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.

Laguna v. Coverall N.A.

Coverall N.A. settled a class action over janitorial franchises by paying a $1M attorney fee and setting up a claims-made process that would pay about $56,625 to the class. The parties justified this settlement by pointing out injunctive relief that some class members would be eligible for; if the maximum number of class members took advantage of the injunctive relief, they said, it would be worth $20 million. Wait a second, complained an objector: most class members will never take advantage of the injunctive relief because they're not eligible for it, and the court should get that data from the defendant to find out the true value of the injunctive relief before approving a settlement that might run afoul of Bluetooth. The district court approved the settlement without engaging in the inquiry: meh, maybe the injunctive relief isn't worth $20 million, but if it were worth $4 million, the settlement would be fair. (After all, perhaps the settling parties might exaggerate the value of injunctive relief by 400%, but what monster would ever exaggerate the value of injunctive relief by 20-fold or 100-fold?)

The objector (not represented by us) appealed. On June 3, the day after Eubank v. Pella Corp. was decided, the Ninth Circuit affirmed on abuse-of-discretion grounds, over a fervent dissent that pointed out the decision contradicted both Pampers and existing Ninth Circuit precedent. 

Now here's where it gets interesting. The objector petitioned for en banc review. While the petition was pending, Coverall paid him $15,000 to drop his appeal (more than a quarter of the cash relief paid to the class), and the objector did so. But Ninth Circuit judges can request a vote for en banc review sua sponte, and the Ninth Circuit issued an order demanding a response to the petition. That order granted leave to amici to file briefs on the subject, and how could the Center for Class Action Fairness resist? The appellant's en banc petition focused on conflicts with Ninth Circuit law, so our amicus focused on the circuit split created by Laguna, as well as the interesting and largely unresolved jurisdictional issues. 

Ninth Circuit win in Apple MagSafe case

The Apple MagSafe settlement paid the attorneys $3.1 million, but the class less than a quarter of that, yet the district court rubber-stamped settlement approval without addressing the objection to the self-dealing by class counsel, and, worse, imposed an illegal $15,000 bond to appeal the case. We posted the bond and appealed. (Briefing and oral argument here.) Thursday, the Ninth Circuit reversed and remanded for consideration under the appropriate legal standards, and was especially critical of the abusive appeal bond. The most comprehensive coverage is by Daniel Fisher at Forbes.com. There are also stories at The Recorder and Law360 behind subscription paywalls.

I'll note that three times now federal courts have imposed excessive appeal bonds on Center appeals on the non sequitur of a ground that the appeal had little chance of success, and we're two for two in such cases, with the third one pending.

We're also four for four in Ninth Circuit cases, and nine for eleven in intermediate federal courts (eight for ten as appellants).

Some updates

• The Ninth Circuit rejected en banc review of our victory in HP Inkjet. Here, for the record, is our successful opposition to the en banc petitions.
  
• In Wyeth Securities, the district court reduced an excessive fee request by $3,037,500. That puts CCAF over the quarter-billion-dollar mark lifetime in attorney-fee reductions or rejections in cases where we objected. I can't say I'm thrilled with the opinion, which makes a number of legal mistakes that will get used against future objectors, doesn't fairly address our objection, and says gratuitously unfair things about me, but, as I discuss at Point of Law, I'd rather a judge say mean things about me and then increase the benefit to the class than for a judge to say nice things about me and then rubber stamp a bad settlement and fee request.
  
• We'll accept praise from our peers, certainly. It's behind a paywall, but those of you with Law360 subscriptions can read a piece by Jeffrey Jacobson analyzing and praising our "impressive" track record, and warning defendants that they need to take more care in crafting class-action settlements. He's absolutely wrong about HP Inkjet, though.
  
• Speaking of good press coverage, we expect to have some good news later this week.

Victory in HP Inkjet

A 2-1 decision of the Ninth Circuit agreed with us that the district court incorrectly applied the coupon-valuation provision of the Class Action Fairness Act in the HP Inkjet case. Details (and a list of press coverage) at Point of Law. After two appellate wins in 2011, and two in 2012, this is our third in 2013, and the year isn't half over.

This week's fairness hearing on the Southwest drink voucher class action settlement raised similar issues and discussed the import of the Inkjet decision; plaintiffs' counsel there claimed that they were told by Inkjet counsel that they plan to seek en banc review. If they do, the petition would be due next week.

In re Online DVD Rental Antitrust Litigation

The Class Action Fairness Act puts limitations on coupon settlements. In In re Online DVD Rental Antitrust Litigation, however, the district court approved a settlement that would pay $5.2 million in cash and $8.9 million in Walmart.com coupons to the class and held CAFA did not apply because the parties called the coupons "gift cards." Does the Class Action Fairness Act regulate semantics or something more? I argue the latter in a Ninth Circuit opening brief filed today.

The district court also awarded a disproportionate $8.512 million to the attorneys. Our appeal addresses that issue as well. And because I miss Lionel Hutz, the brief cites the classic case of Homer Simpson v. The Frying Dutchman Restaurant.

Two important appellate briefs filed this week

• Shareholder derivative suits present interesting conflicts of interest. The suit is purportedly brought on behalf of shareholders, but when the case settles, the corporate defendant—i.e., the plaintiff shareholders—are the ones paying the bill. Thus, if the suit does not actually extract any wealth from directors or officers for their supposed breaches of duty, shareholders are frequently worse off. This is the case in Robert F. Booth Trust v. Crowley, a derivative suit against Sears Holding Corp. where the alleged breach was failure to recognize the risk of Clayton Act litigation. The irony, of course, is that the actual shareholder derivative suit is far more expensive than the possibility of Clayton Act litigation. I objected; the posture is muddied by some procedural issues relating to the Seventh Circuit's intervention requirement, as you can see, but the fundamental point—shareholder derivative suits should not be permitted to be maintained when they are designed to benefit the attorneys, rather than the shareholders—remains valid, and we believe this is the first case to present this principle in the shareholder derivative context. The case is No. 10-3285, Robert F. Booth Trust v. Crowley (7th Cir.).
• Claims-made settlements are the successor to coupon settlements in structuring settlements to divert the lion's share of relief to the attorneys, rather than the class. The parties typically structure a claims process that will reward less than a tenth of the class (in this case, less than 3% of the class), hide the claims rate from the lower court by scheduling the fairness hearing well before the claims deadline (though that evasion didn't happen in this case), and then ask for attorneys' fees on the illusion that the entire class got relief. Thus, we have cases like Brazil v. Dell, where the class got less than $500,000, but the attorneys received $7 million. We think that is per se unfair, and have asked the Ninth Circuit to weigh in. The case is No. 11-17799, Brazil v. Dell (9th Cir.).

Ninth Circuit briefing in In re HP Inkjet complete

We filed our reply brief today.

• Opening brief
• Plaintiffs' response brief
• HP response brief
• Reply brief

See if you can spot the big math error in the HP brief before you read the reply brief.

Festivus update

• In the Toys "R" Us baby products antitrust case, the E.D. Pa. approved a settlement and fee request that pays $14M to attorneys and $8.1M to class members over our objection. Law.com describes it as a "24% recovery for the class"; if that's accurate, that raises the question why there will be another $13 million of payments to cy pres recipients not disclosed to the class instead of to the class. Aside from the fact of attorneys getting nearly twice as much as class members.
• We also lost in the Franklin Templeton Mutual case, where the judge approved a settlement and fee request where the attorneys are getting $2.142 million and the class $2.27 million. To me, that effectively reads the attorneys' fees restrictions directly out of the PSLRA, but we'll wait for a more egregious abuse to take that legal question up on appeal.
• With all that bad news, we'll take a small partial victory in the Fogel v. Farmers case, where the court reduced an outrageous fee request of $90 million (for a $159 million class recovery) to a merely ginormous $73.7 million award. The judge praised our objection as helpful and invited us to make a fee request. We requested between $10,500 and $33 thousand in fees and expenses, and the court awarded us over $47 thousand. Awkward. We'll try to put the money to good use for class members in other cases, though with appeals, we aren't going to see it for some time. The settlement had Bluetooth problems and the fee disposition is a gigantic windfall that could have been more appropriately directed at the class, but it's in California state court (a legacy pre-CAFA case), there are other objectors who will appeal, and we'll defer to what they're doing, with perhaps an amicus instead of a direct appeal; the long-term precedential value of this case, with even a successful appeal, is pretty close to zero.
• I forgot to mention a similar small partial victory in the HP Laserjet case back in August; the court approved the settlement after valuing the coupon relief at zero, but did reduce the attorney award from $2.75M to $2M. Close enough for government work; we didn't appeal.
• We've been invited to make a fee request in another case where we objected in the District Court of Maine a while back, the New Vehicles Canadian Export Antitrust Litigation, MDL No. 1532; our objection resulted in an improper $500,000 cy pres being returned to the class common fund. We haven't decided whether to request a token amount of that. 
• Appellee briefs are in in the Inkjet case in the Ninth Circuit. I'll post about that after the new year if you don't want to look it up on PACER yourself.

Ninth Circuit cy pres victory in Nachshin v. AOL

We've been at the forefront of noting the problem of abusive cy pres; originally intended as a last resort "second-best" way to benefit the class after resolution of a case where there is leftover money, too many class actions use cy pres as a first resort to exaggerate the class benefits, or to siphon some of those benefits to the class attorneys or the defendants or, shockingly, the judge. A couple of recent decisions speak out against free-flowing cy pres. In Klier v. Elf Atochem, the Fifth Circuit struck down cy pres given to local charities instead of to undercompensated class members; Alison Frankel has good coverage.

And yesterday, in a case I argued, Nachshin v. AOL, Inc., the Ninth Circuit adopted much of the reasoning of our briefs in striking down cy pres to local Los Angeles charities unrelated to the class or the claims of the lawsuit:

When selection of cy pres beneficiaries is not tethered to the nature of the lawsuit and the interests of the silent class members, the selection process may answer to the whims and self interests of the parties, their counsel, or the court. Moreover, the specter of judges and outside entities dealing in the distribution and solicitation of settlement money may create the appearance of impropriety.

Thanks to Darren McKinney for being willing to stand up to abusive class action settlements, even it meant publicly admitting that he had an AOL account. Additional coverage at law.com.

Some updates

• Yesterday, we filed the opening brief in our HP Inkjet Ninth Circuit appeal. Details at Point of Law.

• The district court approved the $0 settlement in Pampers. The attorneys will receive $2.7 million. We've appealed to the Sixth Circuit.

• The district court approved the Brazil v. Dell settlement. There have been about $0.5 million of claims, and the attorneys are to receive $6 million. We're going to appeal to the Ninth Circuit, since this pretty clearly contradicts Bluetooth. Thanks to Kyle Graham for covering the fairness hearing.

• The plaintiffs have asked for a $200,000 appeal bond in Blessing v. Sirius XM, the case we've appealed to the Second Circuit where the attorneys got $13 million and the class got worthless coupons that the court refused to call coupons. We filed an opposition to the motion for appeal bond. The motion is entertaining: the plaintiffs complain that I've previously objected in several other cases, but if you look at their list, we won most of those objections. 

• Blogosphere coverage of yesterday's Wall Street Journal article: Ribstein; Overlawyered; Mass Tort Litigation Blog; WSJ Law Blog.

• Business Law Daily covers the CEI amicus in Cobell v. Salazar.

AOL cy pres Ninth Circuit appeal oral argument set

I'll be arguing the AOL cy pres case June 7 in Pasadena. (My record in Ninth Circuit oral arguments to date: 2-0, with one pending.) Come watch if you're interested in cy pres issues. If you're not interested in cy pres, but are interested in trademarks and pornography (and who isn't?), they're also arguing Roxbury Entertainment v. Penthouse Media ("The content of the film is primarily graphic sex scenes; however, the 'story line' to the extent there is one, concerns a young couple fleeing some unfortunate or unlawful event.") the same session.

• CCAF opening brief
• AOL response brief
• Plaintiffs' response brief
• CCAF reply brief
  
• Beisner/Miller/Schwartz white paper on cy pres issues and this case

Oral argument in the Bluetooth case

The audio file of Monday's oral argument in the Ninth Circuit in the Bluetooth case is now on line. The panel consisted of circuit Judges Hawkins and Fisher and N.D. Ohio district court Judge Zouhary.

Briefing:

• Opening brief
• Plaintiff-appellees' brief
• Defendant-appellees' brief
• Reply brief

Oral argument scheduled in the Bluetooth case

The Ninth Circuit has scheduled oral argument in the Bluetooth case for Monday, February 7, 9 a.m., in the federal courthouse in Pasadena. (Five other cases are on the calendar, so I probably won't get my fifteen minutes until after 10 a.m.) I'm undefeated (well, ok, 1-0) in that courthouse.

The first time I ever visited the Pasadena courthouse was in the fall of 1992, when a memorable young law clerk in Alex Kozinski's chambers named Eugene Volokh quizzed me about the issue of toughening evidentiary standards for expert witnesses in what I think was the first law-clerk interview of the season for 1994-95. (That was the first attempt of the judiciary and the legal academy to create a cartel for the hiring of law clerks, and I unwittingly caused it to break down when I sent my resume out without consulting with the law school, and Judge Kozinski started calling people in for interviews, causing a chain reaction that unraveled everyone's plans.) Eugene, of course, went on to bigger and better things.

If you're in the DC area, and you're interested in putting in a few hours reading briefs and throwing questions at me on a moot court later this month, please drop me an email. (Friends from Kirkland & Ellis: sorry, you're adverse to me in this case, so you're not invited.)

Stockholm Syndrome in the Nachshin v. AOL case

CCAF filed its reply brief today in the Nachshin v. AOL appeal.

The principal-agent problem does not just affect class action plaintiffs' attorneys enriching themselves at the expense of their putative clients. I see it far too often in the case of class action defense attorneys beholden to the billable hour at the expense of their clients. I've had securities defense attorneys admit to me sotto voce that they don't want to see securities law reformed, because they're making money off the status quo. If I were a defense client, I'd worry about attorneys like that; they might prefer to lose their 12(b)(6) motion in the hopes of churning some billable hours in discovery disputes. In a notorious example, attorneys from defense firms lobbied the ABA to release a statement opposing preemption—something that would hurt their clients, though would certainly increase the demand for lawyers' services. (I once had a lunch date with a pharmaceutical defense attorney who made a disparaging comment to me about "you people" believing in federal preemption. That second-person-plural mystified me: she was making a lot more money arguing in favor of preemption in court on behalf of her clients than I was making writing about preemption on public-policy grounds. If one's that offended by preemption, one should go work for a plaintiffs' firm where one can make more money in the long run: it's stupid to be selling out one's principles for less than one's opportunity cost of adhering to them.)

I've long felt that general counsels should do more to insist that their outside defense firms are really defense firms that believe in their clients' rights, rather than mercenary law firms that happen to represent defendants because their lawyers don't have the entrepreneurial courage to be contingent-fee plaintiffs' attorneys.  Top-of-the-line plaintiffs' attorneys are the best trial lawyers in the business: they don't get paid if they don't win, but they're the ones with the Gulfstream jets and 5000-person Christmas parties.  If a defendant responds by hiring a coddled Ivy-League defense attorney that's afraid of the inside of a courtroom and goes home at night feeling vaguely guilty that he's working for The Man, that defendant is going to get his head handed to him nine times out of ten.  That sort of ideological accounting is surely more important to the bottom line than the racial-diversity accounting many Fortune 500 companies insist upon in their outside law firms, but it happens far less than it should.

Anyway, in response to CCAF's opening brief in the Nachshin v. AOL case, the settling parties apparently agreed that AOL's defense attorneys would do all the briefing, and the plaintiffs' attorneys would simply free ride off the finished product:

• AOL response brief.
• Plaintiffs' response brief.

The plaintiffs couldn't even be bothered to cite their roman numerals in consecutive order.

For the life of me, I can't imagine why a defense attorney with the best interests of his client in mind wouldn't simply say: "You sued us, you defend the settlement. We're paying you hundreds of thousands of dollars to go away. My client shouldn't have to pay another penny into this case." But that would mean foregoing some fees. And why would a defendant's brief say something as vapid as "Both class actions and legal aid funds facilitate the supply of justice to those who cannot otherwise afford it" (p. 25)?  Trial lawyers, come sue AOL! According to AOL's brief, you're just facilitating the supply of justice when you do! (I was similarly amused that AOL of all parties would snark about the supposed fact that our opening brief would cite "online articles." That was especially ironic given that AOL pays writers to produce online articles for them.) I briefly worked at the same firm as Paul Cappuccio, a hard-nosed lawyer's lawyer who went on to become the general counsel of AOL before he escaped on a life-raft to keep the Time Warner general counsel job.  I cannot begin to imagine a general counsel's office supervised by Cappuccio permitting a brief like this to be filed, but perhaps I'm being naive.

As you can tell for yourself, these were exceedingly weak response briefs that never really engaged with our opening brief's argument against the conflict-of-interest problems in cy pres distribution, so I'm feeling good about our reply brief and about our chances.

In re Yahoo! Ninth Circuit appeal

Today the Center filed the opening brief in the appeal of the In re Yahoo! settlement approval.  We make a process argument—the district court gave no reasoning for its decision, which by itself requires remand—but we also argue the substantive issue that no court could reasonably approve a $0-for-the-class/$4.3 million-for-the-attorneys settlement.  Don't miss pp. 39-43, where we cite Seinfeld.

Ninth Circuit appeal over cy pres: Nachshin v. AOL

Tuesday, the Center filed its opening brief appealing the approval of a class action settlement against AOL.  We focused our appeal on the problematic cy pres award in that case:

This appeal presents a straightforward application of the Ninth Circuit precedent Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301 (9th Cir. 1990)—a precedent that the district court entirely failed to apply. For a cy pres award to a third party to be permissible it must actually be “cy pres”—as near as possible to actual class recovery. Id. at 1308. Here, there was a nationwide class of tens of millions of AOL members allegedly victimized by AOL practices, but the vast majority of the cy pres distribution went to local charities in the Los Angeles and Oklahoma areas; all of the cy pres was entirely unrelated to the class and unrelated to the claims of the case.

The potential of cy pres to create conflicts of interest and ethical dilemmas for the judiciary have garnered increasing attention in recent years. See, e.g., Adam Liptak, Doling Out Other People’s Money, N.Y. TIMES (Nov. 26, 2007) (available at http://www.nytimes.com/2007/11/26/washington/26bar.html); Martin H. Redish, et al., Cy Pres Relief and the Pathologies of the Modern Class Action: A Normative and Empirical Analysis, 62 FLA. L. REV. __ (forthcoming 2010) (available at SSRN: http://ssrn.com/abstract=1485047); Sam Yospe, Cy Pres Distributions in Class Action Settlements, 2009 COLUMBIA BUS. L. REV. 1014 (available at SSRN: http://ssrn.com/abstract=1492105); Amanda Bronstad, Cy pres awards under scrutiny, NAT’L L. J. (Aug. 11, 2008) (available at http://is.gd/dyFk0-). If courts are going to countenance cy pres distributions in class actions settlements at all, such distributions must be strictly tethered to the standard of class benefit, lest cy pres become a slush fund for plaintiffs, defendants, attorneys, and judges that creates the appearance of impropriety—or worse, actual impropriety.

The problems of potential conflicts of interest are not just a hypothetical concern in the case at bar. Neither the court nor the class was informed of the conflict of interest that one of the plaintiffs was the assistant director of development for one of the cy pres recipients. And yet still another cy pres recipient was a local charity where the spouse of the district court judge sits on the board. It is not exaggerating to say that this case is a poster child for the problem of cy pres abuse: indeed, in a story on the issue, the Wall Street Journal singled out the very settlement in this case as an example. Nathan Koppel, Proposed Facebook Settlement Comes Under Fire, WALL ST. J. (Mar. 2, 2010) (available at http://is.gd/dyl7A-).

For both precedential and sound public-policy reasons, this court should reverse the approval of the proposed class action settlement as an abuse of discretion.

Ninth Circuit appeal in Bluetooth - reply brief

CCAF filed its reply brief in the Bluetooth case yesterday.

Ninth Circuit appeal in Bluetooth - opposition briefs

Earlier this month, plaintiffs and defendants each filed appellees' briefs defending the district court's approval of the Bluetooth settlement against our appeal. We'll be filing our reply brief later this week; stay tuned.

Ninth Circuit appeal in Bluetooth

Today, we filed our Ninth Circuit appellate brief in the Bluetooth case, No. 09-56683. Our objection in this case was previously covered by Forbes and the National Law Journal.