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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."

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."

Federal Circuit Backs $4.2M Fee Award in IP Case

May 11, 2021

A recent Law 360 story by Adam Lidgett, “Fed. Circ. Backs Apple and Cisco’s $4.2M Fee Win in IP Case,” reports that the Federal Circuit has refused to undo a lower court order allowing Apple and Cisco to collect $4.2 million in attorney fees from tech company Straight Path in a patent case, despite arguments that a California federal judge wrongly found the case was exceptional.  In a short order, a three-judge appellate panel affirmed the California federal court's decision handing Cisco $1.9 million and Apple $2.3 million in fees from Straight Path in a dispute over internet phone patents.  The panel gave no reason behind its decision.

The order came just days after oral arguments in which the panel had a hard time believing that U.S. District Judge William Alsup — who delivered the fee award almost a year ago — lacked the discretion to do so.  Judge Alsup declared the case exceptional since Straight Path's infringement claims contradicted a position it had advocated at the Federal Circuit in appealing a Patent Trial and Appeal Board decision.

The fee dispute between the parties has been a lively one, sparking fireworks in the courtroom during a May 2020 hearing when Judge Alsup scolded Apple and Cisco for initially requesting $10 million in fees after beating the suit.  The judge said the tech giants "played games," used "abusive" tactics and were motivated by "greed, G-R-E-E-D."  He required them to resubmit their fee bids and appointed a special master to determine a reasonable amount of fees and costs.  In May of last year, the court awarded Cisco $1.9 million — half of its initial request — while Apple netted $2.3 million of its initial $3.9 million ask.

Straight Path argued that as a result, Federal Circuit precedent required it to reverse Judge Alsup's finding of exceptionality, which is required for a prevailing party in a patent dispute to get fees.  Desmarais LLP attorney Justin P.D. Wilcox, an attorney for Cisco, told Law360 that his team was "pleased with the Federal Circuit's ruling and that the Federal Circuit affirmed Judge Alsup, who down at the district court had ruled that Cisco was entitled to attorneys' fees for the exceptional case that Straight Path had brought."

$503M Syngenta Attorney Fee Dispute Moves to Tenth Circuit

March 12, 2021

A recent Law 360 story by Cara Salvatore, “10th Circ. Wary of Moving $503M Syngenta Fee Brawl, reports that law firms vying for slices of a $503 million fee award from a Syngenta megasettlement over a GMO seed launch told the Tenth Circuit they're being stiffed while other plaintiffs' firms overpay themselves, but the panel questioned whether the tangled issue is even ripe for appeal.  The panel heard more than three hours of arguments on the long-ago-predicted war among lawyers for farmers who sued Syngenta over its premature introduction of modified seeds that led to China slamming its doors to all U.S. corn, affecting even farmers who never used the seeds.

The $1.5 billion settlement resolved cases in federal and state courts, but there are now sub-battles between plaintiffs' counsel that have been placed into a Kansas bucket, an Illinois bucket, a Minnesota bucket, and an IRPA bucket — for independently retained attorneys, as distinct from class counsel.  But lawyers representing these independent plaintiffs say their thousands of cases helped drive Syngenta to settle, and they've appealed their allotment to the 10th Circuit.

In the Kansas bucket, two groups called the Toups/Coffman lawyers and the Hossley-Embry lawyers say they put in work reasonably worth $25.17 million, but have been allocated the equivalent of pennies.  Eric Alan Isaacson, a lawyer representing Toups/Coffman and Hossley-Embry, told the panel, "Mitch Toups' law firm put 20,000 hours into the case, and Richard Coffman's law firm put 13,000 hours into the case. ... Divide those 33,000 total hours by 9,000 clients, you've got less than four hours apiece. That is a reasonable amount."

But those firms were neither class counsel nor lead counsel for a bellwether federal trial or uncompleted state court trials in Minnesota, said U.S. Circuit Judge Robert Bacharach.  They also weren't coordinating as class members do; they "were litigating individual cases," he said.  "They were spending these thousands of hours in a very inefficient way, that's my point," the judge said.  Isaacson pushed back. "Having individual actions was an important part of the pressure that was put on Syngenta.  Special Master [Ellen] Reisman found it was an important part of effecting the settlement," he said. "You need to pay the lawyers at least their lodestar."

In March 2019, a judge adopted five lead firms' recommendation on how to allocate $247 million of the money, including their recommendation that $214 million go to them.  U.S. District Judge John Lungstrum agreed to a six-tier structure proposed by those firms, under which the remaining $33 million would be split among 59 other firms.  The top-tier firms are multiplying their own lodestars by three, a grossly excessive self-payment, Isaacson told the panel.

Judge Lungstrum gave 49% of the fee payout to the Kansas bucket because that money was "going to be covering the allocations to lawyers like Toups/Coffman, who had thousands of clients in Illinois state court.  And then [the other plaintiffs' lawyers] turn around and take the time and the hours they've been talking about and give themselves the money," Isaacson said.  But all three members of the panel saw a fly in the ointment, first noticed by U.S. Circuit Judges Carolyn McHugh and Jerome Holmes.

"We don't know yet what the sum certain is for any of the attorneys in this case, because we don't know what the allocation is yet for the IRPA pool," said U.S. Circuit Judge Carolyn McHugh.  "That raises the issue of whether we have jurisdiction over these appeals," U.S. Circuit Judge Jerome Holmes chimed in a minute later.  "There's been a lot of ink spilled; there's been a lot of hours from talented counsel spent on this appeal.  If we determine that we don't have appellate jurisdiction over this, what is our option?"  "One option — it may be the draconian one, but it may be the necessary one — is to dismiss these appeals," Judge Holmes continued. "What are we to do?"  Isaacson said they could simple abate the appeal — that is, put it on ice.

Bradley Wilders of Stueve Siegel Hanson LLP, representing a group of plaintiffs' firms that favor the current fee allocations, said the $60.4 million IRPA bucket payouts are basically a clerical problem done according to formula.  "There is a sum certain as to the three jurisdictional pools; there's no argument on that," he said.  But regardless, he said a minute later, "I do think you have the authority to abate" the appeal.  Whatever happens, the status quo shouldn't be reversed, Wilders said.

"No one was better equipped than the special master who oversaw the settlement negotiations and the three trial judges ....in three jurisdictions to make these particular findings," he said.  Wilders also cast doubt on Isaacson's group's lodestar.  "They only served 870 plaintiff fact sheets ... out of their 9,000 clients, yet they report 22,000 hours on plaintiff fact sheet work," he said.  "They reported $687 an hour for the task of file management."