Hayden v. Atochem Arsenic Class Action Objection to Class Counsel's Fees

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

 
LILLIAN HAYDEN, et al.,

                          Plaintiffs,

v.

ATOCHEM NORTH AMERICA, INC.,
ELF AQUITAINE, INC., ELF
ATOCHEM NORTH AMERICA, INC.,
and PENNWALT CORPORATION,
name changed to ELF ATOCHEM
NORTH AMERICA, INC.,

                          Defendants.
 

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)              C.A. No. H-92-1054
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OPPOSITION OF OBJECTORS BEIFUSS AND O'CONNOR
TO CLASS COUNSEL'S FEE APPLICATION

Class counsel have moved for an award of $12.42 million in fees and $2,163,170.56 in expenses. An award of fees and expenses will be taken from the common fund set up for the class members' benefit of the class members. Objectors Mark Beifuss and Shanna O'Connor oppose this request for the reasons stated below.

(1) The Amount Sought By Class Counsel, Whether Measured As A Percentage Of Fund, Or By A Lodestar, Is Excessive.

To understand why the current request is excessive, it is necessary to review what occurred earlier in the litigation. When the first settlement was proposed, class counsel requested 33% of the common fund, or more than $18.35 million. Magistrate-Judge Botley disagreed and awarded 10% of the fund or $5,507,500. Memorandum and Order (Doc. 690) (9/15/95). Class counsel moved for reconsideration of that award, which was denied. Order (Doc. 719) (10/5/95).(1)

Before Magistrate-Judge Botley, class counsel argued that unless the full $18.35 million were awarded, lawyers will be discouraged from taking on mass toxic tort litigation in the future. We believe that the Magistrate-Judge's reasoning applies equally well, if not more so, to the current fee application, as we now explain.

At the outset, we note our agreement with class counsel that, regardless of whether a court uses the lodestar or percentage method (or considers both, as Magistrate-Judge Botley did), a fee award should compensate counsel both for the work done and for the risk of non-recovery. Thus, for instance, where the court employs the lodestar method, and finds that there was a one in two chance that the plaintiffs would have recovered nothing, a lodestar with a multiplier of two might well be appropriate.

It is always difficult to assess with precision the risks of litigation. This case is no different. To be sure, as class counsel maintains, the plaintiffs were required to litigate this case tenaciously because, at least prior to the initial settlement discussions more than five years ago, the defendants fought them vigorously. On the other hand, the settlement now before the Court, like the first settlement, is highly beneficial to the defendants. Among other things, the new settlement gives the defendants "global peace," and provides them with enormous protections concerning venue and proof of causation in future suits that they could never hope to gain in individual litigation. Thus, there is every reason to think that, for five years or more, defendants have been in "settlement mode" and that there has been little or no contingency. And even before that, despite the difficulties faced by the plaintiffs, the defendants also faced difficulties, not the least of which was the enormous risk to them if the case were tried to verdict on a class basis. Certainly, the contingency facing class counsel was not nearly as high as the risks faced by tort plaintiffs who litigate their individual cases to judgment. In our view, the risk of non-recovery under the circumstances here was no worse than 50-50.

We now turn to the 1995 decision of the Magistrate-Judge. He held that customary market rates for legal work of the type done in this case ranged from $150 to $250 per hour. 9/15/95 Memorandum and Order, at 4-5. In light of the complexity of the case, he then enhanced that rate to $350 per hour, for the time of each of the lawyers who worked on this case, regardless of their background or years of experience. Id. at 5, 10.(2) This amounts to a multiplier of 1.4 to 2.33, which falls in the mid-range of multipliers awarded in similar litigation.

Multiplying these enhanced hourly rates by the time claimed by class counsel, the Magistrate-Judge arrived at a lodestar fee of $3,015,375. He then went even further and awarded a fee based on 10% of the cash value of the settlement, or $5,507,500. This represents an additional multiplier of 1.8. All told, then, the Magistrate-Judge awarded a percentage fee which equalled a multiplier, for the work of the attorneys in this case, of between 2.68 and 4.46.(3) Although it would not have been an abuse of discretion for the Magistrate-Judge to have awarded a lodestar with a somewhat lower or higher multiplier (or, for instance, a 9% or a 12%, rather than a 10%, award), the amount awarded clearly was not an abuse of discretion either.

We expect class counsel to contend that after the Magistrate-Judge's 1995 fee decision, they put in considerable additional time and that they are entitled to fees to compensate for that time. There are three responses to that argument. First, class counsel are not entitled to additional compensation under the circumstances of this case. It was they who pushed the first settlement, which they should have known was doomed to fail. Class counsel claim that class action law was in flux and they cannot be blamed for the tortuous path this case has taken. Not so. Although class counsel could not have been expected to predict the decisions in Amchem and Ortiz, the non-opt-out settlement of substantial damages claims was plainly unlawful since at least the mid-1980's. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 810-13 (1985). Moreover, despite privately acknowledging that the Fifth Circuit's decision in Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir. 1998), they first continued to champion the settlement after Allison, and then allowed the non-opt-out certification to be appealed on an interlocutory basis (rather than withdrawing from the settlement), which wasted an enormous amount of time and expense for everyone.

Second, under the circumstances here, there is certainly no basis to award a multiple of two and one-half times the fee awarded by the Magistrate Judge. After all, the Magistrate-Judge was awarding a fee based on a settlement that, at least in some ways, was superior to the settlement now before the Court. To be sure, the second settlement is generally superior to the first one, because it contains an opt-out right and improved class notice, among other things. However, class counsel should not get the credit for those improvements, which were made as a result of the objectors' opposition to the first settlement. The second settlement, however, is seriously flawed, as we explained in our objections filed on October 16, 2000. The fund is $13 million smaller than that contained in the first settlement. "Future" class members can only sue if they submit to formidable venue and proof restrictions imposed by the settlement. And the second settlement eliminates the $4 million medical monitoring program that class counsel had previously trumpeted in the first settlement as essential for the class members' health. Thus, because of the new settlement's failings, class counsel should not be awarded their lodestar (and certainly not a multiplier) for work done since the first settlement was proposed.

Third, even assuming that this Court should fully compensate counsel for work done after the first settlement was proposed, the amount that the Magistrate-Judge awarded is not unreasonable. His award of $5.5 million equals counsel's stated, unaudited lodestar, with a multiplier of more than 1.4. Although an award of the lodestar with a multiplier of 2, or about $7.75 million, would not be an abuse of discretion, such an award would be at the high end of a range of permissible fees given the circumstances of this unusual case.

(2) The Lodestar Information Provided Is Insufficient To Justify The Fee Award Or To Provide A "Crosscheck" On The Requested Percentage Award.

To the extent that an award is contemplated on a straight lodestar basis, the information provided is plainly insufficient because counsel's time records have been filed under seal. Although the court can review the time records in camera, the information has been kept from the class members, i.e. class counsel's own clients. Nor can review of the stated lodestar serve as a "crosscheck" for the proposed 30% fee award, because there is no way to confirm whether the hours listed for each attorney were actually and reasonably spent on matters germane to the litigation.(4)

(3) No Award Should Be Made Until Class Counsel Reveal How The Fee Will Be Distributed Among The Lawyers.

Class counsel have not revealed how the requested $12.42 million fee will be distributed among the lawyers. We know only that there are agreements among counsel concerning the apportionment. See Class Counsel's Fee and Expense Application, at 1 n.1. This Court should not award a fee unless those agreements are publicly disclosed, so that the class members have access to them. Moreover, to the extent that those agreements allow counsel to gain a fee that is out of proportion with the work that they have done on the case, such agreements should be set aside, and the fee request reduced accordingly.

Federal Rule of Civil Procedure Rule 23(e) requires careful scrutiny of fee requests to prevent excessive fees and public hostility toward the judicial process and class actions in particular. In re Agent Orange Prod. Liab. Litig., 818 F.2d 216, 225 (2d Cir. 1987). The Agent Orange case is illustrative. There, the Second Circuit struck down a fee-sharing agreement that rewarded certain plaintiffs' attorneys who had advanced funds for litigation costs with a threefold return on their investment, while reducing the fees of non-investing counsel. The court noted that the practice of allowing plaintiffs' attorneys to distribute a general fee award among themselves was "unexceptional" but held that such agreements "must bear some relationship to the services rendered." Id. at 223. The agreements, the court held, posed "a clear potential for a conflict of interest" with the client class. Id. Thus, the Second Circuit reversed the district court and invalidated the agreement for being inconsistent with the interests of the class. Id. at 224. Of particular importance to this case, the Second Circuit ruled that, in all future class actions, counsel would be required to inform the court of fee-sharing agreements at the time of their formation to help prevent potential conflicts. Id. at 226;(5) see also Bowling v. Pfizer, Inc., 102 F.3d 777, 781 n.3 (6th Cir. 1996); In re General Motors Fuel Tank Pickup Truck Prod. Liab. Litig., 55 F.3d 768, 819-20 (3d Cir.) (quoting Agent Orange with approval: "The test to be applied is whether at the time a fee sharing agreement is reached, class counsel are placed in a position that might endanger the fair representation of their clients and whether they will be compensated on some basis other than for legal services performed").

The concerns raised in Agent Orange have particular application here. There is a strong possibility that the fee-sharing arrangements have bloated the fee request because of the perceived need for certain counsel to be paid out of proportion to their work effort on the case. Those extra payments may explain, for instance, why the $4 million medical monitoring program was eliminated. Take, for example, the work of subclass "B" counsel, Lane Thibodeaux, whose job is to represent members of the class who have not suffered personal injuries to date, but may suffer such injuries in the future. According to the time charts attached as Exhibit 3 to the fee application, Mr. Thibodeaux has worked a total of 10.5 hours on this case, and his lodestar is $3,675. We do not know whether he will be paid $3,675 (augmented by the requested 3.2 multiplier), assuming that the fee is approved in full, or whether he has negotiated a better deal for himself. Although the amounts concerning Mr. Thibodeaux are small, they illustrate the problem. If class counsel have agreed to pay Mr. Thibodeaux a premium above his adjusted lodestar, that agreement may have bloated the overall fee request to the detriment of the class members. We will only know if that is the case if the Court requires that counsel's fee-sharing agreements be disclosed. Until they are disclosed, no fee should be awarded.

CONCLUSION

For the foregoing reasons, class counsel's fee request should be denied.

Respectfully submitted,

____________________________
David C. Vladeck
Brian Wolfman
Public Citizen Litigation Group
1600 20th Street, N.W.
Washington, DC 20009
(202) 588-1000

Attorneys for Objectors Mark Beifuss and

October 24, 2000 Shanna O'Connor

1. The settling parties had purported to consent to allow the Magistrate-Judge to enter dispositive orders in this action, including the order concerning attorney's fees. However, various objectors argued that the Magistrate-Judge could not issue final orders pursuant to 28 U.S.C.  636 without the consent of all parties, including the absentees (who could not, of course, consent). Although the settling parties ultimately agreed with the objectors on this point, class counsel did not agree until after the Magistrate-Judge awarded them far less in attorney's fees than they had requested.

2. He made a similar upward enhancement for the work of paralegals from $50 per hour to $75 per hour. Id. at 10.

3. These multipliers were calculated as follows: The total attorney fee awarded, not including the enhanced paralegal fee of $285,375, was $5,222,125. The Magistrate-Judge held that reasonable hourly rates ranged from $150 to $250 per hour. At $250 per hour, the total fee for attorney time is $1,950,000 ($250 X 7800 hours), making the multiplier 2.68 ($5,222,125 divided by $1,950,000). At $150 per hour, the total fee for attorney time was $1,170,000 ($150 X 7800 hours), making the multiplier 4.46 ($5,222,125 divided by $1,170,000). Indeed, even at the already enhanced $350 per hour rate, the multiplier was 1.91 ($5,222,125 divided by $2,730,000).

4. We also note that some of the proposed hourly rates (e.g., $350 per hour for a

Bryan, Texas attorney) appear high. There is no way to know, however, because, rather than submit declarations or other evidence concerning standard market rates in the lawyers' communities, class counsel have simply asserted that the rates are reasonable.

5. In Agent Orange, the district court had not been informed of the fee-sharing agreement until four months after a settlement was reached--ten months after the fee agreement was made. See 818 F.2d at 217-18.