A recent Law 360 story by Jack Maher, “Epstein Victim Attys Want Third of $290M JPMorgan Deal”, reports that class counsel for the victims of sex trafficking committed by Jeffrey Epstein who reached a $290 million settlement with JPMorgan Chase this summer asked this week for a fee award of 30%, citing their speedy results in achieving what they called a "historic victory" for their clients.  Attorneys from Boies Schiller Flexner LLP and Edward Henderson Lehman LLC requested the fee, plus just over $1 million expenses, in a motion filed Thursday in the U.S. District Court for the Southern District of New York.

"Class counsel is conscious that the fee requested is large," the filing read.  "But given the risks and uncertainties of this case during the extensive pre-complaint investigation as well as at the time the case was filed and the extraordinary result achieved, the requested fee of 30% of the settlement amount is fair and reasonable."  The class of survivors alleged in their lawsuit that JPMorgan Chase Bank NA served as Epstein's main financial institution from 1998 to 2013, allowing him to withdraw enormous amounts of cash at a moment's notice to finance his crimes.

The complexity of the suit, the work put into it and the final result — the largest settlement ever for victims of sex trafficking — justify the award, class counsel told the court.  The attorneys spent nearly 16,000 hours litigating the suit on a contingent basis, they told the court, confidentially interviewing over 100 people, including dozens of survivors, analyzing over 100,000 pages of documents produced in discovery and deposing people like JPMorgan CEO Jamie Dimon.

Class counsel fought off a motion to dismiss from the bank that presented complex legal arguments about under what circumstances a financial institution can be held liable in cases like this, they said.  As a result of their efforts, members of the class will receive a larger settlement from JPMorgan than from Epstein's estate, and they will not have to testify in a deposition or at a trial about traumatic experiences with Epstein, the lawyers noted.

According to their motion, class counsel used a percentage method to determine an appropriate award, but cross-checking it with the alternative lodestar method shows the award is in line with awards in other complex cases.  This suit is just one of many legal actions that have followed lurid revelations about Epstein's predation.  Epstein died by suicide in August 2019 while in detention in New York after he was arrested on federal sex trafficking charges.

A recent Law 360 story by Bonnie Eslinger, “Del Taco ‘Perplexed’ By Atty Fee Bid in $50M Deal”, reports that a California judge who tentatively awarded Del Taco workers' attorneys $12.5 million in fees for their work securing a $50 million wage deal said he's "perplexed" by their arguments for $16.7 million, saying they should have included legal authorities supporting the higher amount in an earlier court filing.  In his tentative ruling, Alameda County Superior Court Judge Evelio Grillo largely signed off on the $50 million deal, which settles wage and hour claims filed on behalf of more than 50,000 workers and also allegations of California labor code violations filed under the state's Private Attorneys General Act.  With regard to attorney fees, the court awarded a 25% cut of the $50 million, less than the one-third share requested.

At the start of a hearing held via Zoom, Judge Grillo told lawyers for the fast-food workers that he had tried to be responsive to arguments they had previously made in support of their fee request, but "I understand that you're still not happy with what I did."  Matthew Matern of Matern Law Group PC, a lawyer for the workers, said while they appreciated the court's consideration of their arguments, there was no reason not to award 30% or more in fees.  Among the cases he cited in support of his argument was a 2006 decision in Allapattah Services, Inc. v. Exxon Corp, awarding attorneys 31.33% of a $1.075 billion settlement.

"There were many other cases," Matern told the court. "And in many of those cases, the multipliers were very high as well."  Judge Grillo noted that the last time plaintiffs' counsel argued for a higher fee percentage they cited two cases.  "You argued successfully that the court should consider a higher multiplier," the judge said.  "And that's what I did."

Matern argued that the multiplier — an amount the total fees are multiplied by in determining a fee award — should be used simply as a "cross-check" to see whether the percentage awarded of the total settlement is reasonable.

Judge Grillo asked what the multiplier would be for in the case before him if he was to award 30% of the settlement to the lawyers. Matern said it would be about 6.5.  "There are many cases where it's over that," Matern told the court, saying that in the 1995 Weiss v. Mercedes-Benz of North America ruling has a 9.3 multiplier for the attorney fees.

The judge could find additional cases in support of the fee argument cited within a 2017 district court decision In re: National Collegiate Athletic Association Athletic Grant-In-Aid Cap Antitrust Litigation, which was affirmed by the Ninth Circuit, Matern said.  Another case in support of high multipliers, Matern told the court, is In re Merry-Go-Round Enterprises, Inc., a 2000 case in Maryland federal court.

"That one was a bankruptcy case, and they awarded a 19.6 multiplier on a 40% fee out of a $185 million fund," Matern said.  Ultimately, the court should grant the requested fees, because the lawyers for the Del Taco workers achieved an exceptional result, Matern argued.

"It was obtained for the class and this wouldn't have happened without the exceptional work we did and the substantial risk," the lawyer said.  Judge Grillo said he'd look at the other cases the lawyer cited.  "I'm a little bit... 'perplexed' is not the right word, but for lack of a better word, perplexed because you did cite me a couple of cases and I did read them," the judge said.

The judge had previously suggested that a multiplier used in a case affirmed by the Ninth Circuit, Vizcaino v. Microsoft Corp., was appropriate, Mattern noted.  Then, after the plaintiffs had highlighted a different case for the court, Steiner v. Am. Broad. Co., in which the Ninth Circuit concluded that a 6.85 multiplier "fell within the range of multipliers that courts have allowed," it appeared that Judge Grillo had picked a multiplier between those two, the lawyer said.  But in the Vizcaino case that was a 28% fee cut, so the court used the 3.96 multiplier, "because that's what it took to get to the 28% that they awarded," the lawyer said. "So it was merely just cross-checking."

The judge said he understood the argument, and he would put out a ruling later.  "You gave me the authorities, I considered them, and now you're suggesting that there are other authorities that I should consider," the judge said. "I'll do that.  But you know, it would have been nice to have them, to have those arguments initially."  According to the judge's tentative ruling, the lawyers for the plaintiff told the court they spent 3,140.8 attorney hours and 1,231.0 support staff hours for a total of 4,371.8 hours on the case.

The settlement also proposed a service award of $20,000 to the main plaintiff, Karolina Torrez.  In his tentative ruling, the judge said after factoring in administration costs, a PAGA payment of $1.5 million, awards for other plaintiffs, and litigation expenses, the amount left to distribute to the class would be just over $30.7 million, providing an average payment per class member of about $615.

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.

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."

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