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We have a fancier (if not much better updated) website now at classactionfairness.com.

In re Capital One TCPA Litigation Seventh Circuit appeal

Litigation over whether Capital One and its affiliates violated the Telephone Consumer Protection Act settled for $75.5 million—about $4 for each of the 17.5 million class members who allegedly had a statutory claim for $500 or more. Six law firms asked for 30% of that, or over $22.6 million. We objected on behalf of a class member, Jeffrey Collins, introducing evidence showing that something more in the 4.6% range would more than fully compensate class counsel for the risk they incurred. The district court did not adopt our arguments, but agreed with us that there should be a declining percentage as the fund grew larger, and awarded "only" $15,668,265. That's for 4,268 hours of work by six law firms, including associates and paralegals, or over $3,671/hour. Other TCPA cases have awarded over $5,000/hour for similarly mediocre results.

This award is not because the underlying TCPA action was extraordinarily risky: the evidence showed that class counsel won settlements in 16 out of 38 TCPA class actions over the last four years and collected handsome fees for 64% of the hours they devoted to TCPA litigation. Moreover, the court found only that this case was “slightly” more risky than typical TCPA litigation. Nor did it reflect extraordinary litigation efforts: the case settled immediately after the filing of the MDL complaint. Nor did it reflect above-average efficiency: six firms claimed a right to fees, though only three had been appointed in the district court’s original Rule 23(g) order, and the lodestar was substantially higher than in other TCPA cases. Nor is this an extraordinary settlement: as mentioned, class members’ multiple $500 statutory claims were settled for about $4/class member before attorneys’ fees.

We do not contend that a court can never award such a generous hourly rate. But the Seventh Circuit has “held repeatedly that, when deciding on appropriate fee levels in common-fund cases, courts must do their best to award counsel the market price for legal services, in light of the risk of nonpayment and the normal rate of compensation in the market at the time.” We do not believe a sophisticated arms-length transaction would produce this sort of windfall for these sorts of results, and we have appealed, filing our opening brief Monday.

The case presents another interesting issue: can class counsel agree not to compete for lead-counsel status, and then divvy up a lump-sum fee request in a secret side agreement without approval or review of the court and the class? We think Rule 23(h) and Rule 23(e)(3) do not permit that.

Daniel Fisher has a great summary of the appeal on Forbes.com.

In re Online DVD Antitrust Litigation: adverse decision and en banc petition

You might recall the settlement approval in Online DVD Antitrust Litigation we briefed back in 2012. A district court held that the Wal-Mart $12.03 "gift cards" the settlement awarded weren't "coupons," refused to apply the Class Action Fairness Act, and awarded fees based on the face value of the coupons.

On February 27, the Ninth Circuit, in a Judge Sidney Thomas opinion, affirmed.

Wait a second! careful readers exclaim, Didn't you already win that exact issue on appeal?!

Yep. Appellees made the same arguments about "settlement vouchers" and attorney-fee calculations in Redman v. RadioShack Corp., 768 F.3d 622 (7th Cir. 2014), and that court, in a Judge Posner opinion, rejected them in a lengthy and lively discussion that was widely discussed.

So what did the Ninth Circuit say to reject the contrary Seventh Circuit case?

Absolutely nothing. They didn't mention it once, though we filed a Rule 28(j) letter in September.

Was there another appellate precedent that they followed instead?

Nope. Some district courts make the same mistake that Redman criticized (though some don't), and the Ninth Circuit followed those cases without mentioning the others while creating a circuit split.

What now?

Well, we've asked for rehearing or rehearing en banc. If we don't get correction, we have an interesting circuit split to put before the Supreme Court in a certiorari petition.

Big cy pres victory in 8th Circuit: Oetting v. Green Jacobson

with new opinion from 8th Circ, @tedfrank continues to reshape fed. judicial policy on giving class money to charity http://t.co/D1Yy3BgJu9
— Alison Frankel (@AlisonFrankel) January 8, 2015

For years, parties have used cy pres—the practice of giving settlement money to charity instead of the class—in abusive ways. When proposed by defendants, cy pres can be used to create the illusion of relief to justify greater attorneys' fees at the expense of the class when in fact all that is happening is that the defendant is changing accounting entries on charitable donations it would have made anyway. When cy pres is used to justify attorneys' fees, it takes away the incentive of class counsel to prioritize direct recovery to the class: after all, it's much more satisfying to hold a ceremony giving away an oversized $3 million check to a local charity run by a friend than to issue a million $3 checks to ungrateful class members. And I've discussed other problems with cy pres in Congressional testimony and an article for the Federalist Society.

So cy pres was one of the issues that provoked the founding of the Center for Class Action Fairness. The Center has won a number of victories on the cy pres issue over the years, most notably in the Third and Ninth Circuits. A cert petition we filed in a case we didn't handle below got some attention. Though it was ultimately denied, a separate statement by Justice Roberts sent a strong message. And the Rules Committee is considering the issue.

In 2013, a class representative in securities litigation in St. Louis complained that class counsel was planning to give away $2.7M of the class's money to local charities instead of to class members in a nationwide class. The district court signed off on the distribution, and the Center agreed to assist the class representative, David Oetting, on the appeal to the Eighth Circuit. The argument resulted in an entertaining column by Bill McClellan. And today, we won a landmark victory where a divided panel adopted our arguments in full. (That's eight straight CCAF intermediate appellate wins since the begining of 2013.) The precedent will do much to protect class members against abusive cy pres in the future—and, if adopted by other courts, may well moot the need for the Rules Committee to opine on the issue. We have a Ninth Circuit appeal on the cy pres problem scheduled for argument in Pasadena February 2.

The case is David Oetting v. Green Jacobson, P.C., No. 13-2620 (8th Cir. Jan. 8, 2015).

Press coverage: Reuters, Litigation Daily, Alison Frankel @ Reuters.

Cy Pres You'll Read This

Learn about the state of cy pres law without having to pay for a CLE class!

Today, Washington Legal Foundation published a short and useful working paper authored by James M. Beck and Rachel B. Weil titled "Cy Pres" Awards: Is the End Near for a Legal Remedy With No Basis in Law? 

The paper effectively summarizes recent litigation demonstrating courts' skepticism of such awards, wherein settlement funds are paid to third parties instead of to class members.

Beck and Weil highlight some CCAF-generated precedents, such as Chief Justice Roberts's statement in Marek v. Lane, 134 S. Ct. 8 (2013), the Third Circuit's opinion in In re Baby Prods. Antitrust Litig., 708 F.3d 163 (3d Cir. 2013), and the Seventh Circuit's opinion in Redman v. Radioshack Corp., ___ F.3d ___, 2014 U.S. App. LEXIS 18181, 2014 WL 4654477 (7th Cir. Sept. 19, 2014). (Credit is also due to Bexis, the blogging nom de guerre of Mr. Beck, whose post "Sunsetting Cy Pres" drew attention to the Redman ratio's applicability to cy pres remedies just one day after Redman v. Radioshack was decided.)

The rationale for having a defendant settle class members' claims by paying money to third parties is that it would be impossible to compensate the class members themselves. But it's a reverse Robin Hood, wherein money that belongs to the aggrieved nationwide mass of class members is taken and funneled to well-connected recipients, like the plaintiffs' lawyers' preferred local charities and alma maters. Sometimes, it isn't even true that class members can't be located!

What do you think about cy pres? How do you think it should be pronounced: see pray, or sigh pray?

Leave your comments below.

Oral Argument in Pearson v. NBTY, Inc.

Are you trick-and/or-treating in downtown Chicago this Halloween?

If so, visit the United States Court of Appeals for the Seventh Circuit to watch oral argument in Pearson v. NBTY, Inc., No. 14-1198 (7th Cir.). That's 9:30 a.m. in the Main Courtroom on October 31, 2014, at 219 S. Dearborn Street.

Ted Frank will be arguing for appellants in full costume (i.e. business formal court attire) as The Class Action Avenger.

You can read the background about this settlement in our last post about it. Basically, it's under $900,000 for class members, $1.1 million for third parties, and $4.5 million for plaintiffs' lawyers. Class members also get some labeling changes to the sued-over glucosamine bottles, changes which are alleged by the plaintiffs' lawyers to be worth $21 million. For example, instead of saying "Osteo Bi-Flex works by providing the nourishment your body needs to build cartilage, lubricate, and strengthen your joints," the label could say "Osteo Bi-Flex works by providing the nourishment your body needs to support cartilage, lubricate, and strengthen your joints" (italics added free-of-charge). See the opening brief for what "is perhaps the best 13,000-word summary of CCAF philosophy."

Plaintiffs, calling this settlement a "tremendous result," cross-appealed when the district court awarded them $2.1 million in attorneys' fees and expenses instead of $4.5 million. That $4.5 million, after all, "was negotiated at arm's-length by the parties" and, since the requested fees were only up to 2.56 times greater than the plaintiffs' lawyers' billing rate for the labor they expended, the requested fees were "certainly not excessive."

The briefing proceeded as follows:

• Opening Brief of Objectors-Appellants
• Response Brief of Plaintiffs-Appellees/Cross-Appellants (1 of 2) (2 of 2)
• Response Brief of Defendants-Appellees
• Response and Reply Brief of Objectors-Appellants
• Reply Brief of Plaintiffs-Appellees/Cross-Appellants (1 of 2) (2 of 2)

Oral argument audio will be available at this link on October 31 or November 1: follow our blog for updates.

Opening Brief in Gascho v. Global Fitness Holdings

Candy corn, pumpkin pie, egg nog . . . no wonder that three months from now we'll all be joining gyms.

So let's inaugurate the 2014 Holiday Season with the opening brief in this appeal of an unfair settlement over gym memberships: Gascho v. Global Fitness Holdings, LLC, No. 14-3798 (6th Cir.). (You might remember this settlement from November 2013, when it was winding its way through the district court.)

Joshua Blackman, a class member, Texas citizen, law professor, former Sixth Circuit clerk, current client of CCAF, blogger, and author, objected to this settlement, which paid $2.4 million to class counsel and representatives, yet only $1.6 million to the class: a Redman ratio¹ of 60%.

Main Question: Is it fair for a settlement to so privilege attorneys with "preferential treatment" over their clients? Sixth Circuit law suggests the answer is, "No."

Bonus Question: What is the value to the class of a settlement that pays the class $1.6 million? The answer: $8.5 million, according to the magistrate judge below, who literally split the difference between the amount that class members actually received and the $15.5 million they would have received if every single one of them--even those who hadn't been notified of the settlement--submitted a claim. Respectfully, CCAF and Professor Blackman believe that's a legally erroneous approach.

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¹"The ratio that is relevant to assessing the reasonableness of the attorneys’ fee that the parties agreed to is the ratio of (1) the fee to (2) the fee plus what the class members received." Redman v. Radioshack Corp., -- F.3d --, 2014 U.S. App. LEXIS 18181, *16, 2014 WL 4654477 (7th Cir. Sept. 19, 2014) (Posner, J.). The higher the ratio, the worse the settlement.