SAN FRANCISCO (Legal Newsline) - A panel on the U.S. Court of Appeals for the Ninth Circuit has approved attorneys fees in a class action over Bank of America overdraft charges that amounts to more than $6,700 an hour, rejecting the objections of a dissenting judge and attorneys general of seven states who said the court failed to consider how much work lawyers put into the case or what the settlement was really worth.
Saying precedent prevented them from requiring the district court judge to perform a “lodestar crosscheck” comparing hours worked to the total fee, Ninth Circuit Judge Conseulo Callahan and U.S. District Judge Dana Christensen approved the $14.5 million fee for plaintiff attorneys led by Tycko & Zavareei and Kopelowitz Ostrow. The fee amounted to 21% of the purported $66 million settlement, which included $37.5 million in cash and BoA’s agreement not to collect another $29 million in overdraft charges. The lawyers said they put in 2,158 hours on the case.
The opinion drew a furious dissent from Judge Andrew Kleinfeld, who said the fee was based on an inflated estimate of the value of the settlement. Not only did U.S. District Judge M. James Lorenz give full credit for the foregone overdraft charges but he agreed plaintiff lawyers had obtained $1.2 billion in additional “injunctive relief” because BoA said it would stop assessing the charges in future.
“It is hard to believe that the $29.1 million in `debt reduction’ is anything more than a way to puff the value of the settlement by plaintiffs’ counsel and the bank, in order to get the attorneys’ fees approved,” wrote Kleinfeld, a George H.W. Bush nominee. “It was an abuse of discretion to take this pile of worthless debt at face value for purposes of assessing attorneys’ fees.”
Objectors represented by N. Albert Bacharach and Paul S. Rothstein of Florida appealed the fee to the Ninth Circuit.
Plaintiff lawyers argued in their lawsuit that BoA charged a usurious $35 “extended overdraft balance charge” for failing to correct an overdraft within five days. The bank sought to have the case dismissed because all other courts to consider the question found the fee wasn’t usurious, but after Judge Lorenz ruled it was, the company reached a settlement with the lawyers in 2017. The agreement would declare a “settlement class” of all customers, to be filed simultaneously with court approval, that would also prevent any future lawsuits over the fee.
Settlement classes are controversial with some scholars, since they seem to violate the constitutional mandate that federal courts only have jurisdiction over live “cases and controversies.” Since the case has been settled before a judge approves the agreement, some legal experts argue, there is no jurisdiction. But the practice is common with class actions, since it allows defendant companies to obtain a nationwide release against all claims in exchange for agreeing to pay attorneys’ fees.
To prevent collusive agreements between defendants and plaintiff attorneys, courts including the Ninth Circuit require judges to exercise heightened scrutiny over settlement classes. One method is to examine the actual billing records of plaintiff attorneys to calculate a “lodestar,” or base rate from which to cross-check the ultimate fee.
Attorneys general in seven states including Arizona, Missouri and Texas filed a brief urging the Ninth Circuit to send the fee request back to the district court for recalculation, saying “this case provides a prime example of why a cross-check should always be applied.” The AGs said the federal circuit should adopt a rule requiring lodestar crosschecks to protect “consumers who are put at increased risk” by collusive settlements.
The district court’s refusal to perform a lodestar crosscheck is understandable, Judge Kleinfeld wrote, since in the extremely unlikely case the class action went to trial it would consume “a devastating year in the courtroom” as the judge struggles to meet deadlines for criminal cases and other litigation.
“But skipping this step breaches the district court’s fiduciary duty to the class,” he wrote.
The district court judge also accepted an estimate by Bank of America and the lawyers suing it that the bank would forgo $1.2 billion in future fees. The dissent noted no calculation was ever made of how many class members would benefit from the relief, as opposed to future customers who don’t belong to the class.
The Ninth Circuit, in its landmark In Re Bluetooth Headsets decision, set out clear guidelines for policing settlements, including requiring the court to calculate the benefit to class members. The “injunctive relief” in the Bank of America settlement “is speculative, uncalculated, and likely to be a negligible fraction of the valuation the district court accepted,” the dissent said.
The district court and the majority on the Ninth Circuit cite the “difficulty” of the case, the dissent noted, but “there are different kinds of difficult cases.”
“One is when there is great legal complexity, or a vast amount of discovery, or coordination of many parties, or extremely complex damages,” Judge Kleinfeld wrote. “Another kind of difficulty is when it is just a bad case.”
All previous courts had concluded the fee wasn’t usurious but the plaintiff got a decision from the district court, defying precedent and likely to be overturned on appeal, that it was. To treat this as an example of “difficulty” “would reward attorneys for bringing meritless cases,” he wrote.
“Bank of America and class counsel did much better than the class in this case,” the dissenting judge concluded. The broad release BoA obtained from future lawsuits over the overdraft fees “was indeed worth paying plaintiff’s lawyers considerable money, but the case was not worth much to the class, just to the defendant and plaintiff’s counsel.”
The Ninth Circuit panel majority, in a brief opinion upholding the fee, said it was justified.
“In short, neither the settlement nor the fee award raises an eyebrow,” the judges wrote.