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.