February 17, 2022
A recent Law 360 story by Dorothy Atkins, “Facebook Class’s $98M Fee Win ‘Outrageous,’ 9th Circ. Told” reports that objectors' counsel urged the Ninth Circuit to throw out class counsel's $97.5 million fee award for striking a $650 million deal that resolves claims Facebook's facial recognition technology violated Illinois users' biometric privacy rights, arguing that the judge abused his discretion in awarding the "outrageous" fee award. During a virtual hearing, the objectors' counsel, Kendrick Jan, told a three-judge panel that the case has a "cornucopia of issues" that should be reversed on appeal.
For one, Jan said, U.S. District Judge James Donato breached his fiduciary duty to the class by awarding class counsel 15% of the total $650 million settlement in fees, even though class counsel told him they wouldn't seek fees for an additional $100 million added to the settlement fund after Judge Donato rejected an initially proposed $550 million deal, which forced Facebook and class counsel back to the negotiating table. Instead, Judge Donato should have awarded class counsel 10% of the initial $550 million proposed settlement, or $55 million, which would've been reasonable and in line with case law on other mega-settlements, Jan said.
Jan's co-counsel John Jacob Pentz III also noted that class counsel's initial fee request reflected a 5.3 lodestar multiplier, which is the number of times the hourly rate would be multiplied to get the total fee award. Judge Donato ended up awarding fees that came out to a 4.7 multiplier, "which is still outrageous," Pentz said, because 4.7 is well above the 1-4 multiplier ranges approved by the Ninth Circuit, and it translates to $3,750 per hour.
"That's beyond the pale in our opinion," Pentz said. The objectors' comments came during a hearing on an appeal of multiple aspects of Facebook's revised $650 million deal resolving claims the social media giant breached the Illinois Biometric Information Privacy Act by using facial recognition technology without users' consent to fuel its photo tag suggestion feature. After years of hotly contested litigation, the case was headed to a jury trial, but the parties struck an initial $550 million settlement in 2020, which class counsel hailed as the largest amount ever doled out to resolve a privacy-related lawsuit.
But Judge Donato tore into the initial proposal, which he noted gave users just 1.25%, or $300 at most, of what they could be entitled to under BIPA, even though the state statute comes with a $1,000-per-violation fine and a $5,000 enhancement for intentional or reckless violations. At the time, Judge Donato told the parties that the enhancement appeared to be a potentially viable claim in light of the $5 billion fine Facebook agreed to pay the Federal Trade Commission in 2019 for violations of a 2012 consent decree over its privacy practices.
Roughly a month later, the parties filed a motion asking the judge to preliminarily approve a revised $650 million deal, which attempted to address Judge Donato's concerns by narrowing the release provision and increasing class members' potential recoveries to up to $400. At the time, class counsel said it would seek up to $110 million in fees plus expenses based on the initial settlement amount.
In February 2021, Judge Donato signed off on the revised deal, calling it a "landmark result," but he trimmed the $110 million requested attorney fees to $97.5 million which reflected a 15% portion of the settlement. He also slashed the requested incentive awards to three class representatives from $7,500 each to $5,000 each.
The objectors' counsel argued that the incentive awards are too high, and the fee award is outrageous, particularly given that the settlement only reflects 5% of the total damages at stake. Jan noted that in In re: Wash. Pub. Power Supply Sys. Secs. Litig., a 1994 case that involved a megasettlement, the Ninth Circuit awarded fees based on a 1.2 multiplier, which represented less than 5% of the total settlement fund. In that case, the court also rejected a 3.1 multiplier class counsel requested, even though their settlement reflected 47% of the total damages at stake, which is significantly higher than the 5% recovery at issue in the instant suit, Jan said.
U.S. Circuit Court Judge Michael Daly Hawkins pressed the attorneys and asked the objectors' counsel how much they charge hourly. Pentz replied that he's charging $800 per hour for work on the case, which he noted is based on the Laffey Matrix, an hourly rate schedule set by the U.S. Attorney's Office based on a lawyer's years in practice.
Jan also argued that class counsel's hourly rate and lodestar calculation included hours the firm spent lobbying legislatures, even though both California and Illinois statutes preclude lobby efforts from being included in contingency fees. Without those hours, the lodestar multiplier jumps from 4.7 to 5.38, Jan said.
But counsel for the class, John Aaron Lawson of Edelson PC, defended the attorney fee award, arguing that the fact that Judge Donato rejected the initial settlement proves that he was honoring the class. "The record is pretty clear that he was constantly aware of duty to the class," Lawson said. Still, Judge Forrest remained skeptical and noted that it seemed, from the record, that if the court awarded fees based on the initial $550 million settlement, and not the revised $650 million settlement, nobody probably would have objected.
The attorney replied that it's the judge's discretion to award fees and 15% is the range of reasonableness, particularly since this case presented major risks and was tackling a novel legal issue with huge damages at stake. He added that the objectors' complaints about the lodestar multiplier aren't relevant because Judge Donato only considered the lodestar to cross-check the reasonableness of the award, and the final basis for his decision was on a percentage of the settlement. Additionally, the objectors waived their arguments about lobbying fees by failing to raise the issue before the lower court, Lawson said.