In Re: High Sulfur Content Gasoline Products Liability Litigation, No 07-30384, 2008 WL 287347 (5^th Cir. Feb 4, 2008).

To show our readers how diverse the Editors’ tastes are, we present today a post that is NOT about a CAFA case. However, it is about a subject sure to stimulate the hearts and minds of all of you in the blawgosphere…attorney fees in class action litigation. You’d have to reside on the Dark Side of the Moon not to want to read this.

In February, the Fifth Circuit vacated a district court’s order allocating $6.875 million dollars in attorney fees from a class action settlement, finding the district court employed a process both “unauthorized and objectionable.” Seventy-nine plaintiffs’ attorneys worked on the case, but only the five lead counsel appeared to have had a role in devising the plan to allocate the fees. The other plaintiffs’ counsel just had to hope that the Fee Committee would share it fairly but not take a slice of their pie.

It is no surprise that the Fee Committee gave very little away to the other lawyers. The plan approved by the district court allocated more than half of the $6.875 million to the five lawyers on the Fee Committee. This alone is not the basis for the Fifth Circuit’s criticism.

The hearing on the Fee Committee’s proposal lasted twenty minutes and was ex parte. The district court accepted the Fee Committee’s proposal to grab that cash with both hands and make a stash without modification. The record did not reveal that the district court received any evidence of fees, hours spent by various counsel, or contribution to the case. Moreover, the order signed by the district court did a number of interesting things: (1) placed under seal the document listing each attorney’s fee award; (2) prohibited all the lawyers from revealing to anyone the amount of their awards; (3) required the money to be distributed immediately; (4) mandated award checks bear full and fair release language; and (5) established a process for dealing with any objections to the fee awards. 

When some of the non-Fee Committee attorneys objected, the district court held a hearing at which the court stated it had considered all twelve of the factors from Johnson v. Georgia Highway Express, 488 F.2d 714 (5^th Cir. 1974) when it approved the fee allocation. Then, the court sealed the order and transcript pertaining to this hearing.

The Fifth Circuit stated the court “abdicated its responsibility” to ensure the fee allocations were fair and reasonable using “flawed” procedures “inconsistent with well-established class action principles and basic judicial standards of transparency and fairness.” The court of appeals identified two major errors: (1) the lack of record evidence substantiating the district court’s assertion that it reviewed the individual fee awards for fairness and reasonableness; and (2) insufficient justification for sealing the record of the proceedings. Other errors committed by the district court included requiring immediate distribution of funds (violating F.R.C.P. 62(a) requiring ten day stay on enforcement of judgments), failing to give non-Fee Committee members notice and an opportunity to be heard after deciding to convene a fee allocation hearing (violating F.R.C.P. 23(h)).

Particularly troubling was the district court’s deference to the Fee Committee. The Fee Committee members had a clear conflict of interest, since they were dividing the limited settlement fund among themselves and others. The appearance that the district court did not closely scrutinize this conflicted committee’s proposal was inappropriate. The Fifth Circuit cautioned that “careful attention must be paid to the procedures by which the allocation is set.” Giving the district court a primer on due process, the Fifth Circuit ordered that, on remand, no exparte communications or sealing would be permitted. Further, the district court must compare as needed counsel’s respective contributions and sufficiently support any final award with reasons facilitating judicial review. (Stephanie John)