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In Dissent, Ninth Circuit Judge Rips Fees Equaling $6700 an Hour

September 2, 2020 | Posted in : Contingency Fees / POF, Fee Award, Fee Award Factors, Fee Calculation Method, Fee Issues on Appeal, Hourly Rates, Hours Billled, Lodestar, Lodestar Crosscheck, Practice Area: Class Action / Mass Tort / MDL, Settlement Data / Terms

A recent Law 360 story by Dorothy Atkins, “In Dissent. 9th Circ. Judge Rips Fees Equaling $6,700 An Hour,” reports that a split Ninth Circuit panel affirmed the approval of a $14.5 million attorney fee award resolving proposed class claims alleging Bank of America's overdraft fees violate usury laws, with a dissenting judge criticizing the deal for awarding class counsel fees that come out to $6,700 per hour.  In a six-page opinion, a majority panel held that the district judge accurately calculated class counsel's fee award based on the percentage of the estimated value of injunctive relief and cash settlement instead of based on the hours they worked on the litigation, by doing a so-called lodestar cross-check.  "In short, neither the settlement nor the fee award raises an eyebrow," the majority opinion said.

However, in an 18-page dissent, U.S. Circuit Judge Andrew Kleinfeld criticized the bank's settlement for having an "overbroad" release provision and for overvaluing the relief provided under the settlement.  Judge Kleinfeld said the fee award should have been cross-checked.

The judge noted that class counsel only worked 2,158 hours on the case, and therefore the $14.5 million fee amounts to a rate of more than $6,700 per hour, even though class counsel said their rates are between $250 and $800 per hour, which would have added up to roughly $1.42 million.  "That amount of money is not an insubstantial incentive to bring claims that settle before discovery, yet the district court awarded about ten times that much to class counsel," Judge Kleinfeld wrote.

Under the deal, the bank agreed to stop charging extended overdraft fees through the end of 2022, unless the U.S. Supreme Court rules before then that such fees don't count as interest under the National Banking Act.  The bank also agreed to pay $37.5 million to pay checking account customers who paid at least one of these fees between Feb. 25, 2014, and Dec. 30, 2017, and to provide $29.1 million in debt relief to customers whose accounts were closed.

But class members Estafania Osorio Sanchez, Amy Collins and Rachel Threatt objected to the settlement and fee award, arguing the fee award is too large and the cash and debt relief benefits are "entirely different and in conflict" with each other and require separate subclasses and representatives, among other things.

The majority panel rejected the arguments across the board, noting that although the individual cash payments are small, the value of the injunctive relief likely exceeds $1.2 billion in the bank's foregone fees, and therefore the fee award fell below the 25% benchmark.  "We do not struggle to conclude, as the district court did, that counsel 'generated benefits' far 'beyond the cash settlement fund,'" the majority said.

But Judge Kleinfeld disagreed, and pointed out that under the deal, customers who were charged the $35 fee are not being reimbursed in whole for the fees and will likely instead receive $1.07 per fee paid.  Customers whose accounts were closed will likely only receive $35, regardless of how many times the bank charged them the allegedly usurious fees, he said.

Judge Kleinfeld added that any purported benefits customers receive from an improved credit score due to the settlement or any other relief is "dubious or at least highly speculative" and "likely to be a negligible fraction of the valuation the district court accepted."  Although Judge Kleinfeld acknowledged that circuit precedent doesn't require district judges to conduct a lodestar cross-check on fee awards, he wrote,  "We ought generally to require it."