Petition for Writ of Certiorari — Simon v. Schwartz
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& 021229 FEB 14 2009
No. ee
In The
Supreme Court of the Anited States
r
v
STEVE SIMON, ALAN J. SPITZ,
and DANIEL J. KELLEY,
Petitioners,
VS.
ELLIOT SCHWARTZ, NICOLE C. GIAMPAULO,
WILLIE JO JIMMERSON, DANIEL RYAN, and
MARY ANN WILLIAMS, individually and on
behalf of all others similarly situated,
Respondents,
vs.
STRANGE & CARPENTER; MONTS & WARE, L.L.P;
NIX, PATTERSON & ROACH, L.L.P.; CROWLEY,
DOUGLAS & NORMAN, L.L.P.; LAW OFFICES OF
BARRY L. KRAMER, Plaintiffs’ Class Counsel,
Real Parties-in-Interest.
On Petition For Writ Of Certiorari
To The United State; Court Of Appeals
For The Ninth Circuit
&
Vv
PETITION FOR WRIT OF CERTIORARI
v
LAWRENCE W. SCHONBRUN
LAW OFFICES OF
LAWRENCE W. SCHONBRUN
86 Eucalyptus Road
Berkeley, CA 94705
Tel: (510) 547-8070
Counsel of Record for Petitioners
Steve C. Simon, Alan J. Spitz,
and Daniel J. Kelley
* COCKLE LAW BRIEF PRINTING CO. (800) 225-6964
OR CALL COLLECT (402) 342-2831
1. AERA E REY Sw tenets - - . —— PH a A Re A ENN MERE LS IIE EL IO MONET IN aa 6
QUESTIONS PRESENTED
1. Whether a district court, in awarding reasonable
attorneys’ fees in a statutory fee-shifting case, can cir-
cumvent this Court’s prohibition against contingent risk
enhancement (see City of Burlington v. Dague, 505 USS.
557 (1992)) by awarding fees under common fund princi-
ples when the fee is paid by the defendant separately, not
from the class’s recovery.
2. If the answer to the above question is yes, Peti-
tioners ask this Court to resolve the disagreement among
the circuits as to whether this Court’s decision in Dague
prohibiting contingent risk enhancement in statutory fee-
shifting cases applies when a court awards reasonable
at“orneys’ fees under common fund principles. The Ninth
Circuit, in In re Washington Public Power Supply Sys. Sec.
Litig. (WPPSS), 19 F.3d 1291 (9th Cir. 1994), has ruled
that Dague does not apply in such circumstances.
————————————
ii
PARTIES TO THE PROCEEDING
Petitioners: Steven C. Simon, Alan J. Spitz and Daniel
J. Kelley, individual plaintiff class members/objectors.
Respondents: Elliot Schwartz, Nicole Giampaulo,
Willie Jo Jimmerson, Daniel Ryan, and Mary Ann Wil-
liams, individually and on behalf of all other similarly
situated class members.
Real Parties-in-Interest: Plaintiffs’ Class Counsel
Strange & Carpenter, Monts & Ware, L.L.P., Nix, Patter-
son & Roach, L.L.P., Crowley, Douglas & Norman, L.L.P,
and Law Offices of Barry L. Kramer.
iil
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED. ...........::0:ceseseeseeeereestees i
PARTIES TO THE PROCEEDINGS ............s::eseeeeeee ii
TABLE OF CONTENTS ...........c::ecceseeeeesseeseneseeeeeeees iii
INDEX TO APPENDICES .............cccceseeeeneeeeeeeeeeeneees iv
TABLE OF AUTHORITIES ...........:::cseessseeeeeeerereeeess Vv
OPINIONS BELOW ...........:cccseeeeeeeeeeeeeeeeeeeeneneseenne ess 1
STATEMENT OF JURISDICTION ...........:::::2eeeeeeeees 1
STATUTES AND RULES INVOLVED ..............-.+++++ 2
INTRODUCTION .........0ssccsssccssccccessscesscccesscssceceeeneees 2
STATEMENT OF THE CASE............::ccesseeeeeeeeeeeeeeees 7
STATEMENT OF FACT. .........:::seecesseeeeeneeeeeeereeeneees 8
REASONS FOR GRANTING THE WRIT ............-++ 12
I. THE DISTRICT COURT’S AWARD OF FEES
UNDER COMMON FUND PRINCIPLES AS
A PERCENTAGE OF THE CLASS’S RE-
COVERY IS DIRECTLY CONTRADICTORY
TO THIS COURT’S RECENT DECISION IN
GISBRECHT v. BARNHART, 535 U.S. 789
(2002), AND UNDERMINES THIS COURT'S
DECISIONS IN CITY OF BURLINGTON v.
DAGUE, 505 U.S. 557 (1992), AND EVANS v.
JEFF D., 475 U.S. 717 (1986) ........eeseeeeeeeeees 12
A. The district court’s award constituted a
failure to follow this Court’s prescribed
legal principles for judicial awards of
reasonable attorneys’ feeS...............s:eeeee 12
iv
TABLE OF CONTENTS - Continued
Page
II. THE NINTH CIRCUITS ALLOWANCE OF
CONTINGENT RISK ENHANCEMENT IN
AWARDING REASONABLE ATTORNEYS’
FEES UNDER COMMON FUND PRINCI-
PLES REFLECTS A DISAGREEMENT
AMONG THE CIRCUITS REGARDING THE
APPLICABILITY OF THIS COURT'S DECI-
SION IN CITY OF BURLINGTON uv. DA-
CF, SEB GB. GEC III enccecesisovesasecinsenseness 20
A. This Court should resolve the dispute
which has ensued as a result of its deci-
sion. in Dague, prohibiting consideration
of contingency risk to enhance the lode-
star when calculating a court-awarded
reasonable attorneys’ fee under a fee-
Se Be ikcxdacceusinstisnmannstiesensarabenees 20
CRF U AIT Anan istanininninwmicnedinensanionssmsinmesbensadunition 30
v
INDEX TO APPENDICES
Memorandum Opinion of the United States Court of
Appeals for the Ninth Circuit (affirming the
judgment of the district court), filed October 10,
2002
Order of the United States District Court for the
Central District of California (granting class
counsel’s motion for attorneys’ fees and costs),
filed December 13, 2000..0.......cccccccscssseseeseoseescs.... App. 10
Order of the United States Court of Appeals for the
Ninth Circuit (denying the petition for panel
rehearing and for rehearing by the court en
banc), filed November fy Rs Pale! wennek App. 34
TABLE OF AUTHORITIES
Page
CASES
Amchem Prod., Inc. v. Windsor, 521 U.S. 591 (1997)........ 28
Blum v. Stenson, 465 U.S. 886 (1984) ..............cccccceseeeeeeees 14
Boeing Co. v. Van Gemert, 444 U.S. 472 (1980)................. 13
Bowen v. South Trust, 760 F. Supp. 889 (M.D. Ala.
ROPE). xtncsiesssencnsdviscesneoaiecteanaa aan 27
Brewer v. Southern Union Co., 607 F. Supp. 1511
CED. Cae. BEE ins isincsctnqecvessoenotansanibebuaneieamsainadanbeaneaieaad 26
Brytus v. Spang & Co., 203 F.3d 238 (3d Cir.
BOOED ixistxcivseeendtuntoncentoenmadeaianaaaa 12, 20, 27, 28
Charles v. Goodyear Tire & Rubber Co., 976
Br RN SIS CEP els ROE Pv ciascisoserintsinantentnsamnenoniin 29
City of Burlington v. Dague, 505 U.S. 557 (1992) ..... passim
City of Burlington v. Dague, 1992 WL 687821.................. 14
Evans v. City of Evanston, 941 F.2d 473 (7th Cir.
DED A) i ccniatusssesicsertneinuiiatnneisianenaadamaanadae 25
Evans v. Jeff D., 475 U.S. 717 (1986) .......... eee passim
Florin v. NationsBank of Georgia, 34 F.3d 560 (7th
CFU SIGE icvcessectctinsestnnceinsvinsecicedaaenesiamaaeienaanal 20, 24
Gisbrecht v. Barnhart, 535 U.S. 789, 122 S.Ct.
1817, 152 L.Ed.2d 996 (2002) .......... eens 3, 6, 13, 14
Gottlieb v. Wiles, 150 F.R.D. 174 (D. Colo. 1993)............... 21
In re Asbestos Litig., 90 F.3d 963 (5th Cir. 1996) .............. 16
In re Bolar Pharmaceutical Co. Sec. Litig., 800
F.C, SG CEE Os RD <iciecaivreredensittentiseeimennes 21
In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d 285
CE ead. SPO sixcevssnuiccssnininsnencvensnetbandsealagassaannaneeaaealdl 25
vii
TABLE OF AUTHORITIES - Continued
In re General Motors Corp. Engine Interchange
Ebdlige, , GG FG TAGS CaF Fe i wcecvesecsvsvsoseesssvesccenevecteososonens 18
In re General Motors Corp. Pick-Up Truck Fuel
Tank Prod. Liab. Litig., 55 F.3d 768 (3d Cir.
EE scsskentpicieinléhiibcaiaiiascessbiiepnamnshiaauiiniitdsiaatandaiiansauate 16, 21, 26
In re NASDAQ Market-Makers Antitrust Litig., 187
Pe GE CRG se COP nttececesnecasnescevcuremnynenencinvenonssnes 25
In re Nineteen Appeals Arising Out of San Juan
Dupont Plaza Hotel Fire Litig., 982 F.2d 603 (1st
Ce Baa iieseiliasdecliscatdiccestidicineecacesemstnisdiazuatpianianmsnnes 21
In re Prudential Ins. Co., 962 F. Supp. 572 (D.N.J.
SPITE i nibibaicavecosnieciatneatdesstdainaadinianenchasdiathiaipenebeietdalannsects 22
In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293 (7th
GG iisirasiencdslacicantsiatotiagsindienansesntansiuiedbianmnacinaneed 29, 30
In re Washington Public Power Supply Sys. Sec.
Litig. (WPPSS), 19 F.3d 1291 (9th Cir. 1994)........ passim
Kayes v. Pacific Lumber Co., 51 F.3d 1449 (9th Cir.
Malchman v. Davis, 761 F.2d 893 (1985) .............cceecee eens
McLendon v. Continental Group, Inc., 872 F. Supp.
A es BD sncnenihiniecincacietatetabdeaeimanunapintnnticaantionee
Nensel v. People’s Heritage Financial Group, 815
Bh, hemes, BG. BR Be Pann evciericciceivcctvesonesnscnessnevssonvenes
Pennsylvania v. Delaware Valley Citizens’ Council
for Clean Air, 483 U.S. 711 (1987) .........:ccccessserseeeeeesees
Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277 (7th
SSL TTIITIE caciniteiicasceitaciescehiliatinsslseeiibtcennciaitamnannindighansneniidtuhetir
Szabo v. Bridgeport Machines, Inc., 249 F.3d 672
a I SITE Livin cikssscceectata idee patiecaepiansegigendedeaiabauimasiiaanianate
Viii
TABLE OF AUTHORITIES — Continued
Page
Trief v. Dunn & Bradstreet Corp., 840 F. Supp. 277
aes iis See ree csesisiicitesisianscscniceapistscqahadaneninseilelabecieaiaideaniasichiiia 22
Trustees v. Greenough, 105 U.S. 527 (1881)..................008 13
Vizcaino v. Microsoft Corp., 209 F.3d 1043 (9th Cir.
TT kcsivnccsonaceinaninshicagsanstubesuiskabinnaansannbepeannadudiaiamisainaainted 25
Weinberger v. Great Northern Nekoosa Corp., 801
7. UD. BOE GD. BRO. RGD) .ncecicccscsocoscvcessocessccesconecse 21, 22
Wells v. Dartmouth Bankcorp, Inc., 813 F. Supp.
Se es IEE witcapsindensneeidinineinintnediniiiiommaneddinaaieitn 15
Wing v. Asarco, Inc., 114 F.3d 986 (9th Cir. 1997)......... 7, il
RULES
SPINE Ai MEL TT TI casiiisintinsinesenenansinieiobuiamdaiiialaneducadiualiiie 2, 6, 26
RA SERIE) SUNANY wisinishccinanennnsicausinaddaitaitaceicensbaiininsaiuaalanlooibedl 1
STATUTES
12 C.F.R. § 226.2(a)(11), Regulation Z..............ccccccccsseseeeees 9
15 U.S.C. § 1601, Truth-in-Lending Act (TILA)....4, 7, 8, 12
ae Sie OF IIE sitsnncciecscececcieninsinidueindencdaniabidiaiiintbaniamness 8
ee se I ncerisiieenabadiiantaiddeniinaaiatanainpsinsinias 2
15 U.S.C. § 1666(c), Fair Credit Reporting Act.................. 8
oor Oe Oe
ix
TABLE OF AUTHORITIES — Continued
Page
OTHER AUTHORITIES
Budiensky, Stephen, How Lawyers Abuse the Law,
U.S. News & WORLD REPORT, Jan. 30, 1995.................4 5
Class Action System Survey, U.S. Chamber of
Commerce, Institute for Legal Reform, www.
litigationfairness.org. Poll conducted on May 11-12,
IIIT snscddctenteccsssseshausappesdeaandathacsersnnesenbesenieentenetanstenettenteenes 6
Cass ACTION WATCH, Analysis: Class Action
Litigation, A Federalist Society Survey (The Fed-
eralist Society for Law & Public Policy Studies,
Wash., D.C.), Vol. 1, No. 1 (1999)................ccrcccccccsscesees 6
Coffee, John C., The Unfaithful Champion: The
Plaintiff as Monitor in Shareholder Litigation,
Law & Contemp. Probl., 48 DUKE L. J. 3 (Sum-
INE I oo snsacenndsheiuadeaebaninbnednennnneneveoneese 6
Koniak, Susan P. and George M. Cohen, Jn Hell
There Will Be Lawyers without Clients or Law, 30
HOPFSTRA L. REV. 120, 155 (2001)........cccccccccccrrcccceccsceccees 2
MANUAL FOR COMPLEX LITIGATION (Fed. Jud. Center
SID isi cananiacuhcdebeidasagensnvabsatoseabaneuniansededenioedasteibeneniess 18
NEWBERG ON CLASS ACTIONS (3d ed.), Ch. 15,
Relationship Between Class Representative or
Counsel and Absent Class Members .............scccccessseeeeees 27
Priest, George L., Economics of Class Actions, 9
Kan. J. L. & Pus. PoL’y 481, 482 (No. 3, Spring
SUID ss ts daepenaunanslnbsneabeeinniesedediuniideeiennaeeueaiiepneneenecconte 30
Public Perceptions of Lawyers; Consumer Research
Findings, ABA Sec. of Litigation (April 2002)................ 5
Third Circuit Task Force Report, Court-Awarded
Attorneys’ Fees, 108 F.R.D. 237 (1985)........:.cceceeeeeeeeees 13
eA At a Aa tee HOE
1
PETITION FOR WRIT OF CERTIORARI
Petitioners Steven C. Simon, Alan J. Spitz and Daniel
J. Kelley respectfully pray that a writ of certiorari issue to
review the judgment of the United States Court of Appeals
for the Ninth Circuit in this case.
OPINIONS BELOW
The United States Court of Appeals for the Ninth
Circuit’s opinion (per Thompson and Rawlinson, C.J.J.;
Schwarzer (N.Cal.), D.J.), affirming the decision of the
District Court for the Central District of California, in an
unpublished Memorandum entered October 10, 2002, is
reproduced at App. 1.
The United States District Court for the Central
District of California, Order Granting Class Counsel’s
Motion for Attorneys’ Fees and Costs (Lourdes G. Baird,
J.), entered December 14, 2002, is reproduced at App. 10.
STATEMENT OF JURISDICTION
The United States Supreme Court has jurisdiction to
review this case on petition for writ of certiorari pursuant
to 28 U.S.C. § 1254(1). The United States Court of Appeals
for the Ninth Circuit entered its opinion on October 10,
2003 (App. 1), approving the decision of the United States
District Court for the Central District of California (App.
10). That decision was the subject of a petition for panel
rehearing with a petition for rehearing by the court en
banc. Said petition for rehearing and petition for rehearing
en banc was denied by the Ninth Circuit on November 18,
2002 (App. 34). This Petition for Writ of Certiorari is filed
within 90 days of the decision of the United States Court
of Appeals for the Ninth Circuit, and is therefore timely
under Rule 13.3 of this Court.
2
STATUTES AND RULES INVOLVED
15 U.S.C. § 1640(a)(3), provides:
[A] creditor who fails to comply with the Truth-
in-Lending Act is liable “in the case of any suc-
cessful action” for “the costs of the action together
with a reasonable attorneys’ fee as determined by
the court.” (Emphasis added).
Rule 23, Federal Rules of Civil Procedure.
INTRODUCTION
It is in the interest of all the participants in the
class action — save the absent members of the
class — to settle class actions by collusively trans-
ferring money from the class to class counsel. As
long as plaintiffs’ lawyers are willing to act in a
self-interested way, they will be rewarded by de-
fendants with extraordinary fees funded at the
expense of the class. Courts will not effectively
monitor the abuse because of their interest in
seeing cases settled. ...
Our experience and the available evidence of
class action practice [combined with] our under-
standing of the incentives built into the present
system sustains our conviction that collusion and
inadequate representation are everyday features
of the class action world — a scandalous state of
affairs.
Susan P. Koniak and George M. Cohen, Jn Hell There Will
Be Lawyers without Clients or Law, 30 HOFSTRA L. REV.
120, 155 (2001). (Emphasis added).
This appeal seeks to correct an abuse of Rule 23
wherein class action ple ntiffs’ attorneys, in consort with
the defendants, evade this Court’s decision in City of
Burlington v. Dague, 505 U.S. 557 (1992) (hereinafter
3
Dague), in order to obtain excessive attorneys’ fees at the
expense of class members’ recovery.
The subterfuge here in question was approved by the
district court and condoned by the Ninth Circuit Court of
Appeals because the district court held that the distinction
between reasonable attorneys’ fees awarded under com-
mon fund principles and reasonable attorneys’ fees
awarded under statutory fee-shifting principles was not
relevant to the court’s fee adjudicating process, and that
“it exalts form over substance [to argue] that [this settle-
ment] is not a true common fund case.” (App. 16).
The district court proceeded to calculate reasonable
attorneys’ fees paid separately by the defendant under a
fee-shifting statute, using common fund principles. This
had the effect of awarding class counsel a fee which
included a contingent risk multiplier because, as a result
of the Ninth Circuit decision in In re Washington Public
Power Supply Sys. Sec. Litig. (WPPSS), 19 F.3d 1291 (9th
Cir. 1994), risk multipliers are permissible when common
fund rather than fee-shifting principles guide the court’s
fee award analysis.
The bar against risk multipliers in statutory fee
cases does not apply to common fund cases.
WPPSS, 19 F.3d at 1299-1300. (Emphasis added).
In permitting class counsel to engage in the separate
attorneys’ fee payment/common fund ruse, the Ninth
Circuit Court of Appeals disregarded this Court’s decisions
in Gisbrecht v. Barnhart:
[W]e again emphasize [that] the lodestar method
was designed to govern imposition of fees on the
losing party,
535 U.S. 789 (2002), 122 S.Ct. 1817, 1827, 152 L.Ed.2d 996
(2002) (emphasis added), and
Dague:
Enhancement for contingency is not permitted
under... fee shifting statutes. ...
Dague, 505 U.S. at 567. (Emphasis added).
The Ninth Circuit held that a reasonable attorneys’
fee paid separately by the defendant under a fee-shifting
statute can be calculated using either common fund or fee-
shifting’ methodologies.
We reject the arguments of the appellants ...
Simon et al. challenging the method used by the
district to calculate class counsel’s fees. ... Even
assuming that the settlement did not create a
“common fund” as a result of the agreement that
class counsel’s fees would be paid independently
by Citibank and Universal, the district court was
not required to apply the lodestar method to cal-
culate class counsel’s fees.
(App. 8; emphasis added).
The scheme devised by class counsel and defendant
works as follows: Plaintiffs’ counsel file a class action
lawsuit under a statute which provides for fee shifting — in
the instant case the Truth-in-Lending Act (hereinafter
TILA). Class counsel subsequently settle the case and the
settlement agreement provides for the creation of a fund
for class members but also provides that the attorneys’ fee
is not paid from the fund created for the class but through
a separate payment by the defendants to the class’s
attorneys. Class counsel nonetheless ask the court to
approve their fee request under common fund principles.
Under the Ninth Circuit’s WPPSS decision, Dague does
not apply when fees are awarded from a common fund.
The circuits however are divided on the issue of whether
* The Ninth Circuit refused to address the Dague issue.
5
this Court’s Dague prohibition against risk enhancement
is confined to statutory fee-shifting principles or is appli-
cable in common fund fee calculations as well.
For acceding to this separate attorneys’ fee pay-
ment /common fund contrivance, defendant is rewarded in
the event that the court reduces class counsel’s fee re-
quest. In the instant case, as a result of the fairness
hearing in which several objectors, including petitioners,
argued that the $9 million fee was excessive, the court
reduced the fee to $7.2 million. However, the $1.8 million
fee reduction was returned to the defendants, in spite of
the fact that under common fund principles the reduction
should have gone to the class. As a result of this self-
dealing by the negotiating parties, the class lost $1.8
million, class counsel got an excessive fee award by evad-
ing Dague, and the defendants received a windfall.
A decision by this Court at this time is particularly
important. Public confidence in the legal profession is
exceedingly low — at or near the bottom in most surveys,
not least because too many lawyers are perceived as
greedy and as acting in their own self-interest at the
expense of their clients.’ This state of affairs is confirmed
by class action case law which notes that courts routinely
* In a recent survey of public confidence ... the category of “legal
profession/lawyers” placed second lowest, with only 19% indicating that
they were “extremely” or “very confident in” the profession. Public
Perceptions of Lawyers; Consumer Research Findings, ABA Sec. of
Litigation, April 2002, at 6. In that same survey, 57% indicated that
“lawyers are more concerned with their own self-promotion than their
client’s best interests.” Jd. at 7. “(T]he greatest number of complaints
arise around lawyers’ fees. ... Consumers say that lawyers charge too
much. ...” Jd. at 14. A U.S. News & World Report poll found that “56
percent say lawyers use the system to ... enrich themselves.” Stephen
Budiensky, How Lawyers Abuse the Law, U.S. NEWS & WORLD REPORT,
Jan. 30, 1995, at 50-51.
6
approve fee requests which overcompensate class action
lawyers.’ Not surprisingly, class action filings have in-
creased substantially in recent years.‘
Class action attorneys, manipulating Rule 23 to
enhance their fee awards, are eroding public respect for
the legal system.* It is important that this Court ensure
that its decisions in Dague and Gisbrecht, supra, and
Evans v. Jeff D., 475 U.S. 717 (1986) (hereinafter Jeff D.)
(see pages 14-15, infra), are respected in letter and spirit.
Federal courts should refuse to allow “the wool [to be]
pulled over their eyes” when awarding multimillion-dollar
attorneys’ fee awards under common fund principles when
no common fund has been created. There is simply no
justification for the notion that the decades-old distinction
* For example, Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277, 287
(7th Cir. 2002) (“[I]nflated attorneys’ fees are an endemic problem in
class action litigation. ... ”).
* A survey done by the Federalist Society found that between 1988
and 1998, class action filings increased by 338% in federal courts and
more than 1000% in state courts. See CLASS ACTION WATCH, Analysis:
Class Action Litigation, A Federalist Society Survey (The Federalist
Society for Law & Public Policy Studies, Wash., D.C.), Vol. 1, No. 1
(1999), at 3.
* Class Action System Survey, U.S. Chamber of Commerce,
Institute for Legal Reform, www.litigationfairness.org. Poll conducted
on May 11-12, 2002. In response to the question, who benefits most
from the current class action lawsuit system, 45% answered the
lawyers who represent the alleged victims, 28% the lawyers who
represent the companies being sued, and only 5% answered the people
who are part of the class action lawsuits. Jd. at 4.
* “Yet, to some extent, the wool can be pulled over the court’s eyes
if the parties negotiate an agreement under which legal fees will be
paid separately by the defendant.” John C. Coffee, The Unfaithful
Champion: The Plaintiff as Monitor in Shareholder Litigation, Law &
Contemp. Probl., 48 DUKE L. J. 3 (Summer 1985), at 71 n.102.
7
between common fund and fee-shifting methodologies
“exalts form over substance.”
STATEMENT OF THE CASE
This is an appeal from a district court judgment
awarding reasonable attorneys’ fees to class action lawyers
under common fund principles when the fee was paid
separately by the defendants pursuant to a fee-shifting
statute. The settlement arose out of lawsuits filed in Texas
by one group of class action lawyers and in California by
another group of class action lawyers. The lawsuits were
filed under TILA and alleged that the defendant banks,
Citibank (South Dakota), N.A., Universal Bank, and
Universal Financial Corporation, failed to credit custom-
ers’ credit card payments on the date of receipt, when such
payments were received after a 10:00 a.m. cutoff time. The
lawsuits sought damages for the imposition of excess
finance charges and late fees. After discovery, a settlement
was reached in which the cutoff time was extended three
hours from 10:00 a.m. to 1:00 p.m., and a cash fund of $18
million and other nonpecuniary benefits were established
for the class. Class counsel negotiated a separate payment
by the defendants of $9 million for attorneys’ fees. The
court anproved the settlement and awarded class counsel
a “reduced” fee of $7.2 million in fees under common fund
principles, in spite of the fact that the fees were paid
separately by the defendant and were not part of the class’s
fund. The $1.8 million fee reduction was not paid to the
class but reverted to the defendants. The Ninth Circuit
approved the procedure, relying on Wing v. Asarco, 114
F.3d 986 (9th Cir. 1997) (App. 8), for the proposition that:
There is no bright line rule requiring the applica-
tion of a particular method of calculating a fee
award in a case where class counsel’s fees are to
be paid independently rather than out of the set-
tlement fund.
8
STATEMENT OF FACTS
1. On October 1, 1999, three Texas class action law
firms filed a class action against defendant Citibank in the
federal court in Marshall, Texas, on behalf of plaintiff
Willie Jimmerson. (App. 10). 7
2. On December 22, 1999, two California class action
law firms filed a class action against defendant Citibank
in the Superior Court of California on behalf of plaintiff
Elliot Schwartz. (App. 11). Citibank removed this case to
the federal District Court for the Central District of
California. (App. 11).
3. The initial complaints alleged misconduct violat-
ing the federal Fair Credit Reporting Act, 15 U.S.C.
~§ 1666(c), and the related 15 U.S.C. § 1640(a) arising
under the Truth-in-Lending Act, 15 U.S.C. § 1601. (App.
12, 19 nn.2 & 3).
4. The named plaintiffs alleged that they “believed”
that the credit card payments would be credited to their
account on the date that the payment was to be received
by the bank.
5. The plaintiffs furthermore alleged that they were
deceived by the payment procedure and that the late fees,
finance charges, and other penalties assessed against
them for payments received after the cutoff time were
improper. The plaintiffs claimed that the alleged miscon-
duct violated the federal Fair Credit Reporting Act, 15
U.S.C. § 1666(c), and the related 15 U.S.C. § 1640(a)
arising under the Truth-in-Lending Act, 15 U.S.C. § 1601.
" It was acknowledged that “in small print on the back” of their
account statement, customers were advised that there was a 10:00 a.m.
cutoff time and that payments after that time would be credited to their
account as of the following business day.
9
6. The defendants agreed that the lawsuits could be
settled as a class action and stipulated to conditional
certification of a class consisting of “all consumers who
have or at any time have had one or more VISA or
MasterCard credit accounts marketed under the Citibank
brand,” as that term is defined under Regulation Z, 12
C.F.R. § 226.2(a)(11).
7. The terms of the settlement included provisions
which provided that: (i) “the parties agree that reasonable
attorneys’ fees and costs from the class shall be paid
separately by the defendants in an amount to be awarded
by the court”; and (ii) defendants agree not to oppose an
application for an award of attorneys’ fees of up to $9
million ... and no award greater than [that amount] shall
be requested or made.... ” (Appellee Citibank’s Ninth
Circuit Excerpts of Record at 18 (Settlement Agreement
and Release, { 22); emphasis added).
8. Plaintiff class member/objectors and appellants
herein filed a timely objection to the settlement’s $9
million attorneys’ fee provision.
9. The district court conducted a fairness hearing
with respect to the proposed settlement and award of
attorneys’ fees. At that hearing, numerous plaintiff class
member/objectors, including petitioners herein, argued
that the fee was excessive and that the court should
perform a lodestar cross-check. (Appellant Simon, et al.’s
Ninth Circuit Excerpts of Record at 49 (Dkt. 148, Hr’g Tr.
9/25/00, filed 12/12/00)).
10. The courts “crude lodestar cross-check” (App. 30)
disclosed:
(a) Both dockets [the Texas litigation and the Cali-
fornia litigation] reveal relatively little law and motion
practice. (App. 29).
10
(b) Class counsel allege “hundreds of hours” spent
investigating the facts and researching the issues of the
case. (App. 30).
(c) Class counsel allege “over 700 hours” spent
responding to class member inquiries concerning the
settlement. (App. 30).
(d) The court (quite generously)’ assumed a hypo-
thetical 5,000 hours spent on the case, and awarded a fee
which translated into an hourly rate of $1,440 per hour.”
11. Objectors raised the following additional argu-
ments (Appellant Simon, et al.’s Ninth Circuit Excerpts of
Record at 47 (Dkt. 123, Response to Class Counsel’s
Supplemental Memoranda on Attorneys’ Fees, filed
10/25/00)).
(a) No common fund was created from which to pay
class counsel a reasonable fee under common fund princi-
ples.
(b) The fee was paid separately from the class’s
recovery under statutory fee-shifting procedures and no
risk multiplier was permissible under Dague.
12. On December 14, 2001, the district court entered
an award of reasonable attorneys’ fees to class counsel in
the amount of $7.2 million. (App. 33). In the order, the
court noted the following:
It exalts form over substance to suggest that be-
cause the attorneys’ fees are not directly de-
ducted from the settlement fund, and are instead
* See No. 10(a), (b), and (c) above.
* Five thousand hours and a $9 million fee award translates into
an hourly rate of $1,800. (App. 30). (Five thousand hours and a $7.2
million fee award translates into $1,440 per hour).
11
paid pursuant to an independent agreement with
Defendants, that this is not a true common fund
case.
(App. 16; emphasis added).
Appellants argued before the Ninth Circuit that the
fee award was improper because the fee included a risk
multiplier not permissible when attorneys’ fees are paid
separately by the defendant under a fee-shifting statute.
The Ninth Circuit Court of Appeals, relying on Wing v.
Asarco, supra,” affirmed the district court’s award. The
panel held that:
We reject the arguments of the appellants ...
Simon et al. challenging the method used by the
district to calculate class counsel’s fees. ... Even
assuming that the settlement did not create a
“common fund” as a result of the agreement that
class counsel’s fees would be paid independently
by Citibank and Universal, the district court was
not required to apply the lodestar method to cal-
culate class counsel’s fees.
(App. 8; emphasis added).
However, this rcliance on Wing sidestepped the issue of the
relevance of Dague to the court’s award:
Although the district court did engage in a Dague debate
with counsel, we find it unnecessary to decide whether Da-
gue extends to the case at hand, since, as discussed below,
the fee is justifiable on other grounds.
Wing v. Asarco, Inc., 114 F.3d at 989. (Emphasis added).
12
REASONS FOR GRANTING THE WRIT
I. THE DISTRICT COURT’S AWARD OF FEES
UNDER COMMON FUND PRINCIPLES AS A
PERCENTAGE OF THE CLASS’S RECOVERY
IS DIRECTLY CONTRADICTORY TO THIS
COURT'S RECENT DECISION IN GISBRECHT v.
BARNHART, 535 U.S. 789 (2002), AND UN-
DERMINES THIS COURT’S DECISIONS IN
CITY OF BURLINGTON v. DAGUE, 505 U.S.
557 (1992), AND EVANS v. JEFF D., 475 U.S.
717 (1986).
A. The district court’s award constituted a
failure to follow this Court’s prescribed
legal principles for judicial awards of
reasonable attorneys’ fees.
The district court’s award of reasonable attorneys’ fees
under TILA to class counsel under common fund princi-
ples, when the fee was paid separately by the defendants
_ and when the residue resulting from a fee award lower
than the one requested reverted to the defendants, not the
plaintiff class, violates the prevailing legal standards for
the judicial determination of reasonable attorneys’ fees.
The court’s conclusion that the distinction between com-
mon fund principles and fee-shifting principles “exalts
form over substance” is incorrect as a matter of law.
The distinction between the fee in these two
types of cases, statutory fee and common fund
fee, has practical relevance... . [I]t affects how
the fee is calculated, as the “lodestar” method
applied to set a reasonable attorney’s fee under a
statutory fee provision ... is not necessarily ap-
plied under the common fund doctrine.
Brytus v. Spang & Co., 203 F.3d 238, 242 (3rd Cir. 2000).
(Citation omitted; emphasis added).
13
1. Common fund principles only apply when the
attorneys’ fee is paid out of the class’s recovery.
A lawyer . .. who recovers a common fund for the
benefit of persons other than himself or his client
is entitled to a reasonable attorneys’ fee from the
fund as a whole.
Boeing Co. v. Van Gemert, 444 U.S. 472 (1980).
The common fund doctrine is an equitable fee sharing
mechanism recognized by this Court in Trustees v.
Greenough, 105 U.S. 527, 532-33 (1881) to prevent unjust
enrichment by those who would benefit from the efforts of
a lawyer or litigant but who have no contractual obligation
to pay the costs of the litigation from which they benefit.
(The common fund doctrine exists to] avoid the
unjust enrichment of those who ... would be
benefited by the fund without sharing in the ex-
penses....
Third Circuit Task Force Report, Court-Awarded Attor-
neys’ Fees, 108 F.R.D. 237, 250 (1985).
2. When reasonable attorneys’ fees are awarded in
connection with a case brought under a fee-shifting statute
and fees are paid separately by the defendants, fee-
shifting principles are invoked.
(a) The lodestar approach applies.
The lodestar method today holds sway in federal
court adjudications of disputes over the amount —
of fees properly shifted to the loser in the litiga-
tion. ...
Gisbrecht v. Barnhart, supra, 122 S.Ct. at 1818. (Emphasis
added).
(b) Contingent risk lodestar multipliers are forbid-
den in the calculation of a reasonable attorneys’ fee.
Enhancement for contingency is not permitted
under . . . fee shifting statutes. . . .
Dague, 505 U.S. at 567. (Emphasis added).
14
In this settlement, class counsel negotiated for a
separate payment of $9 million in attorneys’ fees from the
settling defendants, not a payment of attorneys’ fees from
the class’s recovery. (See Statement of Facts, No. 7, supra).
The district court failed to apply the correct fee jurispru-
dence” when it used the percentage-of-the-recovery ap-
proach under common fund principles to award class
counsel a fee which was paid separately by the defendants.
[W]e again emphasize that the lodestar method
was designed to govern imposition of fees on the
losing party.
Gisbrecht v. Barnhart, supra, 122 S.Ct. at 1827.
Seeking fees under the common fund doctrine allows
class action attorneys to avoid the restrictions of Dague,
505 U.S. 557, and allows them to argue in favor of the
percentage approach because of the association between
common fund recoveries and the _ percentage-of-the-
recovery approach.
[The fee under common fund principles] is calcu-
lated by awarding a reasonable percentage of the
fund bestowed upon the class.
Blum v. Stenson, 465 U.S. 886, 900 n.16 (1984).
3. An impermissible conflict of interest exists when
class counsel structure settlement negotiations to obtain a
payment of attorneys’ fees separate from the class’s recov-
ery. In doing so, class counsel violated the rationale for
this Court’s decision in Jeff D., supra.
” The rationale applicable to the situation in which the fee is
paid out of the recovery obtained by plaintiff is simply inap-
plicable where there is no such fund, and the award is paid
directly by the defendant.
Tr. of Oral Argument, City of Burlington v. Dague, 1992 WL 687821 at
*19-*20, *24-*26.
15
Jeff D. allowed simultaneous negotiation of attorneys’
fees and the class’s recovery in one lump sum settlement
payment from the settling party. This Court noted that a
lump payment enabled the settling party to determine its
total liability and encouraged the settling party to put up
a full settlement value without uncertainty about a subse-
quent large attorneys’ fee payment.
Many a defendant would be unwilling to make a
binding settlement offer on terms that left it ex-
posed to liability for attorneys’ fees in whatever
amount the court might fix... .
Jeff D., 475 U.S. at 733.
The district court’s utilization of common fund princi-
ples where the fee was paid separately by the defendants
creates the very problem that this Court sought to avoid in
Jeff D. The settling defendants can no longer place on the
table the maximum amount of money available to settle
the litigation because attorneys’ fees do not come out of the
total payment. Rather, the defendants, who have no
interest in how the settlement funds are allocated between
class counsel and the class:
Defendants, having made their contribution to
the settlement, are uninterested in the distribu-
tion so they have no interest in opposing how the
fee is allocated.
Wells v. Dartmouth Bankcorp, Inc., 813 F. Supp. 126, 128
(D.N.H. 1993) (emphasis added), are put in the position of
being concerned about the impending fee demand by class
counsel and must hold back cash in anticipation thereof.
Money not provided to the class is available for class
counsel’s fee.
(a) Class counsel’s competition with their own clients
for a share of what defendants will offer in settlement
inhibits the class’s ability to maximize its recovery. It is in
class counsel’s financial self-interest not to press for the
16
limit of what the defendants will pay in order that defen-
dants have sufficient funds to satisfy class counsel’s—
separate fee demand.
[E]ven an attorney who would refuse ... an out-
right bribe might be tempted to make concessions
during the class negotiations, hoping to develop
good will that will pay dividends when negotiat-
ing over [lawyers’ fees].
In re Asbestos Litig., 90 F.3d 963, 1011 (5th Cir. 1996)
(Dissenting opinion of Jerry E. Smith, J.). (Emphasis
added).
The class was denied the benefit of a zealous advocate _
negotiating- to maximize the class’s recovery. To the con-
trary, class counsel, in derogation of their professional and
fiduciary obligations, placed their pecuniary self-interest
ahead of the class’s.
The separate negotiation of the fee ... only en-
hances this sense that counsel may have pursued
a deal with the defendant separate from, and
perhaps competing for the defendant’s resources
with, the deal negotiated on behalf of the class.
In re General Motors Corp. Pick-Up Truck Fuel Tank Prod.
Liab. Litig., 55 F.3d 768, 803 (3d Cir. 1995) (hereinafter
GM Pick-Up). (Emphasis added).
At a time when class counsel were supposed to be
vigorously negotiating on the class’s behalf, they had to be
concerned about ensuring that defendant retained suffi-
cient cash to satisfy their ensuing request for fees.
Defendants’ attorneys knew that class counsel
had an interest in assuring that there was suffi-
cient money available to pay their fee after the
class’s recovery was negotiated, and they un-
doubtedly converted this knowledge into negoti-
ating leverage.
In re Asbestos Litig., 90 F.3d at 1009. (Emphasis added).
17
(b) The class’s right to its attorneys’ fee award is
bargained away by class counsel for their own benefit.
When plaintiffs sue under a statute which provides for
fee shifting, defendants’ payment of attorneys’ fees is not
the attorneys’ recovery, it belongs to the client.
Congress bestowed on the prevailing party a
statutory eligibility for a discretionary award of
attorneys’ fees.
Jeff D., 475 U.S. at 730. (Emphasis added).
Class counsel negotiated a $9 million attorneys’ fee
payment from the defendants but the class was denied its
legiti.1ate right to the $1.8 million residual.
(c, Defendants receive a windfall at the expense of
the class.
The defendants received an undeserved windfall of
$1.8 million when the court reduced class counsel’s $9
million fee request. In essence, class counsel and the
defendants agreed that as long as $9 million went to class
counsel, defendants had no objection to paying it. How-
ever, if the money did not go to class counsel, then it
reverted to the defendants. Since the defendants had
already agreed to pay $9 million and are indifferent to how
the settlement money is allocated between class counsel
and the class,
[DJefendants are happy to pay generous attor-
neys’ fees since all they care about is the bottom
line — the sum of the settlement and the attor-
neys’ fees — and not the allocation of money be-
tween the two categories of expense.
Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277, 282 (7th
Cir. 2002) (emphasis added), there is no legitimate reason
why, in the event of the court’s reduction of the fee, the
money should not go to the class.
18
(d) The separate payment of attorneys’ fees and the
application of common fund principles reduces the incen-
tive of the court to scrutinize and the class to monitor the
amount of class counsel’s fee request.
(i) It disincentivizes class members because, even if
the court reduces class counsel’s fee (as it did in the
instant case), no financial benefit is realized by the class.
(ii) It disincentivizes the trial court because, unlike a
legitimate common fund, the court is no longer able to
increase the class’s recovery when it reduces the amount of
fee. Settlements structured in this manner contradict the
recommendation of the MANUAL FOR COMPLEX LITIGATION
(Fed. Jud. Center 1977):
The Manual [for Complex Litigation] condemns
settlement agreements which provide that the
fees and sometimes expenses of plaintiffs’ counsel
are to be paid separately by the defendant(s) over
and above the settlement. ... Such arrangements
should not be permitted. All amounts to be paid
by the defendant(s) are properly part of the set-
tlement funds.... The effect of such an ar-
rangement is to neutralize the court’s power and
responsibility to pass upon the reasonableness of
the amounts to be paid to plaintiffs’ counsel,
since any reduction by the court in the amount
counsel agree upon after the class settlement has
been approved will simply go to reduce the ag-
gregate amount defendant(s) will pay and will
not increase the amount to be paid to the plain-
tiffs. As a result, there is little incentive for the
judge to reduce the agreed upon fees.
In re General Motors Corp. Engine Interchange Litig., 594
F.2d 1106, 1130-31 (1979). (Emphasis added).
It should be noted that class counsel further weak-
ened the adversarial process as a result of the “clear
sailing” provision whereby defendants agree not to oppose
19
a fee request of $9 million. (See Statement of Facts, supra,
No. 7).
A “clear sailing” clause has two adverse effects
that cast substantial doubt on the legitimacy of
its use. First, it deprives the trial court and a re-
viewing court of the certainty of having the pro-
priety of the fee tested in the adversary process.
[Second, the clause creates the likelihood that
plaintiffs’ counsel, in obtaining defendants’
agreement not to challenge a fee request within a
stated ceiling, will bargain away something of
value to the plaintiffs’ class.] It is unlikely that a
defendant will gratuitously accede to the plain-
tiffs’ request for a “clear sailing” clause without
obtaining something in return.” That something
will normally be at the expense of the plaintiff
class.
Malchman v. Davis, 761 F.2d 893, 907-08 (1985). (Empha-
sis added).
* Apparently taking judicial notice of the principle “you don’t get
something for nothing.”
20
Il. THE NINTH CIRCUIT'S ALLOWANCE OF
CONTINGENT RISK ENHANCEMENT IN
AWARDING REASONABLE ATTORNEYS’ FEES
UNDER COMMON FUND PRINCIPLES RE-
FLECTS A DISAGREEMENT AMONG THE
CIRCUITS REGARDING THE APPLICABILITY
OF THIS COURT’S DECISION IN CITY OF
BURLINGTON v. DAGUE, 505 U.S. 557 (1992).
A. This Court should resolve the dispute
which has ensued as a result of its deci-
sion in Dague, prohibiting consideration
of contingency risk to enhance the lode-
star when calculating a court-awarded
reasonable attorneys’ fee under a fee-
shifting statute.
The reason class action attorneys are encouraged to
adopt the contrivance at issue in this appeal is because
there presently exists a disagreement among the circuit
courts of appeals and district courts regarding whether the
Dague prohibition against enhancing the lodestar for
contingency risk under fee-shifting statutes also applies
when courts award reasonable attorneys’ fees from com-
mon fund recoveries.
The Supreme Court has not yet decided whether
its decision in Dague precluding the use of a mul-
tiplier in consideration of risk taken when calcu-
lating fees under the lodestar method applies in
common fund cases. ...
Brytus v. Spang & Co., 203 F.3d at 243. (Citations omitted;
emphasis added).
Compare WPPSS, 19 F.3d at 1299 (“Dague’s rationale
for barring risk multipliers in statutory fee cases does not
operate to bar risk multipliers in common fund cases”),
and Florin v. NationsBank of Georgia (hereinafter Florin),
34 F.3d 560, 564 (7th Cir. 1994) (“we conclude that the
21
holding in Dague should not extend to this case... ;
Common fund principles properly control a case which is
initiated under a statute with a fee-shifting provision, but
is settled with the creation of a common fund”),
with In re General Motors Corp. Pick-Up Truck Fuel
Tank Prod. Liab. Litig. (hereinafter GM Pick-Up), 55 F.3d
768, 822 (3d Cir. 1995) (“to the extent that the district
court relied on the lodestar method, it erred by applying a
multiplier ... [t]he Supreme Court ... has rejected the
use of multipliers to enhance the lodestar’s hourly rate
amount”) (applied to de facto common fund); and In re
Nineteen Appeals Arising Out of San Juan Dupont Plaza
Hotel Fire Litig., 982 F.2d 603, 619 (1st Cir. 1992) (J. Lay,
concurring) (“I can discern no logical distinction between
an equitable fund case and a fee-shifting case that would
cause these [Dague’s] reasons to be worthwhile in [fee-
shifting but not in] an equitable fund case.”).
Numerous federal district courts have weighed in on
this dispute. See, e.g., Nensel v. People’s Heritage Financial
Group, 815 F. Supp. 26, 30 (D. Me. 1993) (Dague’s pro-
scription of the use of risk multipliers applies to common
fund cases); Weinberger v. Great Northern Nekoosa Corp.,
801 F. Supp. 804, 825n.59 (D. Me. 1992) (same); In re
Bolar Pharmaceutical Co. Sec. Litig., 800 F. Supp. 1091,
1095 (E.D.N.Y. 1992) (“ban on fee enhancement for contin-
gency in statutory fee-shifting cases extends to equitable
fund cases”). But see Gottlieb v. Wiles, 150 F.R.D. 174, 184
n.6 (D. Colo. 1993), for contrary analysis.
Petitioners believe that the Ninth Circuit interpretation
of Dague is incorrect, as explained in the cases noted below.
Nensel v. People’s Heritage Group, 815 F. Supp. at 28:
Having once again carefully studied the reasons
put forth in the Dague opinion as to why a mul-
tiplier-based enhancement is not warranted, the
Court can see little, if any, basis to distinguish in
22
the application of the holding in Dague between
fee-shifting and common-fund cases.
Enhancement for contingency in common-fund
cases will also have the effect of compensating
(on the basis of averages) counsel for services in
cases where they have not prevailed and will en-
courage the bringing of weak and unfounded
class action suits. (Emphasis added).
Trief v. Dunn & Bradstreet Corp., 840 F. Supp. 277, 284-85
(S.D.N.Y. 1993):
The language of the [Dague] opinion, however,
strongly suggests that the court’s holding is ap-
plicable to common fund cases. ... Moreover, the
. City of Burlington court’s reasoning is directly
applicable to class action suits brought pursuant
to Rule 23. Each consideration enunciated by the
City of Burlington court declining to permit en-
hancement of the lodestar is equally relevant to
the question of whether the lodestar should be
enhanced in this case.... [I]ts applicability is
not limited to the context of federal fee-shifting
statutes. (Citation omitted; emphasis added).
In re Prudential Ins. Co., 962 F.Supp. 572, 581 n.24
(D.N.J. 1997):
The Supreme Court, however, held [in Dague]
that risk enhancements were inappropriate in
fee-shifting cases. While the Court did not ad-
dress whether risk enhancements survive in
common fund cases, the Court’s reasoning for ex-
cluding risk enhancements in fee-shifting cases
applies equally to common fund cases. (Emphasis
added).
Weinberger v. Great Northern Nekoosa Corp., 801 F. Supp.
at 825 n.59:
Nonetheless, the Dague court’s policy rationales
in denying a contingency-based multiplier seems
to be equally applicable here. (Emphasis added).
23
Dague proscribed contingent risk enhancement for the
following reasons:
(1) Enhancement for contingency risk “would likely
duplicate ... factors already subsumed in the lodestar.”
Dague, 505 U.S. at 562.
(2) Enhancement for contingency risk “would en-
courage meritorious claims to be brought, but only at the
social cost of indiscriminately encouraging nonmeritorious
claims to be brought as well. We think that an unlikely
objective of the ‘reasonable fees’ provisions.” Dague, 505
U.S. at 563.
(3) Enhancement for contingency risk to attempt “to
mimic the intricacies of the fee-paying market in every
respect [is neither necessary nor even possible].” Dague,
505 U.S. at 566-67.
(4) Enhancement for contingency risk, under the
conditions set forth in Delaware Valley II, 483 U.S. 711
[Pennsylvania v. Delaware Valley Citizens’ Council for
Clean Air, 483 U.S. 711 (1987)], cannot “be intelligibly
applied.” Dague, 505 U.S. at 563.
(5) Enhancement for contingency risk requires that a
defendant “would in effect pay for the attorney’s time (or
anticipated time) in cases where his client does not pre-
vail.” Dague, 505 U.S. at 565.
(6) Enhancement for contingency risk “would make
the setting of fees more complex and arbitrary, hence more
unpredictable... .” Dague, 505 U.S. at 566.
All of bi concerns which this Court expressed in
Dague as reasons to prohibit contingency risk enhance-
ment in fee-shifting cases, apply as well to fee calculations
in common fund cases — and several apply to common
funds with even greater relevance! Moreover, the courts
which have held that Dague does not apply to common
fund fee calculations focus only on the unfairness of
24
requiring a defendant to pay a higher fee based on the
riskiness of the case.
The concerns that drove the Court to reject con-
tingency enhancements in the statutory fee con-
text apply with much less force in common fund
cases. Unlike statutory fee-shifting cases where
the winner’s attorneys’ fees are paid by the losing
party, attorneys’ fees in common fund cases are
not paid by the losing defendant, but by members
of the plaintiff class.
WPPSS, 19 F.3d at 1300. (Emphasis added). Accord,
Florin, 34 F.3d at 564 (“Unlike in fee-shifting cases, the fee
award in a common fund case is ultimately charged
against the plaintiffs’ fund, rather than directly against
the defendant.”).”*
Although in fee-shifting cases the defendant pays a
reasonable fee and in common fund cases the plaintiff
class pays a reasonable fee, there is no logical distinction
between these types of public interest litigation which
would make Dague’s prohibition of risk enhancement
inapplicable in common fund cases.
Furthermore, allowing two radically different fee
outcomes based upon whether class counsel seek attor-
neys’ fees from the defendant as opposed to the fund has
numerous additional deleterious effects.
1. It frustrates the intent of eer in establishing
fee-shifting statutes.
In creating fee-shifting statutes, Congress intended to
encourage lawyers to undertake specific types of litigation
* It should be pointed out that neither WPPSS nor Florin, supra,
even mention Dague’s concern with incentivizing attorneys to file
marginally meritorious lawsuits by awarding larger fees to riskier
cases.
25
deemed to be in the public interest. However, current Ninth
Circuit fee jurisprudence pays lawyers significantly higher
fees — for identical work — when “reasonable” attorneys’
fees are paid out of a common fund recovery as opposed to
when “reasonable” attorneys’ fees are paid by a defendant
under a fee-shifting provision. This incentivizes lawyers to
do exactly the opposite of what Congress intended. It
encourages attorneys to bring cases under statutes with-
out fee-shifting provisions as well as to limit their selec-
tion of cases only to those which offer the potential of large
common fund recoveries.
This focus on damages would contradict Con-
gress’s purpose in providing for fee-shifting in
these cases, which was “to encourage successful
civil rights litigation, not to create a special in-
centive to prove damages and shortchange efforts
to seek effective injunctive and declaratory re-
lief.” Indeed, since fees paid out of a common
fund are only available in multi-plaintiff actions,
the widespread use of common-fund recoveries as a
source of fees for lawyers ... would not only skew
the incentives of plaintiffs’ lawyers toward dam-
ages rather than equitable remedies, but also to-
ward class actions rather than suits by individuals.
Evans v. City of Evanston, 941 F.2d 473, 479 (7th Cir.
1991). (Citation omitted; emphasis added).
It simply makes no sense for courts to pay lawyers
significantly lower “reasonable” attorneys’ fees for pursu-
ing cases which Congress sought to encourage and deemed
to be of particular social benefit, and to pay higher “rea-
sonable” attorneys’ fees to lawyers who bring cases which
Multipliers of 4 are all too common in class action fee awards,
e.g., Vizcaino v. Microsoft Corp., 209 F.3d 1043 (9th Cir. 2002); In re
Cendant Corp. Sec. Litig., 109 F. Supp. 2d (D.N.J. 2000); In re NASDAQ
Market-Makers Antitrust Litig., 187 F.R.D. 465 (S.D.N.Y. 1998).
26
Congress did not feel of sufficient public benefit to warrant
the guarantee of a reasonable attorneys’ fee.
Because these cases are not presumed to serve
the public interest (as evidenced by the lack of a
fee statute), there is no social policy reason that
demands an adequate fee.
GM Pick-Up, 55 F.3d at 821.
Congress’s purpose can only be achieved if a uniform
fee methodology is established without reference to
whether the litigation creates a common fund. Both Rule
23 and fee-shifting provisions were instituted by Congress
to encourage public interest litigation. When a court is
asked to determine a reasonable fee, there is no justifica-
tion for having a radically different fee-enriching experi-
ence for lawyers in one type of public interest litigation
and not the other when both serve the public good.”
[W]e are of the view that where the court is
called upon to set a fair and reasonable fee the
same general method should be used regardless
of the type of case involved.
Brewer v. Southern Union Co., 607 F. Supp. 1511, 1521 (D.
Colo. 1984).
2. Failure to extend the Dague prohibition against
risk multipliers to common fund recoveries creates a
serious financial conflict of interest for plaintiffs’ class
counsel. It compromises the lawyers’ fiduciary responsibil-
ity to maximize the class’s recovery and incentivizes
counsel to place their own financial interests ahead of the
interests of the class.
Class counsel have a fiduciary responsibility to class
members in class actions. (“Attorneys ... seeking to
represent the class assume fiduciary responsibilities to the
“ To paraphrase Gertrude Stein, a reasonable fee is a reasonable
fee is a reasonable fee.
27
class.... ” NEWBERG ON CLASS ACTIONS (3d ed.), Ch. 15,
§ 1503, Relationship Between Class Representative or
Counsel and Absent Class Members]. This responsibility
prevents even the appearance of impropriety.
The responsibility of class counsel to absent class
members whose control over their attorneys is
limited does not permit even the appearance of
divided loyalties of counsel.
Kayes v. Pacific Lumber Co., 51 F.3d 1449, 1465 (9th Cir.
1995). (Emphasis added).
In light of Dague, the conflict of interest issue in
litigation commenced under fee-shifting statutes and
settled with the creation of a common fund is clear:
In the usual common fund case, the question of
whether the fund was created through a judg-
ment or a settlement is irrelevant to the method
by which the amount of compensation is deter-
mined. In a case such as this one, however, had
plaintiffs prevailed at trial, it is entirely possible
that defendants, rather than the common fund,
would have been liable for attorney’s fees under
ERISA, 29 U.S.C.A. § 1132(g)(1). For the court to
award plaintiffs’ counsel a percentage of the set-
tlement when he might only have been entitled
to an hourly — and therefore possibly lower — fee
had he obtained a favorable judgment, would
raise the specter of a significant conflict of inter-
est between counsel and the absent class members
in the negotiation of such a settlement.
Bowen v. South Trust, 760 F. Supp. 889, 896 (M.D. Ala.
1991). (Footnote omitted; emphasis added).
Brytus v. Spang & Co., supra, recognized the problem
of the disparity of different methods of calculating reason-
able attorneys’ fees for class counsel.
Of course, there remains the possibility that in
some cases counsel for a class of plaintiffs may
receive a higher fee award upon settlement than
28
they would have received had the case proceeded
to judgment.
Brytus v. Spang & Co., 203 F.3d at 247.
This Court, in Amchem Prod., Inc. v. Windsor, 521
U.S. 591, 621 (1997), acknowledged the client loyalty
problem when class counsel were “confined to settlement
negotiations [and] could not use the threat of litigation to
press for a better settlement.” In such circumstances, this
Court held that class counsel were compromised in their
ability to represent the class’s interest. Similarly, as noted
in Brytus, attorneys are also compromised as long as
Dague does not extend to common fund recoveries because
class counsel risk a lower court-awarded attorneys’ fee by
pressing the class’s claim to trial, even in the event of an
inadequate settlement offer.
On this point, Yale Law Professor (and Special Mas-
ter) George L. Priest found Dague’s prohibition against
risk multipliers applicable to common fund recoveries. As
noted in McLendon v. Continental Group, Inc., 872
F. Supp. 142 (D.N.J. 1994):
The Master concludes that the Dague restriction
must apply to any common fund case that started
as a fee-shifting case. He reasons that since Da-
gue clearly prohibits any risk enhancement of
lodestar amounts in statutory fee cases, then al-
lowing such enhancement in such cases that set-
tle for a lump sum would improperly encourage
plaintiff attorneys to settle for lump sums in hopes
of obtaining a risk enhancement that would not
otherwise be available. Thus, the Master predicts
that the Supreme Court would prohibit risk en-
hancement of the lodestar amount even if the
award came from a common fund derived from a
fee-shifting case. ... In essence, the Master con-
tends that if different rules apply to attorneys’
fees once a fee-shifting case settles, then a con-
flict of interest inevitably would arise between
plaintiffs and their attorneys as to the course of
the litigation.
:
%
i;
29
McLendon, 872 F.Supp. at 154. (Footnote and citation
omitted; emphasis added). (Highlighting the controversy
over these issues, Judge Sarokin overruled the Special
Master’s finding).
Class counsel should never be placed in the position of
being able to engineer higher compensation for themselves
by settling cases on terms which optimize their own
recovery at the expense of maximizing the class’s recovery.
Allowing lawyers’ self-interest to intrude upon their
obligation to maximize their clients’ recovery will only
further weaken public confidence in the legal profession.
The class action suit is designed to serve the pub-
lic good, and the benefit to lawyers cannot be al-
lowed to predominate.
Charles v. Goodyear Tire & Rubber Co., 976 F. Supp. 321,
325 n.3 (D.N.J. 1997).
3. The risk of encouraging unmeritorious litigation is
far greater in the class action context than in traditional
litigation. Class actions, by their very nature, have a
significantly greater potential to result in settlements
irrespective of the merits of the case than any other form
of litigation.
First, the class certification turns a $200,000
dispute ... into a $200 million dispute. Such a
claim puts a bet-your-company decision to Bridge-
port’s managers and may induce a substantial set-
tlement, even if the customers’ position is weak.
Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 675 (7th
Cir. 2001), (Emphasis added).
As noted by Judge Richard Posner in In re Rhone-
Poulenc Rorer, Inc., 51 F.3d 1293, 1299 (7th Cir. 1995),
class actions lend themselves to what has been described
as “blackmail” settlements, i.c., settlements which rational
business judgment requires that defendants settle, “even if
they have no legal liability.”
Judge Friendly, who was not given to hyperbole,
called settlements induced by a small probability
30
of an immense judgment in a class action “black-
mail settlements.”
Id. at 1298. One of the unfortunate consequences of the
class action mechanism is that it requires defendants to
settle lawsuits of questionable merit.
But, where damages are a substantial issue, the
combination of the expansion of liability, the un-
certainty of the process, and the way our class
action procedures are devised, almost always
leads to automatic settlement or guaranteed set-
tlement once a class action is certified.
George L. Priest, Economics of Class Actions, 9 KAN. J. L. &
PUB. PoL’y 481, 482 (No. 3, Spring 2000). (Emphasis added).
CONCLUSION
Petitioners believe that the district court’s assertion that
the distinction between common fund principles and fee-
shifting principles “exalts form over substance” is wrong as a
matter of law. The separate attorneys’ fee payment /common
fund subterfuge unfairly and improperly benefits plaintiffs
and defendants at the expense of the class.
Should this Court find that common fund principles
apply in the context of a separate payment of attorneys’ fees
in fee-shifting litigation, then this Court should resolve the
dispute among the circuits as to whether its Dague ruling
applies when reasonable attorneys’ fees are paid from a
common fund. Hundreds of millions of dollars in class action
recoveries are being diverted into the pockets of attorneys as
long as this question remains unresolved.
Respectfully submitted,
LAWRENCE W. SCHONBRUN '
LAW OFFICES OF LAWRENCE W. SCHONBRUN
86 Eucalyptus Road
Berkeley, CA 94705
(510) 547-8070
Attorney for Petitioners
App. 1
APPENDIX
NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ELLIOTT SCHWARTZ, an No. 00-56958
individual on behalf of himself and D.C. No.
all others similarly situated; CV-00-00075-LGB
NICOLE C. GIAMPAULO; ‘
WILLIE JO JIMMERSON, indi- | MEMORANDUM
vidually and on behalf of all others (Filed
similarly situated; DANIEL
RYAN, individually and on behalf
of all others similarly situated;
MARY ANN WILLIAMS,
individually and on behalf of all
others similarly situated;,
Plaintiffs-Appellees,
CHARLES C. YEOMANS,
Intervenor-Appellant,
and
JOHN G. DAVISSON; JAMES W.
EAST; CARMEN SCHILTZ;
MITCHELL A. GUZIK; DEBRA
RAMCHANDANT; DAVID G.
Oct. 10, 2002)
" This disposition is not appropriate for publication and may not be
cited to or by the courts of this circuit except as provided by Ninth
Circuit Rule 36-3.
oe ..—s—isis(g
App. 2
BEHENNA; FRANKLIN GRADY;
MARGARET WINKLER;
HANNAH FELDMAN; STEVEN
SIMON; ALAN J. SPITZ; J.
GARRETT KENDRICK,
Intervenors,
V.
CITIBANK (SOUTH DAKOTA),
N.A.; UNIVERSAL BANK;
UNIVERSAL FINANCIAL
CORPORATION,
Defendants-Appellees.
ELLIOTT SCHWARTZ, an
individual on behalf of himself and
all others similarly situated;
NICOLE C. GIAMPAULO;
WILLIE JO JIMMERSON,
individually and on behalf of all
others similarly situated; DANIEL
RYAN, individually and on behalf
of all others similarly situated;
MARY ANN WILLIAMS,
individually and on behalf of all
others similarly situated;,
Plaintiffs-Appellees,
DAVID G. BEHENNA,
Intervenor-Appellant,
and
No. 00-57037
D.C. No.
CV-00-00075-LGB
App. 3
JOHN G. DAVISSON; JAMES W.
EAST; CARMEN SCHILTZ;
MITCHELL A. GUZIK; DEBRA
RAMCHANDANIT; CHARLES C.
YEOMANS; FRANKLIN GRADY;
MARGARET WINKLER;
HANNAH FELDMAN; STEVEN
SIMON; ALAN J. SPITZ; J.
GARRETT KENDRICK,
Intervenors,
V.
CITIBANK (SOUTH DAKOTA),
N.A.; UNIVERSAL BANK;
UNIVERSAL FINANCIAL
CORPORATION,
Defendants-Appellees.
ELLIOTT SCHWARTZ, an
individual on behalf of himself and
all others similarly situated;
NICOLE C. GIAMPAULO;
WILLIE JO JIMMERSON,
individually and on behalf of all
others similarly situated; DANIEL
RYAN, individually and on behalf
of all others similarly situated;
MARY ANN WILLIAMS,
individually and on behalf of all
others similarly situated,
Plaintiffs-Appellees,
and
No. 01-55177
D.C. No.
CV-00-00075-LGB
App. 4
JOHN G. DAVISSON; JAMES W.
EAST,
Intervenors,
v.
UNIVERSAL BANK; UNIVERSAL
FINANCIAL CORPORATION;,
Defendants-Appellees,
STEVEN C. SIMON; ALAN J.
SPITZ; DANIEL J. KELLEY,
Real Parties in Interest-
Appellants.
ELLIOTT SCHWARTZ, an
individual on behalf of himself and
all others similarly situated;
NICOLE C. GIAMPAULO;
WILLIE JO JIMMERSON,
individually and on behalf of all
others similarly situated; DANIEL
RYAN, individually and on behalf
of all others similarly situated;
MARY ANN WILLIAMS,
individually and on behalf of all
others similarly situated,
Plaintiffs-Appellees,
v.
CITIBANK [SOUTH DAKOTA],
N.A.; UNIVERSAL BANK;
No. 01-55179
D.C. No.
CV-00-00075-LGB
App. 5
UNIVERSAL FINANCIAL
CORPORATION;,
Defendants-Appellees,
DAVID G. BEHENNA,
Real-party-in-interest-
Appellant.
Appeal from the United States District Court
for the Central District of California
Lourdes G. Baird, District Judge, Presiding
Argued and Submitted September 10, 2002
Pasadena, California
Before: THOMPSON and RAWLINSON, Circuit Judges
and SCHWARZER, District Judge.”
The appellants in these cases, Charles C. Yeomans,
David G. Behenna, and Steven C. Simon et al., raise
several objections relating to the district court’s condi-
tional certification of a class for settlement purposes,
approval of the settlement, and award of attorney fees. We
have jurisdiction pursuant to 28 U.S.C. § 1291.
As an initial matter, the appellants Behenna and
Yeomans, unnamed class members who failed to intervene
before the district court, have standing to appeal the
district court’s judgment approving the settlement. See
Devlin v. Scardelletti, __ U.S. __, 122 S. Ct. 2005, 2013
“ The Honorable William W. Schwarzer, Senior United States
District Judge for the Northern District of California, sitting by
designation.
App. 6
(2002). We reject, however, these appellants’ contentions
that conditional class certification was improper, that
notice was insufficient, and that the district court failed to
properly evaluate the fairness of the settlement.
Although the district court failed to make explicit
findings regarding the appropriateness of class certifica-
tion, we need not remand to allow the entry of self-evident
findings. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1023
(9th Cir. 1998). The class, as defined by the district court,
was sufficiently cohesive to satisfy the requirements of
Federal Rule of Civil Procedure 23(b)(3). See Amchem
Products, Inc. v. Windsor, 521 U.S. 591, 623 (1997). Re-
gardless of the potential differences in damages suffered
by class members, all of their claims stem from Citibank
and Universal’s failure to credit payments to consumers’
accounts as of the date on which they were received,
unless the payments were received before 10:00 AM that
day. Thus, the class members’ claims are “sufficiently
cohesive to warrant adjudication by representation.” Id.
(citation omitted). In addition, the named class represen-
tatives adequately and fairly represent the interests of the
class as required by Federal Rule of Civil Procedure
23(aX(4). There is no inherent conflict of interest between
the named plaintiffs, all of whom actually suffered late
fees or finance charges as a result of defendants’ polices
[sic], and those class members who suffered no similar
injury. Hanlon, 150 F.3d at 1020. The overarching goal of
this litigation was to reimburse cardholders for finance
charges and late fees actually incurred as a result of the
defendants’ early cut-off policy, and to change that policy.
Each of the class plaintiffs, regardless of whether a mone-
tary loss was suffered, had a similar interest in obtaining
relief from the defendants’ policy. See In re Mego Fin. Corp.
App. 7
Sec. Litig., 213 F.3d 454, 462 (9th Cir. 2000). We conclude
that class certification was appropriate.
The claims asserted on appeal challenging the timeli-
ness and sufficiency of notice have been waived because
they were not raised in the district court. Arizona uv.
Components, Inc., 66 F.3d 213, 217 (9th Cir. 1995).
We also conclude that the settlement approved by the
district court, including the provision for the independent
payment of attorney fees, was “fundamentally fair, ade-
quate, and reasonable.” Fed. R. Civ. P. 23(e); In re Mego,
213 F.3d at 458. A cash settlement fund in the amount of
$18 million was established to reimburse class members
for finance charges and late fees incurred as a result of
Citibank and Universal’s early payment cut-off policy and
to provide statutory damages. Citibank and Universal also
agreed to substantial other relief, estimated by class
counsel’s expert to be worth at least another $18 million.
Finally, Citibank and Universal agreed to independently
pay class counsel’s fees, in an amount to be determined by
the district court, and agreed not to oppose an application
seeking fees of up to $9 million.
Although the district court made no explicit findings,
appellants have not shown approval of the settlement to
have been an abuse of discretion. Hanlon, 150 F.3d at
1026-27. Nor have they shown anything inherently im-
proper about the parties’ negotiation of an agreement
providing for the independent payment of class counsel’s
fees, and Citibank and Universal’s agreement not to
oppose a fee application which sought up to $9 million. See
Evans v. Jeff D., 475 U.S. 717, 738-40 (1986); Zucker v.
Occidental Petroleum Corp., 192 F.3d 1323, 1325-26 (9th
Cir. 1999).
App. 8
We reject the arguments of the appellants Behenna
and Simon et al. challenging the method used by the
district court to calculate class counsel’s fees and the
ultimate amount of fees awarded. Even assuming that the
settlement did not create a “common fund” as a result of
the agreement that class counsel’s fees would be paid
independently by Citibank and Universal, the district
court was not required to apply the lodestar method to
calculate class counsel’s fees. See Wing v. Asarco, Inc., 114
F.3d 986, 990 (9th Cir. 1997) (declining to establish bright
line rule requiring the application of a particular method
for calculating a fee award in a case such as this where
class counsel’s fees are to be paid independently, rather
than out of the settlement fund). The district court articu-
lated adequate reasons why the percentage of recovery
method was preferable to the lodestar method of calculat-
ing class counsel’s fees, and the court did not abuse its
discretion in applying the former method rather than the
latter.
The amount of the fees awarded to class counsel
pursuant to the percent of recovery method was $7.2
million. That amount represented 20% of the $36 million
total value of the settlement. Given the factors articulated
by the district court, the court did not abuse its discretion
in awarding fees of $7.2 million. See Vizcaino v. Microsoft
Corp., 290 F.3d 1043, 1048 (9th Cir. 2002).
Finally, as stated above, it was not improper for the
settlement agreement to provide for the independent
payment of attorney fees by Citibank and Universal.
Under the settlement agreement, Citibank and Universal
did not agree to pay $9 million in attorney fees. They
agreed to pay fees in an amount to be determined by the
App. 9
court, up to a maximum of $9 million. The court deter-
mined the amount of fees to be paid was $7.2 million.
Citibank and Universal have no obligation to pay an
additional $1.8 million to the class.
AFFIRMED.
App. 10
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
ELLIOT SCHWARTZ, ) CV 00-00075 LGB (JWJX)
NICOLE GIAMPAULO, ) ORDER GRANTING
WILLIE JIMMERSON, ) ‘
CLASS COUNSEL’S
DANIEL RYAN, and MARY )
ANN WILLIAMS ) MOTION FOR ATTOR-
individually and on behalf ) NBIS FESS AND COSTS
of all others similarly ) (Filed Dec. 13, 2000)
situated )
Plaintiffs,
v.
CITIBANK (SOUTH
DAKOTA), N:S..,
UNIVERSAL BANK, N.A.,
and UNIVERSAL
FINANCIAL CORP.
Defendants.
ee ee a a ee
I. INTRODUCTION
Class Counsel bring a motion for an award of attor-
neys’ fees and costs. Counsel request attorneys’ fees in
the amount of $9 million and costs in the amount of
$250,000.
II. PROCEDURAL BACKGROUND
On October 1, 1999, Plaintiff Willie Jimmerson filed a
class action against defendant Citibank in the Eastern
District of Texas (the “Texas lawsuit”), which was subse-
quently amended to add Plaintiffs Daniel Ryan and Mary
Williams as plaintiff. See Proposed Settlement Agreement
App. 11
at 1 (the proposed settlement is set forth in full in the
Declaration of Brian Strange in Support of Motion for
Preliminary Approval of Settlement, Ex. A-1.) On Decem-
ber 22, 1999 Plaintiff Schwartz filed a class action against
Citibank in the Superior Court of California (the “Califor-
nia lawsuit”). Citibank removed the aforementioned action
to the District Court on January 4, 2000. Defendants
Universal Bank and Universal Financial Corp. were added
to the action on April 7, 2000. See id. on April 24, 2000,
plaintiffs Jimmerson, Ryan and Williams were added to
the California lawsuit. See id.
On April 27, 2000, the Court held a hearing on Plain-
tiffs’ motion for preliminary approval of a settlement
between Plaintiffs’ class and the Defendants in this action.
The Court granted preliminary approval on May 5, 2000.
In conjunction with preliminary approval of the settle-
ment, the Court also preliminarily certified a class for
settlement purposes.
Plaintiffs filed a motion for final approval of settle-
ment on August 25, 2000. On August 29, 2000, Plaintiffs’
Counsel filed the instant motion for an award of attorneys’
fees and costs. Neither of these motions are opposed by
Defendants. At the final fairness hearing of September 25,
2000, the court permitted Class Counsel to submit addi-
tional briefing on the issue of attorneys’ fees, and permit-
ted objectors to file oppositions thereto.
Ill, FACTUAL BACKGROUND
The underlying action arose out of the policy of defen-
dants Citibank, Universal Bank, and Universal Financial
Corp. (collectively “Defendants”) of failing to credit cus-
tomers’ credit card payments on the date of receipt, when
App. 12
such payments were received after the “cutoff” time of
10:00 a.m. Plaintiffs brought this class action on behalf of
similarly situated credit card holders, alleging that Defen-
dants’ policies resulted in imposition of excess finance
charges and late fees on payments received on the speci-
fied “due date” but after the specified cutoff time. Plain-
tiffs alleged that the policy violates the Truth in Lending
Act, and constitutes a breach of the credit card agreements
Defendants entered into with class member credit card
holders.
Pursuant to the proposed settlement agreement which
was preliminarily approved by this Court, the parties
agreed that Defendants would pay Class Counsel’s attor-
neys’ fees and expenses from a source independent of the
settlement fund. See Proposed Settlement Agreement at
q{ 22. In other words, the fees and expenses would not be
deducted from the amount set aside for settlement. Defen-
dants further agreed not to oppose a motion by Class
Counsel for attorneys’ fees of up to $9 million and ex-
penses of up to $250,000. See id. In conformance with the
agreement, Class Counsel have applied to this Court for
fees and expenses in the above amounts.
IV. LEGAL STANDARD
Rule 23 provides that “[a] class action shall not be
dismissed or compromised without the approval of the
court.” Fed. R. Civ. Pro. 23(e). Judicial scrutiny of settle-
ments under Rule 23 extends to motions for attorneys’
fees. See Strong v. Bellsouth Telecomm, Inc., 137 F.3d
844, 849 (5th Cir. 1998); Waters v. Intl Precious Metals
Corp., 190 F. 3d 1291, 1293 (11th Cir. 1999).
App. 13
Agreements whereby the Defendant pays attorneys’
fees from sources independent of the settlement fund are
subject to judicial scrutiny, notwithstanding the fact that
the fees are not directly deducted from the settlement
fund. See Weinberger v. Great Northern Nekoosa Corp.,
925 F. 2d 518, 522 (1st Cir. 1991) (“when a fee application
is submitted ancillary to, or as part of, the termination of a
class action, the district court should ordinarily determine
the reasonableness of the fees, notwithstanding that the
source of payment does not directly impair the class
recovery.”); Strong v. Bellsouth Telecomm, Inc., 137 F. 3d
at 849 (recognizing “economic reality that a settling
defendant is concerned only with its total liability.”)
Scrutiny is required because of the potential for conflicts of
interest between Class Counsel and the members of the
class. See In re General Motors Corp. Pick-up Truck Fuel
Tank Products Liab. Litig., 55 F.3d 768, 804 (3rd Cir.
1995); Weinberger, 925 F. 2d at 524 (recognizing risk that
“the lawyers might urge a class settlement at a low figure
or on a less-than-optimal basis in exchange for red-carpet
treatment on fees.”)
Furthermore, the fact that a Defendant has agreed
not to oppose an application for attorneys’ fees up to a
specified amount, often known as a “clear sailing agree-
ment,” does not absolve the Court of the duty to scrutinize
the fee request. See Duhaime v. John Hancock Mutual Life
Insurance Co., 989 F. Supp. 375, 376 (D. Mass. 1997) (“a
‘clear sailing’ fee agreement like the one negotiated here
must receive close judicial scrutiny.”)
Several methods are available for calculating attor-
neys’ fees. The two most common are the percentage-of-
recovery method (“POR” method) and the lodestar method.
Under the former method, attorneys’ fees are determined
a i a a a
App. 14
as a specific percentage of the settlement fund. Under the
latter method, the Court calculates the “lodestar” by
multiplying the reasonable hours expended by a reason-
able hourly rate, and then enhances the lodestar by a
“multiplier” when appropriate. See Van Vranken uv. Atlan-
tic Richfield Co., 901 F. Supp. 294, 298 (N.D. Cal. 1995).
The central inquiry under both methods is whether the
fees requested are reasonable. See id. at 296. The burden
rests with counsel to establish a factual basis to support
the requested attorneys’ fees award. See Hensley v. Ecker-
hart, 461 U.S. 424, 437, 103 S.Ct. 1933, 1941, 76 L.Ed.2d
40 (1983)
V. ANALYSIS
Class Counsel request Court approval of attorneys’
fees of $9 million and expenses of $250,000.
A. ATTORNEYS’ FEES
Counsel argue for application of the percentage-of-
recovery approach, and arrive at the $9 million figure by
applying a percentage “benchmark” of 25% to a total
settlement which Counsel value at $36 million. Counsel’s
motion presents the Court with three issues: (1) whether
the POR method is appropriate in this instance; (2)
whether $36 million is the appropriate total settlement
value to be used in the fees calculation; and (3) whether
25% is the appropriate “benchmark”.
App. 15
1. SELECTION OF APPROPRIATE FEE
CALCULATION METHOD
The percentage-of-recovery method and _ lodestar
method are typically used in distinct types of cases. As
explained in In re Prudential Company of America Sales
Practices Litig., 148 F. 3d 283, 333 (3rd Cir. 1998):
The percentage-of-recovery method is generally
favored in cases involving a common fund’, and is
designed to allow courts to award fees from the
fund “in a manner that rewards counsel for suc-
cess and penalizes it for failure.” [Citation]. The
lodestar method is more commonly applied in
statutory fee-shifting cases, and is designed to
reward counsel for undertaking socially benefi-
cial litigation in cases where the expected relief
has a small enough monetary value that a per-
centage-of-recovery method would provide inade-
quate compensation.
See also Blum v. Stenson, 465 U.S. 886, 900 n. 16 (1984)
(“Lodestar is the most appropriate means of calculating
attorney's fees in statutory fee cases because it allows
“counsel [to] spend as much time and [to] be as diligent in
litigating a case that benefits a small class of people, or,
indeed, in protecting the . . . rights of a single individual.”)
However, Courts retain discretion as to which method to
* “Common fund” cases involve class actions that generate a
settlement fund. Attorneys’ fees are deducted directly from the fund as
compensation by the class to class counsel for their efforts in creating
the fund. In contrast to statutory fee-shifting provisions, the common
fund doctrine is a product of case law, and derives from the district
courts’ equitable power to prevent unjust enrichment of the class
members at the expense of class counsel. See Boeing v. Van Gemert, 444
U.S. 472, 478 (1980).
App. 16
apply in assessing the reasonableness of an attorneys’ fees
award in a class action. See In re Washington Pub. Power
Supply System Sec. Litig., 19 F. 3d 1291, 1294 n. 2 (9th
Cir. 1994); Six Mexican Workers v. Arizona Citrus Grow-
ers, 904 F. 2d 1301, 1311 (9th Cir. 1990).
(a) Common Fund Doctrine vs. Statutory
Fee-Shifting
The first issue presented to the Court is whether the
instant action can be characterized as a common fund
case. Class Counsel argue for such a characterization,
thereby justifying the use of POR in calculating attorneys’
fees. Various objectors argue that, because Defendants will
pay attorneys’ fees from a source independent of the class
settlement fund, the arrangement is properly character-
ized as a fee-shifting case and the lodestar method should
be used. See e.g. Response of Objector David Behenna to
Plaintiffs’ Supplemental Briefing at 2-3; Response of
Objectors Kelly, Simon and Spitz at 3. In essence, objec-
tors contend that because the attorneys’ fees will not be
directly deducted from the settlement fund, this is not a
true common fund case.
The purpose of the common fund doctrine is to reward
attorneys for generating a benefit to the class, by deduct-
ing attorneys’ fees from the settlement fund. See Graulty,
886 F.2d at 271. It exalts form over substance to suggest
that because the attorneys’ fees are not directly deducted
from the settlement fund, and are instead paid pursuant
to an independent agreement with Defendants, that this is
not a true common fund case. The reason for this was well-
stated in Johnston v. Comerica Mortgage Corp., 83 F. 3d
241, 246 (8th Cir. 1996):
App. 17
The award to the class and the agreement on at-
torney fees represent a package deal. Even if the
fees are paid directly to the attorneys, those fees
are still best viewed as an aspect of the class’ re-
covery. [Citation.] Accordingly, the direct pay-
ment of attorney fees by defendants should not
be a barrier to the use of the percentage of the
benefit analysis in the cases.
See also In re General Motors, 55 F.3d at 821 (“The ration-
ale behind the percentage of recovery method also applies
in situations where, although the parties claim that the
fee and settlement are independent, they actually come
from the same source.”); In re Prudential, 148 F. 3d at 333-
334. As such, the Court concludes that the parties’ agree-
ment to pay attorneys’ fees from a source other than the
settlement fund does not preclude this case from being
characterized as a common fund case.
(b) Effect of the TILA Claim
The Complaint in this action alleged Truth in Lending
Act violations, state law deceptive trade practices, breach
of contract, and fraudulent or negligent misrepresentation.
See Plaintiff's Second Amended Complaint. The state law
claims are clear candidates for use of the POR approach
because a common settlement fund was recovered on those
claims, and no statutory fee-shifting provision is applica-
ble. The TILA cause of action, on the other hand, presents
the Court with a more difficult issue because the statute
expressly provides for shifting of attorneys’ fees when a
plaintiff succeeds on the claim. See 15 U.S.C. 1640(a)(3).
As stated earlier, the lodestar method is more frequently
used in statutory fee-shifting cases. The Court must
therefore decide whether it can nevertheless use the POR
App. 18
method on the portion of the settlement fund attributable
to the TILA claim.
Class Counsel argue that the Court may use POR
because the TILA’s fee-shifting provision is not triggered
at all. See California Counsel’s Supplemental Application
for Attorneys’ Fees at 6-7 (“Supplemental Application at 6-
7”). Because this case resulted in the creation of a class
settlement fund, rather than an individual judgment on
the merits, Class Counsel argue that common fund princi-
ples apply instead of statutory fee-shifting principles. See
id. The precise issue presented by Counsel’s argument is
whether the creation of a common fund in settling a TILA
class action “converts” the action from a statutory fee-
shifting case to common law common fund case. If the
action is removed from the confines of TILA’s fee-shifting
provision, then the Court may properly apply the POR
method to that portion of the settlement fund attributable
to the TILA claim.
The Court’s examination of case law reveals no cases
either authorizing or prohibiting use of common fund
principles when a settlement fund is created in TILA
cases. However, cases involving other fee-shifting statutes
hold that “fee-shifting statutes should net circumscribe the
operation of the common fund doctrine unless that opera-
tion conflicts with an intended purpose of the statute.” In
re Unisys Corp. Retiree Medical Benefits ERISA Litig., 886
F. Supp. 445, 456 (1995) (holding ERISA’s fee-shifting
provision inapplicable to case resolved by creation of a
common settlement fund); Florin v. Nationsbank of Geor-
gia, 34 F. 3d 560, 564 (7th Cir. 1994) (same); Skelton v.
General Motors Corp., 860 F.2d 250 (7th Cir. 1988). In
Skelton, the Seventh Circuit concluded that the
Magnuson-Moss Act’s fee-shifting provision did not apply
App. 19
to cases settled by establishment of a common fund. In
arriving at its conclusion, the court found that neither the
language of the statute nor its legislative history pur-
ported to apply the fee-shifting provision to cases creating
a common fund. See id. at 255. Absent such a mandate in
the statute, the court felt free to adopt common fund
principles in its attorneys’ fees determination. See id. at
255 (“when a settlement fund is created in exchange for
release of the defendant’s liability both for damages and
for statutory attorneys’ fees, equitable fund principles
must govern the court’s award of the attorneys’ fees.”). See
also In re Fine Paper Antitrust Litig., 751 F. 2d 562, 583-
584 (8rd Cir. 1984) (Clayton Act settlement releasing
defendant from liability for damages and statutory attor-
neys’ fees is governed by common fund principles).
Here, the language of section 1640 does not by its
terms apply to cases settled by the creation of a common
fund.’ Nor does the statute’s legislative history provide
any evidence of Congress’ intent to apply TILA’s fee-
shifting provision to common settlement fund cases. As
such, there is no statutory mandate requiring application
of the fee-shifting provision, and its associated lodestar
method, to the instant case. Furthermore, case law im-
poses no limitation on the Court’s ability to apply common
fund principles to the TILA settlement.’ For these reasons,
? Section 1640(a)(3) of the Truth in Lending Act provides that any
creditor who fails to comply with any requirement imposed under, inter
alia part D [which contains section 1666c] is liable “in the case of any
successful action” for “the costs of the action, together with a reasonable
attorneys’ fee as determined by the Court.”
* Where a suit does not involve a class action settlement fund, the
Ninth Circuit applies TILA’s fee-shifting provision, and therefore
(Continued on following page)
App. 20
the Court concludes that TILA’s statutory fee-shifting
provision does not foreclose application of common fund
principles, including use of the POR method, to the TILA
portion of the settlement.‘
mandates use of the lodestar method. See Semar v. Platte Valley
Federal Savings & Loan Assocn., 791 F. 2d 699, 706 (9th Cir. 1986);
Hayer v. National Bank of Alaska, 663 P. 2d 547 (Alaska, 1983). The
preference for the lodestar over the POR method in such cases is
premised on the fact that individual damages in a TILA case are capped
at $1,000. See 15 U.S.C. § 1640(a)(2)(AXii). Were the POR method
permitted in non-class action suits involving few plaintiffs, it would
usually result in under-compensation of the attorney for his or her
efforts. Under such circumstances, use of the POR method would
undermine the fee-shifting provision’s goal of encouraging “private
attorney general” enforcement of TILA. See Hayer, 663 P. 2d at 549
fn. 7 (POR method “would be inconsistent with the policy of encourag-
ing private enforcement of the Act.”). Where, as here, a class action
settlement results in the creation of a substantial common fund, a fee
determination under the POR method would not under-compensate
plaintiffs’ attorneys in the same way. As such, the concerns expressed
in the above cases about stimulating private enforcement of TILA are
addressed even under the POR method when the attorneys stand to
recover a percentage of a common settlement fund. The Ninth Circuit
cases do not therefore directly address the situation presented here.
* The Court further notes that a contrary conclusion would pose
significant practical problems. If the Court were to apply the lodestar
approach to the TILA portion of the settlement, and POR to the
remaining non-TILA portion, any attempt to allocate hours spent by |
Class Counsel on the TILA claim would be arbitrary at best. See Paul,
Johnson, Alston & Hunt v. Graulty, 886 F. 2d 268, 272 (9th Cir. 1989)
(using POR instead of lodestar because “it would be impractical, if not
impossible, for the district court to determine the number of hours
expended by [counsel]” in creating 70% of the settlement fund.) The
Court finds no evidence that Congress contemplated such an arbitrary
division of labor in common fund cases involving multiple causes of
action.
App. 21
(c) Lodestar vs. Percentage of Recovery
The import of the Court’s foregoing discussion is that
the entirety of the settlement (TILA and non-TILA claims)
is a common fund and, as such, can be analyzed under
common fund principles, thereby permitting use of the
POR method. The next issue presented is, even though the
use of the POR method is permissible in the instant case,
is it necessarily desirable? Such an inquiry is properly
before the Court because selection of an appropriate
method is committed to the discretion of the district court.
See Graulty, 886 F. 2d at 271; Florida v. Dunne, 915 F. 2d
542, 544 (9th Cir. 1990); In re Coordinated Pretrial Pro-
ceedings in Petroleum Prods. Antitrust Litig., 109 F. 3d
602, 607 (9th Cir. 1997) (“The district court has discretion
to use the lodestar method or the percentage of the fund
method in common fund cases.”)
The Court concludes that the POR method is more
desirable for several reasons. First, the POR method more
closely aligns the interest of the class with those of class
counsel, and does not create a disincentive for the early
settlement of cases. See Duhaime v. John Hancock Mutual
Life Insurance Co., 908 F. Supp. 375, 377 (D. Mass. 1997).
Second, given that five law firms are involved in this
action, use of the lodestar method would be needlessly
time-consuming and inefficient. See In re Oracle Secs.
Litigation, 131 F.R.D. 688, 689 (C.D. Cal. 1990) (criticizing
lodestar approach in class action litigation); In re Activi-
sion Secs. Litigation, 723 F. Supp. 1373 (C.D. Cal. 1989);
In re Prudential, 148 F. 3d at 333-334; “Court Awarded
Attorney Fees”, Report of the Third Circuit Task Force 108
F.R.D. 237, 246-249 (1985). Third, the POR approach
reduces the necessity of retrospectively second-guessing
strategic decisions made by class counsel in the course of
App. 22
litigating the action. See Kirchoff v. Flynn, 786 F. 2d 320,
325 (7th Cir. 1986). Finally, the concern that the POR
method will provide inadequate compensation to counsel is
not applicable in a class action, where the settlement
value can potentially reach substantial sums.
The Court is cognizant of some of the disadvantages of
the POR method. This method can create the incentive for
class counsel to enter settlements too willingly, in order to
guarantee fees for themselves. Furthermore, POR fee
awards run the risk of being excessive when not aligned to
the work actually performed by counsel. See Objector
Behenna’s September 26 Reply at 13-14. The Court finds,
however, that these shortcomings are outweighed by the
substantial savings in time, and the greater uniformity in
fee awards, engendered by the POR method. Furthermore,
objector Behenna’s concern about creating a fee award
disproportionate to Class Counsel’s efforts are addressed
in the Court’s selection of the appropriate percentage
benchmark, discussed below. Behenna’s objection, while
useful in determining the appropriate amount of fees
under the POR method, is not a basis for rejecting the
POR method itself.
Having selected the percentage-of-recovery method,
the Court must now make two determinations: (1) whether
$36 million is the appropriate total settlement value to be
used in the fees calculation; and (2) whether 25% is the
appropriate “benchmark”.
II [sic] VALUATION OF THE SETTLEMENT
Courts must make a “reasonable estimate” of the total
value of a class settlement. See In re Prudential, 148 F. 3d
App. 23
at 333-334. The settlement in the instant case is com-
prised of a cash fund of $18 million and of certain proce-
dural commitments by Defendants to change their
crediting practices. Among other things, Defendants
promise that for a period of two years they will implement
a one-day grace period for imposition of finance charges
and late fees, and will change their payment cutoff time
from 10 a.m. to 1 p.m. See Settlement Agreement at { 4.
Class Counsel assert that the non-cash value of the set-
tlement, in the form of Defendants’ procedural commit-
ments, is conservatively estimated at $18 million. As such,
Class Counsel argue that the total settlement value upon
which the Court should base the attorneys’ fees award is
at least $36 million. See Class Counsel’s Original Motion
at 6; Strange Decl. at ¥ 9.
Class Counsel are clearly entitled to a percentage of
the $18 million cash settlement secured for the class. The
* Various objectors argue that the Court must deduct $2.5 million
of the cash value in calculating the percentage, because Defendants
could potentially recoup this amount. See Settlement Agreement
(providing that if any portion of the $2.5 million set aside for Finance
Charge Refunds remains unclaimed, Defendants may apply such excess
portions to recoupment of costs incurred in sending out class action
notices); Hannah Feldman’s August 31 Objections at 6; Dehenna’s
August 31 Objections at 22; Klein’s Supplemental Objections at 2.
Objectors’ argument has been considered, and rejected, by other courts
addressing the issue. See Waters v. Int'l. Precious Metals Corp., 190 F.
3d 1291, 1297 (11th Cir. 1999) (“class counsel are entitled to a reason-
able fee based on the funds potentially available to be claimed, regard-
less of the amount actually claimed.”) (quoting Newberg on Class
Actions § 14.03 at 14 (8rd ed. 1992)). See also Williams v. MGM-Pathe
Communications Co., 129 F.3d 1026, 1027 (9th Cir. 1997) (“attorneys
for a successful class may recover a fee based on the entire common
fund created for the class, even if some class members make no claims
(Continued on following page)
App. 24
more contested issue in this case is whether Class Counsel
are entitled to a percentage of the non-cash value.
(a) Using POR When Settlement Con-
tains Injunctive Relief
Various objectors argue that the POR method is
inappropriate when the settlement consists of “intangible”
injunctive relief. See e.g. Objector Behenna’s September 26
Reply at 13-14. Objector Behenna cites Hanlon v. Chrysler
Corp., 150 F.3d 1011, 1029 (9th Cir. 1998) for the proposi-
tion that “in the Ninth Circuit, injunctive relief benefits do
not qualify for common fund treatment because injunctive
relief is considered to be of speculative value.” Behenna’s
October 13 Objections at 4.
Objector misreads Hanlon. That case simply noted in
dicta that courts prefer the lodestar method when valua-
tions are difficult, but went on to acknowledge that the
attorneys’ fees in that case “represents roughly 4.5% of
this [non-cash] ‘common fund.’” Hanlon, 150 F.3d at 1029.
Furthermore, objectors point to no cases, and the Court
has found none, prohibiting use of the POR method when
the settlement involves both cash and non-cash compo-
nents. See e.g. In re General Motors, 55 F. 3d at 820-822
(holding that POR method was more appropriate in a class
action settlement, even though settlement involved “hard
to value” non-cash relief in the form of redeemable cou-
pons to purchase new pick up trucks). Finally, the Court
against the fund so that money remains in it that otherwise would be
returned to the defendants.”)
App. 25
finds that the policy behind rewarding counsel for provid-
ing the class with injunctive relief is sound. Non-pecuniary
settlements, in the form of commitments to change the
practices challenged in a class action, are often instrumen-
tal in vindicating class members’ rights, and can be the
primary source of value to class members. See Stewart v.
County of Sonoma, 634 F.Supp. 773, 777 (N.D. Cal. 1986)
(“The monetary value of the recovery is not the sole
measure of success where plaintiff has received structural
or other injunctive relief vindicating civil rights.”) Class
counsel who secure such non-pecuniary value for class
members should be rewarded in order to encourage coun-
sel to pursue such remedies when they are appropriate.
(b) Valuation of the Injunctive Relief
Class counsel provide valuations of the injunctive
relief using declarations of Defendants’ employees and the
testimony of their economic expert, Dr. Laura Robinson.
As stated earlier, the injunctive relief in this settlement
consists of three principal components: (1) a two-year
obligation to implement a one-day grace period before
imposing late fees; (2) a two-year obligation to change
their payment cutoff time from 10 a.m. to 1 p.m.; and (3) a
two-year obligation to make various disclosures to card-
holders concerning Defendants’ payment crediting prac-
tices. See Settlement Agreement at ¥ 4.
Class Counsel’s evidence provides the following
estimates: a one-day grace period causes Defendants to
forgo late fees in the amount of approximately $80 million
App. 26
for payments received after 1 p.m.° See Robinson Decl.
q 10. Furthermore, the change in cutoff time from 10 a.m.
to 1 p.m. results in 23% more customer payments being
deemed timely. See Robinson Decl., Ex. 2. This causes
Defendants to forgo an additional $46 million in late fees
for payments received between 10 a.m. and 1 p.m.’ See
Robinson Decl. ¥ 8. The change in cutoff time also causes
Citibank and Universal to forgo approximately $8.3
million and $2.3 million in finance charges respectively
over the two-year period’ See Robinson Decl., Ex. 3.
Based on the foregoing evidence, Dr. Robinson values the
* This figure is calculated using the following information: (1)
Defendants generate approximately $100 million in late fees per year
(declaration of Defendants’ employee Roger Kent { 2); (2) based on mail
receipt data from Defendants’ New Jersey processing facility, Defen-
dants receive approximately 40% of payments after 1 p.m. (Robinson
Decl. ¢ 10 and Ex. 2). As such, over the two-year period, Defendants
will forgo $80 million [100 million * 40% * 2) in late fees for payments
received after 1 p.m.
” Multiplying the estimated $100 million in annual late fees
presently received (Kent Decl. 92) by the 23% increase in timely
payments under the new cutoff time (Robinson Decl., Ex. 2) results in
$23 million of forgone late fees per year. Over the two-year procedural
commitment, Defendants will therefore forgo approximately $46 million
in late fees because of the change in cutoff time.
* These figures were calculated using actual finance charge data
compiled by Citibank and Universal employees for the year of 1999.
(O’Hare Decl. at 3; Bush Decl. at 3). Dr. Robinson multiplied the total
annual finance charges received in 1999 by the percentage of payments
received between 10 a.m. and 1 p.m. to arrive at an estimate of the total
finance charges each Defendant will forego because of the change in
cutoff time. See Robinson Decl., Ex. 3.
App. 27
settlement’s injunctive relief at approximately $137
million. See Robinson Decl. at J 12.°
In their motions, Class Counsel do not premise their
fee award on Dr. Robinson’s $137 million estimate.
Rather, Counsel rely on Dr. Robinson’s methodology and
conclusions but substantially discount her estimates to
arrive at a “conservative” value of $18 million for the
injunctive relief. See Motion at 6; Kramer Decl. in Support
of Motion 4 4. Counsel value the elimination of an extra
day of finance charges (as a result of the new cutoff time)
at approximately $10 million. See Named Plaintiffs’
Response to Objections at 7 11. This figure is close to the
approximate $11 million value, discussed above, assigned
by Dr. Robinson in her calculation. Based on the employee
declarations and expert calculations provided by Class
Counsel, the Court concludes that $10 million is a “rea-
sonable estimate” of the value provided to the class in
terms of reduced finance charges. See In re Prudential
Insurance Co. of America Sales Practices Litig., 148 F. 3d
at 333-334 (court must make a reasonable estimate of
settlement value); In re General Motors, 55 F.3d at 822.
Counsel value the elimination of an extra day of late
fees (as a result of the one-day grace period and the new
cutoff time) at $8 million. See Named Plaintiffs’ Response
to Objections at 7 12. This figure is substantially less than
the $126 million value ($80 million from the grace period
and $46 million from the change in cutoff time) estimated
* Because of the speculative nature of the benefit, neither Class
Counsel or Dr. Robinson assigned any monetary value to Defendants’
disclosure obligations.
App. 28
by Dr. Robinson based on Defendants’ records and em-
ployee declarations. Counsel explain that, while they could
have valued the benefit at the full $126 million, they
discounted it to $8 million “because the precise economic
value of this benefit is not easily stated.” Named Plaintiffs’
Response to Objections at 7 12. See also Robinson Decl. { 3
(concluding that Counsel’s $18 million valuation of the
injunctive relief is conservative). Having examined the
financial data offered by Class Counsel, the Court con-
cludes that $8 million is a “reasonable estimate” of the
value provided to the class in terms of reduced late fees.
Counsel correctly discounts the financial estimates pro-
vided by Defendants’ employees and Dr. Robinson to
account for the uncertainty inherent in valuing injunctive
relief of this nature. For this reason, the Court concludes
that Class Counsel have provided adequate evidentiary
support for an $18 million valuation of the injunctive relief
in this case.
Some objectors contend that the one-day grace period
provides merely an illusory benefit to the class, because
Defendants already had an informal grace period in place
before the initiation of this action. See Klein’s Supplemen-
tal Objection at 4; Behenna’s September 26 Objections at
14, fn. 10. Objectors’ argument ignores the crucial fact
that the settlement agreement now obligates Defendants
to maintain this grace period for two years, an obligation
which did not exist prior to the settlement. As such, it is
proper for the Court to consider this provision of the
settlement when determining the total settlement value.
App. 29
3. SELECTION OF APPROPRIATE BENCH-
MARK eect
The Ninth Circuit has established a “benchmark” of
25% for attorneys’ fees awards in common fund cases. See
Six Mexican Workers v. Arizona Citrus Growers, 904 F. 3d
1301, 1311 (9th Cir. 1990). The benchmark should be
adjusted “when the specific circumstances indicate that
the percentage recovery would be either too small or too
large in light of the hours devoted to the case or other
relevant factors.” Id.
Objector Behenna argues that Class Counsel have
expended insufficient time and effort on the case to justify
a $9 million fee award. See Behenna’s September 25, 2000
Reply at 10. Having examined the dockets of the Califor-
nia and Texas litigation and Class Counsel’s declarations,
the Court concludes that an adjustment of the benchmark
is in order.
The case dockets reveal that the Texas litigation
commenced only 14 months ago, on October 1, 1999, while
the California litigation commenced in Los Angeles Supe-
rior Court less than one year ago, on December 22, 1999.
See Plaintiffs’ Response to Objections, Ex. C (Texas
Docket). Furthermore, both dockets reveal relatively little
law and motions practice.” Declarations filed in support of
” The Texas litigation has seen Defendants’ motion to dismiss;
Defendants’ motion to change venue; Plaintiffs’ motion to compel
responses to interrogatories; Defendants’ motion to abate discovery;
Defendants’ motion for judgment on the pleadings; and Defendants’
motion for entry of a confidentiality order. See Plaintiffs’ Response to
Objections, Ex. C. The California litigation has seen no substantive
motions prior to the motion for preliminary approval of the settlement,
filed on April 26, 2000.
App. 30
the attorneys’ fee motion attest that Class Counsel have
spent “hundreds of hours” investigating the facts and
researching the novel legal issues involved in the case. See
Monts Decl. in Support of Motion at { 3. Counsel further
allege that they have spent “over 700 hours” responding to
class member inquiries concerning the settlement. See
Kramer Decl. in Support of Motion at 4 15. Even if the
Court were to hypothetically assume that Counsel collec-
tively spent 5,000 hours litigating and settling the case, a
$9 million fee award translates into an hourly rate of
$1,800. Even this crude cross-check using the lodestar
method reveals that Counsel’s requested fee award is
disproportionate to the amount of time expended on the
case.”
Class Counsel argue that under the POR method “the
amount of time may not be considered at all.” Class
Counsel’s reply to Certain Objectors’ Responses at 12
(quoting Shaw v. Toshiba America Information Sys. Inc.,
91 F. Supp. 2d 942 (E.D. Tex. 2000)). The Court is aware
that one of the purposes of the POR method is to reward
counsel for the benefits created, not for the hours spent.
However, the Ninth Circuit’s admonition to district courts
to consider “specific circumstances” making the POR
" The Court declines to follow various objectors’ suggestion that
the Court employ a detailed lodestar analysis to cross-check the POR
fee award. See Hannah Feldman’s October 10 Response at 3; Response
of Objectors’ Kelley, Simon and Spitz at 7-8. Any increased accuracy in
the final fee award achieved by an extensive lodestar cross-check is far
outweighed by the loss in efficiency and consistency that are the
hallmarks of the POR method. Furthermore, the Court’s rudimentary
lodestar cross-check, above, provides a sufficient check on excessive fee
awards that resort to a more detailed lodestar calculation is unneces-
sary.
App. 31
recovery too small or too large, including “the hours
devoted to the case,” directly contradicts Class Counsel’s
contention. See Six Mexican Workers, 904 F. 3d at 1311.
Selecting an appropriate benchmark is an inherently
imprecise exercise which district courts have continued to
struggle with in determining appropriate fee awards.
However, in light of the Court’s conclusion that Class
Counsel has devoted relatively few hours to the case, the
Court concludes that downward adjustment of the bench-
mark to 20% is reasonable. A 20% benchmark achieves the
appropriate balance between compensating Class Counsel
within the “normal range of 20% to 30%” of the common
fund, and adjusting for the amount of effort expended by
Class Counsel in this action. See Mashburn v. Nat'l,
Healthcare, Inc., 684 F.Supp. 679, 696 (M.D. Al. 1988)
(cited with approval in Graulty, 886 F.2d at 272); In re
Union Carbide Corp. Consumer Prods. Business Sec.
Litig., 724 F. Supp. 160, 167 (S.D.N.Y. 1989). The Court
awards Class Counsel attorneys’ fees using a benchmark
of 20% on a total settlement value of $36 million” — $18
million cash plus $18 million in injunctive relief. Class
* Class Counsel, in the alternative, urge the Court to value the
cash portion of the settlement at $27 million. This figure is comprised of
the $18 million cash fund and the $9 million attorneys’ fees Defendants
obligated themselves to pay to Counsel. See California Counsels
Supplemental Application at 21. The Court does not consider the $9
million fee agreement to be part of the common fund because this
money is not recoverable by class members under the terms of the fee
agreement. If the Court awards a fee of less than $9 million, the excess
does not become part of the common fund distributed to the class. As
such, the common fund doctrine’s purpose of rewarding counsel for
benefits secured for the class is not furthered by including the $9
million in the total settlement value.
iii itil
App. 32
Counsel are therefore entitled to attorneys’ fees of $7.2
million. :
B. EXPENSES
Class Counsel also request $250,000 as reimburse-
ment for expenses. See Motion at 6. To be entitled to an
expense reimbursement, class counsel must provide the
Court with adequate documentation of the expenses
incurred during litigation and settlement. See Van
Vranken, 901 F. Supp. at 298 (reimbursement granted
where “request was supported by a detailed accounting
and by declarations from independent counsel ... ”); In re
“Agent Orange” Products Liab. Litig., 611 F. Supp. 1296,
1314 (E.D.N.Y. 1985). Class Counsel must further estab-
lish that such costs are “reasonable and necessary” to the
prosecution of the class action. See Waters v. Int’l. Precious
Metals Corp., 190 F. 3d 1291, 1298 (11th Cir. 1999) (“there
is a requirement ... on the part of class counsel to estab-
lish that the costs are reasonable and necessary ... to the
prosecution of the case.”)
Here, Class Counsel provide documentation of ex-
penses that total $157,541.47. See Strange Decl. in Sup-
port of Supplemental Application for Attorneys’ Fees at
q 6 (Strange & Hoey firm has incurred $61,972.64 in costs,
including travel expenses, research, filing fees, messen-
gers shipping, and telephone charges); Kramer Decl. {| 9
(Law Offices of Larry Kramer — $15,808.06 in costs);
Angelovich Decl. 43 (Nix, Patterson & Roach firm —-
$33,724.49 in costs); Norman Decl. ¥ 3 (Crowley & Doug-
las firm — $25,606.04 in costs); and Monts Decl. at 4:3-6
(Monts & Ware firm — $20,430.24 in costs).
App. 33
However, Counsel have failed to provide any docu-
mentation supporting the balance of the $250,000 in
expenses sought via the instant motion. Instead, Counsel
rely on conclusory assertions contained in their declara-
tions to the effect that Counsel anticipate these remaining
expenses to be incurred if the final settlement is appealed.
See e.g. Norman Decl. at 7 4 (Counsel’s statement that
“based on my experience in similar class action litigation,
a minimum of $10,000.00 in additional reasonable and
necessary expenses will be incurred by Counsel for the
class in the reference cases if the Proposed Settlement is
given final approval but later appealed.”); Angelovich Decl.
at 74 (same). Class Counsel’s vague assertions do not
provide the Court with a basis to determine whether these
future expenses are reasonable and necessary. As such,
the Court concludes that Counsel are entitled to only
$157,541.47 as reimbursement for the expenses incurred
thus far.
VI. CONCLUSION
The Court AWARDS Class Counsel $7,200,000 in
attorneys’ fees and $157,541.47 as reimbursement for
expenses.
IT IS SO ORDERED.
Dated: December 12,.2000
/s/ Lourdes G. Baird
LOURDES G. BAIRD
United States
District Judge
App. 34
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ELLIOTT SCHWARTZ, an
individual on behalf of himself
and all others similarly situated,
et al.,
Plaintiffs-Appellees,
CHARLES C. YEOMANS,
Intervenor-Appellant,
and
JOHN G. DAVISSON, et al.,
Intervenors,
Vv.
CITIBANK (SOUTH DAKOTA),
N.A., et al.,
Defendants-Appellees.
ELLIOTT SCHWARTZ, an
individual on behalf of himself
and all others similarly situated,
et al.,
Plaintiffs-Appellees,
DAVID G. BEHENNA,
Intervenor-Appellant,
and
JOHN G. DAVISSON, et al.,
Intervenors,
Nos. 00-56958
D.C. No. CV-00-
00075-LGB Central
District of California,
Los Angeles
(Filed Nov. 18, 2002)
No. 00-57037
D.C. No. CV-00-
00075-LGB Central
District of California,
Los Angeles
App. 35
CITIBANK (SOUTH DAKOTA),
N.A., et al.,
Defendants-Appellees.
ELLIOTT SCHWARTZ, an
individual on behalf of himself
and all others similarly situated,
et al.,
Plaintiffs-Appellees,
and
JOHN G. DAVISSON, et al.,
Intervenors,
v.
UNIVERSAL BANK, et al.,
Defendants-Appellees,
STEVEN C. SIMON, et al.,
Real Parties in
Interest-Appellants.
ert MOO
ELLIOTT SCHWARTZ, an
individual on behalf of himself
and all others similarly situated,
et al.,
Plaintiffs-Appellees,
v.
CITIBANK (SOUTH DAKOTA),
N.A., et al.,
Defendants-Appellees,
No. 01-55177
D.C. No. CV-00-
00075-LGB Central
District of California,
Los Angeles
No. 01-55179
D.C. No. CV-00-
00075-LGB Central
District of California,
Los Angeles
ORDER
App. 36
DAVID G. BEHENNA,
Real-party-in-
interest-Appellant.
Before: THOMPSON and RAWLINSON, Circuit Judges
and SCHWARZER, District Judge.”
The panel, as constituted above, has unanimously
voted to deny appellant Yeomans’ petition for rehearing.
Judge Rawlinson has also voted to deny his petition for
rehearing by the court en banc, and Judges Thompson and
Schwarzer have recommended that that petition be
denied.
The full court has been advised of the petition for
court rehearing en banc, and no judge of the court has
requested en banc rehearing. See Fed. R. App. P. 35(b).
The petitions for panel rehearing and for rehearing by
the court en banc are DENIED.
“The Honorable William W. Schwarzer, Senior United States
District Judge for the Northern District of California, sitting by
designation.
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