SAN FRANCISCO (Legal Newsline) - Objectors to a $180 million “mega-settlement” of antitrust claims say Hagens Berman is illegally holding on to a $53 million fee award that a federal appeals court vacated after determining it was significantly higher than the amount the law firm bid to gain control of the litigation.
The dispute between Hagens Berman, a prominent class-action firm and Bandas Law Firm, which frequently represents class-action objectors, will be aired at an Oct. 29 hearing in federal court in San Francisco. Hagens Berman says it has no obligation to return the fees and expenses it received under a “quick pay” clause of the settlement under which plaintiff lawyers are often paid even before their clients.
Objectors say the money belongs to plaintiffs since the Ninth Circuit Court of Appeals vacated the award in May, saying the lower court failed to explain why Hagens Berman should be paid almost double the amount it agreed to accept under a “fee grid” it submitted in an auction to obtain the position of lead counsel. Robert Clore, senior appellate counsel for Bandas Law Firm, dismissed Hagens Berman’s claim it can hold onto the funds because the 9th Circuit “vacated” the award and the settlement contract only requires it to repay fees that are “reversed” or “modified.”
"Even if you adopt that illogical, hyper-technical reading there’s still no basis for them to hold that fee," Clore said. Bandas filed a declaration by Edward J. McIntyre, a special investigator with the California State Bar, who said Hagens Berman violated California ethics rules as well as the firm’s fiduciary duty to class members by failing to return the money within five days of the 9th Circuit ruling.
Money placed in a common fund to settle a class action legally belongs to class members until a court orders a portion of it to be paid to the lawyers representing them. Hagens Berman won the lead attorney position for the lawsuit against optical-disk manufacturers after former U.S. District Judge Vaughn Walker pitted lawyers against each other by requiring them to submit sealed bids for the job. Hagens Berman offered to do the work for a fee that ranged from 12-14% with no separate payment for expenses.
The case settled in three parts and the judge who succeeded Walker awarded Hagens Berman $48 million in fees and $5.1 million in expenses despite the lower bid. Objectors including Connor Erwin complained about the firm’s fees at each stage of the settlement but were overruled. They succeeded at the 9th Circuit, however, which ruled in a May 15 decision that the district court may have been justified in awarding a higher fee but erred by “failing to explain adequately the variance between counsel’s fee grid and the actual awards.”
The appeals court reiterated the conflict inherent in all class actions, where lawyers are appointed to represent individual claimants who often don’t know they are involved in a lawsuit and thus can’t be expected to monitor the activities of “their” attorneys, especially when it comes time for them to submit a bill.
“Because the relationship between class counsel and class members turns adversarial at the fee-setting stage, district courts assume a fiduciary role that requires close scrutiny of class counsel’s requests for fees and expenses from the common fund,” the Ninth Circuit ruled.
When courts adopt the uncommon practice of running an auction, as Judge Walker did, the winning bid is “the starting point for determining a reasonable fee,” the court ruled.
Hagens Berman renewed its request for the full fee in a Sept. 28 filing, saying the case was complex and involved unexpected work as various aspects worked their way through appeals. In a statement, lead partner Steve Berman expressed confidence his firm will prevail, citing a similar objection the Bandas firm lost in a class action against Lumber Liquidators. In that case, the Fourth Circuit Court of Appeals reversed a fee award but declined to order Hagens Berman to return money it obtained under a “quick pay” provision while the fee request was under reconsideration.
“The same serial objector law firm made the same claim in the Lumber Liquidators case, and it was rejected, and we expect it will be here as well,” Berman said.
The Lumber Liquidators case involved a settlement where much of the value came in the form of coupons entitling class members to buy more products from the company they sued. The Fourth Circuit reasoned the quick-pay clause didn’t matter because the law firm could return excess fees whenever a final award was reached.
The antitrust settlement has different terms and no one raised the ethical objections that Bandas has now filed in the current case.
Bandas has a controversial history including accusations the firm filed objections to settlements that it dropped in exchange for payments that don’t benefit class members. The firm was sued for racketeering in 2016 by Edelson PC, another prominent class action firm, in what Bandas called a “frivolous” action. The firm later admitted to unauthorized practice of law in Illinois and agreed to conditions on filing future objections.
Subsequent changes in the federal rules of civil procedure require judges to approve any payments to objectors, limiting their ability to negotiate private deals with plaintiff attorneys.