Judge Posner of the Seventh Circuit is a frequent author of class action-related opinions. His most recent one reversed an order approving a class action settlement because the attorneys’ fee award was too high.  The case involved claims that RadioShack violated the Fair and Accurate Credit Transactions Act by putting expiration dates for credit card numbers on receipts. The settlement provided $10 coupons to class members who received notice and requested these coupons. The value of the $10 coupons requested by the less-than-1% of class members who sought them totaled $830,000. The district court awarded an attorneys’ fee of slightly under $1 million.

The opinion in Redman v. RadioShack Corp., No. 14-1470 (7th Cir. Sept. 19, 2014) is lengthy, but here are some key points:

  • The court found that the full amount of administrative costs should not have been included in calculating the value of the settlement to the class for purposes of evaluating the reasonableness of the fee award. “By doing so the court eliminated the incentive of class counsel to economize on that expense – and indeed may have created a perverse incentive; for higher administrative expenses make class counsel’s proposed fee appear smaller . . . .” (Slip op. at 10-11.) 
  • The court concluded that because of RadioShack’s apparent financial condition, a modest overall settlement was warranted, but more of it should go to the class members and less to class counsel. (Id. at 15-16.)  
  • A lodestar analysis was not proper without taking into account that “the efforts of class counsel yielded an extremely modest harvest . . . .” (Id. at 16.) 
  • The Class Action Fairness Act provision regarding coupon settlements does not rigidly require waiting to see how many coupons are redeemed before making the fee award; rather, the district court has flexibility to consider expert testimony about how many coupons likely will be redeemed, or to provide for payment of some fees upfront and more after redemption, if warranted. (Id. at 19.) 
  • “Clear-sailing clauses,” in which a defendant agrees not to contest class counsel’s request for an attorneys’ fee award, warranted “intense critical scrutiny” in this case, where it involved a non-cash settlement award. (Id. at 26.) 
  • According to the court, under Rule 23(h), the motion for the attorneys’ fee award should be filed prior to the deadline for objections to the settlement, so that objectors have adequate opportunity to object. (Id.) This is an important point for class action practitioners, as it has been more typical for the fee application to be filed later.

Although the court, of course, could not itself rewrite the settlement, it suggested that “[a] renegotiated settlement will simply shift some fraction of the exorbitant attorneys’ fee awarded class counsel in the existing settlement that we are disapproving to the class members.” (Id. at 27.)

This case continues the trend we’ve seen in recent years of increased scrutiny being given to attorneys’ fee awards in class action settlements. It seems likely that plaintiffs’ attorneys are going to simply have to agree to substantially lower fees in lower-value class actions, unless they want to spend a long time battling appeals. Or perhaps defendants in some cases will be willing to roll the dice, by agreeing to a settlement with the class but leaving the fee award to the court. That would create a more vigorous adversarial process on these fee awards, but obviously has its risks.