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Category: Fee Proposal / Bid

Seventh Circuit Tosses $11M Attorney Fee Award

May 20, 2022

A recent Law 360 story by Hailey Konnath, “Seventh Circ. Throws Out $11M Fee Award For Bernstein Litowitz” reports that the Seventh Circuit vacated an $11 million fee award for Bernstein Litowitz Berger & Grossmann LLP's work on a $45 million settlement between waste disposal company Stericycle and its shareholders, finding that the district court "did not give sufficient weight" to points raised in a class member's objection.  The three-judge panel said the Illinois federal court overseeing the case should've more seriously considered evidence of related fee agreements, all the work that Bernstein Litowitz inherited from earlier litigation against Stericycle and the early stage at which the settlement was reached.

"The cumulative effect of these issues leads us to conclude that the district court's analysis did not sufficiently 'reflect the market-based approach for determining fee awards that is required by our precedent,'" the Seventh Circuit said.  The panel added, "We vacate the fee award and remand for a fresh determination more in line with what an ex ante agreement would have produced."

Objector Mark Petri appealed a 25% cut that Bernstein Litowitz got from representing investors claiming that Stericycle falsely inflated its financial results through fraudulent pricing.  In particular, Petri argued that the attorney fees were potentially inflated by a pay-to-play scheme and the case never proceeded past the motion-to-dismiss stage.

In the underlying case, lead plaintiffs Public Employees' Retirement System of Mississippi and the Arkansas Teacher Retirement System had pointed to briefing in a study conducted by Nera Economic Consulting.  According to that study, for securities class action cases that settled between 2014 and 2018 in amounts ranging from $25 million to $100 million, the median attorney fee award was 25%, like the share awarded to Bernstein Litowitz.

Bernstein Litowitz asked the court to approve its $11 million fee request in June 2019, and the court gave its blessing in May 2020.  But the Seventh Circuit said that the district court's analysis was incomplete.  Notably, the court didn't address a 2016 retention agreement between the firm and the Mississippi attorney general, under which Bernstein Litowitz was authorized to represent the Mississippi fund and seek a percentage of the recovery achieved for the class as compensation.  That percentage, however, was supposed to be limited to the percentage corresponding to the fund's estimated individual recovery, the panel said.

At oral argument, Bernstein Litowitz had said that the sliding scale structure outlined in that agreement only applies to the amount recovered by the fund itself, not to the total amount recovered by the class.  The Seventh Circuit said that interpretation is "improbable, arbitrary, unreasonable and not consistent with a class representative's fiduciary duty to class members."

Additionally, the district court's assessment of the risk of non-payment also didn't give sufficient weight to prior litigation involving Stericycle, litigation that substantially reduced the risk of non-payment, the panel said.  The court had found that the risk of non-payment was "substantial," but that earlier litigation demonstrating Stericycle's billing practices and other settlements signaled that class counsel was not actually taking on much risk, the Seventh Circuit said.

And on top of that, the court didn't properly consider just how early on in the litigation the case was settled, according to the decision.  At the very least, the district court should've considered whether the preliminary stage of the litigation warranted a reduction in the requested fee, it said.  The Seventh Circuit also remarked that it wasn't convinced the settlement was a good outcome for the class, but that neither Petri nor anyone else was challenging that.

Hagens Berman $31M Fee Objection Heads to Ninth Circuit

April 19, 2022

A recent Law 360 story by Dorothy Atkins, “Hagens Berman Must Forfeit $31M Fee Win, 9th Circuit Told” reports that an objector's counsel urged the Ninth Circuit to force Hagens Berman Sobol Shapiro LLP to forfeit or reduce a revised $31 million fee award for securing deals worth $205 million in multidistrict litigation over optical disk drive price-fixing, arguing that the law firm violated multiple professional rules of ethics.  During a hearing before a three-judge panel, objector Connor Erwin's counsel, Robert Clore of Bandas Law Firm PC, argued that Hagens Berman violated multiple California Rules of Professional Conduct in securing its eight-figure fee award before a trial court, including by never placing the disputed funds into a client trust account, despite class members' objections and appeals pending.

But U.S. Circuit Court Judges Morgan Christen and Carlos T. Bea asked how class members have been harmed by the firm's failure to hold the funds in a client trust account.  "What harm, what foul?" Judge Bea asked.  Clore replied that as a result, the class has been denied up to $600,000 in interest that would have been collected on the disputed money.  At least a portion of that interest should have gone back to the class when a Ninth Circuit panel vacated Hagens Berman's previous $52.8 million fee and expense award, the attorney said.

"Why should they be entitled to interest on fees that don't belong to them?" Clore asked the panel.  The trip to the Ninth Circuit is the latest chapter in a decade-old multidistrict litigation claiming that Samsung Electronics Co. Ltd., Toshiba Corp. and other disk drive makers participated in an industry-wide conspiracy to fix optical disk drive prices.

Hagens Berman beat out other firms for lead class counsel in 2010, and the firm later struck multimillion-dollar deals to resolve the disputes.  After U.S. District Judge Richard Seeborg took over the case from U.S. District Court Judge Vaughn Walker, Judge Seeborg awarded the law firm $47.8 million in attorney fees for securing the settlements.  But in May 2020, a pair of Ninth Circuit panels vacated the fee awards after Clore argued before the appellate court that Judge Seeborg erred by keeping Hagens Berman's initial proposal for lead class counsel under seal and not properly taking it into account in awarding fees, among other objections.

On remand, in July, Judge Seeborg awarded Hagens Berman a revised $31 million fee, finding that the firm was entitled to a 20% premium on top of the $25.9 million it would be allotted under the firm's interpretation of the fee grid in its initial class counsel proposal.  Judge Seeborg also awarded Erwin's counsel $1.5 million in fees in September for their work helping to convince the Ninth Circuit to throw out the initial fee award.

But Erwin again challenged the fee award, with Clore arguing before the appellate court that Hagens Berman took too long to return the fees after the previous panel vacated the award, and did not place the funds in a client trust account, as required by professional rules of conduct.  Clore added that the trial court also erred in miscalculating the "starting point" for setting reasonable attorney fees on remand by using a flat rate instead of the sliding scale specified in the firm's initial proposal, resulting in an adjusted $25.9 million for the firm.  That amount should be $22.2 million, he said.

In light of the alleged violations, Clore asked the Ninth Circuit to send a message that class counsel are not immune to the California state bar's professional rules, and require the law firm to either forfeit its fees, or at the very least reduce the fees to keep in line with the firm's initial $22.2 million fee proposal.  As support, Clore cited the Ninth Circuit's 2012 decision in Rodriguez v. Disner, which held that a court has "broad equitable powers to … require an attorney to disgorge fees already received" for a serious ethical violation.

But class counsel Shana E. Scarlett, of Hagens Berman Sobol Shapiro LLP, argued that $31 million in fees is justified given the length of litigation and how fiercely the litigation was fought.  She also argued that the judge properly awarded additional fees on top of the initial $25.9 million proposal based on his discretion and understanding of the case.

But Judge Bea asked why the trial judge used a flat rate instead of the sliding scale methodology specified in the firm's initial bid proposal.  "Why isn't Judge Seeborg wrong in using a flat basis rather than a sliding scale basis based on the schedule we have before us?" the judge asked the attorney.  Scarlett replied that the firm's initial bid proposal was just one part of what informed the trial judge's decision. But Judge Bea appeared skeptical.

"You're talking about extrinsic evidence that was used by Judge Seeborg to interpret the writing, which we have before us?" Judge Bea asked.  "What factual evidence was there?  Are you saying that the written document is ambiguous and requires factual findings interpreted?"  Scarlett replied that the initial proposal was clear that the fees should use a flat rate, and not a sliding scale, but Judge Seeborg "went further and made the finding that we intended to be flat rate structure."

Judge Calls Fee Disclosure in Voya Class Settlement 'Inadequate'

January 14, 2022

A recent Reuters story by Allison Frankel, “N.Y. Judge Calls Out Susman Godfrey for “Inadequate Fee Disclosure,” reports that Manhattan federal judge Kevin Castel refused this week to grant preliminary approval of a proposed $92.5 million class action settlement to resolve allegations that Voya Retirement Insurance and Annuity Company breached its contract with more than 46,000 life insurance policyholders who were subjected to a “cost of insurance” rate increase when Voya’s predecessor sold the policies to Lincoln Life and Annuity Company of New York.

The judge’s beef was not with the terms of the proposed settlement itself, which class counsel from Susman Godfrey described in a brief backing preliminary approval as “extraordinary.”  Susman Godfrey’s brief certainly establishes the firm’s tenacity in more than five years of litigation, all the way through class certification and summary judgment rulings.  The cash portion of the proposed agreement, Susman said, will provide at least as robust a recovery for policyholders as settlements that have previously been approved in other cost of insurance class actions.  And here, the firm said, the money will go straight to policyholders, who don’t even have to assert a claim to receive their share of the settlement fund.

Susman Godfrey said it intended to request a fee award of less than one-third of the settlement.  More specifically, the proposed notice to class members, attached as an exhibit to a declaration from the claims administrator, said Susman “will file a motion seeking an award for attorneys’ fees not to exceed one-third of the gross benefits provided to the settlement class.”

That mention of "gross benefits" caught Castel’s attention.  In the memo requesting preliminary approval, Susman touted the value of the non-monetary benefits it had obtained in the proposed settlement, including Voya’s pledge not to raise cost of insurance rates for class members for five years.  In an analogous class action mentioned in Susman’s motion, similar benefits were valued at more than $90 million.

Castel said it wasn’t clear from the language of the proposed class notice whether Susman Godfrey would ask for less than 33% of the cash value of the settlement – a number that would be simple for class members to calculate – or 33% of some as-yet unknown total settlement value.

“No hint is given as to the methodology that class counsel plans to employ,” Castel said, pointing out that if Susman Godfrey evaluated the non-monetary settlement provisions as generously as they were viewed in the class action cited in class counsel’s brief, one-third of the “gross benefits” could be as much as $62 million – which would give Susman Godfrey two-thirds of the cash in the settlement.  “If this is what counsel has in mind – or anything close to it – class members and the court should know it now,” Castel said.

Castel had to connect some dots to understand the potential gap between fees based on just the $92.5 million cash recovery for the class and an award that included the value of the non-cash benefits.  Susman’s memo requesting preliminary approval of the settlement does not put a dollar figure on those benefits.  Castel must have obtained the valuation figure he cited in this week’s opinion from a declaration filed by Susman’s Seth Ard.

Castel also took issue with class counsel’s proposed explanation to class members of the consequences of opting out of the settlement.  The proposed notice advised class members that they could tell the judge what they didn’t like about the settlement but would still be bound by the deal.  “This statement is fundamentally misleading,” Castel said.  “The purpose of an objection is to persuade the court not to approve the proposed settlement.  A successful objection means that the objector and other members of the class are not bound.”

Susman’s Steven Sklaver told me by email that the firm has taken Castel’s feedback to heart.  Susman intends to file a revised motion for preliminary approval clarifying that its fee request will be based only on the cash payout to class members, not on any additional value from the non-cash benefits.  “We are thankful for the court’s consideration of the matter and guidance,” Sklaver said.

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.

5 Law Firm Seek $44M in Attorney Fees in GCI Liberty Action

August 5, 2021

A recent Law 360 story by Rose Krebs, “5 Firms Seek $44M Atty Fees in GCI Liberty Suit in Chancery”, reports that five firms will seek $44 million in fees for their work in a suit filed over alleged fiduciary duty breaches in GCI Liberty Inc.'s sale to Liberty Broadband Corp., in what they assert is one of the most significant results ever achieved in any Delaware stockholder litigation.  In a brief filed to the Delaware Chancery Court, Bernstein Litowitz Berger & Grossmann LLP, Prickett Jones & Elliott PA, Kessler Topaz Meltzer & Check LLP, Klausner Kaufman Jensen & Levinson PA and Morris Kandinov LLP indicated that they intend to seek two separate fee awards of $22 million each.

In the filing, the firms said they are seeking a $22 million fee award related to an agreement reached in November that headed off a preliminary injunction fight over the sale, after the plaintiffs accused GCI Liberty's directors of violating Delaware corporation law that banned certain mergers involving controlling shareholders.

"This case highlights the worst inequities that a dual-class capital structure invites and the best results that strategically sound and effectively executed shareholder litigation can achieve," the brief said.  "Here, self-interested fiduciaries attempted to transfer substantial and valuable voting rights to themselves.  Plaintiffs and their counsel challenged the scheme, secured expedition over strident opposition, and, under extreme time pressure, assembled an evidentiary record that was so strong that defendants capitulated to avoid a pre-vote injunction hearing."

Under the agreement, GCI Liberty controlling stockholder John C. Malone and CEO Gregory B. Maffei gave up "massive benefits they extracted in connection with the stock-for-stock merger of GCI Liberty Inc. and Liberty Broadband Corporation," the brief said.  And they did so "without receiving any release from liability for additional harm arising from" their alleged misconduct, the firms said.

The agreement "caused the conversion of Malone's and Maffei's GCI super-voting shares (and options) into Broadband non-voting shares (and options)," the brief said.  As a result, Malone's and Maffei's voting power in the combined company was reduced from more than 60% to less than the 49% that they held in Broadband prior to the merger, the firms said.

"Plaintiffs believe that these are among the most significant – and valuable – non-monetary benefits ever achieved in Delaware stockholder litigation and warrant plaintiffs' requested fee," the brief asserted.  The firms said they will also seek another attorney fee award for negotiating a $110 million deal to end the litigation.  They will seek an award equal to 20% of the settlement amount and file a brief with the court in support of that request at a future date, according to the brief.

"The settlement does not reduce the benefits provided by the PI Stipulation [November agreement], which are continuing, permanent benefits for the equity holders of Broadband, including members of the Class," the firms said.  "Any award of attorneys' fees and expenses in connection with the [agreement] will not be paid out of the settlement fund while any award of attorneys' fees and expenses in connection with the $110 million settlement will be paid out of the settlement fund."