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Category: Fee Calculation Method

53 Law Firms to Divide $34M in Fees Using Tier System in GM Ignition MDL

May 20, 2021

A recent Law 360 story by Marco Poggio, “Judge Initially Oks 53 Firms’ Fee Plan in GM Ignition MDL,” reports that a federal judge in Manhattan pushed forward a plan for a three-tier system for distributing $34 million in attorney fees and expenses among the 53 law firms involved in multidistrict litigation against General Motors, but asked for clarifications on how firms are assigned to each tier after objections were raised.  In an order, U.S. District Judge Jesse M. Furman of the Southern District of New York said the tier system works but stopped short of approving the full deal, pending resolution of a dispute arising from how fees are calculated between the leading counsel and three other firms.

Judge Furman dismissed main objections brought by three firms — Golenbock Eiseman Assor Bell & Peskoe LLP, Wolf Haldenstein Adler Freeman & Herz LLP, and a group of attorneys working under the supervision Gary Peller, a professor at Georgetown University Law Center — who claimed they were being shortchanged for their work in the sprawling case, which involves faulty ignition switches.  However, the judge found some merit in the three objectors' "claim that the proposed allocation fails to credit them for many hours of compensable work without adequate explanation," and he ordered the co-lead plaintiff firms — Lieff Cabraser Heimann & Bernstein LLP and Hagens Berman Sobol Shapiro LLP — to submit a document detailing the criteria used to determine the compensation for each participating firm.

"It is incumbent on class counsel to explain and justify the criteria they used to make these determinations," Judge Furman said in the order.  The judge approved the arrangement's structure, in which Lieff Cabraser and Hagens Berman stand at the top tier and are entitled to 35% of the lodestar.  Members of the plaintiffs' executive committee are in tier two, along with liaison counsel and bankruptcy counsel, with an allocation of 19.3%.  Finally, the rest of the attorneys would fall in tier three and receive the greater between $1,000 or 7.5% of the lodestar.

Firms in tier one, two and three will collectively receive more than $15.4 million, $8.9 million, and $254,000 respectively, according to the arrangement. The only exception will be Brown Rudnick LLP, which will receive 23.37% of the lodestar despite being in tier two because it contributed more work than firms in the same tier, according to the order.  Judge Furman also agreed to placing the three objectors in tier three.

One of the objections came from Peller, who claimed the difference in earning between tiers is unfair because it fails to compensate non-lead attorneys properly.  In a call to Law360, Peller said the lead counsel "punished" his group by assigning a small share of the lodestar compared to firms in the higher tiers.  "This is amazingly low compensation for lawyer work," he said.

Case law has put in place limits to the power of lead counsels in class actions. The same protections do not apply to multidistrict litigation, though Peller argued with Judge Furman that they should.  "The lead counsel in multidistrict litigation have virtually unfettered power over the litigation and litigation decisions, and that's a problem from a due process point of view," said Peller, who has been working on the case since 2014.

The MDL saw its turning point in March 2020, when General Motors proposed a $120 million settlement with drivers who claimed that their cars lost value due to faulty ignition switches.  Under the settlement, a trust controlled by creditors in the company's 2009 bankruptcy will contribute up to $50 million.  The deal also included $24.6 million in attorney fees and $9.9 million in litigation expenses, according to court documents.

In the order, Judge Furman acknowledged there is little case law guidance about the allocation of attorney fees among co-counsel, and that courts routinely give lead counsel the initial responsibility of determining how much each participating firm deserves.

Golenbock Eiseman had argued that the allocation system proposed by the lead counsel is only based upon fees and expenses incurred between Oct. 20, 2014, and Feb. 29, 2016, and fees and expenses it incurred between April 7 and Sept. 30, 2014, were improperly excluded.

Similarly, Wolf Haldenstein had told the judge that Lieff Cabraser and Hagens Berman had failed to credit it for work done before August 2014, without providing a rationale.  Golenbock Eiseman and Wolf Haldenstein had also argued they should have been assigned to tier two, claiming they had put in as much work as bankruptcy counsel during the early stages of the case, the order says.  Golenbock Eiseman said it expected to receive a share of the lodestar similar to that given to Brown Rudnick, "or at worst, [be categorized] in Tier 2," according to the order.

In the end, Judge Furman brushed off all objections except those regarding the allegedly unexplained omissions by the lead counsel in calculating the hours of compensable work for the three objecting firms.  The judge will issue a decision on the proposal after evaluating possible discrepancies between the attorney fees and expenses determined by Lieff Cabraser and Hagens Berman and those submitted by each participating counsel.

Elizabeth Cabraser of Lieff Cabraser, who also served as lead counsel for plaintiffs in the MDL against Volkswagen for its cheating of emission standards, cheered the judge's approval of the tier arrangement in an email to Law360.  "We are pleased the hard work we put into a fee allocation designed to reflect the relative efforts and risk undertaken by counsel who worked for the class resulted in a structure fully supported by the court as well as nearly all plaintiffs' counsel," she said.  "We look forward to a final distribution to counsel after submitting the requested information."

Ninth Circuit: $6M Fee Award Does Not Create ‘Windfall’

April 12, 2021

A recent Metropolitan News story, “$6 Million Attorney Fee Award Would Not Create ‘Windfall’,” reports that the Ninth U.S. Circuit Court of Appeals, in a 2-1 decision, has reversed an order for a $4 million payment to the attorneys for the plaintiffs in a class action against Experian Information Solutions, Inc., a consumer credit reporting company, that resulted in the creation of a $24 million settlement fund, holding that the District Court judge failed to adequately explain why he was departing from the standard 25 percent cut for the lawyers.  Signing the majority opinion were Ninth Circuit Judge Andrew D. Hurwitz and Sixth Circuit Judge Eugene E. Siler, sitting by designation. Judge Daniel P. Collins dissented.

The settlement was reached in a case that was initially dismissed with prejudice by the judge then handling it, Andrew J. Guilford of the Central District of California, now retired.  After the Ninth Circuit on May 17, 2019, reversed the dismissal, Guilford certified a class of about 100,000 persons whose credit histories were damaged by reports of unpaid debts to a loan company, although the debts were disputed and the company, which was facing possible criminal prosecutions, had gone out of business.

The defendant, headquartered in Orange County’s City of Costa Mesa, agreed to a settlement of the action brought against it by Demeta Reyes, a resident of Georgia, under the federal Fair Credit Reporting Act (“FCRA”).  Replacing Guilford as the judge presiding in the case was Stephen V. Wilson.  An award of 25 percent of the recovery—which would be $6 million—would give the lawyers a windfall, noting that the lodestar value of their services was $2,085,843.50.

To award them $6 million, he noted, would mean use of a multiplier of 2.88, while an award of $4 million would entail “a more reasonable lodestar multiplier of 1.92.”  “By any measure, class counsel was successful,” Hurwitz and Siler wrote in a memorandum opinion.  They quoted an expert witness as saying that the settlement’s “structure...is the FCRA gold standard,” with class members each receiving a check for at least $270 without having to make a claim.

“To reach that result, class counsel assumed significant risk,” the majority opinion says, noting that contingency representation stretched over a four-year period, counsel advanced more than $100,000 in costs and expenses, and other work had to be declined.  “Experian deleted more than 56,000 delinquent loan accounts after this litigation began,” the opinion notes.  “Before deletion, those delinquent accounts depressed class members’ credit scores.”

 It goes on to say: “The 16.67% fee award falls below the market rate fee award in FCRA class action settlements. And no windfall is apparent.  Assuming a 25% award, the lodestar crosscheck returns a multiplier of 2.88. Similar lodestars are routinely approved by this court.”

It adds: “The district court’s reliance on megafund and wage and hour cases to find a windfall for class counsel was somewhat inappropriate here.  First, megafund cases are usually those with settlements exceeding $100 million….Here, the settlement is about a quarter of that.  Megafunds are more often a reflection of class size than class counsel’s efforts….Moreover, the complexity of this case is similar to a wage and hour dispute the district court cited where a 2.87 lodestar multiplier was approved, but not the ‘ordinary wage-and-hour dispute’ that the district court also cited.”  The memorandum opinion does not expressly direct an award of $6 million, instead remanding “for further proceedings not inconsistent with this opinion.”

Collins said in his dissent: “The majority nonetheless concludes that the district court abused its discretion because the settlement here was under $100 million and because multipliers of 2.88 or more have been allowed in other cases….But the fact that we have upheld higher multipliers in some cases does not mean that district courts lack discretion to conclude that a lower multiplier would be more reasonable in a given case.  By essentially ordering the district court to allow this high multiplier, the majority usurps the discretion that we have said belongs to the district court.

“Because the district court had discretion to conclude that a benchmark award that was nearly three tunes the lodestar amount would be unreasonable, and that a smaller (but still generous) multiplier was more appropriate, the district court did not abuse its discretion by ordering a $4,000,000 fee.”  Guilford set forth Reyes’s factual contentions in his order certifying the class.

Class Counsel Earn $80.6M in Fees in Apple iPhone Slowdown Settlement

March 20, 2021

A recent Law 360 story by Mike Curley, “Attys Get $80.6M in Apple IPhone Slowdown Settlement,” reports that a California federal judge greenlighted a settlement of up to $500 million for iPhone users who accused Apple of deliberately slowing down their devices with an update and granted class counsel $80.6 million in fees after objections from some class members, Apple and government entities that the initial request was too high.  In a pair of orders, U.S. District Judge Edward J. Davila first granted final approval to the settlement, which will see Apple pay out between $310 million and $500 million — which the judge called one of the largest class action settlements in the circuit — then turned to the divisive request for fees.

Those fees are to be awarded to Cotchett Pitre & McCarthy LLP; Kaplan Fox & Kilsheimer LLP; the Law Offices of Andrew J. Brown; and the Brandi Law Firm.  Class counsel in the case had requested $87 million in fees, which prompted Apple to ask the court to cut it down by at least $7 million.  While Judge Davila praised the attorneys for their work on the case, including their assumption of the risks of taking it on contingency, the risks of continued litigation, and the substantial payout that class members are likely to receive, he said that other factors don't support increasing the total fees beyond the court's normal 25% benchmark.

In particular, the judge noted how a large settlement fund could support granting attorneys a higher percentage, but in this case, the high settlement fund is mostly the result of the large amount of class members — not the amount of work performed by the class counsel.  "Class counsel's work in litigating this case up to the point of reaching settlement would have been the same whether there were 10,000, 100,000, 1,000,000 or more devices at issue," the judge wrote.

For the purposes of the fee calculation, the judge decided it was most appropriate to go by the percentage-of-the-fund model, based on the $310 million minimum Apple will have to pay, rather than a lodestar model that would be used for a settlement based on the number of claims made, and the judge found that 26% of the $310 million — or $80.6 million — was appropriate.  He also granted $995,245 in expenses, finding that none of the objections to either the fees or the expenses warranted knocking the total down any further than that.

The settlement resolves dozens of consumer protection lawsuits that were filed in 2018 after Apple admitted to issuing software updates that slowed certain iPhones.  The suits allege that Apple designed its software updates to slow down some phone models, nudging consumers to buy newer iPhones.  Under the deal, Apple agreed to pay up to $500 million in total, depending on the amount of iPhone users to participate in the deal, according to court filings, with a minimum settlement fund of $310 million.  Class members would receive $25 each for their phones.  If the payouts, attorney fees and expenses don't add up to at least $310 million, class members will receive up to $500 apiece until that minimum settlement amount is reached.

California Appeals Court Clarifies Law on Attorney Fees

March 13, 2021

A recent The Recorder story by Alaina Lancaster, “Appeals Court Rules on ‘Curious Gap’ in State Law Over Attorney Fees,” reports that a California appeals court ruling underlined “a curious gap” in the state law over the recoverability of unpaid fees when attorneys sue clients for breach of contract.  A decision from California’s Second District Court of appeal noted that in 1993, a state bar committee raised the issue of how Business and Professions Code Section 6148 clarifies that an attorney may recover a reasonable fee for services absent a valid fee agreement, but fails to set a standard for fees when clients breach a fee agreement.  Nearly a decade later, the appeals court said it was unable to find a clear standard in the statutory or case law.

In an opinion authored by Associate Justice Anne Egerton, the court held that the terms of the fee agreement control the amount of recoverable fees when an attorney sues a client for a breach of a valid and enforceable contract—even if it exceeds what a lodestar analysis, which measures the number of hours expended multiplied by the hourly rate, would consider a reasonable fee.

“The trial court correctly held a lodestar determination is not required in a breach of contract action where an attorney’s hourly rate is specified in a fee agreement,” wrote Egerton on behalf of Associate Justice Halim Dhanidina and Presiding Justice Lee Smalley Edmon.  “To hold otherwise would ignore the statutorily recognized difference between instances where the attorney has entered into a valid fee agreement with his or her client, and those where the attorney has failed to do so and is limited to a ‘reasonable fee’ under Section 6148.”

In the underlying case, Santa Monica, California, attorney Richard Pech sued owners of a mobile home park to recover more than $1 million in attorney fees and interest he claimed he was owed for representing them in several matters. Los Angeles Superior Court Justice Mary Strobel granted Pech’s applications for attachment of defendants’ assets on the grounds that the attorney had established the probable validity of his breach of contract claims.

The owners of the mobile home park contended that the fees were excessive and unreasonable and that the trial court should have considered the lodestar determination to determine the reasonableness of the fees.  Instead, the court decided to turn to the standard adopted by the 1993 bar committee, which was applied to mandatory fee arbitration, to address “this apparent gap in our law.”  The standard mandates that a fee agreement is not enforceable if it is unconscionable; the attorney’s performance must be consistent with the implied covenant of good faith and fair dealing; and a court must determine if the attorney used “reasonable care, skill, and diligence” in responding to the contract.

The ruling determines that the bar standard is consistent with Section 6148’s “implicit recognition” that an attorney and client can agree to a fee that might not be considered “reasonable,” as long as the rate and legal services are disclosed in the contract.  “The standard articulated in Advisory 1993-02 sensibly balances the competing interests that arise when a client breaches a fee agreement by refusing to pay an agreed upon fee,” the opinion states.

Joshua Furman of Joshua Furman Law, which represented the mobile home park owners, said, “While we are gratified that the Court of Appeal recognized the gap in the law concerning standards for attorney fee claims against former clients under written fee agreements, and largely adopted the position we argued—that the standards established by State Bar arbitration advisories should apply—we remain concerned that the standard as articulated by the court is both unclear and too low to effect the public policy of client protection.  Under the standards articulated in this decision, an attorney could bill any number of hours and obtain an attachment order against the former client’s assets without significant scrutiny as long as the hourly rate matched the rate in the fee agreement.  This unfairly disadvantages the client, who may be unable to defend against the attorney’s lawsuit while the client’s assets are subject to attachment.  We remain concerned that the court’s decision does not protect consumers from unscrupulous billing practices by attorneys and continue to evaluate our options moving forward.”

Working Paper: Judicial Guide to Awarding Attorney Fees in Class Actions

March 7, 2021

A recent Fordham Law Review working paper by Brian T. Fitzpatrick, “A Fiduciary Judge’s Guide To Awarding Fees in Class Actions (pdf),” considers the fiduciary role of judges in awarding attorney fees in class action litigation.  This article was posted with permission.  Professor Fitzpatrick concludes his article:

If judges want to act as fiduciaries for absent class members like they say they do, then they should award attorneys’ fees in class actions the way that rational class members who cannot monitor their lawyers well would do so at the outset of the case.  Economic models suggest two ways to do this: (1) pay class counsel a fixed or escalating percentage of the recovery or (2) pay class counsel a percentage of the recovery plus a contingent lodestar.  Which method is better depends on whether it is easier to verify class counsel’s lodestar (which favors the contingent-lodestar-plus-percentage method) or to monitor against premature settlement (which favors the percentage method) as well as whether it is possible to run an auction to determine the market percentage for the contingent-lodestar-plus-percentage method.  The (albeit limited) data from sophisticated clients who hire lawyers on contingency shows that such clients overwhelmingly prefer to monitor against premature settlement, since they always choose the percentage method.  Whether the percentage should be fixed or escalating depends on how well clients can do this monitoring.  Data from sophisticated clients shows both that they choose to pay fixed one-third percentages or even higher escalating percentages based on litigation maturity just like unsophisticated clients do, and they do so even in the most enormous cases.  Unless judges believe they can monitor differently than sophisticated corporate clients can, judges acting as good fiduciaries should follow these practices as well.  This conclusion calls into question several fee practices commonly used by judges today: (1) presuming that class counsel should earn only 25 percent of any recovery, (2) reducing that percentage further if class counsel recovers more than $100 million, and (3) reducing that percentage even further if it exceeds class counsel’s lodestar by some multiple.

Brian T. Fitzpatrick is a professor of law at Vanderbilt University Law School in Nashville.