The Ninth Circuit recently vacated the approval of a class action settlement where the class received non-monetary relief and $100,000 of cy pres awards, and class counsel was awarded $800,000 in attorneys’ fees.  The Center for Class Action Fairness objected, focusing on the size of the attorneys’ fees award in comparison to the benefit to the class.  The opinion teaches some lessons for both plaintiffs and defendants in seeking approval of class action settlements, most notably the importance of attempting to place a value on non-monetary relief in presenting the proposed settlement to the district court, and adequately substantiating the lodestar method for evaluating an attorneys’ fees award.  The opinion also seems to send a signal that plaintiffs’ counsel desiring to settle a case like this needs to accept lower attorneys’ fees. 

In re Bluetooth Headset Prods. Liab. Litig., 2011 U.S. App. LEXIS 17224 (9th Cir. Aug. 19, 2011) involved allegations that manufacturers of Bluetooth headsets for mobile phones failed to disclose to users that using the headsets at high volume for extended periods can cause hearing loss.  Id. at *2-3.  Maybe there is more too this than meets the eye, but this strikes me as the kind of thing that is common sense and most people would think should not be the subject of a lawsuit.  Parents and teachers are always telling children to turn their music player down because it can hurt their ears.  Do we really need warnings on or inside a product package telling people that? 

On the other hand, if class action cases with minimal merit are going to be settled to avoid the costs and the time and effort involved in litigating the merits, there has to be a mechanism to settle this kind of case at a reasonable cost.  (In some of these cases, the notice costs alone are going to outstrip the settlement value of the case; here the notice costs alone were $1.2 million.  Until courts regularly recognize that methods of notice other than individual mailing are appropriate where mailing addresses are available, that will remain a major obstacle to settlements.)  

The key takeaways I see here are: 

  1. The parties must demonstrate the value of injunctive or other non-monetary relief.  Here, they failed to do that, and the district court made no finding on that, so the Ninth Circuit gave no value to the warnings added on defendants’ websites and in product manuals.  The court also noted that the defendants had agreed to do this before the settlement talks concluded.  Id. at *23 n.8.  In my mind, however, that does not mean that the warnings have no value, it appears they were prompted by the lawsuit, even if there might also be a good business reason to provide them.
  2. A district court should do a detailed lodestar calculation of attorneys’ fees, if that is the method being used.  The Ninth Circuit says that either 25% of the benefit to the class (here, a much smaller number than the award) or a lodestar calculation are generally appropriate.   Here, the district court was presented with a purported $1.6 million of time entries by plaintiffs’ lawyers.  The court found numerous problems with the time entries but concluded that the $800,000 being requested, given that it was half of the amount submitted, was appropriate.  The Ninth Circuit opinion requires the district court to go through the time entries with a fine-toothed comb and come up with an actual calculation.  Reading between the lines, I think the Ninth Circuit was somewhat shocked by the size of the $800,000 award in comparison with the benefit to the class.
  3. Arrangements in which attorneys’ fees agreed to but not awarded revert to the defendant may be looked upon with disfavor.  The Ninth Circuit says that the benefit to the class and the attorneys’ fees should be evaluated as a “package deal,” and that “there is no apparent reason the class should not benefit from the excess allotted for fees” if the court does not award the full amount agreed to.  The court’s reasoning is that  defendants are only concerned about the total payout, so if the attorneys’ fees are too high the excess should benefit the class.  Id. at *33-35.  I’m not sure this makes sense because typically the benefit to the class is negotiated separately from attorneys’ fees, and defendants may feel pressure to agree to a fee award in the second stage of negotiations to get the deal done, even where the fees requested seem excessive.  One other approach would be not to agree on the fee award and just agree on the class relief and then let the court award what it determines to be reasonable attorneys’ fees.  In that situation, the defendant can challenge the proposed fee award if it feels it is excessive and the court has the benefit of the adversarial process.  In the negotiations, both sides should have some idea of what a reasonable attorneys’ fee will be, based on what the agreed relief is for the class, and how the case has been litigated.  Another approach is to place a cap or range on the possible award but without an agreement that the defendant will not argue for a lower fee if it feels the request is excessive.
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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.