Federal appellate courts across the country increasingly are reversing settlement agreements and fee applications approved by the lower court judges in class action cases.
Yesterday the U.S. Court of Appeals for the Third Circuit "threw out a class-action settlement" in an antitrust action involving baby products "that would have paid the lawyers who negotiated it more than four times as much as their clients" -- $14 million to the lawyers and only $3 million to the class -- as reported by Daniel Fisher for Forbes: "it acknowledged the 'potential for conflict' between lawyers primarily interested in a fee and their clients, who are primarily interested in winning money," and ruled "that courts need to consider the level of direct benefit provided to the class in calculating attorneys' fees."
Last July the Ninth Circuit Court of Appeals reversed a deal which awarded $2 million in attorneys' fees to the plaintiffs' lawyers but provided the class members -- consumers who purchased Frosted Mini-Wheats after an ad campaign by Kellogg claiming the cereal improved children's attentiveness -- with only "a 'paltry' $5 a box for up to three boxes" as reported by Maura Dolan for the Los Angeles Times. Writing for a unanimous three-judge panel, Judge Stephen S. Trott held:
[T]he $2 million award of attorneys' fees is unreasonable. Indeed, because the settlement grants counsel "a disproportionate distribution of the settlement" compared with the benefit to the class, it is possible the settlement was "driven by fees." * * * [T]he $2 million fee award breaks out to just over $2,100 per hour. Not even the most highly sought after attorneys charge such rates to their clients.
And in June 2012 a unanimous three-judge panel from the Seventh Circuit Court of Appeals put the kibosh on a derivative action brought on behalf of shareholders by the law firms Vianale & Vianale and Sarraf Gentile against retailing giant Sears as reported by Daniel Fisher for Forbes. In an opinion written by Judge Frank H. Easterbrook the appellate court held "this litigation is so feeble that it is best to end it immediately," and "the only goal of this suit appears to be fees for the plaintiffs' lawyers."
Critics of class actions often argue that many cases serve as little more than vehicles by which the plaintiffs' lawyers get rich, and often the district judges do little in protecting the interests of the class members when approving the settlement agreements and fee applications; however, the three above decisions suggest that the appellate courts no longer may be willing to allow the district judges to rubber stamp the deals with gratuitous recitations of the governing standards.
Further reading that may be of interest: