Panel 3 – Attorneys Fee Awards
Fred Herold
A few years ago a client settled a significant nationwide consumer class action on a claims-made basis, following several years of litigation. A settlement class was certified and a “maximum” settlement amount was agreed-to in the settlement agreement (which was approved by the District Court). The defendant was required to place a negotiated initial portion of the“maximum” amountinto escrow upon final approval of the settlement. Those funds were to be used to all pay claims that were made and deemed proper by the close of the claims period, as well as the attorneys fees awarded by the Court in its discretion (not to exceed 33% of the “maximum” amount). If the attorneys fees and legitimate claims totaled more than the escrowed amount, the defendant was required to pay additional amounts into the escrow account, but not to exceed the maximum amount. If the claims plus fees exceeded the maximum amount, the maximum amount would be placed into the escrow fund and the claims would be paid pro rata. If the qualified claims plus attorneys’fees came in under the initial escrow deposit, the defendant would be refunded the remainder.
From my client’s perspective (and mine, as a class action defense attorney), this arrangement was critical to achieving a fair settlement of what we thought was a weak case, and if this vehicle had not been available, the case may well have gone to trial (the outcome of which, of course, would have been uncertain). The parties were reasonably lenient concerning what class members had to demonstrate in order to obtain an award (with the main concern from the defense perspective being to guard against fraudulent claims). We believed that class members with arguably legitimate claims got paid the same amount they would have received even if the defendant had been required permanently to forfeit the “maximum” amount in a settlement. Plaintiffs’ counsel was also paid, we believe, attorneys fees in the same amount as they would have been paid with a more conventional settlement requiring the “maximum” payment by defendant. That is, the plaintiffs’ counsel’s attorneys feewas an amount determined by the Court based on the work they had done, the risks involved, etc. My client had no objection to the attorneys fees awarded (which turned out to be close to the 33% of the “maximum” amount that was requested).
The above-described settlement was the subject of numerous objections by clients of attorneys whose core business was believed to be objecting to class action settlements. Those objections were carefully considered by the District Court and then by the First Circuit, and none of them was allowed.
As it turned out, the total of the claims paid was fairly low (less than the amount of the attorneys fee awarded), and the amount of the claims paid plus attorneys fees was less than the initial escrow payment (and significantly less than the possible “maximum” payment) -- and my client received a substantial refund after all appeals and the claims process were completed. Despite these facts (a situation that some commentators have criticized), I thought it was a fair settlement (as did the Court). Arguably legitimate claimants were paid a fair amount and plaintiff’s attorneys received a fair fee after significant litigation. The parties and the Court did not believe that it was the kind of case, on the merits, in which the defendant should have been “punished” by having to pay an amount that exceeded the arguably legitimate claims plus attorneys’ fees. I thought that the only “losers” in the case were the ever-growing number of so-called charities that receive a significant portion of their funding through cy pres awards of funds left over after class settlement claims have been paid.