A recent Law 360 story by Jeff Montgomery, “Five Firms Win Record $266.7M Fee From $1B Dell Settlement”, reports that the Delaware Chancery Court gave the nod to a record $266.7 million fee award for stockholder class attorneys among five firms who secured a $1 billion settlement, one of the largest ever in any state-level court, for a suit that challenged Dell Technologies Inc.'s $23.9 billion stock swap in 2018.  Vice Chancellor J. Travis Laster's 92-page opinion awarded the fees to Labaton Sucharow LLP, Quinn Emanuel Urquhart & Sullivan LLP, Andrews & Springer LLC, Robbins Geller Rudman & Dowd LLP, and Friedman Oster & Tejtel PLLC.

The vice chancellor approved the overall settlement on April 19, saying class attorneys had undertaken a "huge effort," but reserved judgment on the 28.5% fee while considering objections that it took a disproportionate bite out of the per-share payment to stockholders.  Vice Chancellor Laster pruned the request from $285 million to $266.7 million, noting that eight investment funds had recommended a lower fee, citing concerns about "windfall" profits in the case of large awards.

"The funds have a strong economic motivation for seeking a lower fee award.  They collectively own shares comprising 26.1% of the class.  Although they did not propose an alternative amount, if the court were to follow the federal trend and award a 10% fee, the objectors would receive another $49 million," the vice chancellor wrote.  Five law professors separately suggested in a friend of the court brief that a 15% fee would be appropriate, which would have added $35.78 million to the objectors' recovery.

"In this case, plaintiff's counsel brought a real case, invested over $4 million of real money, and obtained a real and unprecedented result. Rather than requesting an unprecedented fee award, plaintiff's counsel asked for 28.5% of the common fund," consistent with past court practices and precedent, Vice Chancellor Laster wrote in the opinion.  Included in the fee award is a proposed $50,000 incentive fee for the plaintiff.  The award in Dell was eclipsed only by the $285 million fee approved for attorneys in the derivative Americas Mining case in 2012, set by then Chancellor Leo G. Strine Jr.

The deal heads off a trial on claims targeting Dell's effort to exchange Class V stock — created to finance much of Dell's $67 billion acquisition of EMC Technologies in 2016 — for shares of Dell common stock.  The Class V shares generally traded at only 60% or 65% of the price of VMWare, a business in which EMC owned an 81.9% equity stake when Dell acquired EMC.  Public shareholders, the class has argued, were short-changed by $10.7 billion when, in December 2018, Dell Technologies paid $14 billion in cash and issued 149,387,617 shares of its Class C common stock for the Class V shares.

During a settlement hearing last week, attorneys for the class told the vice chancellor that they logged more than 53,000 hours on the case, with nearly $4.3 million in expenses, with the fee and expense award reflecting an implied hourly rate of about $5,268 per hour.  The requested fee, they said, had already been adjusted downward by 5% from a typical eve-of-trial award of 30% or more.  In addition to towering over any state award, the $1 billion payout would rank as the 17th largest class settlement of all time, according to Institutional Shareholder Services Inc.

Among the objectors was Pentwater Capital Management LP, which held 1.8% of the Dell Class V stock at the center of the stockholder action.  Pentwater described the fee as "far in excess of what is appropriate in these circumstances" and "fundamentally unfair" to the class represented.

The objectors, the vice chancellor observed "argue that the $1 billion common fund is not so impressive because plaintiff's counsel had a high likelihood of prevailing at trial," and asserted that the combination of the court's "entire fairness test and flaws in the deal meant that liability, while contested was never in doubt.  "No one who is actually familiar with litigation in this court could think that," the vice chancellor wrote.

Defendants regularly win under the entire fairness test, the vice chancellor noted, and "plaintiff's counsel did not have a laydown hand on liability.  They had a strong case that the fiduciary defendants did not follow a fair process, but fair price was debatable, and damages were a Wildcard."  Had Dell shown that the price was sufficiently fair, the class would lose, the decision found.

"Plaintiff's counsel deserves to be well compensated for identifying real cases, investing real money in those cases, and obtaining real results.  But the law should not reward plaintiff's counsel for filing weak cases and obtaining insubstantial results," the vice chancellor wrote.  Litigation continued until 19 days before trial, with the class pre-trial brief weighing in at 134 pages.

"Plaintiff's counsel thus went beyond a mid-stage adjudication that should yield a fee of 15–25%" after multiple depositions and some level of motion practice, the vice chancellor wrote, referring to the court's practice of taking the stage of litigation and effort heavily into account when awarding fees.

Fee decisions generally take into account the complexity of a case, the experience and ability of the lawyers, time and effort invested, stage of litigation and contingency terms that subject counsel to a risk of no payment at all, according to the court.  Not requested were attorney expenses, which amounted to more than $4 million.  In part, class attorneys had to make a decision regarding the appearance of a request for deduction of expenses, the vice chancellor wrote, in a case where "the common fund is so large that the out-of-pocket costs become a rounding error."

A recent Law 360 story by Lauren Berg, “Facebook Users Laud 6% Claims Rate in $725M Privacy Deal”, reports that a class of more than 200 million Facebook users asked a California federal judge to grant final approval to their landmark $725 million deal resolving privacy claims against Meta Platforms Inc. over the Cambridge Analytica data harvesting scandal, touting the nearly 6% claims rate as "well above claims rates approved in other large settlements."

In a 35-page motion, the preliminarily certified class said that after attorney fees, costs and service awards are subtracted from the $725 million settlement fund, "allocation points" will be used to divide the remaining money among authorized claimants, allowing class members to recover an average of about $35 per person.

Under this allocation plan, for every calendar month at any time during the class period — running from May 24, 2007, through Dec. 22, 2022 — that the authorized claimant was a Facebook user with an activated account, one "allocation point" will be assigned, the motion says.  The net settlement fund is then allocated to each claimant pro rata based on each claimant's share of allocation points.

In addition to those monetary benefits, Facebook must also provide discovery and declarations attesting that the data sharing practices at issue have either stopped or are monitored under a 2019 consent decree between the social media platform and the Federal Trade Commission, according to the motion.

The users said the "extensive and successful" notice program — which included individual in-app notices to 685 million Facebook accounts, digital advertisements, a settlement website and public notices in USA Today and People magazine — has led to the submission of more than 15.8 million claims as of July 10.  The settlement administrator did clear out 960,313 as duplicative claims and will assess the remaining 14.9 million to make sure they are valid, the motion says.

"Based on an estimated class of 250 million, the claims rate is already almost 6% — a rate that is well above claims rates approved in other large settlements," the users said, noting that this is the largest-ever data privacy class action settlement.  After the parties unveiled the details of the proposed deal in February, U.S. District Judge Vince Chhabria ruled that Facebook and Gibson Dunn must pay $925,000 to the users, citing the defense's "unusually egregious and persistent" misconduct delaying discovery and gaslighting of opponents in seeking to extract a lower-priced settlement.

After Judge Chhabria in March tentatively signed off on the proposed settlement, class counsel in June requested $181.25 million in fees and $4.1 million in costs, representing 25% of the total settlement.  The attorneys said the amount represents a 1.99 lodestar multiplier for roughly 150,000 hours of attorney work done over the past five years.  The motion for attorney fees noted that nearly every aspect of the case demanded "an extraordinary investment of resources" and class counsel faced "aggressive opposition," making progress "exceedingly difficult."

A recent Law 360 story by Bonnie Eslinger, “Del Taco ‘Perplexed’ By Atty Fee Bid in $50M Deal”, reports that a California judge who tentatively awarded Del Taco workers' attorneys $12.5 million in fees for their work securing a $50 million wage deal said he's "perplexed" by their arguments for $16.7 million, saying they should have included legal authorities supporting the higher amount in an earlier court filing.  In his tentative ruling, Alameda County Superior Court Judge Evelio Grillo largely signed off on the $50 million deal, which settles wage and hour claims filed on behalf of more than 50,000 workers and also allegations of California labor code violations filed under the state's Private Attorneys General Act.  With regard to attorney fees, the court awarded a 25% cut of the $50 million, less than the one-third share requested.

At the start of a hearing held via Zoom, Judge Grillo told lawyers for the fast-food workers that he had tried to be responsive to arguments they had previously made in support of their fee request, but "I understand that you're still not happy with what I did."  Matthew Matern of Matern Law Group PC, a lawyer for the workers, said while they appreciated the court's consideration of their arguments, there was no reason not to award 30% or more in fees.  Among the cases he cited in support of his argument was a 2006 decision in Allapattah Services, Inc. v. Exxon Corp, awarding attorneys 31.33% of a $1.075 billion settlement.

"There were many other cases," Matern told the court. "And in many of those cases, the multipliers were very high as well."  Judge Grillo noted that the last time plaintiffs' counsel argued for a higher fee percentage they cited two cases.  "You argued successfully that the court should consider a higher multiplier," the judge said.  "And that's what I did."

Matern argued that the multiplier — an amount the total fees are multiplied by in determining a fee award — should be used simply as a "cross-check" to see whether the percentage awarded of the total settlement is reasonable.

Judge Grillo asked what the multiplier would be for in the case before him if he was to award 30% of the settlement to the lawyers. Matern said it would be about 6.5.  "There are many cases where it's over that," Matern told the court, saying that in the 1995 Weiss v. Mercedes-Benz of North America ruling has a 9.3 multiplier for the attorney fees.

The judge could find additional cases in support of the fee argument cited within a 2017 district court decision In re: National Collegiate Athletic Association Athletic Grant-In-Aid Cap Antitrust Litigation, which was affirmed by the Ninth Circuit, Matern said.  Another case in support of high multipliers, Matern told the court, is In re Merry-Go-Round Enterprises, Inc., a 2000 case in Maryland federal court.

"That one was a bankruptcy case, and they awarded a 19.6 multiplier on a 40% fee out of a $185 million fund," Matern said.  Ultimately, the court should grant the requested fees, because the lawyers for the Del Taco workers achieved an exceptional result, Matern argued.

"It was obtained for the class and this wouldn't have happened without the exceptional work we did and the substantial risk," the lawyer said.  Judge Grillo said he'd look at the other cases the lawyer cited.  "I'm a little bit... 'perplexed' is not the right word, but for lack of a better word, perplexed because you did cite me a couple of cases and I did read them," the judge said.

The judge had previously suggested that a multiplier used in a case affirmed by the Ninth Circuit, Vizcaino v. Microsoft Corp., was appropriate, Mattern noted.  Then, after the plaintiffs had highlighted a different case for the court, Steiner v. Am. Broad. Co., in which the Ninth Circuit concluded that a 6.85 multiplier "fell within the range of multipliers that courts have allowed," it appeared that Judge Grillo had picked a multiplier between those two, the lawyer said.  But in the Vizcaino case that was a 28% fee cut, so the court used the 3.96 multiplier, "because that's what it took to get to the 28% that they awarded," the lawyer said. "So it was merely just cross-checking."

The judge said he understood the argument, and he would put out a ruling later.  "You gave me the authorities, I considered them, and now you're suggesting that there are other authorities that I should consider," the judge said. "I'll do that.  But you know, it would have been nice to have them, to have those arguments initially."  According to the judge's tentative ruling, the lawyers for the plaintiff told the court they spent 3,140.8 attorney hours and 1,231.0 support staff hours for a total of 4,371.8 hours on the case.

The settlement also proposed a service award of $20,000 to the main plaintiff, Karolina Torrez.  In his tentative ruling, the judge said after factoring in administration costs, a PAGA payment of $1.5 million, awards for other plaintiffs, and litigation expenses, the amount left to distribute to the class would be just over $30.7 million, providing an average payment per class member of about $615.

A recent Law 360 article by David Ross, “Atty Fee Reversal May Complicate Claims Made Settlement”, reports on the ramification of the Lowery v. Rapsody International decision.  This article was posted with permission.  The article reads:

A decision prefaced by "will likely make the average person shake her head in disbelief" is unlikely to end well for a party.  That was the outcome when an initially sought $6 million in legal fees was later awarded at $1.7 million by a district court.  In Lowery v. Rhapsody International Inc., the U.S. Court of Appeals for the Ninth Circuit reversed the fee award June 7 because class members obtained less than $53,000 in benefits.

The rationale for that decision could spell trouble for those seeking approval of claims-made class action settlements that do not have sufficient financial benefits actually received by class members or meaningful injunctive or non-monetary relief.

Background

In Lowery, the Ninth Circuit panel addressed a claims-made class settlement.  For a little background, class settlements typically involve a claims-made or common fund structure.  A claims-made settlement involves claims submissions to determine the amount of benefits that a defendant will pay.  The ultimate amount is unknown, although, as in Lowery, caps may be in place to prevent a runaway payout amount.

In comparison, the defendant in a common fund settlement agrees to the total amount it will pay for the class settlement.  In other words, the overall amount is predetermined.  The common fund often includes settlement benefits, plaintiffs' attorney fee awards, service awards for the class representatives, and claims administration and notice costs.  In some settlements, hybrid structures are crafted that may include claims-made and common fund elements.

The Lowery case involved a claims-made class settlement in a music copyright class action. Rhapsody agreed to pay class members — copyright holders — for music played on its streaming service.  However, an earlier settlement between Rhapsody and the National Music Publishers Association to resolve the same copyright issues resulted in 98% of the class members waiving their right to participate in the settlement. This gutted the class.

Despite agreeing to pay up to $20 million for claims, Rhapsody wound up paying only $52,841.05 in claims.  Rhapsody also did not have to change its licensing practices, as Congress passed the Music Modernization Act in 2018, which allowed digital music providers to obtain blanket licenses.  On appeal, the panel found that the $1.7 million fee award to the plaintiffs' counsel, "more than thirty times larger than the amount paid to class members," was not reasonable.

The panel held that: courts must consider the actual or realistically anticipated benefit to the class­ — not the maximum or hypothetical amount — in assessing the value of a class action settlement.  On remand, the U.S. District Court for the Northern District of California was directed to "disregard the theoretical $20 million cap" and instead "start with" the actual amount the class claimed.

The panel noted that "rule is especially important when the class redemption rate is low" and another "approach would allow parties to concoct a high phantom settlement cap to justify excessive fees, even though class members receive nothing close to that amount."  The panel added that "the district court should consider cross-checking its lodestar calculation to ensure that it is reasonably proportional to the benefit provided to the class."  If the cross-check showed that the fee award exceeded 25% of the class benefits, that disparity might "suggest that the fee amount is unreasonable."

The panel added that except for extraordinary cases, a fee award should not exceed the value provided to the class, and remarked that it did not matter that "attorneys may have devoted hundreds or even thousands of hours to a case."

Potential Ramifications of the Lowry Decision

The takeaways from this decision will likely emanate far beyond copyright cases.  Class action plaintiffs attorneys may refuse to consider claims-made settlements in the Ninth Circuit, and insist on common fund settlements.  This position could extend to state court cases on the West Coast for fear that these courts might find the Ninth Circuit's decision persuasive.  Even for common fund settlements, the amount that class members actually will receive must be considered.

While common fund settlements predetermine the amount that the defendant will pay, the amount actually paid in benefits to class members might still depend on the take rate and the types of benefits available.  Common fund settlements are thus not entirely inoculated from the potential application of the panel's rationale in the Lowery decision.  A court still could consider the amount of attorney fees and the amount of the common fund actually allocable to class member benefits.

Thus, regardless of whether a common fund or claims-made settlement in the Ninth Circuit is pursued, the likely take rate and associated monetary benefit for class members should be carefully evaluated.

Looking Ahead in the Ninth Circuit

For any settlement, the impact of non-monetary and injunctive relief, which the Ninth Circuit recognized was not at issue in Lowery, should be considered. The panel noted a contrast to civil rights cases, where attorney fees awards did not need to be strictly proportional to monetary damages.  In civil rights cases, significant non-monetary and injunctive relief to the plaintiffs can be provided, but for copyright cases, attorney fees must consider the proportion between the award and the class benefits to confirm the award is reasonable.

That said, the panel recognized that in copyright cases such as infringement where substantial non-monetary relief or a meaningful benefit to society is encompassed, a fee award may exceed the monetary benefit provided to the class.  The Lowery decision does not have to be a death knell for claims-made settlements in the Ninth Circuit.  There is no reason to conclude that a well-structured claims-made settlement that provides significant settlement benefits to class members can no longer obtain court approval.  To the extent that material injunctive and non-monetary benefits are included, even more reason for optimism exists.

It also should be noted that the Lowery decision does not mean that all focus in a class settlement should be on boosting the amount paid to class members.  The key focus in Lowery was the amount of the plaintiffs' attorney fees in comparison to the amount of class member benefits.  So, maybe­ — just maybe­ — more reasonable attorney fees amounts can increasingly become part of class action settlements, whether structured as a claims-made or common fund settlement.

David Ross is a partner at Wilson Elser Moskowitz Edelman & Dicker LLP.

A recent Law 360 story by Greg Lamm, “Edelson, Tousley Brain Land $121M Fees in Online Casino Suit,” reports that attorneys from Edelson PC were awarded nearly $121.5 million in attorney fees by a Washington federal judge, who also approved a $415 million class settlement against social casino game developers over claims that their games amount to unlawful gambling.  U.S. District Judge Robert S. Lasnik approved the attorney fees for class counsel for lead plaintiffs Adrienne Benson and Mary Simonson, which added up to about 29.3% of the settlement fund reached with DoubleDown Interactive and International Game Technology.  Edelson PC was appointed class counsel, and Tousley Brain Stephens PLLC also represented the plaintiffs.

The fee was at the high end of the usual 20% to 30% range and above the Ninth Circuit's 25% benchmark.  But Judge Lasnik said it was warranted given the extra work the firms put in advocating for plaintiffs in this case and others against social casino gaming companies, as well as advocating to change laws.  "This was a unique situation for the firms representing the plaintiffs," Judge Lasnik said from the bench.  "They were all in with high-quality and very admirable lawyering from the big firm and the local firm."

Todd Logan of Edelson PC told Judge Lasnik that the legal fees were justified and reasonable because of the outstanding results achieved for the class, the risk in taking the case on a contingent basis and class counsel's significant efforts in the hard-fought litigation.  Logan said that more than 90% of the class list received direct notice, and class members filed nearly 90,000 presumptively valid claims.  No one objected to the amount of fees the class counsel was seeking, Logan said.

"The 90,000 are getting lots and lots of money, and zero of them took issue" with the legal fees, he said.  Logan told Law360 in an email that when his firm first began filing social casino cases nearly a decade ago, the courts uniformly dismissed them.  "Today, we could not be more proud of the fact that we have obtained $651 million for our clients and the classes we have had the honor of representing in these cases," Logan said.  "In this particular case, we are especially proud of the 27% claims rate and the fact that many class members stand to receive, individually, hundreds of thousands of dollars."

Judge Lasnik also approved up to $3 million for notice- and administration-related fees and costs, and awarded Benson and Simonson incentive awards of $7,500 each for representing the class.

A recent Law 360 by Irene Spezzamonte, “Workers for Virgin, Alaska Seek $10M Fees in $31M Wage Suit,” reports that a group of flight attendants asked a California federal court to grant their...

Read Full Post

A recent Law 360 by Abby Wargo, “United Flight Attendants’ Attys Seek $18.1M Cut of $54M Deal,” reports that counsel for a class of United Airlines flight attendants who accused the airline of...

Read Full Post

A recent Law 360 story by Katryna Perera, “CBS Investors Attys Get $3.6M in Moonves #MeToo Case” reports that counsel from Robbins Geller Rudman & Dowd LLP have been awarded $3.6 million for...

Read Full Post

A recent Law 360 story by Leslie Pappas, “Chancery Oks Aerospace Co.’s Pay Suit Deal, Defers Fees” reports that a Delaware Chancery Court judge approved a settlement between aerospace parts...

Read Full Post