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Category: Class Fee Objector

Article: Ninth Circuit Ruling Signals Scrutiny of Attorney Fees in Class Actions

September 25, 2021

A recent Law 360 article by Jason Russell, Hilary Hamilton and Adam Lloyd of Skadden Arps, “9th Circ. Ruling Signals Scrutiny of Class Settlement Fees,” reports on a recent ruling from the Ninth Circuit.  This article was posted with permission.  The article reads:

Despite the playful tone of the Briseño v. Henderson decision issued by the U.S. Court of Appeals for the Ninth Circuit in June, class action litigators should take the case seriously when structuring class action settlements.  Amid a thicket of pop-culture references, the Briseño panel held that under the revised Federal Rule of Civil Procedure 23(e)(2), federal courts must heavily scrutinize any settlement made on behalf of a class — whether pre- or post-class certification — to ensure that counsel for the defendant and the class have not colluded on an unfair distribution of settlement funds between recovery for the class and the fees for its attorneys.

Over a decade ago, in June 2011, the Briseño plaintiffs alleged that defendant ConAgra Foods Inc. misled consumers who wished to avoid consuming genetically modified organisms by placing a "100% Natural" label on its Wesson cooking oil brand, which allegedly contained GMO ingredients.  Notwithstanding the fact that the parties had been litigating the plaintiffs' false advertising claims for nearly 10 years, the Ninth Circuit rejected the parties' settlement that was negotiated after class certification, on grounds raised by a single objector.  The panel took significant issue with the class counsel's fee award, and found that the settlement "reek[ed]" of collusion.

The panel determined that the parties' settlement agreement and fee arrangement "raise[d] a squadron of red flags billowing in the wind and begg[ed] for further review," because (1) class counsel would receive disproportionately more money than the class; (2) the defendant agreed not to challenge class counsel's requested fee award (and any reduction in fees would revert to the defendant); and (3) the labeling-change injunctive relief that class counsel secured was "worthless," so it could not be used to justify class counsel's fee here.

The panel grounded its analysis in the history and text of Rule 23(e)(2), which was revised in December 2018, and requires a court to ensure that a class settlement is fair, reasonable and adequate.  Prior to the 2018 revision, however, Rule 23(e) did not provide guidance as to what was fair, reasonable or adequate.  So the Ninth Circuit filled in the gaps by providing several factors for district courts to consider, including the strength of the plaintiffs' claims and the risk and expense of further litigation at the stage of the proceedings.

The Ninth Circuit also was particularly wary of settlements reached on behalf of a class precertification — where it found that counsel may be most incentivized to maximize their own financial gain at the expense of the class members — and in 2011, provided an additional instruction for courts to watch out for what it called "subtle signs" that class counsel was putting their own self-interest before the class.

These signs included: (1) counsel receiving a disproportionate distribution of the settlement; (2) parties negotiating a "clear sailing arrangement," under which the defendant agrees not to challenge a request for an agreed-upon attorney fee; and (3) an agreement containing a "kicker" or "reverter" clause, that returns unawarded fees to the defendant, rather than the class.  In the Ninth Circuit, these are commonly known as the Bluetooth factors.

Then, in 2018, Rule 23 was amended to set forth specific factors for courts to consider when determining whether a class settlement was adequate, including "the costs, risks, and delay of trial and appeal"; "the effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims"; and "the terms of any proposed award of attorney's fees, including timing of payment."

The Briseño panel focused on this last factor, and held that the new Rule 23(e) "indicates that a court must examine whether the attorneys' fees arrangement shortchanges the class" for all class settlements.  As a result, the panel found, district courts should apply the Bluetooth heightened scrutiny factors for both pre- and post-class certification settlements to "smoke out" potential collusion on attorney fee arrangements.

Applying the Bluetooth factors to the Briseño class counsel's fee arrangement here, the panel concluded that the fee arrangement "features all three red flags of potential collusion."  First, the panel noted the "gross disparity in distribution of funds between class members and their class counsel raises an urgent red flag," as counsel was set to receive nearly $7 million in fees, while the class received less than $1 million.

The panel found this disparity particularly problematic here because the parties knowingly structured a relatively common claims-made settlement, requiring class members to submit a claim to obtain a recovery, for a low-ticket item, which typically results in what the panel called "notoriously low" redemption rates. In this case, class members would recover 15 cents per unit of Wesson oil purchased during the class period.

Second, ConAgra agreed not to challenge the fees for class counsel, and the panel held that "the very existence of a clear sailing provision increases the likelihood that class counsel will have bargained away something of value to the class."  Third, the agreement provided that ConAgra was to receive any remaining funds if the district court reduced the agreed-upon attorney fees for class counsel, and the panel concluded that if a court determined the "full amount unreasonable, there is no plausible reason why the class should not benefit from the spillover of excessive fees."

Significantly, the panel also held that the settlement's injunctive relief component — ConAgra's agreement to no longer market Wesson oil as "100% Natural" — could not be used to justify the class counsel's excessive fee.  The panel panned the injunctive relief as "virtually worthless," "illusory" and "meaningless," because ConAgra had already decided to stop using the "100% Natural" label two years before the settlement agreement was reached — for reasons it stated were unrelated to the litigation — and no longer even owned the Wesson oil brand.

Although ConAgra's sale of the Wesson oil brand in Briseño clearly presents an uncommon circumstance, the panel made clear that going forward, courts must eliminate inflated valuations of injunctive relief "untethered to reality" that are used to justify excessive fee awards for class counsel.  Briseño's discussion of worthless injunctive relief will have significant repercussions for future settlement of many California federal class actions, as many companies often make labeling changes for business reasons before any complaints are even filed.

While the panel expressly stated that its decision did not mean that "courts have a duty to maximize the settlement fund for class members," and a "class does not need to receive much for a settlement to be fair when the class gives up very little," the practical effect of, and takeaway from, Briseño is that class counsel should expect significantly more resistance from defense counsel and courts to high attorney fee awards in class action settlements.

This will especially impact low-value and/or labeling claims arising from a plaintiff's subjective beliefs of purported harm — particularly when a defendant has already decided to make a labeling change for business reasons.  In such cases, the relief that counsel can secure for the class is likely to be limited, and Briseño plainly requires a commensurate fee award for class counsel.

Jason D. Russell is a partner, and Hillary A. Hamilton and Adam K. Lloyd are associates, at Skadden Arps Slate Meagher & Flom LLP.

Quinn Emanuel Gets $185M in Attorney Fees in $3.7B ACA Win

September 16, 2021

A recent Law 360 story by Dave Simpson, “Quinn Emanuel Gets $185M Fee From $3.7B Win in ACA Suits,” reports that a U.S. Court of Federal Claims judge granted Quinn Emanuel Urquhart & Sullivan LLP's request for $185 million in fees stemming from two class actions against the federal government over so-called risk corridor payments under the Affordable Care Act, which resulted in a nearly $3.7 billion total win.  Judge Kathryn C. Davis said that despite the "at times hyperbolic" motions for fees, the law firm did show "foresight" in focusing on a successful legal theory months before other parties jumped on that bandwagon.  She granted its request for 5% of the winnings.

"At the end of the day, what is more important is that class counsel's legal theory resulted in a huge award to the classes here," Judge Davis said.  Quinn Emanuel was the first firm in the country to file a lawsuit on behalf of a qualified health plan insurer accusing the federal government of unlawfully reneging on a commitment to shield ACA insurers from heavy financial losses.

Health Republic Insurance Co. sued the government in 2016 and in July 2020 won a judgment for $1.9 billion alongside a subclass of insurers.  Common Ground Healthcare Cooperative sued the government in 2017 over similar claims and won a $1.7 billion judgment.  Those cases set off a firestorm of parallel litigation across the country, alleging similar claims.  Two of those cases ended up at the U.S. Supreme Court.  In April 2020, the justices reversed Congress' denial of $12 billion in "risk corridor" funding, which the ACA dangled as an incentive for insurers during the law's first three years of operation.

While Quinn Emanuel didn't work on those cases directly, the firm argued in its request for fees in July 2020 that the Supreme Court "adopted the exact legal theory Quinn Emanuel set forth in the initial Health Republic complaint and which it advocated at every step."  But in August 2020, objectors like Kaiser Foundation Health Plan Inc., UnitedHealthcare Insurance Co. and others argued that class counsel was entitled to just $8.8 million after a lodestar cross-check.

They said that Quinn Emanuel had little to do with the litigation that ended up at the Supreme Court, and argued that the firm was trying to walk away with an award that would work out to an hourly rate of $18,000 per attorney.  Class members signed on to the suit with a guarantee that the proposed 5% fee award would be subject to a lodestar cross-check, the motion said, which the firm had eschewed.

Quinn Emanuel shot back in September 2020 that the $8.8 million award proposed would discourage attorneys in the future from taking on similarly ambitious cases.  The percentage model, which the insurers agreed to when choosing to join the class instead of pursuing individual claims, is favored by the courts for exactly this reason, the firm said.  According to the firm, despite the dozens of companies signing on to the fee objection, most of them Kaiser or United entities, almost 90% of the class members have not objected.

Judge Davis sided with the firm.  "These are not cases in which class counsel merely rode the coattails of other innovative litigators," she said.  The 5% fee is well below market value, and the objectors propose what would amount to a .22% fee, she said.  Further, the firm allocated 10,000 billable hours and might not have been paid for any of it had the outcome gone differently, the judge said.

$31M in Fees After Ninth Circuit Tossed $48M Fee Award

July 6, 2021

A recent Law 360 story by Dave Simpson, “Hagens Berman Gets $31M After 9th Circ. Nixes $48M Fee,” reports that a California federal judge has awarded Hagens Berman Sobol Shapiro LLP $31 million in attorney fees for work securing $205 million in optical disk price-fixing settlements — about $17 million less than the firm sought following the Ninth Circuit's decision to throw out an earlier $47.8 million fee award.  U.S. District Judge Richard Seeborg found that the firm was entitled to a 20% premium on top of the $25.9 million it would be allotted under a fee grid the firm laid out when making its bid to lead the case more than a decade ago.

The judge also said that most of the case's issues that the firm pointed to as "not contemplated" when it laid out the fee grid before it was selected as lead counsel in the case were in fact commonplace, when taken individually.  Hagens Berman had argued that it deserved a greater fee award because, among other things, it put in hours of work to produce records it had to translate, and that it had to resolve discovery disputes and obtain depositions from dozens of witnesses.  It also cited having to overcome a hefty burden when seeking class certification, after its early attempts at certification were denied.

But Judge Seeborg said that "planning for such events, and taking the risk if the budgeting proves wrong, is the very point of fee proposals."  "That the court might issue unfavorable rulings — regardless of how strong Hagens Berman thought its positions were — is hardly unforeseeable, and therefore should not have been uncontemplated," the judge said.

Further, he said, when the Ninth Circuit rejected the district court's approval of the $47.8 million bid, the panel noted that, on remand, the firm would have to expand upon its reasoning for why it believes it is entitled to such a large deviation from the fee grid it originally laid out.  In several instances, the judge found the firm's new reasoning expanded only "slightly" on its previous explanations.  Still, the judge said Friday, taken cumulatively, the factors laid out by Hagens Berman did take the litigation beyond what could have been anticipated at the time of the firm's bid to lead the case.  And for that reason, he allotted the firm about $5 million more than the $25.9 million it would be entitled to under the fee grid.

"If there were reason to believe that the litigation dragged out for nearly a decade as the result of any lack of diligence or inefficiency on the part of Hagens Berman, the result might be different," Judge Seeborg said.  "But that is not the case.  This was long and hard-fought litigation involving a series of circumstances that, taken together, were never contemplated."

Hagens Berman had jockeyed with other firms for the top spot to represent indirect buyers accusing Samsung, Toshiba, Panasonic and other computer parts makers of participating in an industrywide conspiracy to bump up the cost of the drives.  It submitted a proposed fee arrangement, which helped it secure the position.  Hagens Berman was appointed lead counsel by then-U.S. District Court Judge Vaughn Walker in 2010.  Judge Walker retired the following year, and the case was assigned to Judge Seeborg.

Under that proposed fee arrangement, the firm would be entitled to $25.9 million. But the amount Hagens Berman initially obtained after three rounds of settlement fee requests was substantially higher than what it initially estimated in its proposed bid to lead the case.

In May 2020, a pair of Ninth Circuit panels vacated the $47.8 million in attorney fees Hagens Berman initially won in the decade-old litigation. They said trial courts do enjoy broad discretion in determining reasonable fee awards, but the size of the variance between the bid and the awards in this case required further explanation.  On remand, Hagens Berman requested the same $47.8 million in legal fees, calling the $25.9 million total a "starting point."  Nearly two dozen objectors fought to defeat or lower the attorney fee bid, making a variety of arguments. Some pointed to the fact that while some defendants did settle, resulting in the $205 million settlement sum, other defendants did not and they ultimately prevailed in motions for summary judgment.

"At heart, the objectors are contending Hagens Berman is getting overpaid for negotiating $205 million in settlements for a case that ultimately was found on summary judgment to have no merit," Judge Seeborg said.  "There is tension in the claim that the lawyers got somewhat too much money when, at the end of the day, the facts and law were that, but for the settlements, class members would have been entitled to nothing."

Ultimately, Judge Seeborg agreed to provide the firm with a 20% premium on the "starting point," in recognition of the uncontemplated work it took on.  "While the 20% figure is necessarily to some degree arbitrary, it is intended to represent reasonable compensation for the extra hours the firm expended, without producing a windfall or releasing it entirely from the consequences of its bid," he said.

Ninth Circuit Strikes Down $7M Fee Award in ConAgra Class Settlement

June 2, 2021

A recent Law 360 story by Emily Field, “9th Circ. Strikes Down $7M Atty Fees in ConAgra Label Deal,” reports that the Ninth Circuit overturned a judge's approval of a class action settlement with ConAgra Food Inc. over its labeling on oil products, saying the parties crammed into the deal "a squadron of red flags" including attorney fees of nearly $7 million that are much larger than what consumers were awarded.  The panel in a published opinion said the agreement includes a number of questionable provisions and "reeks of collusion," particularly the attorney fee award of $6.85 million that is seven times higher than what class members received.

ConAgra and class counsel contended the deal could be worth more than $100 million, but ultimately, ConAgra paid out less than $8 million, with just $1 million going to the class.  Large counsel fees comparative to the payout for class members raises the possibility that counsel colluded with the defendant to lower class compensation in exchange for a larger fee, the panel said.  A defendant would go along with this kind of conspiracy because it only cares about how much it's paying in total, not how it's divided up, they added.

The panel said district courts must scrutinize attorney fee award arrangements when deciding whether a class action settlement is fair, following revisions to the Federal Rules for Civil Procedure that introduced the requirement in 2018.  Specifically, that requirement also applies to settlements that were reached after a class was certified, the panel held for the first time.  "[A] post-class certification settlement only ensures that the parties litigated aggressively to arrive at an adequate total fund size; it does not, however, address the inherent incentives that tempt class counsel to elevate his or her own interest over those of the class members," the panel said.

The panel's decision reverses the 2019 approval of the deal and sends the case back to California federal court.  In the suit, the buyers alleged ConAgra mislabeled its Wesson oil products as "100% natural" even though they contain genetically modified ingredients.

The deal also included a stipulation that ConAgra not advertise the Wesson brand of essential oils as "100% natural" anymore, which was supposedly worth tens of millions of dollars but now appears worthless since ConAgra no longer owns the brand, the panel said.  "That is like George Lucas promising no more mediocre and schlocky Star Wars sequels shortly after selling the franchise to Disney.  Such a promise would be illusory," the panel wrote in their opinion.

Objector and University of Chicago law professor M. Todd Henderson brought the appeal last year, arguing the lower court did not take into account the deal's value to the class when it granted the fees.  The panel also found other red flags in the settlement, such as a "clear sailing arrangement" under which ConAgra agreed not to challenge the class counsel fees.  "A clear sailing provision signals the potential that a defendant agreed to pay class counsel excessive fees in exchange for counsel accepting a lower amount for the class members," the panel said.

Class Counsel Argue for Attorney Fees in Flint Water Crisis Settlement

May 31, 2021

A recent Law 360 story by Michael Phills, “Flint Plaintiffs' Attys Argue For Final OK of $641M Settlement,” reports that plaintiffs' attorneys want to seal the deal on a $641 million settlement over the Flint, Michigan, water crisis that objectors have said carves out too much for legal fees, arguing that the fee request is fair for the hard-fought work to secure compensation for an environmental catastrophe.  In a trio of filings, the plaintiffs' attorneys pushed back against several types of objections around the settlement, including the argument that a nearly 32% award of attorney fees is unreasonable.  The attorneys argue that their work produced something significant that the judge should sign off on.  They say that despite the objections the court has received, more than 50,000 have supported the deal, showing its widespread backing from the Flint community.

On the question of fees, plaintiffs' counsel defended their request as reasonable, reflective of the many years and hours of work spent on the case.  And they said the top line fee request is more complicated than objectors make it out to be.  "Some objectors have claimed that plaintiffs' counsel seek an award of more than $200 million in attorneys' fees.  That is not true — a substantial portion of the attorneys' fees in this matter will be paid by claimants to their individually retained counsel," the plaintiffs' attorneys wrote.

According to court filings, individual attorneys that were privately hired had often already locked in their fees and "much of the aggregate fee request will go to these individual attorneys."  In May, 26 individuals objected to the deal and raised a range of concerns, including that the settlement generally lacks clarity on what it entails and that it won't provide enough money to help residents as they try to move past a crisis that has left them with medical concerns and exorbitant water bills.

In March, other objectors opposed the fee request, saying a motion for the fee award included "scant detail" about the claimed common benefit work and didn't estimate what the common benefit fees might amount to.  "[The request] provides absolutely no evidence that ceding 27% of claimants' recovery to private attorneys for work sight unseen could possibly be fair to Flint residents who need this money to help them grapple with oft-debilitating, ruinous, and violent consequences of lead exposure for their entire lives," the objectors said.

They said that in "megafund" settlements of this size, typical fee awards are in the 10% to 12% range.  In March, the plaintiffs' attorneys made their fee request for their five years and more than 180,000 hours of attorney work to reach the "remarkable" settlement result.  "Contrary to every single 'megafund' case cited by the [objectors], this case involved complicated questions of sovereign immunity which necessarily rendered the case riskier and required a heightened level of skill," the plaintiffs' attorneys wrote.  They argued that they should not have to provide detailed billing records to certain objectors.

U.S. District Judge Judith Levy gave preliminary approval to the deal in January, saying that it is a partial settlement that doesn't end the litigation over the lead-tainted water.  The settlement with Michigan and others provides a mechanism for minors, injured adults, property owners and renters, those who paid Flint water bills and impacted business owners to receive monetary awards, the judge said. It also offers a "class action" solution for adults who have not hired their own attorneys, the judge said.