CURRENT TOPICS IN ATTORNEYS’ FEES

IN CLASS ACTIONS

by

Alison B. Prout and Samika N. Boyd

August 2015

BONDURANT MIXSON & ELMORE LLP

One Atlantic Center | 1201 West Peachtree Street NW Suite 3900 | Atlanta, GA 30309

P: 404.881.4100 F: 404.881.4111 www.bmelaw.com

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INTRODUCTION

This paper explores three aspects of attorneys’ fees awards in class actions. First,

it examines the relative prevalence of the lodestar method and the percentage-of-the-

fund method for calculating fees in common fund cases in which no fee-shifting statute

applies. Recent trends reflect that courts are increasingly favoring the percentage-of-

the-fund method as a simpler, fairer method to determine fees. After analyzing

approximately 50 percentage-of-the-fund class action awards from 2014 and 2015,

current awards typically range between 25% and 33%, with the exception of “mega fund”

cases, in which the percentage unsurprisingly tends to be smaller. Second, this paper

considers how non-cash components of class settlements factor into attorneys’ fees

awards in the absence of a fee-shifting statute. Courts tend to look for both a reliable

method to assign economic value to the non-cash relief, and evidence that the relief will

directly benefit the class. Third, this paper analyzes how courts have treated outsourced

or contract attorneys for the purpose of fee awards. While courts have generally

recognized that contract attorney fees are not merely line items to be reimbursed at

actual cost, the market fee attributed to contract attorneys has come under recent

scrutiny.

I. The Prevailing Methods of Calculating Attorneys’ Fees in Common Fund Cases

Under the American Rule, parties are generally responsible for paying their own

attorneys’ fees.1 The common fund doctrine, however, is a recognized exception to the

default rule stemming from courts’ equitable power. The common fund doctrine applies

in the absence of a fee-shifting statute and holds that a “lawyer who recovers a common

1 Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 249 (1975).

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fund for the benefit of persons other than himself or his client is entitled to a reasonable

attorney’s fee from the fund as a whole.”2 It is well-established that the common fund

doctrine applies in the context of class action lawsuits.3

Despite the wide acceptance of the doctrine, courts vary in their approach to

determining attorneys’ fee awards from the common fund. The two most common

methods are the lodestar method and the percentage-of-the-fund method. Under the

lodestar method, courts multiply the number of hours an attorney reasonably worked by

the reasonable hourly rate to produce an amount subject to an upward or downward

adjustment upon applying the Johnson v. Georgia Highway Express, Inc. factors.4

2 Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980). 3 See e.g., Victor v. Argent Classic Convertible Arbitrage Fund L.P., 623 F.3d 82, 86 (2d Cir. 2010) (“Class action lawsuits are the prototypical example of instances where the common fund doctrine can apply.”); United States ex rel. Bogart v. King Pharms., 493 F.3d 323, 329 (3d Cir. 2007) (describing the “‘classic’ common fund case” as “a class action”). 4 488 F.2d 714 (5th Cir. 1974), abrogated on other grounds by Blanchard v. Bergeron, 489 U.S. 87, 92-93, 96 (1989). See e.g., Allen v. Tobacco Superstore, Inc., 475 F.3d 931, 944 (8th Cir. 2007) (affirming attorneys’ fee award in an individual employment discrimination case, where the district declined to adjust the lodestar after applying Johnson factors); Adcock-Ladd v. Sec’y of Treasury, 227 F.3d 343, 349 (6th Cir. 2000) (in an individual employment discrimination action, noting that district courts in the Sixth Circuit apply the Johnson factors to adjust the lodestar); Cunningham v. Cty. of Los Angeles, 879 F.2d 481, 484 (9th Cir. 1988) (in civil rights action, noting that district courts in the Ninth Circuit apply the Johnson factors to adjust the lodestar); McNabola v. Chicago Transit Auth., 10 F.3d 501, 518 (7th Cir. 1993) (in an individual employment discrimination action, noting that the district courts in the Seventh Circuit apply the Johnson factors to adjust the lodestar). But see Arbor Hill Concerned Citizens Neighborhood Ass’n v. Cty. of Albany, 522 F.3d 182, 190 (2d Cir. 2007) (directing district courts in the Second Circuit to consider all “case-specific variables”). The Johnson factors are as follows: time and labor required; the novelty and difficulty of the questions involved; the skill requisite to perform the legal service properly; the preclusion of the other employment by the attorney due to acceptance of the case; the customary fee; whether the fee is fixed or contingent; time limitations imposed by the client or the circumstances; the amount involved and the results obtained; the experience, reputation, and ability of the attorneys; the “undesirability” of the case; the

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Under the percentage-of-the-fund method, courts award attorneys’ fees calculated as a

fraction of the common fund.5

Each method has well-recognized advantages and disadvantages. “[T]he lodestar

creates an unanticipated disincentive to early settlements, tempts lawyers to run up

their hours, and compels district courts to engage in a gimlet-eyed review of line-item

fee audits.”6 Conversely, the percentage-of-the-fund method can encourage premature

settlements and can yield windfall profits to class counsel in light of the hours worked.7

A. While Both the Lodestar Method and the Percentage-of-the-Fund Method Have Wide-Scale Acceptance, the Percentage-of-the-Fund Method Has Gained Increased Favor.

While nearly every circuit has accepted the use of the lodestar method to

calculate attorneys’ fees in common fund class actions,8 many courts are beginning to

nature and length of the professional relationship with the client; and awards in similar cases. 488 F.2d at 717-19. 5 See e.g., Hanlon v. Chrysler Corp., 150 F.3d 1011, 1029 (9th Cir. 1998) (“The percentage method means that the court simply awards the attorneys a percentage of the fund sufficient to provide class counsel with a reasonable fee.”). 6 Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 122 (2d Cir. 2005); see also In re Catfish Antitrust Litig., 939 F. Supp. 493, 501(N.D. Miss. 1996) (describing the application of the lodestar as an “administration behemoth” and applying the percentage-of-the-fund method in part because the court “would have to review reams of itemized billing records” to determine whether the hours that the attorney worked were reasonable). 7 See McDaniel v. Cty. of Schenectady, 595 F.3d 411, 418-19 (2d Cir. 2010) (noting “the perception that percentage fees tended to yield too little for the client-class, and an unjustified golden harvest of fees for the lawyer”) (quotations omitted). 8 See In re Thirteen Appeals Arising Out of San Juan Dupont Plaza Hotel Fire Litig., 56 F.3d 295, 301-02 (1st Cir. 1995) (holding that district courts in the First Circuit have the flexibility to apply the lodestar approach or percentage-of-the-fund method); McDaniel v. Cty. of Schenectady, 595 F.3d 411, 419 (2d Cir. 2010) (“Although we have acknowledged that the trend in this Circuit is toward the percentage method, it remains the law in this Circuit that courts may award attorneys’ fees in common fund cases under either the ‘lodestar’ method or the ‘percentage of the fund’ method”); Boyd v. Coventry Health Care Inc., 299 F.R.D. 451, 462 (D. Md. 2014) (noting that “[t]he

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rely more heavily on an analysis of a fair percentage of recovery than the value of the

time that counsel expended.9 This may be in part due to the Private Securities Litigation

Reform Act, which contemplates a percentage calculation in securities class actions.10

Two Circuits require the exclusive use of the percentage-of-the-fund method. In

1991 the Eleventh Circuit began requiring the exclusive use of the percentage-of-the-

fund method in reliance on Supreme Court dicta in Blum v. Stenson.11 In 1993, the D.C.

Circuit followed suit, “primarily because [the percentage-of-the-fund method] is more

efficient, easier to administer, and more closely reflects the marketplace.”12 Numerous

United States Court of Appeals for the Fourth Circuit has not decided which of the general approaches [lodestar or percentage of the fund] to adopt”); Union Asset Mgmt. Holding A.G. v. Dell, Inc., 669 F.3d 632, 643 (5th Cir. 2012); Rawlings v. Prudential-Bache Prop., Inc., 9 F.3d 513, 516 (6th Cir. 1993); Americana Art China Co. v. Foxfire Printing & Packaging, Inc., 743 F.3d 243, 247 (7th Cir. 2014); Petrovic v. Amoco Oil Co., 200 F.3d 1140, 1157 (8th Cir. 1999); In re Washington Pub. Power Supply Sys. Sec. Litig., 19 F.3d 1291, 1296 (9th Cir. 1994); Gottlieb v. Barry, 43 F.3d 474, 483 (10th Cir. 1994) (noting that district courts in the 10th Circuit may choose the lodestar approach or percentage-of-the-fund method). 9 See e.g., Decohen v. Abbasi, LLC, 299 F.R.D. 469, 481 (D. Md. 2014) (noting that the majority of courts apply the percentage of recovery method); In re Citigroup Inc. Sec. Litig., 965 F. Supp. 2d 369, 387-88 (S.D.N.Y. 2013) (noting the Second Circuit trend was applying the percentage-of-the-fund method); Dell, 669 F.3d at 643 (acknowledging that the district courts in the Fifth Circuit regularly use the percentage-of-the-fund method); Rosenbaum v. MacAllister, 64 F.3d 1439, 1445 (10th Cir. 1995) (noting that the Tenth Circuit implied a preference for the percentage-of-the-fund method). 10 15 U.S.C. § 78u-4(a)(6) (“Total attorneys’ fees and expenses awarded by the court to counsel for the plaintiff class shall not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class.”). 11 Camden I Condo. Ass’n v. Dunkle, 946 F.2d 768, 774 (11th Cir. 1991) (concluding that “the percentage-of-the fund approach is the better reasoned in a common fund case); Blum v. Stenson, 465 U.S. 886, 900, n.16 (1984) (noting in passing that “the calculation of attorney’s fees under the common fund doctrine,” is “based on a percentage of the fund bestowed on the class”). 12 Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1270, 1272 (D.C. Cir. 1993) (noting that the Eleventh Circuit was the first circuit court to mandate the percentage-of-the-fund method as the proper method for calculating attorneys’ fees in common fund cases in

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high-profile class action settlements have resulted in percentage-of-the-fund awards in

the past five years.13

At the same time, courts have not entirely abandoned use of the lodestar method.

More and more, courts are conducting a “lodestar cross-check” to pressure test the

propriety of the percentage against the time spent by counsel.14 The Third Circuit has

led the way by incorporating the lodestar cross-check as a routine part of evaluating

that circuit and concluding that D.C. Circuit joins the Eleventh Circuit in ruling the same). 13 See e.g., In re Certainteed Fiber Cement Siding Litig., 303 F.R.D. 199, 223 (E.D. Pa. 2014) (awarding 17.8% of $103.9 million common fund as attorneys’ fees); In re Citigroup Inc. Bond Litig., 988 F. Supp. 2d 371, 375 (S.D.N.Y. 2013) (awarding 16% of $730 million common fund as attorneys’ fees); In re Black Farmers Discrimination Litig., 953 F. Supp. 2d 82, 101 (D.D.C. 2013) (awarding 7.4% of $1.25 billion common fund as attorneys’ fees); In re Air Cargo Shipping Serv. Antitrust Litig., No. 06-MD-1775-JG-VVP, 2012 WL 3138596, at *5 (E.D.N.Y. Aug. 2, 2012) (awarding 25% of $198 million common fund as attorneys’ fees); Williams v. Rohm & Haas Pension Plan, 658 F.3d 629, 637 (7th Cir. 2011) (affirming district court award of $43.5 million, which constituted 24.17% of $180 million common fund as attorneys’ fees). 14 See e.g., Decohen, 299 F.R.D. at 481 (noting that district courts in the Fourth Circuit and majority of courts in other jurisdictions apply the percentage-of-recovery method but often employ the lodestar cross-check); In re Living Social Mktg. & Sales Practice Litig., 298 F.R.D. 1, 15 (D.D.C. 2013) (noting that courts frequently use the lodestar cross-check); In re Citigroup, Inc., 965 F. Supp. 2d at 387-88 (noting the Second Circuit trend was applying the percentage-of-the-fund method and checking the fairness of amount with the lodestar method); In re OCA, Inc. Sec. and Derivative Litig., No. 05-2165, 2009 WL 512081, at *19 (E.D. La. Mar. 2, 2009) (noting that courts often use the lodestar cross-check method); In re Cabletron Sys. Sec. Litig., 239 F.R.D. 30, 37 (D.N.H. 2006) (“[I]t is now common practice to use the lodestar as a cross-check on the [percentage-of-the-fund] award.”); Jones v. Dominion Res. Serv., Inc., 601 F. Supp. 2d 756, 760 (S.D. W. Va. 2009) (noting that many courts have applied the lodestar cross-check). But see Will v. Gen. Dynamics Corp., No. 06-698-GPM, 2010 WL 4818174, at *3 (S.D. Ill. Nov. 22, 2010) (“The use of a lodestar cross-check in a common fund case is unnecessary, arbitrary, and potentially counterproductive”).

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every percentage-of-the-fund request.15 The Ninth and Second Circuits have

encouraged use of the same.16

When applying the lodestar cross-check, courts compute a fee amount under

both percentage-of-the-fund and lodestar methods and evaluate the ratio of the

percentage-based fee to the lodestar-based fee to confirm the reasonableness of the

percentage-based fee.17 Unlike when courts apply the lodestar model as its primary

method of calculating attorneys’ fees, “[t]he lodestar cross-check calculation need entail

neither mathematical precision nor bean-counting.”18 By using the lodestar cross-

check, courts are able to verify the reasonableness of the percentage and avoid a windfall

in attorneys’ fees or under-compensation.19 Courts that have applied the lodestar cross-

15 See In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 300 (3d Cir. 2005) (“[I]t is sensible for a court to use a second method of fee approval to cross-check its initial fee calculation.”) 16 See In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 944 (9th Cir. 2011) (“[W]e have also encouraged courts to guard against an unreasonable result by cross-checking their calculations against a second method.”); Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 50 (2d Cir. 2000). The Ninth Circuit has also supported the use of the percentage-of-the-fund method to cross-check the reasonableness of a lodestar award. See In re Bluetooth, 654 F.3d at 942; Moore v. Verizon Commc’n Inc., 09-1823SBA, 2014 WL 588035, at *16 (N.D. Cal. Feb. 14, 2014) (applying the percentage-of-the-fund method as cross-check to lodestar approach). 17 See e.g., In re IndyMac Mortgage-Backed Sec. Litig., No. 09-cv-4583, 2015 WL 1315147, at *5-6 (S.D.N.Y. Mar. 24, 2015). 18 In re Rite Aid Corp., 396 F.3d at 306. 19 See In re Citigroup Inc., 965 F. Supp. 2d at 388 (“The cross-check is crucial because economies of scale could cause windfalls in common fund cases with large funds.”); In re Heartland Payment Sys., Inc. Customer Data Sec. Breach Litig., 851 F. Supp. 2d 1040, 1086 (S.D. Tex. 2012) (“The lodestar cross-check is usually applied to avoid windfall fees, i.e., to ensure that the percentage approach does not lead to a fee that represents an extraordinary lodestar multiple.”) (citation and marks omitted).

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check often reduce the requested percentage of funds to bring the award more in line

with a reasonable lodestar result.20

B. The Percentage Awarded by Courts Varies Based on the Size of the Fund, the Effort Expended by Counsel, and Multiple Other Factors.

There is no bright line percentage of reasonable attorneys’ fees. As the Eleventh

Circuit has explained, “[t]here is no hard and fast rule mandating a certain percentage of

a common fund which may reasonably be awarded as a fee because the amount of any

fee must be determined upon the facts of each case. Individualization in the exercise of

a discretionary power [for fee awards] will alone retain equity as a living system and

save it from sterility.”21 Accordingly, courts consider a number of factors, such as:

“(1) fee awards in similar cases; (2) the complexity duration, and risk involved in the

litigation; (3) the manner in which the fee request was negotiated between co-lead

counsel and lead plaintiffs; (4) the reaction of the class; and (5) public policy

considerations.”22 Some courts use 25% as a benchmark23 and adjust the percentage

20 See Chart I: Non-Mega Fund Class Action Settlements Based on Percentage-of-the-Fund Method (“Chart I”) and Chart II: Mega Fund Class Action Settlements Based on Percentage-of-the-Fund Method (“Chart II”), infra. 21 Camden, 946 F.2d at 774; see also In re Fidelity/Micron Sec. Litig., 167 F.3d 735, 737 (1st Cir. 1999) (“because each common fund case presents its own unique set of circumstances, trial courts must assess each request for fees and expenses on its own terms”). 22 In re Tyco Int’l Ltd. Multidistrict Litig., 535 F. Supp. 2d 249, 266 (D.N.H. 2007). 23 See, e.g., In re Bluetooth, 654 F.3d at 942 (indicating that the benchmark is 25% in the Ninth Circuit); Cooper v. Nelnet, Inc., No. 6:14-cv-314-Orl-37DAB, 2015 WL 4623700, at *1 (M.D. Ga. July 31, 2015) (applying 25% benchmark); Bezdek v. Vibram USA, Inc., Nos. 12-10513-DPW, 13-10764-DPW, 2015 WL 223786, at *19 (D. Mass. Jan. 16, 2015) (indicating that the benchmark is 25% in the First Circuit); Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 51 (2d Cir. 2000) (acknowledging that district court nationwide are using 25% as a benchmark); Fournier v. PFS Invs., Inc., 997 F. Supp. 828, 832 (E.D. Mich. 1998) (“The ‘benchmark’ percentage for this standard has been 25% [of the common fund[.]”). But see Goldberger, 209 F.3d at 51-52 (cautioning

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upward or downward upon applying certain factors.24 The Second and Third Circuits

reject the use of a benchmark, but district courts in those circuits still consider a similar

set of factors in evaluating percentage-of-the-fund fee requests.25 Moreover, some

courts apply different percentages of recovery to different tranches of the common fund,

applying a lower percentage to portions of the fund above a certain amount, as a method

to avoid or reduce windfall fee awards in “mega-fund” cases.26

district courts not to use a rigid benchmark but consider specific factors); Sullivan v. DB Invs., Inc., 667 F.3d 273, 333 (3d Cir. 2011) (en banc) (same); Jones v. JGC Dallas LLC, No. 3:11–cv–2743–O, 2014 WL 7336889, at *2 (N.D. Tex. Dec. 24, 2014) (finding that 30% is an appropriate benchmark). See also Raulerson v. United States, 108 Fed. Cl. 675, 680 (2013) (noting that the upper limit is 50%). 24 See e.g., Walsh v. Popular, Inc., 839 F. Supp. 2d 476, 483 (D.P.R. 2012) (noting that district courts in the First Circuit apply Goldberger factors); Camden, 946 F.2d at 775 (applying the Johnson factors and considering “time required to reach a settlement, whether there are any substantial objections by class members or other parties to the settlement terms or the fees requested by counsel, any non-monetary benefits conferred upon the class by the settlement, and the economics involved in prosecuting a class action” in the Eleventh Circuit); Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1048-50 (9th Cir. 2002) (approving the following factors as relevant to the district court’s determination: the results achieved, the risk of litigation, the skill required and the quality of work, the contingent nature of the fee and the financial burden carried by the plaintiffs, and awards made in similar cases). 25 See e.g., In re IndyMac, 2015 WL 1315147, at *4 (applying the Goldberger factors in determining the reasonableness of the requested percentage); Gunter v. Ridgewood Energy Corp., 223 F.3d 190, 195 n.1, 196-97 (3d Cir. 2000) (vacating attorney’s fee award because district court did not consider the following factors: “(1) the size of the fund created and the number of persons benefitted; (2) the presence or absence of substantial objections by members of the class to the settlement terms and/or fees requested by counsel; (3) the skill and efficiency of the attorneys involved; (4) the complexity and duration of the litigation; (5) the risk of nonpayment; (6) the amount of time devoted to the case by plaintiffs' counsel; and (7) the awards in similar cases”); Gottlieb, 43 F.3d at 483 (noting that district courts must apply the Johnson factors in the Tenth Circuit). 26 See e.g., Haggart, 116 Fed. Cl. at 148 (awarding class class counsel 30% of the first $50 million, 25% of the next $50 million, and 20% of all monies over $100 million); In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 991 F. Supp. 2d 437, 445 (E.D.N.Y. 2014) (awarding class counsel 33% of the first $10 million, 30% of the next $40 million, 25% of the following $50 million, 20% of the next $400 million, 15%

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We have surveyed approximately 50 percentage-of-the-fund fee awards in 2014

and 2015 (including some awards that are currently pending on appeal) and identified

the following range of awards: Fee awards fell between 10% and 30% for common funds

below $10 million, between 25% and 31% for common funds ranging from $10 million

to $49.99 million, between 20% and 25% for common funds ranging from $50 million

to $99.99 million, and between 8% to 16% for common funds $100 million and above:

of the following $500 million, 10% of the next $1 billion, 8% of the following $2 billion, and 6% of the remainder).

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Chart I: Non-Mega Fund Class Action Settlements Based on Percentage-of-the-Fund Method27

Type of

Class Action

Value of Common

Fund (MM)

Requ-ested

%

Final % Final Award (MM)

In re Platinum & Palladium Commodities Litig., No. 10cv3617, 2015 WL 4560206, at *4 (S.D.N.Y. July 7, 2015)

Antitrust and Commodities Fraud

$75.5 29.5% 22.5% $16.3

In re Capital One Tel. Consumer Prot. Act Litig., No. 12 C 10064, 2015 WL 605203, at *19 (N.D. Ill. Feb. 12, 2015)

Consumer $75.5 30% 21% $15.7

In re Apple iPhone/iPod Warranty Litig., 40 F. Supp. 3d 1176, 1182 (N.D. Ca. 2014)

Warranty issues

$53 30% 25% $13.25

In re Colgate-Palmolive Co. ERISA Litig., 36 F. Supp. 3d 344, 354 (S.D.N.Y. July 8, 2014)

ERISA $45.9 25% 25% $11.475

McDonough v. Toys R Us, Inc., 2015 WL 263562, at *16 (E.D. Pa. Jan. 21, 2015)

Antitrust $35.5 33.33% 31.2% $11

Arnett v. Bank of Am., N.A., No. 3:110-cv-1372-SI, 2014 WL 4672458, at *12 (D. Or. Sept. 18, 2014)

Truth in Lending Act

$31 30% 25% $7.75

In re Celexa & Lexapro Mkt. & Sales Practices Litig., MDL No. 09-2067-NMG, 2014 WL 4446464, at *8 (D. Mass. Sept. 8, 2014)

Consumer $7.65 30% 30% $7.65

City of Providence v. Aeropostale, Inc., No. 11 Civ. 7132-CM-GWG, 2014 WL 1883494, at *12 (S.D.N.Y. May 9, 2014)

Wage and Hour

$15 33% 33% $4.95

In re Hydrocut Mktg. & Sales Practices Litig., Nos. 09md2087-BTM-KSC, 09cv1088-BTM-KSC, 2014 WL 6473044, at *9 (S.D. Cal. Nov. 18, 2014)

Consumer $14 25% 25% $3.5

Willner v. Manpower, Inc., No. 11-cv-02846-JST, 2015 WL 3863625, at *7 (N.D. Cal. June 22, 2015)

Wage and Hour

$8.75 33.33% 30% $2.625

Zelster v. Merrill Lynch & Co., 2014 WL 4816134, at *8 (S.D.N.Y. Sept. 23, 2014)

Wage and Hour

$6.9 33.3% 33.3% $2.3

In re Penthouse Exec. Club Comp. Litig., No. 10 Civ 1145-KMW, 2014 WL 185628, at *8 (S.D.N.Y. Jan. 14, 2014)

Wage and Hour

$58 21% 21% $2.175

In re Google Referrer Header Privacy Litig., No. 5:10-cv-04809-EJD, 2015 WL 1520475, at *12 (N.D. Ca. Mar. 31, 2015)

Privacy $8.5 25% 25% $2.125

Stephens v. US Airways Grp., Inc., No. 07-1264-RMC, 2015 WL 1949749, at *7 (D.D.C. Apr. 30, 2015)

ERISA $5.25 38% 38% $2

27 May include cases in which appeals are pending.

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Miller v. Ghirardelli Chocolate Co., 12-cv-04936-LB, 2015 WL 758094, at *1 (N.D. Cal. Feb. 20, 2015)

Consumer $5.25 30% 30% $1.575

In re Hi-Crush Partners L.P. Sec. Litig., No. 12-Civ-8557-CM, 2014 WL 7323417, at *19 (S.D.N.Y. Dec. 19, 2014)

Securities $3.8 33.3% 33.3% $1.27

In re American Apparel, Inc. S’holder Litig., CV 10-06352, 2014 WL 10212865, at *27 (C.D. Ca. July 28, 2014)

Securities $4.8 25% 25% $1.2

Zellagui v. MCD Pizza, Inc., 59 F. Supp. 3d 712, 720 (E.D. Pa. 2014)

Wage and Hour

$4.5 25% 25% $1.13

Ahdoot v. Babolat VS North Am., Inc., 2015 WL 1540784, at *10 (C.D. Ca. Apr. 6, 2015)

Consumer $4.5 25% 25% $1.125

Cordy v. USS-POSCO Indus., 2014 WL 1724311, at *2 (N.D. Ca. Apr. 28, 2014)

Wage and Hour

$3.5 33% 30% $1.05

Boyd v. Coventry Health Care Inc., 299 F.R.D. 451, 465 (D. Md. 2014)

ERISA $3.6 33.3% 28% $1

Miller v. CEVA Logistics USA, Inc., No. 2:13-cv-01321-TLN-CKD, 2015 WL 4730176, at *9 (E.D. Cal. Aug. 10, 2015)

Wage and Hour

$2.6 33.33% 33.33% $.865

Wallace v. Powell, 301 F.R.D. 144, 168 (M.D. Pa. 2014)

Section 1983 and RICO

$2.5 29.33% 29.33% $.73328

Savani v. URS Prof’l Sol. LLC, 2014 WL 172503, at *10 (D.S.C. Jan. 15, 2014)

ERISA $1.8 37.5% 30% $.729

Hawthorne v. Umpqua Bank, No. 11-cv-06700-JST, 2015 WL 1927342, at *6 (N.D. Cal. Apr. 28, 2015)

Consumer $2.9 33% 25% $.725

Farley v. Family Dollar Stores, Inc., 2014 WL 5488897, at *4 (D. Colo. Oct. 30, 2014)

Wages and Hour

$2.3 30.3% 30.3% $.698

Dick v. Sprint Commc’n Co. LP, 297 F.R.D. 283, 299 (W.D. Ky. 2014)

Property Rights

$2.36 24% 24% $.56529

Hegab v. Family Dollar Stores, Inc., No. 11-1206-CCC, 2015 WL 1021130, at *14 (D.N.J. Mar. 9, 2015)

Wage and Hour

$1.15 30% 30% $.345

Kirven v. Cent. States Health & Life Co. of Omaha, C/A No. 3:11-2149-MBS, 2015 WL 1314086, at *13 (D.S.C. Mar. 23, 2015)

Insurance $.5 33% 33% $.168

La Fleur v. Med. Mgmt. Int’l Inc., Nos. EDCV 13-00398-VAP-OPx, LACV 13-01960-VAP-OPx, 2014 WL 2967475, at *7 (C.D. Cal. June 25, 2014)

Wage and Hour

$.535 25% 25% $.134

Sakalas v. Wilkes Barre Hosp. Co., No. 3:11-cv-0546, 2014 WL 1871919, at *8 (M.D. Pa. May 8, 2014)

Wage and Hour

$.475 27% 27% $.128

Curry v. AvMed. Inc., No. 10-cv-24513-JLK, 2014 WL 7801286, at *3 (S.D. Fla. Feb. 28, 2014)

Privacy $3 25% 25% $.75

28 Includes attorneys’ fees and costs.

29 Defendant agreed to pay separately from the fund.

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Sukhnandan v. Royal Health Care of Long Island LLC, 2014 WL 3778173, at *13 (S.D.N.Y. July 31, 2014)

Wage and Hour

$1.9 33.3% 33.3% $.65

Covillo v. Specialtys Café, No. C-11-00594-DMR, 2014 WL 954516, at *8 (N.D. Cal. Mar. 2014)

Wage and Hour

$2 mil 33% 30% $.6

Ontiveros v. Zamora, 303 F.R.D. 356, 375 (E.D. Cal. 2014)

Wage and Hour

$2 33% 25% $.5

Fujiwara v. Sushi Yashuda Ltd., 58 F. Supp. 3d 424, 439 (S.D.N.Y. 2014)

Wage and Hour

$2.4 25% 20% $.48

Yang v. Focus Media Holding Ltd., No. 11 Civ. 9051-CM-GWG, 2014 WL 4401280, at *17 (S.D.N.Y. Sept. 4, 2014)

Securities $3.7 25% 10% $.37

Bellinghausen v. Tractor Supply Co., 306 F.R.D. 245, 261 (N.D. Cal. 2015)

Wage and Hour

$1 25% 25% $.25

Mason v. Heel, Inc., No. 3:12-cv-03056-GPC-KSC, 2014 WL 1664271, at *9 (S.D. Cal. Mar. 13, 2014)

Consumer $1 30% 25% $.25

Hernandez v. Immortal Rise, Inc., 306 F.R.D. 91, 102 (E.D.N.Y. Mar. 27, 2015)

Wage and Hour

$.55 31% 31% $.17

Williams v. SuperShuttle Int’l Inc., No. 12-cv-06493, 2015 WL 685994, at *2 (N.D. Cal. Feb. 12, 2015)

Wage and Hour

$.3 25% 25% $.075

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Chart II: Mega Fund Class Action Settlement Fees Awarded Based on Percentage-of-the-Fund Method30

Type of

Class Action

Value of Common Fund (MM)

Requ-ested

%

Final %

Final Award (MM)

In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 991 F. Supp. 2d 437, 445 (E.D.N.Y. 2014)

Antitrust $5007 10% 9.6% $544.8

In re Polyurethane Foam Antitrust Litig., No. 1:10MD2196, 2015 WL 1639269, at *7 (N.D. Ohio Feb. 26, 2015)

Antitrust $147.8 30% 30% $44.34

In re Fannie Mae Sec. Litig., 4 F. Supp. 3d 94, 113 (D.D.C. 2013), appeal dismissed, No. 14-7007, 2014 WL 1378762 (D.C. Cir. Apr. 3, 2014)

Securities $153 22% 22% $29.1

In re IndyMac Mortgage-Backed Sec. Litig., No. 09-cv-4583-LAK, 2015 WL 1315147, at *7 (S.D.N.Y. Mar. 24, 2015)

Securities $346 13% 8 – 10%

$28.5

In re Certainteed Fiber Cement Siding Litig., MDL No. 2270, 2014 WL 1096030, at *25 (E.D. Pa. Mar. 20, 2014)

Products Liability

$103.9 17.8% 17.8% $18.5

In re NuvaRing Prod. Liability Litig., No. 4:08MDL1964-RWS, 2014 WL 7271959, at *7 (E.D. Mo. Dec. 18, 2014)

Product Liability

$100 11% 11% $11

30 May include cases in which appeals are pending.

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II. Attorneys’ Fees in Non-Cash Settlements

While trends and consensus are relatively easy to identify among attorneys’ fees

awards based on common funds, more uncertainty exists in the treatment of attorneys’

fees in class settlements with non-cash components when no fee-shifting statute exists.

Regardless of the type of non-cash recovery, courts typically attempt to assign some

economic value in order to factor the non-cash relief into the attorneys’ fee award. But

courts approach the three main types of non-monetary relief—(1) coupons, (2)

injunctive relief, and (3) cy pres donations—somewhat differently.

The treatment of coupons is relatively clear, at least in federal actions, because

the Class Action Fairness Act (“CAFA”) provides a specific valuation method for coupons

based on their redemption rate.31 Note however that what qualifies as a coupon is not

always straightforward. In re Online DVD-Rental Antitrust Litigation, for example, the

Ninth Circuit held that gift cards did not qualify as coupons under CAFA, because “[t]he

class member need not spend any of his or her own money and can choose from a large

number of potential items to purchase . . . [and] the gift cards were freely transferrable,

and they had no expiration date.”32

31 28 U.S.C. § 1712(a) (“"If a proposed settlement in a class action provides for a recovery of coupons to a class member, the portion of any attorney's fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed.”); see also 28 U.S.C. § 1712(b)(1); In re HP Inkjet Printer Litig., 716 F.3d 1173, 1187 (9th Cir. 2013) (reversing award of attorneys’ fees because the district court did not consider the redemptive value of coupons as required by CAFA). 32 779 F.3d 934, 941, 951 (9th Cir. 2015); see also In re Hydroxycut Mktg. & Sales Practices Litig., Nos. 09md2087-BTM-KSC, 09cv1088-BTM-KSC, 2014 WL 6473044, at *8 (S.D. Cal. Dec. 22, 2014) (concluding that the product component of the settlement was not a “coupon” within the meaning of CAFA).

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The value placed on coupons varies more in state court. Texas Rules of Civil

Procedure 42, for example, precludes a cash attorneys’ fee award in Texas for class

counsel who only obtained non-monetary relief for the class.33 Texas statute also

requires that attorneys’ fees be in the same cash/noncash proportion as the class’s

recovery.34

With regard to injunctive relief, the key challenge is to assign a reasonably certain

monetary value to the class, and courts differ as to the degree of precision necessary to

consider injunctive relief part of the common fund.35 As the Ninth Circuit held, “only in

the unusual instance where the value to individual class members of benefits deriving

from injunctive relief can be accurately ascertained may courts include such relief as

part of the value of a common fund for purposes of applying the percentage method of

determining fees.”36

When the value is too imprecise to be added to the common fund for percentage

purposes, injunctive relief may still influence a court to award a higher percentage of the

common fund than it otherwise would have. For instance, in McCoy v. Health Net, Inc.,

in addition to a cash fund, the settlement agreement provided for injunctive relief

mandating that, inter alia, the defendant add 14.5% to the allowable amount paid to the

33 See Kazman v. Frontier Oil Corp., 398 S.W.3d 377 (Tex. Ct. App. 2013) (confirming that Rule 42’s plain meaning precludes cash attorneys’ fees when the class receives no monetary relief). 34 Texas Civ. Prac. & Rem. Code § 26.003(b). 35 Compare Tennille v. Western Union Co., No. 09-cv-00938-MSK-KMT, 2013 WL 6920449, at *10 (D. Colo. Dec. 31, 2013) (electing to include the value of injunctive relief as part of common fund), with In re Excess Value Ins. Coverage Litig., 598 F. Supp. 2d 380, 386 (S.D.N.Y. 2005) (excluding the value of injunctive relief as part of the settlement fund because of the difficulty in valuing structural changes). 36 Staton v. Boeing, 327 F.3d 938, 974 (9th Cir. 2003).

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defendant’s customers for certain insurance claims.37 The District of New Jersey held

that the parties had fairly valued the injunctive relief at between $26 and $38 million,

and because “Class Members will receive a very real and very important financial benefit

from these aspects of the relief,” the injunctive relief “is a highly relevant circumstance

in determining what percentage of the common fund class counsel should receive as

attorneys’ fees.”38

In Fraley v. Facebook, the Northern District of California refused to include an

estimate of the injunctive relief’s economic value in the common fund because of its

unclear economic impact on the class.39 The settlement agreement provided for $20

million in cash and injunctive relief requiring the defendant to change its guidelines to

allow users to limit and control the appearance of their name and likeness in Sponsored

Stories.40 According to the plaintiffs, the value of the injunctive relief ranged between

$57.4 and $226 million.41 The court, however, noted that the record contained no

evidence suggesting that the class would obtain a “single dollar more in his or her

pocket” from the injunctive relief.42 Nonetheless, the court acknowledged that the

37 569 F. Supp. 2d 448, 478 (D.N.J. 2008). 38 Id. at 478. 39 No. C 11-1726-RS, 2013 WL 4516806, at *3 (N.D. Cal. Aug. 26, 2013); see also In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 991 F. Supp. 2d at 442, n.4 (“Although I have little doubt that the injunctive relief in this case will eventually have great value to the merchants, I have not relied on its value in a strict mathematical sense — that is, I will not award a percentage of that additional value as fees.”). 40 Fraley, 2013 WL 4516806, at *1. 41 Id. 42 Id. at *2.

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presence of such relief could be used to support an attorneys’ fee award at benchmark

level or the reasonableness of the settlement.43

With regard to cy pres, the challenge is often less about valuing the donation and

more about whether the cy pres contribution directly benefits the class. For instance, in

Weeks v. Kellogg Company, the Central District of California excluded the entire

amount of the cy pres donation from the value of the common fund, explaining that the

class derived no benefit from the cy pres donation as the defendant made it directly to a

charitable donation.44 And in In re Heartland Payment System, Inc. Customer Data

Security Breach Litigation, the Southern District of Texas included half the value of the

cy pres donation as part of the common fund, because the class received an indirect

benefit from such relief.45

In sum, the two key factors to determining whether non-monetary relief can

enhance an award of attorneys’ fees are (1) whether the non-monetary relief benefits the

class directly; and (2) whether the relief can be quantified with reasonable certainty.

43 Id. at *3; see also In re Living Social, 298 F.R.D. at 17 (considering injunctive relief as “relevant circumstance” to an attorneys’ fee award instead of including the purported value of such relief as part of the common fund); Pokorny v. Quixtar, Inc., No. C 07-0201 SC, 2013 WL 3790896, at *1 (N.D. Cal. July 18, 2013) (concluding that injunctive relief constitutes further support for the reasonableness of the fee award); In re HP Laser Printer Litig., No. SACV 07-0667-AG-RNBx, 2011 WL 3861703, at *6 (C.D. Cal. Aug. 31, 2011) (acknowledging that the injunctive relief provided as “substantial” benefit). 44 No. CV09-08102, 2013 WL 6531177, at *27-28 (C.D. Cal. Nov. 23, 2013). 45 In re Heartland, 851 F. Supp. 2d 1040, 1077 (S.D. Tex. 2012); see also In re Pool Products Distrib. Mkt. Antitrust Litig., MDL No. 2328, 2015 WL 4528880, at *17 (E.D. La. July 27, 2015) (discounting 50% of the cy pres relief).

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III. Is Contract Attorney Time Recoverable as Attorneys’ Fees with a Lodestar or as a Litigation Expense?

As the use of plaintiff-side contract attorneys in large-document class actions has

become more the norm than the exception, courts have been asked to decide whether

contract attorney time is more akin to an expense that should be billed at cost, or to

attorneys’ fees, which law firms routinely mark up over their actual cost. Over the past

five years, a consensus viewpoint has emerged that as long as contract attorneys are

providing legal services, their time should be treated as fees and not expenses—within

certain bounds.

Courts have routinely rejected the argument that contract attorneys’ work should

be treated as a reimbursable litigation expense at the law firm’s actual cost. For

example, in In re Tyco, an objector sought to exclude the contract attorneys’ hours from

the lodestar analysis in a monetary settlement of a class action lawsuit, arguing that

those hours should be billed as a reimbursable cost.46 The District of New Hampshire,

however, disagreed. The court reasoned that the terms of an attorney’s employment are

not relevant, because a contract attorney is still an attorney. Therefore, contract

attorneys’ work is to be treated as billable hours that the law firm could include as part

of its lodestar, rather than a reimbursable litigation expense at the firm’s actual cost.47

Other courts have reached the same conclusion. For example, both the Southern

District of Texas in In re Enron Corp. Securities, Derivative & ERISA Litigation and the

District of Connecticut in Carlson v. Xerox Corporation carefully examined the contract

attorneys’ years of experience, assigned tasks that they performed, and/or level of

46 535 F. Supp. 2d at 272. 47 Id.

19

supervision, and rejected the arguments that contract attorney document reviewers had

performed mere paralegal work and that they should be billed as an expense.48

Despite the acceptance of contract attorneys’ fees as legitimate attorneys’ fees, the

Southern District of New York has reduced the requested attorneys’ fees in at least four

large class actions based in part on the plaintiffs’ heavy use of contract attorneys. In

City of Pontiac General Employees Retention System v. Lockheed Martin Corporation,

for example, the Southern District of New York reduced the percentage award from 33%

to 25% in part because of the mark-up applied to contract attorneys’ time.49 The court

questioned the reasonableness of the proposed contract attorneys’ rate ranging between

$295 to $435 per hour on the ground that a sophisticated client would have negotiated a

substantial discount on the rate that the firm charged it for contract attorneys’ work.50

Likewise, in In re Beacon Associates Litigation, the Southern District of New York

criticized the mark-up of contract attorneys’ time by ten times of the firm’s actual cost,

and consequently applied a small haircut to the requested fee award for the time and

expenses of contract attorneys.51 And in In re Citigroup Inc. Securities Litigation, the

court reduced the fee from 16.5% to 12% of the fund in part due to the high rate charged

for contract attorneys.52 The court found that a blended hourly rate of $466 for contract

attorneys—most of whom were inexperienced and largely performed document review—

48 586 F. Supp. 2d 732, 783 (S.D. Tex. 2008); 596 F. Supp. 2d 400, 409 (D. Conn. 2009, aff’d, 355 F. App’x 523 (2d Cir. 2009). 49 954 F. Supp. 2d 276, 280 (S.D.N.Y. 2013). 50 Id. 51 Nos. 09Civ777-CM, 09Civ3907-CM, 09Civ6910CM, 09Civ8278-CM, 09Civ8362-CM, 10Civ8000-CM, 10Civ8077-CM, 2013 WL 2450960, at *18-19 (S.D.N.Y. May 9, 2013). 52 965 F. Supp. 2d 369, 401(S.D.N.Y. 2013).

20

was too high.53 The court reduced the proposed rate to $200 per hour, explaining that a

reasonable paying client with bargaining power would have negotiated that approximate

discounted rate for the contract attorneys’ work.54 Finally in January of 2015, in In re

Weatherford International Securities Litigation, the Southern District of New York

again reduced the requested percentage award, this time from 24% to 18%, in part

because contract attorneys’ fees had been marked up by 600% in the lodestar cross-

check.55

Notably, courts are split as to whether the status of an attorney should affect that

attorney’s market rate. For instance, in In re Citigroup Inc., the Southern District of

New York concluded that a contract attorney was distinct from a law firm’s associate

and partner for billing purposes.56 Conversely, in Andrews v. Lawrence Livermore

National Security, LLC, the Northern District of California took the opposite

approach.57 In that case (which was not a class action), the defendants challenged the

$300 hourly rate that the plaintiffs sought for a contract attorney’s work. The

defendants claimed that, because of the attorney’s status as a contract attorney, the

reasonable hourly rate was between $75 and $150. The court, however, viewed a

contract attorney and a firm associate as indistinguishable for billing purposes. In light

of the hourly rate of the firm associates with comparable years of experience, the court

concluded that the contract attorney’s hourly rate of $300 was reasonable.58

53 Id. at 396-97. 54 Id. at 398-99. 55 No. 11Civ.1646-LAK, 2015 WL 127847, at *1 (S.D.N.Y. Jan. 5, 2015). 56 965 F. Supp. 2d at 395-96. 57 No. C11-3930-CW, 2012 WL 160117 (N.D. Cal. Jan. 18, 2012). 58 Id. at *2.

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In sum, contract attorneys’ time is compensable in the lodestar as fees, but there

are limitations. Courts may reduce proposed hourly rates or fees if (1) the contract

attorneys’ work far exceeds the firm’s actual cost; (2) the contract attorneys’ billing rate

exceeds their experience level; or (3) the contract attorneys are performing work that

could be delegated to a lower-cost non-attorney. Although the reasonableness of

proposed hourly rates for contract attorneys’ work is a developing area of law, Courts

generally appear likely to find hourly rates ranging from $50 to $200 per hour as

reasonable.59

59 See e.g., Perfect 10, Inc. v. Giganews, Inc., No. CV 11-07098-AB, 2015 WL 1746484, at *16 n. 12 (C.D. Cal. Mar. 24, 2015) (noting that $100 hourly rate for contract attorneys’ work was not challenged); City of Pontiac, 954 F. Supp. 2d at 280 (questioning the reasonableness of hourly rate between $295 to $435 for contract attorneys’ work); In re Citigroup, 965 F. Supp. 2d at 398-99 (reducing the hourly rate from $466 to $200 for contract attorneys’ work); In re Beacon Assocs. Litig., 2013 WL 2450960, at *18-19 (“[T]here is absolutely no excuse for paying those temporary, low-overhead employees $40 or $50 an hour and then marking up their pay ten times for billing purposes”); Apple, Inc. v. Samsung Elecs. Co., No. C 11-1846-LHK, 2012 WL 5451411, at *3 (N.D. Cal. Nov. 7, 2012) (hourly rate of $125 was not challenged); 4Kids Entm’t, Inc. v. Upper Deck Co., No. 10 Civ. 3386-CM-GWG, 2012 WL 2426569, at *7 (S.D.N.Y. June 21, 2012) (concluding that the hourly rate of $50 for a contract attorney is reasonable based on its knowledge); Davis v. Wal-Mart Stores, Inc., No. 3:09-cv-01488-MO, 2012 WL 1424105, at *2 (D. Or. Apr. 23, 2012) (concluding that the temporary attorney’s hourly rate of $180.00 per hour was reasonable).