June 10, 2019 / 9:42 PM / 6 days ago

SCOTUS petition: Due process requires fee awards to lawyers outside class action leadership

(Reuters) - Lawyers who were shut out of fees in the Volkswagen “clean diesel” car class action are taking their bid to get paid to the U.S. Supreme Court (2019 WL 2370288) with an intriguing argument: Their clients were denied due process because of restrictions on who shared in a $175 million pot of attorneys’ fees.

Last January, as I reported, the 9th U.S. Circuit Court of Appeals affirmed (914 F.3d 623) a decision by the judge overseeing the VW clean diesel litigation, U.S. District Judge Charles Breyer of San Francisco, to award fees only to plaintiffs’ firms in the leadership team designated by court-appointed VW class counsel Elizabeth Cabraser of Lieff Cabraser Heimann & Bernstein. The appeals court agreed with Judge Breyer that work performed by lawyers outside of the leadership team did not benefit the class as a whole so those lawyers could not share in the $175 million fee award paid by Volkswagen.

The appeals court acknowledged that lawyers representing individual class members “dutifully and conscientiously represented their clients” before the VW case was consolidated by the multidistrict litigation panel and subsequently settled as a class action. But the court said the lawyers hadn’t shown that their work in the early phases of the litigation contributed to the eventual $10 billion classwide settlement or that their post-settlement advice to individual VW owners benefited the class.

Judge Breyer, the 9th Circuit said, acted within the bounds of his discretion when he established the rules for compensation in a series of pre-trial orders and applied those rules to deny fees to lawyers outside of the leadership group.

But according to the certiorari petition by the shut-out lawyers, the 9th Circuit created a conflict between their clients and fellow class members who were individually represented by lawyers who will collect a piece of the $175 million fee award. Their theory is that their clients, who may still owe attorneys’ fees under contingency fee agreements, are worse off than class members who signed individual contracts with lawyers who were awarded fees. The appellate ruling, wrote counsel of record Bruce Nagel of Nagel Rice, “prefers” one set of class members over another – a violation of “fundamental due process and fairness to the plaintiffs represented by non-class counsel.”

The petition claimed that by excluding non-class counsel from court-awarded fees, the 9th Circuit created a conflict with the 10th Circuit’s 1994 decision in Gottlieb v. Barry (43 F.3d 474) and the 3rd Circuit’s 2005 In re Cendant (404 F.3d 173). The 9th Circuit had a different view of Cendant in its opinion excluding non-class counsel from fees, writing that Cendant stands for the proposition that lawyers should not be paid by a class unless they have done work that benefits the class as a whole, not just individual class members.

Nagel Rice also argued that Supreme Court precedent on intra-class conflict - notably in 1997’s Amchem v. Windsor (117 S.Ct. 2231) and 1999’s Ortiz v. Fibreboard (119 S.Ct. 2295) - precludes the award of attorneys’ fees to lawyers for some class members but not others. That struck me as an intriguing argument. And the VW litigation isn’t the only one in which clients signed individual contingency fee deals with plaintiffs’ lawyers in cases that ended up being settled as class actions. You may recall, for instance, that in December, in the billion-dollar multidistrict litigation over genetically modified Syngenta corn seeds, U.S. District Judge John Lungstrum of Kansas City nullified all individual contingency fee agreements, holding that all attorneys in the case would be paid from a $500 million pot set aside for lawyers’ fees. (That decision is on appeal.)

Samuel Issacharoff of New York University, who argued for VW class counsel at the 9th Circuit, declined to comment on the certiorari petition by lawyers excluded from class fees. VW counsel Sharon Nelles of Sullivan & Cromwell didn’t respond to my email about the bid for Supreme Court review.

I also reached out to University of Georgia law professor Elizabeth Burch, author of the just-published “Mass Tort Deals: Backroom Bargaining in Multidistrict Litigation,” to ask what she thought of the Amchem argument asserting that the 9th Circuit ruling created a conflict among class members. As her book title suggests, Burch’s expertise is in the clubby world of MDL leadership. In general, she’s wary of entrenching the old guard. I wasn’t surprised that in an email, she said she frowns on agreements to award fees only to lawyers hand-picked by class counsel. “Those deals are a dirty business that seem to favor the in crowd of repeat players,” she said.

But Burch added that she doesn’t believe the VW case fits the Supreme Court’s proscription in Amchem and Ortiz. In those cases, she said, the court’s concern was conflicts between class members as settlements were being negotiated. (Specifically, you’ll recall, the Supreme Court held that courts can’t approve class settlements binding class members with conflicting interests unless the groups each have their own counsel.) In VW, Burch said, any conflict between class members whose lawyers were awarded fees and those whose lawyers were excluded from the fee award arose only after the settlement.

“Unless class counsel did something to favor their own clients over the clients of others pre-settlement — on grounds that have nothing to do with the merits of their respective claims — then I don’t see this as an Amchem or Ortiz issue,” Burch said in an email.

The odds are always against the Supreme Court taking a case. But I do think this petition shows the increasing heat over fees in mass litigation that’s resolved through class action settlements. These disputes raise tough issues – and eventually, I suspect the Supreme Court will have something to say about them.

The views expressed in this article are not those of Reuters News.

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