A recent Law 360 story by Hailey Konnath, “Feds Question $23M Fee Request in PACER Overcharge Spat”, reports that the U.S. government urged a Washington, D.C., federal judge to "carefully examine" nonprofits' $23 million attorney fee request in long-running litigation challenging PACER charges, saying the review is needed "to ensure that class members' rights and recovery are appropriately safeguarded.

The government said that the court should indeed grant final approval to the $125 million deal but that it should also "exercise its discretion" in determining the attorney fees and costs requested by lawyers with appellate boutique Gupta Wessler LLP and plaintiffs litigation firm Motley Rice LLC.  In particular, the government said the attorneys calculated their fee request using their 2023 hourly rates but didn't account for the fact that the litigation began in 2016, when those rates were likely lower.

And they've apparently calculated the request without consulting the D.C. U.S. Attorney's Office's Fitzpatrick Matrix, a table that breaks down the hourly rates for legal fees in complex federal litigation in the District of Columbia based on attorneys' years of experience, according to the filing.  That's evident because both firms have laid out rates that are significantly above those in the Fitzpatrick Matrix, the government said in its response.

"In light of plaintiffs' failure to satisfy their burden to establish that above-market rates are appropriate in this case, the court may wish to inquire as to the basis for counsels' rates, and determine whether a reduction in line with prevailing market rates pursuant to the Fitzpatrick Matrix rate is appropriate," it said.

The government agreed to pay $125 million to resolve the dispute last year.  In their suit, the National Veterans Legal Services Program, the National Consumer Law Center and the Alliance for Justice alleged that PACER fees paid by the public exceeded limits under the E-Government Act of 2002.  The Public Access to Court Electronic Records system provides public access to federal court records.  Under the deal, settlement class members would receive up to $350 for PACER fees they paid between April 21, 2010, and May 31, 2018, with those who paid more than $350 receiving an additional pro rata share of the remaining settlement funds.

The court has already preliminarily approved the agreement, and the class has been notified.  The nonprofits asked the court for final approval of the settlement and their fee request last month.  According to the nonprofits, the roughly $23 million represents about 19.1% of the settlement fund and is "below the average percentage fee awarded for funds of this size."

But the government said that the fee request includes approximately $900,000 in work that "has not yet occurred and may not occur."  The court may want to ask the nonprofits' counsel how they reached that number, it said, adding that their declarations "provide little, if any, explanation of those estimates."  The nonprofits have also requested a $1 million payment to the class administrator, a request that includes $100,000 for work that hasn't yet been done, according to the motion.

"Defendant does not take issue with the general approach of awarding plaintiffs' counsel a percentage of the common fund in this case, but here are indicia – including above-market hourly rates that plaintiffs' counsel have not shown to be reasonable and inadequately explained predictions of future work — that the common fund may be excessively depleted, to the detriment of class members, if plaintiffs' counsel are awarded the percentage of the common fund that they have requested," the government said.

A recent Law 360 story by Aaron West, “9^th Circ. Says Non-MDL Clients Can Be Part of Common Fund”, reports that the Ninth Circuit has ruled that a lower court had the authority to deny two Texas law firms' bid to exempt non-multidistrict litigation claims from the assessment of certain attorney fees in an MDL over an allegedly defective catheter device.  The appellate court panel published opinion rejected arguments from the Law Offices of Ben C. Martin and the law firm Martin Baughman PLLC, known collectively as BCM, that the district court lacked authority to order common benefit fund assessments against the recoveries of claimants who weren't a part of the MDL.

The non-MDL claimants in this case, the opinion states, included claims that weren't filed in any court, were filed in state court, or filed in federal court after the MDL closed.  According to the opinion, after settling their clients' claims against C.R. Bard Inc. and Bard Peripheral Vascular, BCM moved to exempt certain clients' recoveries in non-MDL cases from the common benefit fund assessments, which determine how much each party will pay as far as fees and other costs go.

The district court had denied that motion, and BCM appealed to the Ninth Circuit. The three-judge panel didn't go along with BCM's arguments, however.  According to the opinion, in order to exempt attorney fee payment, three elements need to be met.  First, the counsel for claimants must voluntarily consent to the district court's authority; second, the participation agreement must be incorporated into a court order; and, third, counsel must receive access to a common benefit work product as a result of the agreement.

Here, those requirements were met, the court wrote, and the district court's order denying BCM's motion to exempt its non-MDL cases from assessment of attorney fees was appropriate.  "Under these circumstances, the district court appropriately exercises its authority to enforce its orders establishing a common benefit fund, and therefore properly denied BCM's motion to exempt its non-MDL cases from common benefit assessments," the panel said.

A recent Law 360 story by Jeff Montgomery, “Five Firms Win Record $266.7M Fee From $1B Dell Settlement”, reports that the Delaware Chancery Court gave the nod to a record $266.7 million fee award for stockholder class attorneys among five firms who secured a $1 billion settlement, one of the largest ever in any state-level court, for a suit that challenged Dell Technologies Inc.'s $23.9 billion stock swap in 2018.  Vice Chancellor J. Travis Laster's 92-page opinion awarded the fees to Labaton Sucharow LLP, Quinn Emanuel Urquhart & Sullivan LLP, Andrews & Springer LLC, Robbins Geller Rudman & Dowd LLP, and Friedman Oster & Tejtel PLLC.

The vice chancellor approved the overall settlement on April 19, saying class attorneys had undertaken a "huge effort," but reserved judgment on the 28.5% fee while considering objections that it took a disproportionate bite out of the per-share payment to stockholders.  Vice Chancellor Laster pruned the request from $285 million to $266.7 million, noting that eight investment funds had recommended a lower fee, citing concerns about "windfall" profits in the case of large awards.

"The funds have a strong economic motivation for seeking a lower fee award.  They collectively own shares comprising 26.1% of the class.  Although they did not propose an alternative amount, if the court were to follow the federal trend and award a 10% fee, the objectors would receive another $49 million," the vice chancellor wrote.  Five law professors separately suggested in a friend of the court brief that a 15% fee would be appropriate, which would have added $35.78 million to the objectors' recovery.

"In this case, plaintiff's counsel brought a real case, invested over $4 million of real money, and obtained a real and unprecedented result. Rather than requesting an unprecedented fee award, plaintiff's counsel asked for 28.5% of the common fund," consistent with past court practices and precedent, Vice Chancellor Laster wrote in the opinion.  Included in the fee award is a proposed $50,000 incentive fee for the plaintiff.  The award in Dell was eclipsed only by the $285 million fee approved for attorneys in the derivative Americas Mining case in 2012, set by then Chancellor Leo G. Strine Jr.

The deal heads off a trial on claims targeting Dell's effort to exchange Class V stock — created to finance much of Dell's $67 billion acquisition of EMC Technologies in 2016 — for shares of Dell common stock.  The Class V shares generally traded at only 60% or 65% of the price of VMWare, a business in which EMC owned an 81.9% equity stake when Dell acquired EMC.  Public shareholders, the class has argued, were short-changed by $10.7 billion when, in December 2018, Dell Technologies paid $14 billion in cash and issued 149,387,617 shares of its Class C common stock for the Class V shares.

During a settlement hearing last week, attorneys for the class told the vice chancellor that they logged more than 53,000 hours on the case, with nearly $4.3 million in expenses, with the fee and expense award reflecting an implied hourly rate of about $5,268 per hour.  The requested fee, they said, had already been adjusted downward by 5% from a typical eve-of-trial award of 30% or more.  In addition to towering over any state award, the $1 billion payout would rank as the 17th largest class settlement of all time, according to Institutional Shareholder Services Inc.

Among the objectors was Pentwater Capital Management LP, which held 1.8% of the Dell Class V stock at the center of the stockholder action.  Pentwater described the fee as "far in excess of what is appropriate in these circumstances" and "fundamentally unfair" to the class represented.

The objectors, the vice chancellor observed "argue that the $1 billion common fund is not so impressive because plaintiff's counsel had a high likelihood of prevailing at trial," and asserted that the combination of the court's "entire fairness test and flaws in the deal meant that liability, while contested was never in doubt.  "No one who is actually familiar with litigation in this court could think that," the vice chancellor wrote.

Defendants regularly win under the entire fairness test, the vice chancellor noted, and "plaintiff's counsel did not have a laydown hand on liability.  They had a strong case that the fiduciary defendants did not follow a fair process, but fair price was debatable, and damages were a Wildcard."  Had Dell shown that the price was sufficiently fair, the class would lose, the decision found.

"Plaintiff's counsel deserves to be well compensated for identifying real cases, investing real money in those cases, and obtaining real results.  But the law should not reward plaintiff's counsel for filing weak cases and obtaining insubstantial results," the vice chancellor wrote.  Litigation continued until 19 days before trial, with the class pre-trial brief weighing in at 134 pages.

"Plaintiff's counsel thus went beyond a mid-stage adjudication that should yield a fee of 15–25%" after multiple depositions and some level of motion practice, the vice chancellor wrote, referring to the court's practice of taking the stage of litigation and effort heavily into account when awarding fees.

Fee decisions generally take into account the complexity of a case, the experience and ability of the lawyers, time and effort invested, stage of litigation and contingency terms that subject counsel to a risk of no payment at all, according to the court.  Not requested were attorney expenses, which amounted to more than $4 million.  In part, class attorneys had to make a decision regarding the appearance of a request for deduction of expenses, the vice chancellor wrote, in a case where "the common fund is so large that the out-of-pocket costs become a rounding error."

A recent Law 360 story by Carolyn Muyskens, “Mich. Blasts $5M Fee Ask in Flint Water Case as ‘Overreach’”, reports that the state of Michigan is urging the judge presiding over Flint water crisis litigation to deny residents' request for $5 million in settlement funds to be set aside for the future litigation expenses, with the state saying the settlement "was never intended to be a litigation fund for plaintiffs' counsel."  In a filing, the state opposed plaintiffs' requests for fee distributions from the $626 million settlement, which resolved claims against the state government and the city of Flint for their roles in the disaster set off when the city, under a state-appointed manager, changed its water source to save money.

The state said attorneys' new batch of fee requests, which follows their first payout from the settlement fund, were either premature or not authorized by the agreement.  Class counsel and liaison attorneys got the first payment from the settlement fund approved in May, when U.S. District Judge Judith E. Levy ordered a distribution of $40 million as a common benefit award to the attorneys, with an additional $7 million for litigation expenses.  Although the settlement was approved in November 2021, appeals have held up distribution of the funds until recently.

In June, the attorneys filed a motion for additional fees and expenses. The motion seeks reimbursement for post-settlement litigation expenses, a $5 million fund for future litigation expenses, and interest that had accumulated on the $47 million already disbursed — as well as on any awards moving forward.  It also seeks the disbursement of an already-approved fee award of 10% of the programmatic relief fund, which is a subcategory of money to be used for special education services for school children exposed to lead.

The state blasted the request, calling it an "egregious overreach" and saying settlement dollars should not be put toward the plaintiffs' litigation against the remaining defendants in the case — Veolia North America and Lockwood Andrews & Newnam PC. LAN said last week it had reached a tentative settlement with the plaintiffs.  The settlement is "not a litigation fund for plaintiffs' counsel's expenses pursuing non-settling defendants," the state said.

In its motion seeking expenses incurred since February 2021 and the $5 million fund, the residents said the settlement agreement stated plaintiffs' counsel "shall be reimbursed and paid solely out of the FWC qualified settlement fund for all expenses and fees, including but not limited to: attorneys' fees [and] past, current or future litigation and administration expenses," highlighting that the deal explicitly provided for future expenses.

The plaintiffs cited an Eastern District of Michigan case, In re Packaged Ice Antitrust Litig., in which the court "authorized class counsel to utilize up to $750,000 of the settlement fund to pay expenses incurred in the litigation going forward, including 'in prosecuting the claims against the remaining non-settling defendants.'"  The Flint plaintiffs said the judge would have oversight to approve any disbursements from the $5 million fund and that any money leftover that wasn't used for litigation expenses would revert to the settlement fund.

"Plaintiffs' counsel have incurred millions in additional lodestar in continuing to prosecute this case but are not presently seeking any additional award of attorneys' fees, nor requesting a disbursement related to future reasonable litigation expenses," the lawyers said.  "When additional common benefit expenses are incurred and become known, and in consultation with the special master, plaintiffs' counsel may make further applications for disbursements from the $5 million portion of the FWC qualified settlement fund requested herein to be set aside for continuing reasonable litigation expenses," they added.

The state also opposed the request for a 10% fee award from the special education services fund, arguing it can't be calculated until the claims administrator finalizes the list of claimants and the value of the main qualified settlement fund is determined.

The state also said the attorneys aren't entitled to interest on their fee awards, pointing to a provision in the settlement agreement that "requires that all interest earned by the FWC qualified settlement fund or the sub-qualified settlement funds become and remain part of each such fund and may be used to pay any fees and expenses incurred to implement this settlement agreement."

The state argued this provision means interest that accrues in the settlement fund should be put toward the costs of the administration process, not attorneys.  "If any interest remains after implementation of the settlement is complete, then those funds should enure to the benefit of the claimaints," the state argued.  Lawyers for the class are ultimately expected to receive about $200 million for their work on the case.

A recent Law 360 article by David Ross, “Atty Fee Reversal May Complicate Claims Made Settlement”, reports on the ramification of the Lowery v. Rapsody International decision.  This article was posted with permission.  The article reads:

A decision prefaced by "will likely make the average person shake her head in disbelief" is unlikely to end well for a party.  That was the outcome when an initially sought $6 million in legal fees was later awarded at $1.7 million by a district court.  In Lowery v. Rhapsody International Inc., the U.S. Court of Appeals for the Ninth Circuit reversed the fee award June 7 because class members obtained less than $53,000 in benefits.

The rationale for that decision could spell trouble for those seeking approval of claims-made class action settlements that do not have sufficient financial benefits actually received by class members or meaningful injunctive or non-monetary relief.

Background

In Lowery, the Ninth Circuit panel addressed a claims-made class settlement.  For a little background, class settlements typically involve a claims-made or common fund structure.  A claims-made settlement involves claims submissions to determine the amount of benefits that a defendant will pay.  The ultimate amount is unknown, although, as in Lowery, caps may be in place to prevent a runaway payout amount.

In comparison, the defendant in a common fund settlement agrees to the total amount it will pay for the class settlement.  In other words, the overall amount is predetermined.  The common fund often includes settlement benefits, plaintiffs' attorney fee awards, service awards for the class representatives, and claims administration and notice costs.  In some settlements, hybrid structures are crafted that may include claims-made and common fund elements.

The Lowery case involved a claims-made class settlement in a music copyright class action. Rhapsody agreed to pay class members — copyright holders — for music played on its streaming service.  However, an earlier settlement between Rhapsody and the National Music Publishers Association to resolve the same copyright issues resulted in 98% of the class members waiving their right to participate in the settlement. This gutted the class.

Despite agreeing to pay up to $20 million for claims, Rhapsody wound up paying only $52,841.05 in claims.  Rhapsody also did not have to change its licensing practices, as Congress passed the Music Modernization Act in 2018, which allowed digital music providers to obtain blanket licenses.  On appeal, the panel found that the $1.7 million fee award to the plaintiffs' counsel, "more than thirty times larger than the amount paid to class members," was not reasonable.

The panel held that: courts must consider the actual or realistically anticipated benefit to the class­ — not the maximum or hypothetical amount — in assessing the value of a class action settlement.  On remand, the U.S. District Court for the Northern District of California was directed to "disregard the theoretical $20 million cap" and instead "start with" the actual amount the class claimed.

The panel noted that "rule is especially important when the class redemption rate is low" and another "approach would allow parties to concoct a high phantom settlement cap to justify excessive fees, even though class members receive nothing close to that amount."  The panel added that "the district court should consider cross-checking its lodestar calculation to ensure that it is reasonably proportional to the benefit provided to the class."  If the cross-check showed that the fee award exceeded 25% of the class benefits, that disparity might "suggest that the fee amount is unreasonable."

The panel added that except for extraordinary cases, a fee award should not exceed the value provided to the class, and remarked that it did not matter that "attorneys may have devoted hundreds or even thousands of hours to a case."

Potential Ramifications of the Lowry Decision

The takeaways from this decision will likely emanate far beyond copyright cases.  Class action plaintiffs attorneys may refuse to consider claims-made settlements in the Ninth Circuit, and insist on common fund settlements.  This position could extend to state court cases on the West Coast for fear that these courts might find the Ninth Circuit's decision persuasive.  Even for common fund settlements, the amount that class members actually will receive must be considered.

While common fund settlements predetermine the amount that the defendant will pay, the amount actually paid in benefits to class members might still depend on the take rate and the types of benefits available.  Common fund settlements are thus not entirely inoculated from the potential application of the panel's rationale in the Lowery decision.  A court still could consider the amount of attorney fees and the amount of the common fund actually allocable to class member benefits.

Thus, regardless of whether a common fund or claims-made settlement in the Ninth Circuit is pursued, the likely take rate and associated monetary benefit for class members should be carefully evaluated.

Looking Ahead in the Ninth Circuit

For any settlement, the impact of non-monetary and injunctive relief, which the Ninth Circuit recognized was not at issue in Lowery, should be considered. The panel noted a contrast to civil rights cases, where attorney fees awards did not need to be strictly proportional to monetary damages.  In civil rights cases, significant non-monetary and injunctive relief to the plaintiffs can be provided, but for copyright cases, attorney fees must consider the proportion between the award and the class benefits to confirm the award is reasonable.

That said, the panel recognized that in copyright cases such as infringement where substantial non-monetary relief or a meaningful benefit to society is encompassed, a fee award may exceed the monetary benefit provided to the class.  The Lowery decision does not have to be a death knell for claims-made settlements in the Ninth Circuit.  There is no reason to conclude that a well-structured claims-made settlement that provides significant settlement benefits to class members can no longer obtain court approval.  To the extent that material injunctive and non-monetary benefits are included, even more reason for optimism exists.

It also should be noted that the Lowery decision does not mean that all focus in a class settlement should be on boosting the amount paid to class members.  The key focus in Lowery was the amount of the plaintiffs' attorney fees in comparison to the amount of class member benefits.  So, maybe­ — just maybe­ — more reasonable attorney fees amounts can increasingly become part of class action settlements, whether structured as a claims-made or common fund settlement.

David Ross is a partner at Wilson Elser Moskowitz Edelman & Dicker LLP.

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