A recent Ninth Circuit decision clarified that the benefit to the class is the “touchstone for determining the reasonableness of attorneys’ fees in a class action.” Under this decision, the fee should not be based on the maximum potential class recovery (as some courts have held for many years), or a lodestar amount that bears no relationship to the actual class recovery. It will be interesting to see how this decision impacts settlement negotiations in putative class actions in the Ninth Circuit and beyond.

In Lowery v. Rhapsody International, Inc., — F.4th –, 2023 WL  3857499 (9th Cir. June 7, 2023), a putative class action was filed against a music streaming service, Rhapsody, on behalf of copyright owners whose music was played on the service without a license. About 98% of the putative class members accepted a settlement that was negotiated with the National Music Publishers Association outside of this case, leaving a small number of putative class members remaining. A settlement of this putative class action was negotiated early in the case. Under the terms of the settlement, putative class members were required to make claims to receive compensation, and the total amount potentially available was $20 million. But because so few claims were made (in large part because of the prior settlement), Rhapsody paid only $52,841.05 to the putative class. The plaintiffs’ attorneys nevertheless claimed $2.5 million in fees on a lodestar basis. A magistrate judge recommended a fee award of $860,000 but the district judge rejected that and awarded $1.7 million. These numbers surprise me given what the opinion says about how the settlement was reached early in the case, with most of the efforts focused on negotiating the settlement, not litigation activities. But the opinion doesn’t delve into how those large lodestar numbers were reached.

The Ninth Circuit reversed, instructing the district court on remand to determine the “actual value to the class members and then award attorneys’ fees proportional and reasonable to the benefit received by the class.” The court explained that “courts must consider the actual or realistically anticipated benefit to the class—not the maximum or hypothetical amount—in assessing the value of a class action settlement.” While a lodestar cross-check was appropriate, where the lodestar amount “will greatly exceed 25% of the value of the settlement … that is a major red flag that signifies that lawyers are being overcompensated and that they achieved only meager success for the class.” The court emphasized that “[t]he key factor in assessing the reasonableness of attorneys’ fees is the benefit to the class members.” The court noted that there may be some circumstances where other factors come into play, such as civil rights cases or even some copyright cases where there is a societal benefit or “substantial nonmonetary relief.” 

This is arguably something of a sea change for class action settlements. For many years, courts have regularly approved attorneys’ fee awards based on the maximum potential recovery. Some judges or commentators might assume that this will simply result in plaintiffs’ attorneys accepting lower compensation in lower value cases. But such deals are never easy to negotiate. The plaintiffs’ bar tries to get the same or better hourly rates as the defense bar. Will defendants be forced to pay more because that is the only way a settlement can be reached? Or will defendants force more cases through class certification, summary judgment or trial? Or will there be more settlements that include no agreement on the fee, instead having the court decide the fee on a disputed application? That can be risky for the defendant, but maybe not so much now in the Ninth Circuit. Will nonmonetary relief be negotiated and relied upon more often in seeking settlement approval? In my mind, all of these may happen depending on the circumstances of the case.

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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.