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. 

Eubank v. Pella Corporation (7th Cir. 2014)

Judge Posner writes a very interesting Seventh Circuit opinion reversing a settlement approval on multiple grounds. A lot of friends forwarded the decision to me. I got to write back that I had argued it.

This wasn't a Center for Class Action Fairness case; the Center is a non-profit and restricted by federal tax law to cases where the client would not be able to retain a private attorney. But an objector's counsel retained my private solo law practice to assist with the briefing for one of the objectors; I then argued the appeal in Chicago in April along with counsel for the class representatives frozen out of the deal.

But even if it's not a CCAF case, it's worth discussing here. The opinion is going to be very helpful to class members, including several CCAF cases pending on appeal. While a lot of the press coverage has focused on the scathing remarks Judge Posner had for the unique conflicts of interest of class counsel, the opinion more importantly also singled out as improper several practices the Center has repeatedly complained about: the use of separate funds for attorneys' fees with reversion to the defendant; the use of imaginary hypothetical valuations of settlements based on bogus assumptions about the number of claims that would be made; grouping disparate sets of class members (in this case, thirteen or so different categories of settlement relief) into a single settlement class; and "quickpay" provisions where class counsel takes its check early in the proceedings while the class is not entitled to relief until years down the road. And more.

Brian Wolfman points out that the opinion notes the silliness of approving settlements based on low opt-out rates.

The opinion also had kind words for the important role played by objectors in policing abusive class-action settlements. And as I joked to friends, this victory was particularly special for me, because the client wrote me a check.

Coverage: Forbes; Overlawyered; Chicago Daily Law Bulletin; Litigation Daily ($); Legal Newsline/Washington Examiner; ABA Journal; National Law Journal; law.com; law.com; Workplace Class Action Blog; Blawgletter.

Opening brief in Pearson v. NBTY, Inc., No. 14-1198 (7th Cir.)

In a settlement of several class actions over the labeling of glucosamine supplements, class counsel settled for a claims process that paid the class under $900,000, and token injunctive relief that tweaked the labels, while leaving much of the supposedly fraudulent labeling language in place (and precluding class members from ever suing on that language again). For this, class counsel asked for $4.5 million, claiming that the settlement was really worth tens of millions because 4.7 million class members could have made $3 claims. (In reality, the postcards mailed to ascertainable class members failed to inform them that they were actually class members, and the claims process demanded they provide receipts or other information already in the defendants' possession. Little wonder no money was actually distributed to the class.) Defendant NBTY was really only on the hook for $2 million, of which $1.1 million went to cy pres, though it would have been possible to distribute that money to class members.

To top it all off, the fee request was subject to a clear-sailing clause and reversion to the defendant, the sort of self-serving fee-protection clauses condemned in our Bluetooth victory.

As a class member, I objected, represented by CCAF attorney Melissa Holyoak. The district court approved the settlement, but partially agreed with us that the fee request was excessive, knocking the Rule 23(h) award down to $1.9 million.

We've appealed: we don't think that the Rule 23(e) and Rule 23(h) fairness inquiries are to be done sequentially. NBTY put $6.5 million on the table; class counsel structured the settlement so the class got only a tiny fraction of that money, and ended up costing the class $2.6 million when their excessive fee request reverted to the defendant. We filed our opening brief last week. Because this settlement has so many of the features of bad settlements we object to, it is perhaps the best 13,000-word summary of CCAF philosophy.

• Pearson v. NBTY, Inc. opening brief

Entertainingly, class counsel has cross-appealed: not satisfied with their abusive $1.9 million fee, they want the full $4.5 million.

The case is Pearson v. NBTY, Inc., No. 14-1198 (7th Cir.).

In re Apple MagSafe Power Adapter Litigation oral argument in the Ninth Circuit Tuesday

Class counsel collected $3.1 million in the Apple MagSafe Power Adapter Litigation, but their putative clients received less than $900,000, and perhaps even less than $500,000—the district court never bothered to make findings. The settlement was structured to pay the attorneys double their lodestar but make it difficult for class members to make claims, and few of them did. We represent objector Marie Newhouse, who received $0 under the settlement, and appeals the approval of the self-dealing settlement and the district court's imposition of a punitive appeal bond. We've also moved for sanctions in response to class counsel Mehri & Skalet's Rule 28(j) letter that claimed Newhouse had never made an argument that was in her first issue presented.

• Newhouse opening brief
• Newhouse reply brief
• Newhouse Rule 28(j) letter
• Newhouse motion for sanctions

The oral argument will be webcast live starting sometime between 10:15 and 11 am Pacific time Tuesday on the San Francisco Courtroom 1 camera; the link will be on the front page of the Ninth Circuit website, and we'll update this post with a link to the podcast of the argument after the Ninth puts it on the site.

Update: oral argument is online.

Opening brief in Ninth Circuit MagSafe appeal

In the In re Apple MagSafe Power Adapter Litigation, the attorneys walked away with $3.1 million, while the class got less than $1 million, and likely less than a quarter of what the attorneys got. The district court (Judge Ware in the N.D. Cal.) not only rubber-stamped the settlement while ignoring the Bluetooth precedent, but then issued an order to protect the illegitimate settlement, requiring a punitive appeal bond or the dismissal of any appeals. This deterred three of the five appellants, with a fourth being sanctioned for failing to dismiss his appeal. But Marie Newhouse, represented by me and attorneys with the Center for Class Action Fairness, held firm in her objection, and, after some delaying tactics by the plaintiffs, the opening brief was filed today, as we test whether the Bluetooth principles have teeth or can be ignored by district courts and trial lawyers with impunity. To this add another few questions: when is it permissible to have a "claims-made" settlement that pays the attorneys regardless of whether class members make claims or, as in this case, are deterred from making claims by artificial hoop-jumping requirements? Can class counsel take credit for "injunctive relief" that has the defendant doing what it was already doing before the complaint was filed? Is class counsel entitled to a commission on payments to the settlement administrator? Earlier: objection; appeal bond hypocrisy. The case is Kitagawa v. Apple, Inc., No. 12-15782 (9th Cir.).

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.).

Brazil v. Dell

The class attorneys in Brazil v. Dell are asking for $6 million for themselves, but it is a claims-made settlement that will almost certainly pay a small fraction of that amount to the class. The parties are attempting to hide that from the court by scheduling the claims deadline after the fairness hearing, but this is where objectors come into play, and the Center has filed an objection on behalf of a class member in advance of the October fairness hearing. The settlement also suffers from several of the self-serving features identified as problematic in Bluetooth.