Recently in Attorneys' Fees and Ethics Category

In the settlement of the questionable Nutella litigation, the attorneys stand to collect approximately $5 million, while class members will eventually end up with less than $2 million once deductions are made from the settlement funds for the cost of notice and administration—assuming that even 400,000 claims are made. The attorneys justify this by claiming that "injunctive relief" is worth $10 million to the class. But the injunctive relief consists of putting information that already existed on the back of the label on the front of the label, minor changes to the Nutella website, and changing the phrase "An example of a tasty yet balanced breakfast" into "Turn a balanced breakfast into a tasty one." Class counsel also justifies this fee from the work entailed in reviewing 53,000 documents and taking two depositions. [Jackson; Jackson; Lammi]

The Class Action Fairness Act requires additional scrutiny of coupon settlements, as well as limitations on attorneys' fees in settlements with coupon relief. With the able help of Dan Greenberg, I recently objected to a coupon settlement in a class action settlement Wal-Mart made in antitrust litigation accusing them of conspiring with Netflix to divide the online DVD market. (Netflix fought the case and won.) Plaintiffs argued that CAFA did not apply because the parties agreed to call the coupons awarded to the class "gift cards," and the district court literally rubber-stamped the settlement. I have appealed. Fierce Online Video and UPI cover the story. Earlier and see also.

The case is In re Online DVD Rental Antitrust Litigation, No. 4:09-md-2029-PJH (N.D. Cal.), appeal pending, No. 12-15705 (9th Cir.).

The Sixth Circuit has affirmed the convictions of Shirley Cunningham, Jr. and William Gallion, whose rip-off of clients in a mass tort settlement has been the subject of coverage in this blog for years. The opinion's summary of the facts facially demonstrate the ethical violations of everyone involved, and don't even include some of the more appalling conduct, such as the diversion of supposed cy pres to a Florida A&M Chair that paid one of the attorneys. The Sixth Circuit upheld a refusal to admit expert testimony that would have endorsed the propriety of the cy pres.

If ever there is a justification for consumer fraud laws, it is surely "homepathic medicine," so you won't find any argument from me against the fact that plaintiffs brought a class action over Boiron, Inc.'s homeopathic products, which are so much snake oil. But, as snake oil goes, I'm suspicious of a settlement that (1) does not disclose how much of the $5 million fund the attorneys are going to ask for and (2) creates an extraordinary reporting burden in violation of Rule 23(e)(5) on any objectors who dare to raise questions about the division and the lack of disclosure. Press coverage unquestionably repeats the "$5 million" figure, though I strongly suspect the class will end up with less than a tenth of that amount: people who buy homepathic products are sufficiently defrauded that they don't think they're being defrauded (and the settlement and notice permits Boiron to stand by its deceptive advertising), so it's unlikely that many people will make a claim. [Top Class Actions; Lawyers and Settlements; related at The Telegram (Canada)]

Moreover, the notice and administrative costs come out of the $5 million settlement fund, which suggests the attorneys will be asking for a commission on these payments to third parties who aren't their clients.

The majority of the class members who contact the Center for Class Action Fairness LLC (which is not affiliated with the Manhattan Institute) to inquire about their settlements are highly-educated computer-literate civics-aware citizens of above-average income who find us through Google or who remember reading about me in high-end publications. It's been fascinating to see which unfair settlements generate inquiries and which don't. I can guess that, just as very few people will make claims in the Boiron settlement, few, if any will object to a settlement where there's no disclosure about how much the attorneys will be seeking. In short, settlements relating to classes with lower-end demographics are less likely to generate objections than those with higher-end demographics, and it's thus much more likely that attorneys will take advantage of poorer clients in negotiating class-action settlements and requesting attorneys' fees.

The district court here rubber-stamped a preliminary approval order that violated Rule 23(e) by failing to disclose the attorneys' fee request in the notice and placing impermissible burdens on objectors. I hope Judge John Houston of the Southern District of California will put a little more scrutiny into the Rule 23(h) fee request when it happens.

In this particular case, the negotiations and docket show a competing class action where the attorney is getting frozen out. But I haven't been impressed by the quality of objections from competing class actions to date.

The case is Gallucci v. Boiron, Inc., Case No. 11-cv-02039 (S.D. Cal.).

On Tuesday, the First Circuit issued a landmark decision on cy pres, In re Lupron Marketing. Though odd litigation decisions by the objectors led to affirmance in that case, the First Circuit (quoting CCAF's victory in Nachshin v. AOL) made clear that it had "unease" with cy pres, and set a precedent generally requiring compliance with §3.07 of the ALI Principles of the Law of Aggregate Litigation. [Legal Newsline; FindLaw]

Coincidentally, the same day, the Center for Class Action Fairness filed its opening brief relating to the yet-to-be-proposed multi-million-dollar cy pres distribution in In re Baby Products, asking the Third Circuit to adopt §3.07; the district court held that the class wasn't even entitled to an opportunity to object to the as-yet-to-be-proposed recipients. Baby Products presents the additional problem of the sort of settlement where class members were artificially deterred from making claims to expand the amount available for cy pres; indeed, under the district court's order, the class counsel will walk away with over $14 million of the $35.5 million fund, and the class millions of dollars less, likely less than half of what the attorneys got. (Note that under the Brian Fitzpatrick methodology, this would count as a "33.3%" fee award, though that percentage in reality is off by at least a factor of two, and no one in the world will ever know how much the class actually receives; and under the district court's procedure, the class counsel might well be doubly compensated if the cy pres goes to a charity related to the class counsel.)

(CCAF is not affiliated with the Manhattan Institute.)

Hans Bader, senior attorney and counsel for special projects with the Competitive Enterprise Institute, comments on a recent New York Times story that sheds light on a phenomenon Walter Olson of the Cato Institute tags as the creation of "ADA filing mills."

Bader writes:

Thanks to generous attorney-fee provisions contained in federal civil-rights law, trial lawyers are feasting on Americans with Disabilities Act claims at the expense of small businesses, consumers, and indirectly the public. As I noted earlier, a trial lawyer can collect thousands of dollars in attorney fees for "winning" a discrimination or ADA lawsuit, even if his client collects only $1.

...When it comes to ADA compliance, small businesses are subjected to legal harassment no matter what they do. Many small businesses don't have the freedom to unilaterally modify their entrances or facilities to make them handicapped-accessible, due to municipal code compliance regulations. Instead, they have to submit costly, detailed applications to code enforcers first, and sometimes have to wait months or years for approval, during which time they are sitting ducks for greedy trial lawyers bringing ADA claims. If they make their facilities ADA compliant without receiving the required municipal permits, they get fined by municipal officials.

As the owner of the Cha Cha Chicken restaurant on Pico Boulevard in Santa Monica noted, "We wanted to renovate our bathroom areas to make it more handicap-accessible and it took us almost three years to get all the permits. . .We kept giving all the paperwork they need, but it took forever. We needed the Pico Improvement Organization to plead our case."

As alarming as this practice by trial lawyers sounds, the New York Times article did recognize a valid question generating a great deal of debate; whether the lawsuits are a laudable effort, because they force businesses to make physical improvements to comply with the disabilities act, or simply a form of ambulance-chasing, with no one actually having been injured?

As I note in our featured discussion, and Lester Brickman notes in Lawyer Barons, one of the popular ways to exaggerate the value of a settlement is through a claims-made process. The settling parties tell the court that all of the class members are eligible for relief, then create a claims process that is sufficiently burdensome that only 3% of the class actually recovers, but ask the court to evaluate the settlement on the fiction that the entire class collected. In the pending appeal of Brazil v. Dell, No. 11-17799, the Center for Class Action Fairness LLC is asking the Ninth Circuit to put a stop to this abuse of the class action process.

The case has an interesting twist. Three weeks after the CCAF brief was filed in March, but before the appellees' briefs have been filed, the district court issued a new opinion changing its reasoning and fact-finding from the oral and written opinions it had previously issued. As a friend clerking on a different circuit tells me, the technical term for that is "shenanigans." We've asked the Ninth Circuit to intercede.

(CCAF is not affiliated with the Manhattan Institute.)

Attorneys' fees in bankruptcy are generally not available from Chapter 7 estates, so attorneys found a way to abuse the system and put their interests first: a Chapter 13 filing where virtually the only thing the debtor pays is the fees, even if the debtor would be better off with a Chapter 7 filing. Some bankruptcy courts recognize this for what it is and reject it entirely. The First Circuit now begs to differ, and, rather than holding them per se unlawful, calls for bankruptcy courts to perform a balancing test in case there is a special circumstance where such a plan would be appropriate. [WSJ Law Blog; Reuters; In re Puffer]

The ruling's punting seems a mistake. It's hard to imagine that any injustice from a per se rule will outweigh the cost to society of litigating the parameters of whether a fee-only plan is abusive or not. Of course, lawyers benefit from a more complex system that requires more litigation: paging Benjamin Barton and Judge Jacobs.

Prosecutors charged Dickie Scruggs and Zach Scruggs with multiple crimes, and as part of plea bargaining, they pled guilty to honest services fraud. Zach previously unsuccessfully used the Skilling decision in an attempt to undo his guilty plea, and Alan Lange predicts that Dickie Scruggs's similar effort will come to naught, but imagines that Scruggs is hoping for positive PR implications.

But under our legal system, there's no penalty for, and thus no downside to, wasting a court's time with a motion with a 0.1% chance of success.

A bearded visage of me is on the front page of law.com today.

As I wrote on this blog in August:

[Since 2009, attorneys with the Center for Class Action Fairness have been objecting on behalf of seven class members] to a $0 settlement in a ludicrous class action against Bluetooth headsets alleging consumer injury because of failure to (adequately) disclose risk of hearing loss from loud volume settings. Apple won a similar case over iPods, but the defendants here decided to pay the attorneys $850,000 to go away. The district court rubber-stamped the settlement and fee request, and CCAF appealed. [On August 19], the Ninth Circuit reversed and remanded, instructing the district court to apply more scrutiny to a settlement where the fees were so disproportionate to the class recovery. [654 F.3d 935]

On remand, the plaintiffs re-submitted the same settlement that the Ninth Circuit found so problematic, arguing that the injunctive relief—minor wording changes in product manual warnings—was worth, in conjunction with the costs of notice, $878 million. Since the attorneys were only seeking 0.1% of that amount, isn't that generous? They all but asked for a medal.

Needless to say, the objectors were not persuaded—especially after what a commenter calls a "Perry Mason moment" in the deposition of the plaintiffs' expert. Wednesday, I renewed my clients' objection to the self-serving settlement. [NLJ, earlier on NLJ] I hear a rumor that the Los Angeles Daily Journal is also covering the story today, but I haven't seen it.

The Center for Class Action Fairness is not affiliated with the Manhattan Institute.