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Bluetooth ripples: "kicker" provisions



In a typical class action settlement, there is a common settlement fund, and the attorney fee is deducted from the settlement fund, with the remainder to the class. Class attorneys, however, interested in protecting their fee award, may structure the fee award as coming from a fund "separate" from the common fund—with the "kicker" that any reduction in the fee request ordered by the court goes to the defendant, rather than the class. Remarkably, not only do class attorneys have the chutzpah to claim that this means that this is better for the class because "the defendant is paying the fee instead of the class," but some courts have affirmatively adopted this economic fiction. Of course, the money is all coming from the same place, and the class is unambiguously worse off if any reversion goes to the defendant instead of to the class. If the defendant is also agreeing to a "clear sailing" clause where it won't challenge the fee request, there may be no one with standing to challenge the fee. In short, the "kicker" provision in any class action settlement reflects the class attorneys putting their own interests ahead of their putative clients at their putative clients' expense.

Since the beginning, the Center for Class Action Fairness has asked courts to look at the substance of settlement structures rather than the form, and treat these provisions as problematic, if not a per se breach of fiduciary duty: the "kicker" provision makes the class worse off but the class counsel better off. This was a frustrating battle: even citing to the academic work of scholars like Lester Brickman, the failure of courts to have previously paid attention to the economic fiction meant it was easy to ridicule our proposal. (Judge Posner mentioned it in passing once, but other courts ignored it entirely.) One district court opinion accused our argument of being "long on ideology and short on law," a quote that has been used against the Center in nearly every objection since, even though that same court awarded the Center attorneys' fees.

So the Bluetooth decision is not only a landmark in being the first appellate court to discuss the problem in detail, but is a vindication for the Center: anyone who criticizes the Center using the Lonardo language of "short on law" can be rebutted by noting that we got an appellate court to agree with us where the Lonardo district court ignored us. This will be important in pending cases such as Sirius where Judge Baer was snowed by the economic fiction and found that "kicker" provisions are a benefit to the class because it means that the defendant, rather than the class is paying for the attorneys.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.