform their external provider management and align it with their organization’s overall strategy.  The following examples provide a framework for assessing needs and working with vendors and/or internal teams to build similar reports.

1. Total Spend Over Time Comparison

Comparing spend over time, especially in a visual dashboard, enables legal leaders to quickly spot trends or instances that could lead to overspending  This type of comparison also provides a holistic picture of historic spend in given periods, allowing for better budgeting.  One of the most valuable means of displaying comparative spend is with total spend per month, compared year over year.

Better historical spending data allows for more accurate budgeting, enabling legal departments to base projected future spending data on similar spending during that period in previous years   Historical spending trends can also help determine potential upticks in seasonal work and how much spending might be expected to fluctuate.  Comparing this information makes it easier to spot outliers when reviewing spend reports.  When legal leaders notice outliers from previous periods, they can analyze individual matter budgets from that period to see if a unique event explains that spending and, if not, adjust future spending, renegotiate with law firms and/or adjust the quantity and type of work sent to external providers.

2. Spend Compared to Budget

Once legal teams create a budget, they can also leverage data to manage that budget by tracking law firms’ spend.  While budgets with law firms are not always accurate, legal leaders should still track budget overages and use any overages to save money by renegotiating the amount billed and increasing scrutiny in future bills with that firm.

If a law firm is consistently over budget on matters, legal leaders should take a deeper look into the matters being billed by that firm.  It may be possible that one matter is significantly over budget, for known and expected reasons, but all matters coming in consistently over budget indicates a larger issue.  This might mean the in-house team member responsible for managing firm spend is not effectively managing a firm, or it could mean the firm is consistently ignoring budgets when making staffing and billing decisions.  Monitoring this data at the macro level can allow teams to proactively address any budget issues without waiting until large matters are completed.

Once a potential issue is spotted, legal leaders should speak with the matter owner(s) in the department working with a firm to see if there is an adequate explanation for the deviation.  From there, they should work with the firm to create a plan to readjust spend or rework the budget if necessary. It is important to track these overage conversations and any improvements on budget compliance to use in vendor evaluations.  Having conversations with vendors about their budget compliance legitimizes the budget and ensures a firm will monitor the available budget when making staffing and billing decisions in the future.

3. Blended Rate

Another helpful tool for monitoring law firm billing is the blended rate.  A blended rate, the average rate of all roles by hours billed, helps clear any confusion and identifies the true hourly cost the firm is billing, instead of just the rates billed by each role at the firm.  An effective report might visualize the average blended rate for top vendors as ranked by their total fees billed.

Understanding the blended rates first helps identify which firms are charging more, on average, per hour.  Using a blended rate ensures firms cannot hide costs by overusing staff with high billing rates.  Legal leaders can then take a closer look at potential over billers to see whether the matters billed by that provider justify the higher billing rate, or if they may be using high-cost attorneys unnecessarily.  Leaders can then negotiate rates or staffing or take advantage of alternative fee arrangements (AFAs).

4. Matter Staffing

To complement the data from blended rates (or provide a proxy, if the department cannot access that data), legal leaders benefit from a breakdown of the percentage of roles (paralegal, attorney, partner, etc.) billing the department from each firm.  If staffing is too senior, the department is paying higher rates than required for a task.  If the staffing is too junior, the work may not be adequate for the quality expected by the firm.  One way to visualize this data in a report is by displaying staffing allocation, by vendor, for vendors that bill the most fees, or a selected list of vendors.

Understanding what type of role executes the work will allow legal leaders to quickly see if a firm may be over- or underusing expensive law firm partners or attorneys for the work billed.  For some workstreams, such as major litigation, extensive use of experienced attorneys may be required.  For these cases, legal leaders may look to ensure partners and high-value attorneys have devoted considerable time to that work.  Blended rates alone cannot provide this information.

However, if a firm is generally used for low-complexity work, significant partner use could be unjustified, leading to unnecessarily high rates.  Visualizing this information is especially useful when combined with data on blended rates and billing guidelines, as blended rates will support an overbilling hypothesis and guidelines allow the legal department to clearly lay out what roles should be executing each type of work managed by a firm.

5. Turnaround Time

Aside from direct costs, another important outcome to report is the turnaround time for individual matters.  Slow turnaround time can delay matters and increase costs. However, if turnaround time, for similar matters, decreases significantly without explanation, it could be an indicator of lower work quality.  Turnaround time alone cannot adequately explain cost overruns or outcome quality, but it can be used as an indicator to take a closer look at a firm’s work.  Legal teams can visualize turnaround time by sorting matters by priority and plotting median turnaround time for matters at each priority level. 

Legal leaders can monitor firms’ work speed and compare them to the previous year to check in when turnaround times are longer than average, meet with firms to diagnose the issue (if times are unjustified), and create a plan to improve performance and maximize value.  This approach can also reduce cost if additional time is leading to more billed hours.  Any significant slowdowns could be from the complexities of a major individual matter or other factors, but it is an indicator that legal leaders should take a closer look at that individual firms’ work to evaluate whether the slowdown is justified.  Turnaround time metrics can be valuable, but they rely on legal staff to close out matters properly for accurate data.  This metric is only effective alongside established expectations for closing matters.

6. Strategy Versus Complexity

Another way for legal leaders to monitor their use of outside counsel is through the distribution of external matters by complexity and strategic value.  While this requires legal staff to accurately gauge and input the information, it can be extremely useful to evaluate the mix of work sent to external providers.  Some departments and external spend management solutions provide legal leaders with the tools to rate matters by qualitative metrics (including strategic value and complexity) when opening a matter and presenting these matters in a grid.

One of the most effective ways of reducing outside counsel costs and increasing the value received by in-house resources is to consider the strategic value and complexity of a matter when deciding whether to send something outside.  Legal leaders should aim to keep matters of high strategic value (other than major litigation) in-house as much as possible, where they have the best knowledge of the business.

Any matters of high complexity and low strategic value are good candidates for outsourcing to law firms, while low complexity, low strategic value matters are good candidates for alternative legal service providers (ALSPs.)  If legal departments see a large percentage of high strategic value matters sent outside, they may reduce outcome quality for the business and reduce the strategic benefit of in-house resources.  At the same time, if low complexity matters are being sent to law firms, then legal departments have an opportunity to insource those matters or shift that work to lower-cost ALSPs.

7. Grid Summary Report

To better compare spend across firms and practice areas, legal leaders can use a grid summary report that displays spending in a grid with the top 10 to 20 practices as rows, and the top 10 or 20 firms as columns.  Ideally, this report would classify rows into tiers of firms.

A grid report typically visualizes the gaps and overlaps and can help inform opportunities for consolidating spend.  At minimum, seeing this grid should allow the department to ask, “Are we making the right allocations?” If the report indicates a law firm is not often used, or is used for only one stream of work, then it may be a suitable candidate for consolidation.  Often, legal leaders report they are unaware that a single attorney is engaging with a firm until they get a complete spend report.  Tiering by practice area allows the department to notice this behavior more easily.

Strong relationships with law firms are valuable, as they will have better knowledge of the business and can provide better opportunities, including bulk discount on fees, secondments, and additional services, such as those provided by a captive ALSP.  These benefits can often be increased (particularly for organizations with smaller overall legal spend) by consolidating work to a smaller number of firms.  If a firm is being underused across practice areas but provides good value for work in other practice areas, legal leaders can also instruct their teams to shift work away from other firms to that firm.  This shift increases the value provided in a practice area while minimizing the loss of relationships that may occur by bringing on new firms for a practice area.

Other Metrics to Consider

The list of metrics above is not comprehensive of all metrics available from spend management platform vendors, or all metrics that may be useful when making strategic decisions on outside counsel.  Other recommended metrics (that may or may not be available from vendors) include spend by firm tier, average vendor rating (from after-action reviews at matter close), and top matter owners by spend.

External spend management platforms can provide some options for reporting, and legal teams can build on these systems to create their own reports to ensure they have the data required to make effective external spend decisions.  These reports can also help legal show the value it provides to the business, by showing how it has increased the efficiency of theory spend or reallocated work to better outcomes.

Rosemarie Griffin is a Senior Research Principal at Gartner.

Why Federal Circuit Affirmed Patent Attorney Fee Award

January 2, 2024

A recent Law 360 article by Thomas Makin, David Cooperberg, and Adi Williams, “Why Fed. Circ. Affirmed Attorney Fee Award in PeronalWeb”, reports on the recent patent attorney fee award in PersonalWeb Technologies case before the U.S. Court of Appeals for the Federal Circuit.  This article was posted with permission.  The article reads:

In the recent majority opinion In re: PersonalWeb Technologies, the U.S. Court of Appeals for the Federal Circuit affirmed the U.S. District Court for the Northern District of California entry for a $5.2 million award of attorney fees pursuant to Title 35 of the U.S. Code, Section 285.  Federal Circuit Judges Jimmie V. Reyna, Timothy B. Dyk and Judge Alan D. Lourie reviewed the district court's exceptional case determination and fee award calculation and found no abuse of discretion.

This article explores the ramifications of the Federal Circuit's Nov. 3 decision and underscores district courts' discretion to sanction unreasonable arguments and litigation tactics.

Section 285, provides that, "[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party."  Attorney fees, however, are not awarded merely for "failure to win a patent infringement suit," as per the U.S. Supreme Court's 2014 Octane Fitness LLC v. ICON Health & Fitness Inc. decision.

According to the Federal Circuit's 2017 Checkpoint Systems Inc. v. All-Tag Securities SA decision, "The legislative purpose behind § 285 is to prevent a party from suffering a 'gross injustice,'" such as having to defend itself against baseless claims, and not to punish a party for losing.  But according to Octane, "The Patent Act does not define 'exceptional.'  [However, the Supreme Court has construed it] in accordance with [its] ordinary meaning."

The Supreme Court has further explained in Octane that an exceptional case is

simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated [and] District courts may determine whether a case is "exceptional" in the case-by-case exercise of their discretion, considering the totality of the circumstances.

When reviewing an exceptional case, the Federal Circuit is "mindful that the district court has lived with the case and the lawyers for an extended period ... and [it is] not in a position to second guess the trial court's judgment," as per the Federal Circuit's 2011 Eon-Net LP v. Flagstar Bancorp decision. 

PersonalWeb is the owner of U.S. Patent Nos. 5,978,791; 6,928,442; 7,802,310; 7,945,544 and 8,099,420 — collectively, the true name patents.  These patents are generally directed to what the inventors termed the "true name" for identifying data items.  True names are unique identifiers that depend on the content of the data item.

The activities that led to the Nov. 3 exceptional case determination started in 2011, when PersonalWeb sued Amazon.com Inc. in the U.S. District Court for the Eastern District of Texas, alleging that Amazon's Simple Storage Service, or S3, cloud technology infringed PersonalWeb's true name patents.  After the district court construed the claim terms, PersonalWeb stipulated to a dismissal, resulting in the district court dismissing with prejudice the infringement claims against Amazon and entering final judgment against PersonalWeb.

Seven years later, in 2018, PersonalWeb asserted the same true name patents against 85 Amazon customers across the country for their use of Amazon's S3 technology.  Amazon intervened and filed a declaratory judgment action against PersonalWeb.  The declaratory judgment action sought an order, barring PersonalWeb's infringement actions against Amazon and its customers based on the Texas action.

The declaratory judgment action and customer cases were then consolidated into a multidistrict litigation and assigned to the Northern District of California.  Upon consolidation, PersonalWeb represented that if it lost its case against Twitch, a customer case, it would not be able to prevail in the other customer cases.  The California district court then stayed the other customer cases and proceeded with Amazon's declaratory judgment action and the Twitch customer case.

In the declaratory judgment action, PersonalWeb counterclaimed against Amazon, alleging that Amazon's S3 technology infringed its true name patents and later added claims against another Amazon product, CloudFront.  The district court granted summary judgment of noninfringement as to the S3 product in favor of Amazon, based on both the Kessler doctrine and claim preclusion.

The Kessler doctrine generally precludes a patentee from pursuing follow-on infringement suits against the customers of a manufacturer that previously prevailed against the patentee on the same allegedly infringing products.  The district court later granted summary judgment of noninfringement as to the CloudFront product based on PersonalWeb's concession that it could not meet its burden of proving infringement under the district court's claim construction.

The Federal Circuit affirmed both decisions.  The district court then granted Amazon and Twitch's motion for attorney fees and costs, pursuant to Title 35 of the U.S. Code, Section 285.

In determining that the case was exceptional, the district court found that:

  •     PersonalWeb's infringement claims related to Amazon S3 technology were objectively baseless and not reasonable when brought, because they were barred due to a final judgment entered in the Texas action;

  •     PersonalWeb frequently changed its infringement positions to overcome the hurdle of the day;

  •     PersonalWeb unnecessarily prolonged the litigation after claim construction foreclosed its infringement theories;

  •     PersonalWeb's conduct and positions regarding the customer cases were unreasonable; and

  •     PersonalWeb submitted declarations that it should have known were inaccurate.

PersonalWeb appealed to the Federal Circuit, contending that the district court erred as to each of its exceptional case findings.  The Federal Circuit addressed each argument, starting with PersonalWeb's alleged objectively baseless infringement claims.

Objective baselessness relates to "[t]he substantive strength of a party's litigating position" and can "independently support an exceptional-case determination," according to Octane — with these factors also cited in the Federal Circuit's 2017 Nova Chemicals Corp. (Canada) v. Dow Chemical Co. decision.  Thus, according to Octane, "a case presenting ...  exceptionally meritless claims may sufficiently set itself apart from mine-run cases to warrant a fee award."

In this regard, the Federal Circuit said, quoting Octane, in the 2015 SFA Systems LLC v. Newegg Inc decision: "It is the 'substantive strength of the party's litigating position' that is relevant to an exceptional case determination, not the correctness or eventual success of that position."

At the Federal Circuit, PersonalWeb argued that, with respect to objective baselessnes, the reach of Kessler had not been a well-settled issue and that the Federal Circuit's affirmance of the district court's summary judgment decision extended Kessler to cover cases against manufacturers that had been dismissed with prejudice pursuant to stipulation without adjudication of noninfringement.

The majority rejected PersonalWeb's arguments, and reiterated that the Kessler doctrine precludes a patentee who is first unsuccessful against the manufacturer from then suing the manufacturer's customers for those acts of infringement that post-dated the judgment in the first action. 

The majority opined that a straightforward application of Kessler barred PersonalWeb's claims because the order in the Texas action dismissing with prejudice all claims against Amazon and its S3 product operated as an adverse adjudication on the merits of PersonalWeb's infringement claims.

The Federal Circuit likewise found that claim preclusion rendered claims of customer infringement prior to the final judgment in the Texas action objectively baseless.  The Federal Circuit's remaining exceptional case analysis relates to litigation conduct.  And under the Supreme Court 's Octane Fitness standard, "a district court may award fees in the rare case in which a party's unreasonable conduct — while not necessarily independently sanctionable — is nonetheless so 'exceptional' as to justify an award of fees."

On appeal, with respect to the district court's finding regarding PersonalWeb's "frequently changing infringement positions," PersonalWeb argued that its conduct constituted zealous advocacy.

The Federal Circuit disagreed because the record showed that PersonalWeb's alternative infringement theories were constantly changing throughout the case, ranging from emphasizing one, or the other, or both.  The Federal Circuit found that PersonalWeb's pattern of flip-flopping infringement theories made the case "stand out from others with respect to the substantive strength" and "the unreasonable manner in which the case was litigated."

PersonalWeb challenged the district court's finding that PersonalWeb unnecessarily prolonged litigation on the basis that the district court had expressly credited PersonalWeb's efforts to streamline the case post-claim construction.

The Federal Circuit disagreed, holding that the district court's finding was not an abuse of discretion because:

  •     PersonalWeb refused to immediately stipulate to noninfringement despite an adverse claim construction and an obligation to continually assess the soundness of its claims; and

  •     PersonalWeb's offering of expert opinion relying on alleged ambiguity in the district court's claim construction amounted to an impermissible attempt to relitigate claim construction.  The Federal Circuit further noted that, while PersonalWeb may have taken other actions that did not prolong the case, the above misconduct sufficiently supported the district court's finding.

PersonalWeb challenged the district court's finding that PersonalWeb's conduct and positions regarding the issue of customer case representatives were unreasonable on the basis that it was only during discovery, in July 2019, that PersonalWeb discovered that Twitch was not representative of certain categories of the customer cases.

The Federal Circuit rejected this argument.  The court said PersonalWeb could not change horses in February 2020, after PersonalWeb had represented that it could not prevail against other customers if it could not prevail against Twitch, and after the district court granted summary judgment of noninfringement in favor of Amazon and Twitch.

The Federal Circuit also concluded that PersonalWeb's seven-month delay in raising its allegedly newly discovered nonrepresentativeness issue was unreasonable.  PersonalWeb also challenged the district court's finding that two inaccurate declarations submitted on behalf of PersonalWeb in support of its opposition to summary judgment were relevant to the exceptionality analysis.

The Federal Circuit agreed with the district court that the testimony was contradicted by the record and supported a finding of unreasonable litigation conduct.  The Federal Circuit dismissed PersonalWeb's argument that the testimony was not inaccurate as frivolous.

The appellate court concluded its analysis of the district court's exceptional case determination with an admonition that counsel, as officers of the court, "are expected to assist the court in the administration of justice, particularly in difficult cases involving complex issues of law and technology." 

The Federal Circuit found no clear error in the district court's finding that PersonalWeb's counsel fell short of this expectation by litigating with "obfuscation, deflection and mischaracterization" to make the case exceptional under Section 285.

With respect to the calculation of $5.2 million in attorney fees, which PersonalWeb also challenged on appeal, the Federal Circuit found no abuse of discretion in the district court's calculation.  The Federal Circuit found that the district court thoroughly analyzed the extensive record, considered conduct that both supported and detracted from its award of attorney fees, and explained the award's relation to the misconduct.

In a dissenting opinion, Judge Dyk contended that PersonalWeb's position on Kessler could not be objectively baseless because — in an amicus brief to the Supreme Court — the solicitor general agreed with PersonalWeb that the dismissal with prejudice of the Texas action should not trigger the Kessler doctrine. 

As Judge Dyk put it, "[T]he solicitor general is not in the habit of making objectively baseless arguments to the U.S. Supreme Court."  Judge Dyk asserted that the majority effectively punished PersonalWeb for making an argument on which it did not succeed rather than one that was unsupported.

Despite the dissent, this case underscores district courts' discretion to sanction unreasonable arguments and litigation tactics under Section 285.  Attorneys should be mindful when zealously representing their clients not to present to the court cases that may be deemed "exceptional" under Section 285.

When deciding to prosecute a patent infringement lawsuit, attorneys should conduct adequate pre-suit investigation, ensuring that each and every element of the claim is likely present in the accused product or process, either literally or as an equivalent, and that a prospective plaintiff is not barred from bringing suit.

The pre-suit investigation should also include researching and staying current on the controlling authority for the suit's specific fact pattern.  It naturally follows that attorneys should not ignore or mischaracterize evidence or controlling authority that undermines their clients' claims.

After filing suit, attorneys have a responsibility to dismiss the suit if subsequent developments foreclose the possibility of victory.  Importantly, attorneys should always remember that, while advocates for their clients they are also officers of the court, and owe the court a duty of candor and must abide by court rules and assist the court in the expeditious administration of justice.  Losing sight of these obligations risks exposing clients to an award of fees and costs under Section 285.

Pursuant to Section 285, a court may look to the totality of the circumstances, using, as per Octane, a "'nonexclusive' list of 'factors,' including 'frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.'"

Parties should be aware that while an individual argument or litigation tactic might be characterized as mere zealous advocacy, an award of attorney fees may be supported when that conduct is viewed under the governing totality of circumstances standard.

Thomas R. Makin is a partner, David Cooperberg is a special attorney and Adi Williams is an associate at Shearman & Sterling LLP.

Article: How Plaintiffs’ Counsel Can Avoid Common Benefit Fund Fee Disputes

December 14, 2023

A recent article by Judge Marina Corodemus and Mark Eveland, “Four Ways Plaintiffs’ Firm Can Prevent Common Benefit Fund Fee Disputes”, reports on ways plaintiffs’ firms can prevent common benefit fund fee disputes.  This article was posted with permission.  The article reads:

Common benefit funds (CBFs) ensure fairness and equity in the distribution of legal fees and expenses in aggregate and complex litigation, including class actions, mass torts, trust and securities, and multidistrict litigations (MDLs), where the litigation is prosecuted by either an ad hoc or judicially appointed committee or team of attorneys.  Their primary purpose is to recognize and compensate the plaintiffs’ attorneys who contribute their time, expertise, and resources to advancing the interests of most, if not all, of the plaintiffs in a particular litigation, including litigants who are not their clients but are benefited by the attorneys’ work product prosecuting the suit.

CBFs provide a compensation mechanism that enables large scale, highly expensive complex class actions and mass torts to proceed.  They provide the financial incentive for plaintiffs’ attorney groups to organize and then collect and centralize financial contributions and disbursements necessary to fund critical litigation activities like document management and reviews, scientific or factual investigations, expert recruitment, and, where needed, retention of specialized legal experts (such as bankruptcy, tax, and transactional practitioners).  CBFs help ensure that no single attorney or firm shoulders the entire financial burden of the legal work that puts the plaintiffs in complex litigation in position to resolve the litigation favorably.  When appropriately managed, CBFs reward attorneys and firms for doing work that benefits the greater good.

Certainly, attorneys who take on the risks and leadership roles in complex litigation deserve fair compensation for their efforts.  But lately, there seems to be a larger number of disputes over disbursements from CBFs among the plaintiffs’ firms involved in complex litigation (so called “Common Benefit Attorneys”) when and where such disbursements are forthcoming.  These disputes often garner public attention, perpetuating a narrative that plaintiffs’ attorneys are motivated solely by greed and self-interest.  Certain defense firms whose clientele often are mass tort defendants and advocacy organizations—the entities most responsible for creating this narrative in the first place—are happy to use those disputes as part of their public relations efforts supporting “tort reform.”

The pelvic mesh MDL, established in 2010 and which involved over 100,000 female plaintiffs suing seven companies in what is undoubtedly one of the most complicated MDLs in history because it is a series of seven MDLs (MDL nos. 2187, 2325, 2326, 2327, 2387, 2440 and 2511) consolidated in the U.S. District Court for the Southern District of West Virginia, is an example of how a highly publicized CBF dispute can cast a shadow on the legal profession.  That dispute, like so many other CBF disputes, centered on whether certain law firms deserved the allotted fees from the CBF that the members of the plaintiffs’ executive committee in that litigation allocated to them.

And, just this past August, the Ninth Circuit settled a dispute—for now—in the Bard IVC filters litigation, In Re Bard IVC Filters Products Liability Litigation, MDL No. 2641 (D. Ariz.), established in 2015, regarding whether plaintiffs’ attorneys who agree to contribute to common benefit funds in MDLs are bound by those deals if they settle cases that were not part of an MDL.

In our view, there are four principal causes of CBF disputes.  We list them below, along with strategies for preventing them.

1.  A lack of billing standards and concurrent billing and time/expense review can be readily avoided through precise case management orders (CMOs) and clear billing guidelines.

Many CBF disputes are caused by the absence of well-defined requirements and standards for billing common benefit time and expenses.  Ambiguity surrounding billing practices leads to inconsistencies in the way attorneys record and submit their costs, giving rise to misunderstandings and disputes when fees are allocated.  Additionally, the lack of a standardized framework and mechanics for billing and expenses complicates attorneys’ perceptions of the fairness and validity of fee requests, in turn potentially eroding trust among plaintiffs’ firms.  Without clear and precise billing standards in place, and an evenhanded administration of those standards, it becomes challenging to objectively gauge the contributions of each attorney and firm.

Implementing comprehensive case management orders (CMOs) and clear billing guidelines can prevent CBF disputes.  CMOs should not only specify the tasks that qualify for compensation but also the allowable rates and expenses.  In doing so, they will provide an independent standard to reference when disputes arise.

For instance, a standardized CMO might include a provision stating that research tasks directly related to the case, such as reviewing medical records or consulting with expert witnesses, are billable, while unrelated tasks, like administrative work, are not.  (Of course, in highly complicated cases requiring extensive coordination and collaboration, administrative work may certainly be deemed permitted billable time.)  In addition, it is well established that there is a hierarchy of value for work that has a greater impact on the litigation and generates more “common benefit.”  Such work deserves greater compensation.  A CMO and related agreements can specify this hierarchy, providing guidelines for determining what kind of work generates a common benefit, and calculating the fees to be paid for this work.

CMOs and agreements as to billing guidelines are binding and provide clarity needed during fee allocation in MDL cases, potentially preventing major fee disputes.

For example, the CBF dispute in the pelvic mesh litigation arose in part because of a disagreement over what work provided more of a common benefit: the settlement of cases quickly and for relatively small dollar amounts or high-dollar jury verdicts.  Ultimately, Judge Joseph R. Goodwin of the Southern District of West Virginia granted a request from a fee and cost committee in that litigation that deemed the former to provide more common benefit than the latter.

The Bard IVC filters litigation provides another useful illustrative case.  There, some plaintiffs’ attorneys moved to reduce and exempt their clients’ recoveries from common benefit and expense assessments, arguing that no assessment should be paid by clients whose cases were filed in federal court after the MDL closed, were filed in state court, or were never filed in any court. U.S. District Judge David G. Campbell of the District of Arizona denied this motion.  As we noted above, the Ninth Circuit affirmed Campbell’s ruling, holding that these attorneys, who had agreed to pay a share of their fees to the MDL leaders, were required to abide by those agreements even if they settled cases outside of the consolidated proceeding.

Agreed-upon CMOs that set forth procedures, guidelines, and limitations for submitting applications for reimbursement of litigation fees and expenses inuring to the claimants’ common benefit can be instrumental in resolving or avoiding CBF disputes.

2.  The problems caused by late submissions of billing records can be avoided by requiring attorneys to make regular, contemporaneous submissions.

Another frequent cause of CBF disputes is attorneys delaying their submission of billing records.  Too often, attorneys and their support teams, engrossed in all-consuming complex litigation, fail to timely submit their time and expense records.  Attorneys sometimes submit crucial billing details months or even years after the fact, making it necessary for others to “forensically” reconstruct this information, a practice that not only jeopardizes the accuracy of time and expense submissions but may result in crucial work being overlooked or submitted without adequate supporting documentation. 

Delayed submissions also prevent courts and plaintiffs’ leadership teams from performing comprehensive and accurate assessments of work described in billing submissions.

CMOs or fee committees that mandate the regular submission of time and expense records can put an end to this problem.  As was the case in the pelvic mesh MDL, adopting CMOs that include specific provisions requiring attorneys to submit their time and expense records at regular intervals throughout a litigation significantly enhances efficiency and transparency.  These CMOs may, for instance, stipulate that detailed records must be submitted monthly or quarterly, with a reduction in potential compensation for any submissions beyond agreed-upon deadlines. 

This practice ensures that time and expense records are submitted relatively promptly after attorneys perform the work described in them, capturing the most accurate information (and fresh memories).  The regular submission of records also enables the court and MDL leadership to compare billing records with case calendars to determine if the work completed and the time spent completing it is consistent with expectations of when that work should have been completed and how long it should have taken.

3.  The lack of independent oversight can be remedied by bringing on a neutral.

When plaintiffs’ leadership teams collect, review, and approve CBF allocations, and stand to benefit personally from those decisions, it is easy to see how this lack of independent oversight can cause CBF disputes and give rise to accusations of conflicts of interest and self-dealing.  Appointing a neutral third party to oversee time and expense submissions to the CBF and mediate disputes can remedy this problem. 

This impartial overseer should be an independent legal expert or mediator with no vested interest in the litigation outcome, which should preclude accusations of conflicts of interest and self-dealing.  This neutral party should also be empowered to enforce deadlines for submissions, review and evaluate the reasonableness of time and expenses submissions, disallow submissions containing excessive time and expenses, and swiftly address any discrepancies that arise during the allocation process.

Some attorneys and judges are satisfied with handing off the issues at the center of a CBF dispute to an accountant.  We would suggest that the calculations necessary to resolve such a dispute require more than a bookkeeping background.  We believe hiring a neutral who is experienced in mass torts litigation and awarding attorneys’ fees, and who recognizes the worth of litigation roles, is a superior selection method.

4.  Disputes caused by an opaque process could be reduced by making it more transparent.

Inadequate transparency is a major cause of CBF disputes.  Those attorneys and firms that are not in leadership positions often have limited knowledge of the fees and expenses incurred as the litigation progresses, which could make them feel blindsided when their allocated fees are less than those they submitted.  Without ongoing and timely communication regarding billing submissions and allocations, attorneys and firms outside the leadership circle may question the fairness and reasonableness of both.

The solution to this problem is simple.  Leadership committees in complex litigation should provide all law firms that pay assessments into the CBF with regular reports that explain time and expense submissions.  In addition, every firm could ask questions of the people responsible for submitting those bills and allocating distributions from a CBF.

Attorneys whose inquiries are addressed by leadership and a court-appointed neutral throughout the process are far less likely to contest fee allocations at the conclusion.  Plus, increased transparency enhances confidence among plaintiffs’ firms, fostering greater trust and a more cooperative environment.

Simple solutions to a complex problem?

Given the time plaintiffs’ attorneys spend litigating complex litigation, it is not surprising that they want to ensure they are paid for the work they did that went to the common benefit of the plaintiffs in a litigation.  But given the number of attorneys and firms representing clients in these litigations, and the sizes of CBFs in complex litigation today—the CBF in the Vioxx litigation, In re Vioxx Products Liability Litigation, MDL No. 1657 (E.D. La.), established in 2005, was $315 million—disputes over whether those attorneys’ contributions are fairly reflected in their CBF allocation are practically inevitable.

In our view, the core four causes of CBF disputes can be reduced in frequency and severity, if not outright eliminated, by implementing standardized billing practices, promoting timely billing submissions, and instituting impartial oversight and increasing transparency concerning the CBF allocation process.

Unless plaintiffs’ attorneys can eliminate CBF disputes, the positive social change they can bring about through complex litigation will be overshadowed by what the public—thanks in part to the corporate defense bar and advocacy organizations—will perceive as greedy attorneys bickering over millions of dollars.  That, in and of itself, should motivate more plaintiffs’ leadership teams to adopt these methods for reducing CBF disputes.

Judge Marina Corodemus is a former New Jersey Superior Court judge who helped establish New Jersey Mass Torts court (MCL).  She is now the managing partner of the ADR practice at Corodemus & Corodemus.  She has served as a special master in numerous MDLs and complex litigation in federal and state courts.  Mark Eveland is the CEO of Verus, a leading mass tort litigation support services firm.