A recent Bloomberg Law by Roy Strom, “Quinn Emanuel Justifies Hugh Fee With $384,000-Per-Hour Return,” reports that Quinn Emanuel has new ammunition in its fight for a $185 million fee award, saying in a filing this week that every hour its lawyers worked on the case generated about $384,000 in returns.  That figure, according to a Harvard Law professor the firm hired to analyze (pdf) the fee award, shows the firm’s work in the Obamacare case was perhaps the most efficient ever performed by attorneys in a large class-action.  Lawyers in 13 similarly sized class action cases generated about $10,000 in returns per hour on average, professor William Rubenstein said.

Does that figure show Quinn Emanuel lawyers were, as Rubenstein argued, “epically productive?”  Or does it prove they’re getting a windfall?  That’s the question the judge overseeing the fee award legal fight, Kathryn Davis, will have to consider.  

The fee fight comes after Quinn Emanuel won nearly $4 billion for health insurers who were stiffed by Congress when it decided not to pay them for selling new, risky policies mandated by Obamacare.  Quinn Emanuel filed the first case taking on the US government, but a separate challenge wound its way all to the Supreme Court, resulting in $12 billion in total payouts.

The firm’s clients won every dollar they sought.  But Quinn Emanuel’s lawyers worked relatively few hours on the case—9,630 hours, to be exact.  It’s the equivalent of fewer than five Big Law attorneys working for one year, hardly a massive undertaking.  In the 13 large class-actions Rubenstein compared to the case, no law firm had worked less than 37,000 hours.

Because Quinn Emanuel’s lawyers worked so few hours to generate such a huge reward, the case has teed up thorny questions about how lawyers’ work should be valued.  Do attorneys just sell their time? Or should courts reward the result lawyers achieve?

In the Quinn Emanuel case, technical considerations have also been in play.  The firm initially received 5% of the $3.7 billion award they won—roughly $185 million.  That’s the figure Quinn Emanuel told clients they’d ask a judge to pay them.  It’s worth noting that a 5% fee on a contingency case is significantly lower than the 33% or 40% lawyers often charge.  But that fee got tossed when some of the health insurers appealed to the Federal Circuit.  They argued Quinn Emanuel should be paid around $9 million.  The appeals court noted Quinn Emanuel told clients its award figure would be subject to a “lodestar crosscheck.”  The Federal Circuit said that hadn’t been done and sent the case back to Judge Davis to consider that analysis.

This is how Quinn Emanuel described a lodestar crosscheck to its clients: “a limitation on class counsel fees based on the number of hours actually worked on the case.”  The lodestar method applies a multiplier to the attorneys’ hourly bill as a reward for success.  It’s usually about 1.5 to 3 times the total bill in successful cases.  If Quinn Emanuel was charging its standard hourly rates, it says its lawyers would have been paid about $9.7 million for their work on the case.  That means the firm is seeking a multiplier of around 19. (Rubenstein says the lodestar is closer to 10 when applying the firm’s newer, higher hourly rates.)

Just like the $384,000 in value-generated-per-hour, a lodestar multiplier of 19 is a serious outlier.  All of this makes the judge’s task a difficult one.  Davis must decide whether to reward the firm for its most-efficient result, or compensate it for the relatively little time case took.

How We Got Here

These outlandish fee award figures made me wonder: What happened to create such a unique case?  Rubenstein’s $384,000 figure doesn’t just tell us something about the lawyers and the result they achieved.  It hints at an underlying fact pattern that must be devastating.  The idea of the “most efficient” litigation in class-action history roughly translates to “the least effort to convince a judge of the most damages.”  What happened that required such little legal work to produce such a huge reward?

The answer can only be described as an unusual and epic failure by Congress.  As the US government careened toward a shutdown in late 2014, Congress cobbled together a massive funding bill to avert disaster.  It included, of all things, a provision that limited the government from appropriating funds to pay subsidies promised to health insurers who participated in an Obamacare program known as “risk corridors.”

The program encouraged insurers to provide new health insurance plans to riskier patients by sharing profits and receiving subsidies from the government. In the end, the government racked up a bill of more than $12 billion.  Sen. Marco Rubio (R-FL) took credit for the provision, though other Republicans argued they were just as responsible, slamming what he called a “bailout” for insurers.

A recent Law 360 by Piper Hudspeth Blackburn, “Sabre Says US Airways Not Entitled to Fees For $1 Win,” reports that Sabre urged a New York federal court to reject a magistrate judge's recommendation that the airline booking giant cover attorney fees for US Airways after a decade of antitrust litigation that resulted in a $1 jury award to the airline.  Sabre claims that U.S. Judge James L. Cott made a series of errors in his April 10 report, particularly in applying the Supreme Court's decision in Farrar v. Hobby, which established the standard for deciding whether a plaintiff prevailed in a civil rights case.  According to the report, Farrar applies only to the reasonableness of fee awards in civil rights cases and not mandatory fee statutes.

However, Sabre argued that the Supreme Court ruling shows that the "reasonable attorney's fee" due when a plaintiff obtains only nominal damages is no fee at all.  Courts have continued to apply this ruling in cases that include fee awards under the Clayton Act, Sabre continued.  US Airways, now owned by American Airlines, has insisted that the small amount of damages it received shouldn't affect its ability to recover costs and attorney fees.  Sabre also asked the court to reject Judge Cott's finding "that the meaning of 'reasonable attorney's fee' in the civil rights fee statute differs from the meaning of identical language in the Clayton Act."

In his report, Judge Cott pointed toward a Second Circuit decision on United States Football League v. National Football League because it contained issues nearly "identical" to this one.  In that case, the court had to determine whether a plaintiff is entitled to reasonable attorney fees "after decade-long antitrust litigation resulting in a $1 jury verdict only on Sherman Act Section 2 grounds."  Not only did the court decide that the plaintiff could recover attorney fees, it "further explained that civil rights cases are inapposite as they concern discretionary awards of fees, while Section 4 mandates them," the report continued.

However, Sabre said that the USFL decision is actually in line with its position, claiming that it bolsters the argument that Congress intended that the amount of fees awarded under "the civil rights statute 'be governed by the same standards which prevail in other types of equally complex Federal litigation, such as antitrust cases.'"

A recent Law 360 story by Rose Krebs, “Class Attorneys Defend $285M Fee Bid in Dell Stock Deal,” reports that class attorneys are defending their bid for a $285 million fee award as the Delaware Chancery Court gets ready to consider a proposed $1 billion settlement to end a stockholder suit challenging a $23.9 billion conversion of Dell stock, arguing the "record-breaking" deal warrants a big payout.  In a filing, attorneys with Labaton Sucharow LLP, Quinn Emanuel Urquhart & Sullivan LLP, Andrews & Springer LLC, Robbins Geller Rudman & Dowd LLP and Friedman Oster & Tejtel PLLC took issue with an objection lodged by Pentwater Capital Management LP and other Dell Technologies Inc. institutional investors who oppose the fee request.

"Plaintiff's counsel invested years of professional time and millions of dollars out-of-pocket to deliver this record-breaking result for the class," the filing asserts.  "Plaintiff's counsel did so on a fully contingency[sic] basis, with no guarantees, and without the comfort of knowing — as objectors do today — that plaintiff's counsel would (or even could) achieve this successful outcome."

In the filing, the class attorneys argue that they "achieved this outcome in the face of extraordinary risk, on the eve of trial, and against highly determined defendants with endless resources and a history, well known to this court, of dogged litigation."  The fee and expense award sought "is eminently fair, reasonable, and well-supported by governing precedent and prevailing market practices," they contend.

Earlier this month, and in another filing, Pentwater argued that an award equal to 28.5% of the $1 billion settlement would be unfair to the class.  Citing several studies, it argued last week that "empirical research uniformly confirms that in federal class actions, as settlement amounts rise, fee percentages fall."  "Contrary to concerns about the decreasing percentage model, scholarship indicates that lowering fee percentages does not reward lawyers marginally less compensation for the same work," it said.

Vice Chancellor J. Travis Laster earlier this month asked for additional briefing from Pentwater, saying it would be helpful to know what "law professors say in favor of or against the declining percentage method."  Pentwater had asked the court to "carefully examine" the fee application, given "the sheer enormity of the fees sought."

Last week, Vice Chancellor Laster allowed a group of professors to submit a brief as amici curiae.  In the brief, five professors who said they "publish extensively on representative stockholder litigation" argued that a fee award equal to 15% of the settlement amount is warranted, rather than the 28.5% class attorneys seek.  A $150 million award would "adequately" compensate counsel, they said.  But in a filing, the lead plaintiff Steamfitters Local 449 Pension Plan's counsel argued that the court "should reject objectors' groundless arguments" and also toss aside the professors' argument.

Pentwater and the other objectors "do not address the court's many decisions adopting similar or larger fee percentages, the reasonableness of plaintiff's counsel's implied hourly rate, or the risk plaintiff's counsel incurred expending tens of thousands of hours and millions of dollars prosecuting this enormously complex case," the filing asserts.  Those objecting to the fee request also didn't "identify anything plaintiff's counsel could have done to litigate this case more effectively or efficiently," the filing said.

"Instead, objectors demand a lower fee percentage because of the settlement's sheer value," it said.  "Delaware courts have expressly rejected this approach, and for good reason: It fails to account for the greater risk in larger cases not settled early in litigation, and to properly reward outstanding results in the face of that risk; it creates perverse incentives for plaintiffs' counsel; and it defies the market among sophisticated parties negotiating fee arrangements, which seldom use a declining fee percentage (and more often have an increasing one)."  Nothing in the professors' brief "warrants reducing" the requested fee award, and the professors and objectors omitted "scholarship questioning the practice of discounting fee awards in mega-fund settlements," the class attorneys said.

A recent Law 360 story by Piper Hudspeth Blackburn, “Judge Wants Sabre to Pay Fees in Airline’s $1 Antitrust Win,” reports that a federal magistrate judge has recommended that airline booking giant Sabre should cover the costs of attorney fees for US Airways, which pursued antitrust claims that ultimately resulted in a mere $1 jury award after more than a decade of litigation.  In a report, U.S. Magistrate Judge James L. Cott determined that the airline is entitled to fees because of the "plain language" of federal antitrust law despite the nominal damages award. Judge Cott also noted that the amount could be reduced after looking at billing records.

Because a jury returned a verdict for US Airways on its monopolization claim under Section 2 of the Sherman Act, "a plain reading" of Section 4 of the Clayton Act allows US Airways to recover the cost of the suit, "including a reasonable attorney's fee," the report stated.  In 2022, a Manhattan federal jury found, after a three-week trial, that Sabre willfully maintained monopoly power through exclusionary conduct. It was a redo of a 2016 trial that had awarded US Airways $15 million in damages before the Second Circuit scrapped the verdict on technical legal grounds.

Sabre has argued that U.S. Supreme Court precedent shows that when a party recovers only nominal damages, the only reasonable fee is "usually no fee at all."  However, US Airways insists that the damages it received shouldn't affect its ability to recover costs and attorney fees.  According to Judge Cott, Sabre's argument fails because the precedent the booking company pointed towards, Farrar v. Hobby, doesn't apply to this case but rather to the reasonableness of fee awards in civil rights cases. Farrar holds that the reasonableness of a fee award is indicated by the size of damages awarded.

"Farrar concerned the entitlement to fees under § 1988 of the U.S. Code, not the Clayton Act or any other mandatory fee statute, and there is no suggestion in the opinion itself that its holding extended beyond § 1988," the report stated.  Judge Cott pointed toward a Second Circuit decision on "an identical issue" to this one, United States Football League v. National Football League, instead.  In that case, the court had to determine whether a plaintiff is entitled to reasonable attorney fees "after decade-long antitrust litigation resulting in a $1 jury verdict only on Sherman Act Section 2 grounds."

Not only did the court decide that the plaintiff could recover attorney fees, it "further explained that civil rights cases are inapposite as they concern discretionary awards of fees, while Section 4 mandates them," the report continued.  Judge Cott also rejected Sabre's argument that in the event it must pay attorney fees, the amount should be reduced by 99% because US Airways only "obtain[ed] .0000003% of its alleged damages ... and no injunctive relief."

While no legal rule requires that fees be proportional to the requested amount and the recovered damages, Judge Cott, wrote that the court can reduce the requested fees after analyzing billing records.  While "a downward adjustment is undoubtedly warranted" in this case, Judge Cott noted that the court couldn't determine the amount without first calculating the lodestar.

"The court's eventual reduction will be guided by comparable cases in this circuit, which do not necessarily dictate the extreme slashing that Sabre seeks," the report stated.  The litigation began in 2011, when US Airways sued Sabre, alleging that the company had monopolized the market for systems that connect airlines to travel agents and violated federal antitrust laws.

A recent Law 360 story by Rose Krebs, “Law Professor Say $150M Fee is Fair in Dell Suit Deal,” reports that a group of law professors says the Delaware Chancery Court should award less than the $285 million fee sought for stockholder attorneys who secured a $1 billion class settlement after challenging a $23.9 billion conversion of Dell Technologies stock, saying a $150 million award would "adequately" compensate counsel.  In a brief submitted to the court, five professors assert that using a "declining-percentage" fee award structure — by which the percentage of fees awarded are reduced the larger the settlement size — in this case would be prudent.

"Even under the declining-fee approach, these mega-settlements are extremely profitable, demonstrating the winner-take-all reality of shareholder litigation," the brief said.  The professors, who said they "publish extensively on representative stockholder litigation," argue that a fee award equal to 15% of the settlement amount is warranted, rather than the 28.5% class attorneys seek.

"Plaintiffs pursue large settlements because they tend to have the highest multiplier to lodestar — in other words, they're more profitable than the alternatives," the professors said.  "Thus, class counsel have adequate incentive to take risk, even on a declining-percentage fee basis.  Overcompensating class attorneys simply diminishes class recovery."  The professors said they "respectfully suggest that a declining-percentage fee award adequately compensates Plaintiff's counsel while preserving funds for the class."  A 15% award would preserve an additional $135 million for the class, while still compensating counsel at a reasonable rate for time spent working on the case, the professors said.

Earlier this month, Vice Chancellor J. Travis Laster said in a letter to Pentwater Capital Management LP and other Dell institutional investors who oppose the fee request that the Chancery Court was considering a 20% floor for an award, to be adjusted if warranted.  The vice chancellor asked for additional briefing from Pentwater, and also said it would be helpful to know what "law professors say in favor of or against the declining percentage method."

In a filing, Pentwater, citing several studies, argued that "empirical research uniformly confirms that in federal class actions, as settlement amounts rise, fee percentages fall."  "Contrary to concerns about the decreasing percentage model, scholarship indicates that lowering fee percentages does not reward lawyers marginally less compensation for the same work," Pentwater said.  Pentwater contends that the 28.5 percent award being sought "is unfair to the class."

On Tuesday, Vice Chancellor Laster allowed the professors to submit a brief as amici curiae.  In their brief, the professors also said that "a declining-fee approach may not always be best."  They gave as an example cases that sophisticated institutional investors "negotiate for a 'baseline' recovery (i.e., a settlement amount that a typical plaintiffs' firm could likely achieve given the facts known at the start of the litigation) with a relatively low fee percentage for achieving this baseline and a larger percentage for achieving a greater recovery."

"This approach, however, would require the investor to determine this baseline amount when selecting lead counsel and incorporate it into the retainer agreement," the brief said.  "There is no indication of such an ex ante agreement in this case, and it would be difficult to judicially replicate the incentives of such an agreement after the fact."

The professors added that "absent such an agreement, the declining-percentage award matches risk and return, adequately compensates contingency counsel, and preserves settlement value for the class."  They also suggested the court "should consider requesting other information before setting a fee, including any ex ante agreements Plaintiff's counsel has reached with clients and fee-sharing arrangements with any other counsel."

In an order, Vice Chancellor Laster DIRECTED each firm representing the investor plaintiffs to submit information by detailing several issues such as: how many ex ante agreements they have negotiated in the past five years, what percentage of their representations have such agreements, the nature of any such past agreements, and if any fees awarded in the Dell case will be shared with other counsel that hasn't entered an appearance in the case.

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