33% Attorneys' Fees 'Unsupportable,' Say Intervenors in Verizon Hidden Fees Action

After counsel for the class in MacClelland v. Cellco Partnership won the right to bring their clients’ claims in U.S. District Court for Northern California in San Francisco rather than to arbitration, they refiled their suit as a nationwide class action in New Jersey state court on Nov. 23, without complying with civil local rules and promptly informing the court, said the memorandum.

New Jersey state courts lack the Northern California district’s case law and procedural guidance designed to curb excessive attorneys’ fees, said the memorandum. The award that the MacClelland class counsel seeks is 33.3% of a $100 million settlement, “an unsupportable award in this Circuit,” it said.

Intervenors Allison Hayward, Peter Heinecke, Lawrence Prince and Will Yeatman are “concerned class members,” including original putative class members in the case, who believe the award “coming from the breach of fiduciary duty to the class is inequitable,” said the memorandum. They want the California district court, “pursuant to its equitable and case management authority, to equitably reallocate counsel’s unjust enrichment,” it said.

Class counsel availed themselves of the Northern California court’s jurisdiction by filing their first action there “and obtaining the discovery they claim to be instrumental to reaching the settlement,” said the memorandum. Any fee award in excess of what class counsel would have won had they presented their settlement in the California court should be “equitably reallocated for the benefit of the class,” it said. The intervenors move for intervention “as a matter of right and for permissive intervention, and they satisfy both legal standards.”

The intervenors satisfy all four elements for intervention as of right, said the memorandum. They have an interest in the case as class members whose legal rights are putatively affected by the settlement, and they also have a pecuniary interest in the fee award “because it comes straight from the common fund of the settlement,” it said. Their interests “are at risk without intervention because the parties colluded to hide this fee award from this Court and to evade federal scrutiny,” said the memorandum. Intervenors seek a “fair redistribution” of any excess attorneys’ fees awarded in view of 9th Circuit law under which the class action was brought, it said.

The traditional means of contesting excess attorneys’ fees, such as objection and independent court scrutiny, are “inadequate when the parties agree to judge-shop a new action in a different forum with procedural rules and precedent more favorable to a fee award excessive under the forum law that made the settlement possible,” said the memorandum.

Class counsel “cannot adequately represent Intervenors, who seek equitable reduction in class counsel’s attorneys’ fees, because class counsel directly opposes their position,” said the memorandum. Verizon has no interest in the distribution of the common fund between class counsel and the class “and is party to the decision to evade federal scrutiny that Intervenors complain of,” it said.

The intervenors’ motion is timely because they filed it weeks after class counsel filed their New Jersey state court fee motion Jan. 31, which, intervenors say, is the earliest time they could have been aware that class counsel would “subvert their interest” in a 9th U.S. Circuit Court of Appeals-conforming fee award, it said. The parties “also suffer no unfair prejudice" from intervention, it said.

Class counsel in the case moved for attorneys’ fees of 33.3% of the gross common fund in a proposed nationwide class settlement that would terminate 58 million class members’ claims in a new action, Esposito v. Cellco Partnership, filed in Middlesex County Court, New Jersey, on Nov.10. But the plaintiffs in MacClelland, most of whom are also named in Esposito, began their suit two years earlier in Northern California district court, “which delivered a diligent and significant procedural victory,” said the memorandum. That court denied Verizon’s motion to compel arbitration.

Verizon may have preferred filing in state court to “steamroll potential opt-outs,” said the memorandum, but class counsel "made clear” in their Jan. 31 fee motion “that they did so in order to benefit themselves at the expense of their clients, in breach of their fiduciary duty to the class.” The one-third fee request exceeds what the California court “could or would award under controlling precedents,” it said. The award exceeds the San Francisco court’s 25% benchmark “without cause, especially when normal awards would deviate downward from the benchmark in the context of a $100 million megafund settlement,” it said.

In light of the “dismal recovery,” representing less than 1% of $15 billion in claimed damages and about $1 per class member, “a downward departure is double warranted,” said the memorandum. Class counsel’s pending fee motion “falls far short” of the California district’s procedural guidance for class action settlements, and prevents intervenors “from accurately assessing a fair fee award,” said the memorandum. “That said, the available details raise eyebrows,” it said: “The fee request lists only 14 timekeepers who worked on the case, but claims almost 31,000 hours in work over this roughly two year litigation -- including five partners who billed more than 3,200 hours apiece.”