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 story by Jack Karp, “Quinn Emanuel, Insurers Spar in $185M Fee Fight,” reports that Quinn Emanuel Urquhart & Sullivan LLP balked at what it called insurers' "incendiary" request for an accounting and discovery related to $185 million in attorney fees stemming from a $3.7 billion award secured in litigation over the Affordable Care Act.  The case law Kaiser Foundation Health Plan Inc. and UnitedHealthcare Insurance Co. cited to justify their requests for an accounting related to the $185 million and discovery regarding judgment preservation insurance taken out by the firm is irrelevant, Quinn Emanuel told the U.S. Court of Federal Claims in a join status report concerning the briefing schedule for its renewed fee application.

The insurers' request "once again relies on aspersions rather than any on-point precedent," the firm said.  "Throwing around the idea of ethical violations having nothing to do with class counsel's representation of the class against the government may be incendiary, but it is not a basis to delay resolution of the renewed fee application."  Quinn Emanuel asked the court to consider just its renewed fee application.  If the court allows the objectors to file any motions, the briefs on those motions should be filed simultaneously "in order to prevent undue delay in resolving this seven-year-old case," the firm said.

"Given the age of this case, class counsel respectfully submits there is no reason to drag this process out unnecessarily, and class counsel still does not understand the antagonism the United/Kaiser objectors are bringing to a process involving fees for claims that class counsel originated, pursued to a 100% result for United and Kaiser, and has continued to pursue doggedly for all remaining class members through the present," it said.  The two insurers were equally heated in their own portion of the joint status report.

Quinn Emanuel's proposal that the court order simultaneous briefing on the objectors' motion for discovery and accounting and Quinn Emanuel's motion for fees is inappropriate and would deprive the insurers of the information they need to file their opposition to the fees, they said in response.  "In effect, by insisting on simultaneous briefing, Quinn Emanuel seeks to moot the objectors' motion for discovery," they said.  The class has a right and the court has a duty to know if the accounting they request would demonstrate any ethical violations, the insurers added.

"Quinn Emanuel calls this argument 'incendiary' but does not deny that it is refusing to provide an accounting contrary to its obligations under Rules of Professional Conduct," they said.  In January, the Federal Circuit wiped out the $185 million in attorney fees awarded to Quinn Emanuel by the federal claims court following heated oral arguments in which an attorney for the firm was scolded for being "aggressive."

Quinn Emanuel and a group of health care plan insurers it represents had urged the Federal Circuit to affirm the fee award, insisting the firm had used a novel claim and achieved a 100% recovery for the class in litigation over so-called risk corridor payments under the ACA.  But Kaiser, UnitedHealthcare and others argued that class counsel was entitled to just $8.8 million after a lodestar cross-check.

Quinn Emanuel had originally promised in a supplemental class notice to limit its fee request based on the hours it worked on the litigation — the lodestar cross-check — and said its fee could be "substantially less than 5%" of the recovery, according to the Federal Circuit's January ruling.  But a Court of Federal Claims judge granted Quinn Emanuel's request for $185 million, or 5% of the total $3.7 billion settlement, finding that a lodestar cross-check was unnecessary.  That conclusion "was legal error," the Federal Circuit ruled.

"We are proud of our work in this case and of the unprecedented $3.7 billion award we obtained for qualified health plan providers, including Shepherd Mullin's clients," Quinn Emanuel partner Adam Wolfson told Law360 in a statement.  "When Quinn Emanuel won this case, we made certain the class administrator paid out 95% of the risk corridors claims to the plaintiffs as soon as possible.  We believe that the fee agreement the class members agreed to when we began our work on the case should stand," he said.  "Should the court come to a different conclusion, we will pay back any ordered amounts to the class administrator, who will then distribute those funds to the entire class."

A recent Law 360 story by Kelly Lienhard, “AT&T ‘Bait-and-Switch’ Customer Attys Want $3.5M in Fees” reports that attorneys who secured a $14 million settlement for a group of AT&T customers claiming they were charged an improper fee asked a California federal court for a $3.5 million cut of the award to cover their legal fees, as well as additional funds to cover litigation expenses.  The requested fee is 25% of the full settlement amount, which aligns with the Ninth Circuit's benchmark for attorney fees, according to the attorneys' motion, and is warranted based on the risk taken and time spent on the case.

"[The fee] is well justified under the circumstances of this case, including in light of the significant risk settlement class counsel assumed in taking this case on and vigorously litigating it for years notwithstanding the possibility that the case could ultimately be derailed on arbitration or any number of other grounds," the counsel stated.  AT&T agreed to the $14 million settlement to avoid litigation after its customers sued the telecom company over claims that the company used bait-and-switch tactics by applying an "administrative fee" to customers' accounts.

The customers' counsel is asking for 25% of the settlement amount to cover their fees and almost $75,000 for litigation expenses.  According to the attorneys, over 4,674 hours were devoted to the case, with more work still ahead to secure the finalized settlement.  The work was done with no guarantee that the lawyers would see any compensation, with additional challenges that come with going up against a large, well-funded company, according to the attorneys.

The customers' counsel added that a lodestar-multiplier cross-check found that the requested $3.5 million fee represents a little less than 128% percent of the $2,754,739 in attorney fees accumulated so far in the case, which is at the lower end of the range typically awarded, the attorneys said.

A recent Law 360 story by Katryna Perera, “Judge Cuts ‘Unreasonable’ Atty Fee Bid in $98M Mattel Deal” reports that a California federal judge has granted final approval to a $98 million settlement between investors and toymaker Mattel Inc. and PwC, but slashed the requested $24.5 million in attorney fees, saying it was too high.  U.S. District Judge Mark C. Scarsi said in his order that while the Ninth Circuit typically considers 25% of a settlement fund the "benchmark," that figure is still only a "helpful starting point," and courts should depart from it when a benchmark award would "yield windfall profits for class counsel in light of the hours spent on the case."

Instead of granting the requested $24.5 million in attorney fees, the judge reduced it to approximately $13.6 million, which represents about 14% of the $98 million settlement.  A 25% award would provide an "unreasonable windfall" to the class counsel, the judge added.  "The Court finds persuasive class counsel's arguments and evidence concerning the excellent value of the results achieved through settlement, the riskiness and complexity of the litigation, the skill and quality of counsel's work, the contingent nature of the fee, and the significant financial burdens counsel carried during the course of litigation," the order states.  "While these factors merit a significant fee award, an award of 25% of the settlement fund is unreasonable given the magnitude of the fund."

John Rizio-Hamilton, who represents the class and lead investor plaintiffs DeKalb County Employees Retirement System and New Orleans Employees Retirement System, had previously urged Judge Scarsi to approve the fee bid and maintained that the reasonableness of the fee request is backed by a lodestar cross-check, which he said yields a multiplier of 2.7.  Judge Scarsi agreed with Rizio-Hamilton's calculations and stated that the multiplier is within range of other resolved class actions with common fund settlements.  But the judge found that the requested multiplier in this case was "excessive … relative to counsel's performance."

"Counsel would reap an extra $15 million windfall … while counsel should be commended and compensated for the risk they took, the work they did, and the result they achieved, that outsized windfall would not be fair to the other interests in this case," the judge said.  Alternatively, Judge Scarsi's approved $13.6 million attorney fee award represents a 1.5 multiplier of the lodestar, according to the order, which the judge called "appropriate in light of the hours counsel spent on the case, the magnitude of the settlement fund, the results achieved, and the risks and burdens borne by counsel."

In addition to granting final approval of the settlement for the same reasons outlined previously when he granted preliminary approval, Judge Scarsi awarded $5,515 to DeKalb County Employees Retirement System and $3,100 to New Orleans Employees Retirement System as lead plaintiff service awards, as well as $1.1 million in litigation reimbursement to class counsel.

A recent Law 360 story by Gina Kim, “Mattel Judge Mulls $24.5M Atty Fee Bid in $98M Investor Deal” reports that U.S. District Judge Mark C. Scarsi said he will grant final approval of $98 million in settlements resolving investors' claims that Mattel and PwC misled them by understating an income tax expense, but said he's still considering the class counsel's $24.5 million attorney fee bid.  During a hearing, John Rizio-Hamilton, who represents the class and lead investor plaintiffs DeKalb County Employees Retirement System and New Orleans Employees Retirement System, urged Judge Scarsi to approve the fee bid, which he said is 25% of the $98 million deal and consistent with the Ninth Circuit's benchmark for percentage fee awards in common fund cases.

The investors' counsel also sought $1,139,330 in expenses, plus plaintiff awards to DeKalb County and New Orleans for $8,615. Defense counsel for PwC and Mattel did not object to the fee request.  Rizio-Hamilton maintained that the reasonableness of the fee request is backed by a lodestar cross-check, which he said yields a multiplier of 2.7.  "I know it's 25% of the settlement, but it represents a 2.7 times multiplier of a lodestar calculation," Judge Scarsi began. "Why is this significant upward deviation from the lodestar reasonable in this case?"  Rizio-Hamilton said the fee bid comports with the benchmark and "if anything, it's a touch less, because we're requesting 25% of the settlement net of litigation expenses."

The lodestar crosscheck of 2.7 multiplier is actually in the middle range, and is a common figure awarded to comparable class action securities litigations, Rizio-Hamilton said.  He cited several cases, such as Vizcaino v. Microsoft Corp., where the Ninth Circuit affirmed an award of 28% of a $97 million settlement, and In re: Brocade Securities Litigation, where class counsel received 25% of a $160 million deal.

Furthermore, the recovery achieved for the class is above average considering the serious risks facing the class, justifying the fee request, Rizio-Hamilton argued.  Class counsel dedicated almost 19,000 hours into the case, and incurred more than $1.1 million in expenses to face off against well-funded, high-caliber law firms representing Mattel and PwC, he said.

The class's reaction to the requested fee has also been favorable, and no institutional investor objected to it, Rizio-Hamilton added.  Only one individual investor, James J. Hayes of Virginia, objected to the fee request, but those objections are without merit and Hayes doesn't explain why the fee request is purportedly excessive, Rizio-Hamilton said.

Judge Scarsi aired additional concerns he had with the billing rates provided in class counsel's papers, noting that there were hourly rates ranging from $300 to $425 for nonlawyer litigation staff.  "Why aren't those high?" Judge Scarsi asked Rizio-Hamilton.

Rizio-Hamilton defended the billing rates charged by nonlawyer staff, arguing that they have been repeatedly accepted by courts in connection with fee applications in similar cases across the nation and in the district.  He also cited Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation" In re: Volkswagen "Clean Diesel" Marketing, Sales Practices, and Products Liability Litigation in the Northern District of California, where the court found hourly rates in that case — up to $490 per hour for nonlawyer paralegals — to be reasonable.

Rizio-Hamilton further contended that the billing rates are consistent with those charged by other firms litigating national securities litigations, including the very defense counsel in the instant Mattel litigation.  "We know that because we look at the bankruptcy fee applications they submit," Rizio-Hamilton said.  "Suffice it to say, the rates that they submitted to bankruptcy courts are meaningfully higher than the rates we submit here," he said.  "On the question of nonlawyer paralegals, for instance, Munger Tolles — and I don't mean to single them out — have submitted rates between $405 to $490 in 2020 for paralegals in the PG&E bankruptcy case in the Northern District of California."

Ultimately, class counsel achieved a recovery that is meaningfully greater than what is typically achieved in comparable cases, considering the time and quality of work poured into the case for more than two years without any payment, he added.  Class counsel are only asking for a benchmark, "and not a penny more," Rizio-Hamilton said.

"I do appreciate all the arguments, as you understand, you know, I'm just trying to do the best thing for the class, which is why I'm focusing on the attorney award, and I'll give that a little more thought based on the arguments today," Judge Scarsi said.  "So the court will approve the settlement, will issue an order, and you know, the attorneys' fees may not be the 2.7 multiple, so we'll see."

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