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Category: Fee Proposal / Bid

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."

$2B in Attorney Fees Offered in $26B Opioid MDL Settlement

November 5, 2020

A recent Law 360 story by Emily Field, “$26B Opioid Deal Offer to Include $2B in Atty Fees,” reports that the $26 billion settlement proposal from Johnson & Johnson and McKesson Corp., Cardinal Health Inc. and AmerisourceBergen Corp. will include a separate $2 billion fund to pay attorney fees and costs for the local governments that have sued over the opioid epidemic in multidistrict litigation, a source confirmed.

A source with knowledge of the settlement negotiations confirmed that the fund will be $2 billion and will be used to pay the plaintiffs' attorney fees, including the private counsel hired by the state attorneys general who have claimed that the companies fueled the opioid crisis.  The fund will be administered by an arbitration panel, the details of which have yet to be worked out with U.S. District Judge Dan Polster, who is overseeing the multidistrict litigation over the crisis in Ohio federal court, the source said.

The source also noted that the $2 billion was less than the $3 billion that had initially been reported.  In February, drug companies told Judge Polster that a proposal for 7% fee against a global settlement could be more than $3.3 billion, potentially jeopardizing negotiations.  The plaintiffs' executive committee in the MDL said in a statement that they supported the deal, which includes $4 billion more than an initial offer of $22 billion in cash in the fall of 2019.

"While no dollar figure can restore the lives and families already devastated by the crisis, these settlement dollars are desperately needed in areas that have been hardest hit by this man-made epidemic, particularly as they now grapple with COVID-19," said Paul T. Farrell Jr. of Farrell Law, Paul J. Hanly Jr. of Simmons Hanly Conroy and Joe Rice of Motley Rice LLC in a joint statement.  "Addiction prevention, education and treatment is critical to the recovery of our families and communities. We need to get these resources out to them as fast as we can — this settlement does that."  The committee also noted that the attorney fees fund is intended to replace the collection of contingency fees so that money can reach communities faster.

In a filing with the U.S. Securities and Exchange Commission McKesson said it would pay up to $8 billion over 18 years, and Cardinal and AmerisourceBergen would pay the rest over that time.  In October, J&J disclosed that it's offering up to $5 billion to end the litigation, a 25% increase from an earlier settlement proposal.

The MDL contains 3,000 cases filed mostly by cities and counties that want money for health care and law enforcement costs related to opioid abuse.  Some MDL attorneys also represent cities and counties with similar cases in state courts.  The attorneys general of virtually every state have also filed cases in state courts.

Article: Unusual Settlement Structure Leads to Fee Award Almost Double Judgment

November 1, 2020

A recent New York Law Journal article by Thomas E.L. Dewey, “Unusual Settlement Structure Leads to Approval of Fee Award Nearly Double the Payout,” reports on a recent New York class action were the attorney fee award exceeded the settlement amount.  This article was posted with permission.  The article reads:

Public policy generally prohibits class action settlements in which the attorney fee awards dwarf the amount awarded to the class.  But as a recent case in the U.S. District Court for the Southern District of New York illustrates, such a settlement may be approved if it is structured so that class counsel’s award does not come at the class’s expense.

In Hart v. BHH, No. 15-cv-4804, 2020 WL 5645984, at *2 (S.D.N.Y. Sept. 22, 2020), Judge Pauley approved over $4.6 million in fees and expenses for class counsel, even though the total payments to class members were expected to top out at less than $2.5 million.  However, the court balked at the inclusion of a “quick-pay” provision in an earlier draft of the settlement, which would have allowed class counsel to collect its fees before the class members were paid, and did not allow the parties to submit attorney fees to a separate arbitration.

Background

The two named plaintiffs filed suit in in June 2015, alleging that “ultrasonic pest repeller” devices they had purchased from BHH LLC (branded Bell + Howell) were “ineffective and worthless.”  The complaint included claims under the federal Magnuson-Moss Warranty Act, multiple California consumer protection laws, and the implied warranty of merchantability. In May 2016, the court dismissed the federal statutory claim, but allowed the state law claims to proceed. An amended complaint then added a claim for fraud, citing representations made on the devices’ packaging and via the Home Shopping Network that they would rid homes of “ants, spiders, mice, roaches, rats and other pests.”

In July 2017, the court certified three classes of plaintiffs who had purchased the devices—a nationwide fraud class, a California-only class, and a multi-state breach of warranty class.  Each party then offered experts on the efficacy of the devices.  Judge Pauley began his Sept. 5, 2018, opinion on summary judgment with images from one of the expert reports, noting, “As the photographs show, mice can apparently relax comfortably under a Repeller and even appear to be so drawn in by its siren song that one would scale a wall just to snooze on it.”  Having thus found a disputed issue of fact regarding the efficacy of the devices, the court set jury trial for Sept. 9, 2019.  On July 16, 2019, the parties informed the court that they had reached a settlement, and on Sept. 3, 2019, the plaintiffs moved for preliminary approval of the agreement.

‘Quick-Pay’ Attorney Fees Provision Scuttles Preliminary Approval

The most notable feature of the proposed agreement in Hart was its so-called “quick-pay” provision, under which the plaintiff’s attorneys would be paid their fees within 10 days of final settlement approval.  Plaintiff contended the provision was necessary to discourage “the filing of baseless objections (and appeals), which can delay payment of class relief.”  Analyzing that provision in a July 17, 2020, opinion, the court wrote that it “strains credulity” that such a measure would deter baseless objections.  The court assured the litigants that such objections could be better discouraged by the threat of Rule 11 sanctions.

The court also found that, having reached a proposed agreement, the two parties had little incentive to pour any more resources into the case if valid objectors came forward.  The court noted that “money is the best way to keep lawyers engaged.”

Although plaintiffs’ counsel cited seven previous SDNY orders in which similar provisions had been granted preliminary approval, the court pointed out that none of those previous orders contained “an iota of analysis on ‘quick-pay’ provisions.”  Thus, in the first detailed analysis of such a provision in the Southern District, the court held that paying counsel “prior to compensating the class conflicts with Rule 23(e)’s mandate for fairness, reasonableness, and adequacy.”

Also as part of the preliminary agreement, the parties proposed to engage an arbitrator to determine the amount of attorney fees to be awarded to plaintiffs’ counsel.  The court ruled that such an arrangement was contrary to law, as it would usurp the court’s discretion and eviscerate its duty to “act as a fiduciary who must serve as a guardian of the rights of absent class members.”

The court thus denied preliminary approval of the settlement.  The plaintiffs quickly submitted a revised proposed settlement which no longer included the quick-pay provision or arbitration of attorney fees.  The court reviewed the revised settlement on Feb. 12, 2020, and granted preliminary approval, setting a hearing on final approval for September 2020.

Refunds for Class Members Found Fair

In its Sept. 22, 2020, opinion granting final approval of the settlement, the court devoted significant consideration to the structure of the awards to the class, which were styled as refunds for purchases of repeller devices.  By providing proof of purchase that included the price paid for each unit, a class member could receive a full refund for up to six units.  Without proof of the price paid, the amount of each refund was set at $15, which the parties chose as the best estimate of the purchase price.  Finally, class members who could not provide any proof of purchase could still receive $15 each for up to two units purchased.

As of August 24, class members had filed 82,503 claims for payment, and a total payout of $2,118,505 had been approved by the class administrator.  And crucially, no objections to the settlement had been received from notified class members.  The administrator expected a final payout between $2.1 million and $2.5 million.  BHH had agreed in the settlement to a total potential liability of over $57 million.

In evaluating the fairness of the settlement, the court noted that if the case had proceeded to a jury trial, class members might have received considerably less than full refunds—especially because plaintiffs “faced substantial risk in proving loss causation.”  The court found the settlement to be procedurally and substantively fair, and moved on to considering the fees to be awarded to class counsel.

Attorney Fees Exceed Amount Awarded to Class Members

The agreement allowed class counsel to seek up to $6.5 million in attorney fees and expenses—an amount almost triple the expected payout to class members.  That would typically pose a problem for a reviewing judge, who must “carefully scrutinize lead counsel’s application for attorneys’ fees to ensure that the interests of the class members are not subordinated to the interests of … class counsel.” Hart at 10, citing Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1078 (2d Cir. 1995).  But as the court explained, “This case provides one unique feature absent from most class-action settlements: rather than the class members sharing from a settlement pool, the recovery to the class will be claims based.  As a result, attorneys’ fees will not reduce the class recovery.” Hart at 10.

For such claim-based settlements, the court explained that its “fiduciary role in overseeing the award is greatly reduced, because there is no conflict of interest between attorneys and class members.” Id. citing McBean v. City of New York, 233 F.R.D. 377, 392 (S.D.N.Y.2006).  The opinion also noted that the attorney fees were negotiated after the parties had reached an agreement on class recovery, which “tends to eliminate any danger of the amount of attorneys’ fees affecting the amount of the class recovery.” Hart at 11, citing In re Sony SXRD Rear Projection Television Class Action Litig., 2008 WL 1956267, at *15 (S.D.N.Y. May 1, 2008).

Performing the Second Circuit’s preferred fee analysis from Goldberger v. Integrated Res., as checked by the lodestar method, the court awarded $3,976,762.50 in legal fees and $700,227.57 in litigation expenses.  It rejected plaintiffs’ argument that unclaimed funds should be used as the denominator to calculate the fee percentage, since in this instance, the unclaimed funds would revert to BHH instead of being distributed via cy pres, and therefore the unclaimed funds did not provide an actual benefit to the class.  That was significant, because by plaintiffs’ calculation, nearly 90 percent of the agreed $57 million settlement was expected to go undistributed.

Even so, the final fee award was substantially greater than the total award to the class.  The court considered this carefully. “On one hand, allowing lawyers’ recovery to dwarf the settlement is against public policy,” the court wrote.  Hart at 21. “On the other hand, Class Counsel should be rewarded for concentrating their time, effort, and resources in successfully representing the class on a contingent basis.  And, most importantly, the fee will be paid directly by Defendants and will not come at the class’ expense.”  The court ordered that the attorney fees may be paid when at least 75% of the settlement has been distributed.  The court also awarded each class representative a $5,000 incentive award.

Practice Tips

The Hart case is as a helpful illustration of the restrictions on attorney fee provisions in class action settlements.  Though courts will be skeptical of attorney fee provisions that approach or exceed the total benefit to class members, such skepticism may be overcome if the settlement is structured so that increasing class counsel’s payout does not decrease the benefit to the class.  Additionally, the Hart court’s reasoned disapproval of a quick-pay attorney fee provision may portend greater scrutiny of such provisions in future cases in the Southern District and elsewhere.

Thomas E.L. Dewey is a partner at Dewey Pegno & Kramarsky.  L. Lars Hulsebus, an associate at the firm, assisted in the preparation of the article.