The Federal Class Action Practice Manual
Chapter 9: Settlement or Trial of the Class Action
[§49] Settlement Class Actions
The law favors settlement of disputes, including class actions and other complex cases where substantial judicial resources can be conserved by avoiding protracted, expensive formal litigation. See Cotton v Hinton, 559 F.2d 1326, 1331 (5th Cir. 1977). In a settlement class action, an agreement to resolve the dispute is reached by the parties involved prior to the district courts ruling on a motion to certify the class.
Customarily, if settlement negotiations are underway after a suit is filed, a court may elect to defer ruling on the class certification issue until after settlement negotiations are terminated. If the parties are successful in their negotiations, the court may then certify a provisional class for settlement purposes only, and direct that notice of class certification and settlement simultaneously be disseminated to the absent class members. See In re General Motors Corp. Pick-up Truck Fuel Tank Prod. Liab. Litig., 55 F3d 768, 785-87 (3d Cir. 1968), overruled in part on other grounds by Amchem Products, Inc. v Windsor, 117 S.Ct 2231, 138 L.Ed 2d 689 (1997). Settlement classes have generally been received with favor; however, such cases are likely to be scrutinized by the court, and if the proposal is not "fair, reasonable, and adequate" the courts will deny final approval of the settlement. See Id.
If a proposed settlement is agreed upon the presence or absence of adequacy of representation will be reflected in its terms. As the United States Court of Appeals stated in In re Corrugated Antitrust Litig., 643 F.2d 195, 212 (5th Cir. 1981), cert. denied, 456 U.S. 998 (1982):
[i]t is, ultimately, in the settlement terms that the class representatives' judgment and the adequacy of their representation is either vindicated or found wanting. If the terms themselves are fair, reasonable, and adequate, the district court may fairly assume that they were negotiated by competent and adequate counsel; in such cases, whether another team of negotiators might have accomplished a better settlement is a matter equally comprised of conjecture and irrelevance.Similarly, the United States Court of Appeals for the Seventh Circuit in approving a class action settlement, noted that "[r]ather than attempt to prescribe the modalities of negotiation, the district judge permissibly focused on the end result of the negotiation . . . . "The proof of the pudding was in the eating." Mars Steel v. Continental Ill. Nat'l Bank & Trust Co., 834 F.2d 677, 684 (7th Cir. 1987) Back to Top
[§49.1] Settlement of Federal Claims in State Court
The Full Faith and Credit Act requires a federal court to give state court judgments the same preclusive effect they would have in another court of the same state. See Parsons Steel, Inc. v. First Ala. Bank, 474 U.S. 518, 523, 88 L. Ed. 2d 877, 106 S. Ct. 768 (1986). In Matsushita Electric Industrial Company, the Supreme Court held that a federal court must give effect to a state court approval of a class action settlement, even if the settlement releases federal claims within the exclusive jurisdiction of the federal courts, as long as the law of the state would give preclusive effect to the judgment. Matsushita Elec. Indus. Co., Ltd. v. Epstein, 516 U.S. 367, 375, 380, 134 L. Ed. 2d 6, 116 S. Ct. 873 (1996).
[§50] Dismissal or Compromise Requires Court Approval
A class action shall not be dismissed or compromised without court approval. See Rule 23(e), FRCP; In re Jiffy Lube Sec. Litig., 927 F.2d 155, 158-159 (4th Cir. 1991) discussed the factors a court may consider in determining whether a proposed settlement should be approved. These factors include the question of whether the settlement was reached as a result of good-faith bargaining at arms length, without collusion, on the basis of: (1) the posture of the case at the time settlement was proposed; (2) the extent of discovery that had been conducted; (3) the circumstances surrounding the negotiations; and (4) the experience of counsel. See also Flinn v FMC Corp., 528 F.2d 1169, 1173 (4th Cir. 1975), cert denied, 424 U.S. 967 (1976).
For protection of the absent class members, and to avoid potential abusive over-reaching by defendants in litigation, the district court should carefully scrutinize the terms of the proposed settlement as well as the terms of the release being demanded by a defendant. In commercial transaction cases, a defendant may potentially be engaged in a number of improper practices, yet sued only for some minor transaction. For that reason, the scope of the claims released as a part of the settlement should be narrowly confined to the claims set forth in the litigation. For example, a bank may be improperly charging a five dollar fax fee when statements are forwarded to customers closing loans. That same bank may also be by fraud and concealment charging those customers several hundred dollars in improperly computed interest on loans at the time of closing. If the bank is sued for the fax charge only, the court should refuse to release, "any and all claims or any nature whatsoever, known or unknown arising from any loan," by bank. Failure to carefully consider the scope of claims being released can destroy the rights of absent class members. Without some sensible relationship to the benefit being provided to the class and the scope of any release demanded, a real risk exists that a defendant could use settlement of a small claim as a ploy for release of a much larger claim unknown to plaintiffs at the time a settlement is offered.
Rule 23(e), "Dismissal or Compromise," addresses post-settlement notices and provides that "[n]otice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs." This provision applies to a class regardless of whether is a (b)(1), (b)(2) or (b)(3) action. In the context of a Rule 23(e) notice directed to class members to inform them of a proposed settlement, such members should be informed of the terms of the settlement, as well as any applicable deadlines for intervention, objection or opting-out if opt-out rights apply. Nonclass members have no standing to object pursuant to a Rule 23(e) notice directed to class members, to a proposed class settlement. Gould v Alleco, 883 F.2d 281, 284 (4th Cir. 1989).Back to Top
[§51] Notice of Compromise
It has been previously noted that in Rule 23(b)(1) and 23(b)(2) class actions, Rule 23(d) provides that pre-settlement notice is entirely discretionary with the trial court. However, Rule 23(c) makes some form of post-settlement notice in Rule 23(b)(1) and 23(b)(2) class actions mandatory, although the form of notice is discretionary. Walsh v Great Atlantic & Pacific Tea Co., Inc., 726 F.2d 956, 962 (3d Cir. 1983). When notice is required, due process requires that the notice to class members "fairly apprise the ... members of the class of the terms of the proposed settlement and of the options that are open to them in connection with [the] proceedings." Weinberger v. Kendrick, 698 F.2d 61, 70 (2d Cir. 1982) (internal quotation marks omitted), cert. denied, 464 U.S. 818 (1983); see also Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 307, 314 (1950) (notice concerning judicial settlement of common trust fund); In re Drexel Burnham Lambert Group Inc., 995 F.2d 1138, 1144 (2d Cir. 1993) (notice of settlement sent pursuant to Fed. R. Bankr. P. 2002).
Pursuant to Rule 23(e) notice to the class of a proposed settlement is mandatory regardless of the grounds upon which the initial certification was made by the court. The adequacy of notice a matter within the discretion of the court. Even where there exists a Constitutional right to notice, the right to adequate notice simply requires that the proposed form of notification be reasonably certain to inform those affected. Vancouver womens Health Collective Society v A.H. Robins Company, Inc., 820 F.2d 1359, 1364 (4th Cir. 1987). Where conditions do not reasonably permit a more adequate notice, the form of notice chosen must not be substantially less likely to bring home notice than other feasible and customary substitutes. Mullane v Central Hanover Bank and Trust Co., 339 U.S. 306, 314-15, 70 S.Ct 652, 94 L.Ed 865 (1950).Back to Top
[§52] Standards for Reviewing Proposed Settlement - Overview
Federal Rule of Civil Procedure 23(e) requires court approval of any settlement that effects the dismissal of a class action. Before such a settlement may be approved, the district court must determine that a class action settlement is fair, adequate, and reasonable, and not a product of collusion. See, e.g., Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1079 (2d Cir. 1995); Grant v. Bethlehem Steel Corp., 823 F.2d 20, 22 (2d Cir. 1987); Seealso, Weinberger v. Kendrick, 661, 73 (2d Cir.1982); In re PaineWebber Ltd. Partnerships Litig., 171 F.R.D. 104, 124 (S.D.N.Y.1997). A district court's decision to approve a proposed settlement of a class action is reviewed under an abuse of discretion standard. See In re Ivan F. Boesky Secs. Litig., 948 F.2d 1358, 1368 (2d Cir. 1991).
"The law favors settlement, particularly in class actions and other complex cases where substantial judicial resources can be conserved by avoiding formal litigation." In re Gen. Motors Corp. Pick-up Truck Fuel Tank Litig., 55 F.3d 768, 784 (3d Cir. 1995). Nonetheless, the court has an obligation to ensure that class members' interests have been protected. See In re IKON Litig., 191 F.R.D. 457, 2000 WL 567104, at *5 (E.D. Pa. 2000). Before approving a settlement, the court must examine whether adequate notice was issued to prospective class members. See id.; Fed. R. Civ. P. 23(c)(2). The court must also determine whether a settlement class is properly certified under Federal Rules of Civil Procedure 23(a) and (b)(3). See In re Gen. Motors, 55 F.3d at 794-97; In re Prudential Ins. Co. of Am. Sales Practice Litig., 148 F.3d 283, 307-09 (3d Cir. 1998). Finally, the court must decide whether the proposed settlement itself is fair to settling parties and relevant third parties. See Fed. R. Civ. P. 23(e). Although the court may acknowledge that the proposed class is a settlement class, it may not even reach the fairness question if there is not a proper class and may not substitute the fairness inquiry for the Rule 23(a) and (b) inquiry. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620-21, 138 L. Ed. 2d 689, 117 S. Ct. 2231 (1997); In re Prudential, 148 F.3d at 308. See also, Krangle v. Golden Rule Resources, Inc., 2000 U.S. Dist. LEXIS 10243 (E.D Pa. July 24, 2000).
[§52.1] Standards for Reviewing Proposed Settlement
Although dismissal or compromise requires court approval, Rule 23(e), provides no standard by which the district court is to consider the settlement of a class action; rather the rule states only that a "class action shall not be dismissed or compromised without the approval of the court . . . ." Fed. R. Civ. P. 23(e).
Various courts have laid out the framework for determining whether to approve a proposed settlement:
[T]he cardinal rule is that the District Court must find that the settlement is fair, adequate and reasonable and is not the product of collusion between the parties.Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir. 1977)(citation omitted)(affirming approval of a class action settlement by the United States District Court for the Northern District of Alabama). In undertaking a determination whether to approve a proposed settlement, the district court must undertake an analysis of the facts and the law relevant to the proposed settlement. Id. Furthermore, the district court must support the conclusions flowing from this analysis by memorandum opinion or otherwise in the record so as to provide an appellate court with a basis to judge the district courts exercise of discretion should an appeal follow. Id.
The overall focus of the determination of the fairness, adequacy and reasonableness of the settlement should be on the terms of the settlement itself. Cotton, 559 F.2d at 1330; accord In re Corrugated Container Antitrust Litigation, 643 F.2d at 211 ("a settlement should stand or fall on the adequacy of its terms."). Specifically, the district court should evaluate the likelihood that plaintiffs would prevail at trial, establish a range of possible recovery that plaintiffs would realize if they prevailed at trial, and establish the range of possible recovery at which settlement is fair and adequate. In re Corrugated Container Antitrust Litigation, 643 F.2d at 212. Additionally, the district court should take into account the complexity, expense and duration of litigation, the substance and amount of opposition to the settlement, and the stage of proceedings at which the settlement was achieved. Bennett v. Behring Corp., 737 F.2d 982, 986 (11th Cir. 1984). At the same time, however, the district court ought not try the case in the settlement hearings. Cotton, 559 F.2d at 1330. (citation omitted). Moreover, it should not be forgotten that:
[C]ompromise is the essence of a settlement. The trial court should not make a proponent of a proposed settlement "justify each term of settlement against a hypothetical or speculative measure of what concessions might have been gained; inherent in compromise is a yielding of absolutes and an abandoning of highest hopes." Milstein v. Werner, 57 F.R.D. 515, 524-25 (S.D.N.Y. 1972).Cotton, 559 F.2d at 1330. Put another way:
A settlement implicitly means settling for less than all that is sought; it is a reasoned choice of a certainty over a gamble, the certainty being the settlement and the gamble being the risk that comes with going to trial.Reynolds v. King, 790 F. Supp. 1101, 1105 (M.D. Ala. 1990)(citation omitted).
The district court should also rely upon the judgment of experienced counsel for the parties, and hesitate to substitute its own judgment for that of counsel. Id. And finally, the district court should consider the very practical consideration that there is "an overriding public interest in favor of settlement." Cotton, 559 F.2d at 1330-31; Bennett v. Behring Corp., 737 F.2d at 986.
While it must extend to the objectors to the settlement leave to be heard, the district court is not required to open to question and debate every provision of the proposed compromise. Cotton, 559 F.2d at 1331 (citation omitted). Additionally, while the number of objectors is a factor to be considered by the district court, it is not controlling. Id. (settlement can be fair notwithstanding large number of objectors).
Other courts have merely stated the standard for determining whether a proposed settlement should be approved turns upon whether the settlement is "fair, reasonable and adequate." In re Mid-Atlantic Toyota Antitrust Litig., 605 F. Supp 440, 442 (D Md 1984). In the Third Circuit, the leading case establishing the requirements for evaluating a class action settlement are set out in Grisch v. Jepson, 521 F.2d 153 (3d Cir. 1975).
In assessing the adequacy of the proposed settlement, courts have weighed the amount tendered to the plaintiffs against such factors as (1) the relative strength of the plaintiffs case on the merits; (2) the existence of any difficulties of proof or strong defenses the plaintiffs are likely to encounter if the case goes to trial; (3) the anticipated duration and expense of additional litigation; (4) the solvency of the defendants and the likelihood of recovery on a litigated judgment; and (5) the degree of opposition to the settlement. Troncelliti v Minolta Corp., 666 F. Supp 750, 753 (D Md 1987). Taking a similar approach, but using slightly different language, the Ninth Circuit in Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998) stated:
Assessing a settlement proposal requires the district court to balance a number of factors: the strength of the plaintiffs' case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class status throughout the trial; the amount offered in settlement; the extent of discovery completed and the stage of he proceedings; the experience and view of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement. Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Cir. 1993), quoting Officers for Justice, 688 F.2d 615, 625 (9th Cir. 1982). To survive appellate review, the district court must show it explored comprehensively all factors.The Second Circuit has also enunciated a set of criteria to be reviewed in determining the propriety of a settlement proposal:
(1) the complexity, expense and likely duration of the litigation, (2) the reaction of the class to the settlement, (3) the stage of the proceedings and the amount of discovery completed, (4) the risks of establishing liability, (5) the risks of establishing damages, (6) the risks of maintaining the class action through the trial, (7) the ability of the defendants to withstand a greater judgment, (8) the range of reasonableness of the settlement fund in light of the best possible recovery, (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.See City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir.1974)
The factors tending to reveal the fairness of a settlement are those which indicate the presence or absence of collusion among the parties. Because of the danger of counsels compromising a suit for an inadequate amount for the sake of insuring a fee, the court is obligated to ascertain the settlement was reached as a result of good-faith bargaining at arms length. The good faith of the parties is reflected in such factors as the posture of the case at the time settlement is proposed, the extent of discovery that has been conducted, the circumstances surrounding the negotiations and the experience of counsel. See In re Montgomery County Real Estate Antitrust Litigation, 83 F.R.D. 305, 315 (D.Md. 1979). Troncelliti v Minolta Corp., 666 F. Supp 750, 753 (D Md 1987).
On appeal, the scope of review of a challenge to the district court's approval of a class action settlement is limited. An appellate court will reverse a settlement approval only when the district court has committed a "clear abuse of discretion." In re Prudential Ins. Co. of Am. Sales Practice Litig., 148 F.3d 283, 299 (3d Cir. 1998).Back to Top
[§53] Applicability of Res Judicata and Issue Preclusion
If a class is clearly defined and adequately represented, its members are legally bound by settlements or judgments in the action. See In re School Asbestos Litig., 789 F.2d 996, 1005 (3d Cir.), cert denied, 479 U.S. 852, 107 S.Ct 182, 93 L.Ed 2d 117 (1986), and cert denied, 471 U.S. 915, 107 S.Ct 318, 93 L.Ed 2d 291 (1986); see also, George v Baltimore City Public Schools, 117 F.R.D. 368, 371 (D Md 1987). A judgment in a class action has the same res judicata effect as in any federal action. See Ansari v. New York University, 179 F.R.D. 112, 116 (SDNY 1998)(Courts in United States recognize the preclusive effect of properly noticed class action). In the event, however, that there is inadequacy of representation, absent class members may challenge the res judicata effect on due process grounds. See Stacey v. General Electric Capital Auto Lease, Inc., 159 F.3d 266 (7th Cir. 1998).
Judgments in class actions are entered in the same form and have the same effect as judgments in any other civil action. The rule of res judicata is set forth clearly in Commr. v Sunnen, 333 U.S. 591, 597, 68 S.Ct 715, 92 L.Ed 898 and is quoted in Sea-Land Services, Inc. v Gaudet, 414 U.S. 573, 578-79, 94 S.Ct 806, 39 L.Ed 2d 9 (1974):
[R]es judicata applies to repetitious suits involving the same cause of action. It rests upon considerations of economy of judicial time and public policy favoring the establishment of certainty in legal relations. The rule provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound "not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose. The judgment puts an end to the cause of action, which cannot again be brought into litigation between the parties upon any ground whatsoever, absent fraud or some other factor invalidating the judgment. (Citations omitted).It is well settled that under principles of prior adjudication, a judgment in a properly entertained class action is binding on class members in any subsequent litigation. See Conte, Newberg on Class Actions, Third § 16.21 (1992). In Cities for Community Action at the Local Level v Ghezzi, 386 F. Supp 1, 5-6 (WDNY 1974), the court set forth three factors which must be present to support a defense of res judicata or collateral estoppel: (1) Final adjudication on the merits of the prior action; (2) Identical issues in the second action were decided in the prior action; and (3) the parties against whom the defense is asserted must have been parties or in privity with a party to the prior action.
In Twigg v. Sears, Roebuck & Co., 96-3749 (11th Cir. Sept. 4, 1998), www.law.emory.edu/11circuit/sept98/96-3749.man.html the court was called upon to review an order granting summary judgment to Sears on a claim a prior class action for "automotive repair services" precluded a subsequent class action due to issue preclusion. The subsequent class action was based on Sear's allegedly charging for "Accubalance" services on tires when, in fact, the service was allegedly never actually performed. The court noted there are four well-established elements before a claim is barred by issue preclusion: (1) a final judgment on the merits; (2) rendered by a court of competent jurisdiction; (3) identity of the parties; and (4) identity of causes of action. See also, Kemp v. Birmingham News Co., 608 F.2d 1049, 1052 (5th Cir. 1979). Further, a "determination of whether the causes of action in two proceedings are the same is governed by whether the primary right and duty are the same," and claim preclusion applies "not only to the precise legal theory presented in the previous litigation, but to all legal theories and claims arising out of the same operative nucleus of facts." See Manning v. City of Auburn, 953 F.2d 1355, 1358 (11th Cir. 1992). However, before the bar of claim preclusion may be applied to the claim of an absent class member, it must be demonstrated that invocation of the bar is consistent with due process, see, e.g., Johnson v. General Motors Corp., 598 F.2d 432, 435, 437 (5th Cir. 1979), and an absent class member may collaterally attack the prior judgment on the ground that to apply claim preclusion would deny him due process. See, e.g., Silber v. Mahon, 957 F.2d 697, 699-700 (9th Cir. 1992); Gonzales v. Cassidy, 474 F.2d 67, 74-75 (5th Cir. 1973). "Many controversies have raged about the cryptic and abstract words of the Due Process Clause but there can be no doubt that at a minimum they require deprivation of life, liberty or property by adjudication be preceded by notice and an opportunity for hearing appropriate to the nature of the case. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313, 70 S. Ct. 652, 656-57, 94 L. Ed. 865 (1950). Holding that the language of the notice to the class in the prior class action would not have reasonably put Twigg on notice that claims of the type asserted in his lawsuit were intended to be included, the judgment of the district court applying issue preclusion was reversed and the case remanded for further proceedings.
From the foregoing, upon a judgment becoming final, when such judgment is in the context of a properly certified class with adequate representation (which includes adequate notice), res judicata will apply to all participants, named and absent. Class members with claims not raised in the class action, because such claims were unsuitable for class treatment, may bring those claims on an individual basis and res judicata will not bar those claims because absent class members did not have the opportunity to litigate those issues in the prior lawsuit. Sullivan v Chase Inv. Serv., 79 F.R.D. 246, 265 (ND Ca 1978). However, class members may be bound on principles of res judicata to an adverse judgment on any claims asserted or arising from the same operative facts as the earlier proceeding. See Cooper v Fed. Reserve Bank, 467 U.S. 867, 104 S.Ct 2794, 81 L.Ed 2d 718 (1984). Further, as to a judgment entered pursuant to a settlement, class members who do not opt-out may be required to waive individual claims not presented in the class action. Matsushita Elec. Indus. Co. v Epstein, 116 S.Ct 873, 134 L.Ed 2d 6 (1996).Back to Top
[§54] Appeal Rights
Generally, an appeal from a judgment rendered in a class action must be taken by a class member with standing to appeal. Thus, a class member in order to appeal a judgment must first take the requisite steps to object to the proceedings in the district court in a timely manner, and should be advised to intervene and timely assert his objections to preserve appellate rights. Absent intervention, non-named class members may not have standing to appeal. See Shults v Champion Intern. Corp., 35 F3d 1056, 1058 (6th Cir. 1994); In re VMS Ltd. Partnership Sec. Litig., 976 F.2d 362 (7th Cir. 1992).
[§55] Attorney Fee Awards
The Supreme Court has recognized that a "litigant or lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney's fee from the fund as a whole . . . Jurisdiction over the fund involved in the litigation allows a Court to prevent . . . inequity by assessing attorney's fees against the entire fund, thus spreading fees proportionately among those benefited by the suit." Boeing Co. v. Van Gemert, 444 U.S. 472, 478, 62 L. Ed. 2d 676, 100 S. Ct. 745 (1980). The common fund doctrine rests on the assumption that individuals who profit from a lawsuit "without contributing to its costs are unjustly enriched at the successful litigant's expense." Id. at 478. The common fund approach arises in a class action where an attorney fee may be based on a reasonable percentage of the fund created for the benefit of the class members by the efforts of the lawyer involved. The second method used to determine fees is commonly called a "lodestar" method and is derived from a review of the hours spent by the attorney involved and a decision as to what a reasonable hourly fee is for the work performed. Any fees to be awarded in a class action must be approved by the court. Because of the district court's familiarity with the quality of the representation and the extent of the litigation, the decision whether to award fees and the amount of fees awarded are issues generally confined to the sound discretion of the court. Gierlinger v. Gleason, 160 F.3d 858, 876 (2d Cir. 1998).
For general information on class action attorney fee awards, the following sources may be helpful: See e.g., Macey & Miller, The Plaintiffs Attorney Role in Class Action and Derivative Litigation: Economic Analysis and Recommendations for Reform, 58 U Chi L Rev 1, 4, 59-61 (1991) (identifying problems associated with applying the lodestar and recognizing the percentage of recovery method as superior); Coffee, Understanding the Plaintiffs Attorney: The Implications of Economic Theory For Private Enforcement of Law Through Class and Derivative Actions, 86 Colum L Rev 669, 691, 724-25 (1986); Miller, Attorneys Fees in Class Actions, (Federal Judicial Center 1980); Coffee, Rescuing the Private Attorney General: Why the Model of Lawyer As Bounty Hunter is Not Working, 42 Md L Rev 215 (1983); Court Awarded Attorney Fees, Report of the Third Circuit Task Force, Oct 8, 1985 (Arthur R. Miller, Reporter), 108 F.R.D. 237.
In determining the propriety and foundation for an award on a lodestar basis, Lindy Bros. Builders Inc. v Am. Radiator & Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973), is the leading case on the issue and should be reviewed by counsel. See also, Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 478 U.S. 546, 565, 92 L. Ed. 2d 439, 106 S. Ct. 3088 (1986). The party seeking attorney fees has the burden to prove their request for attorney's fees is reasonable." Rode v. Dellarciprete, 892 F.2d 1177, 1183 (3d Cir. 1990). Counsel "must 'submit evidence supporting the hours worked and rates claimed'" to meet this burden. Id. (citing Hensley v. Eckerhart, 461 U.S. 424, 433, 76 L. Ed. 2d 40, 103 S. Ct. 1933 (1983)). The Supreme Court has held that "the most useful starting point for determining the amount of a reasonable fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate." Hensley, 461 U.S. at 433. The product of this calculation is the lodestar, and it "is strongly presumed to yield a reasonable fee." Washington v. Philadelphia County Court of Common Pleas, 89 F.3d 1031 (3d Cir. 1996)(citing City of Burlington v. Dague, 505 U.S. 557, 120 L. Ed. 2d 449, 112 S. Ct. 2638 (1992)).
The "starting point" in determining the appropriate hourly fee is the attorneys' usual billing rate. Public Interest Research Group of N.J., Inc. v. Windall, 51 F.3d 1179, 1185 (3d Cir. 1995). The Supreme Court has directed that the district court should then consider the "prevailing market rates" in the relevant community. Washington, 89 F.3d at 1035 (citing Blum v. Stenson, 465 U.S. 886, 895 n. 11, 79 L. Ed. 2d 891, 104 S. Ct. 1541 (1984)); see also Student P.I.R.G. v. AT & T Bell Laboratories, 842 F.2d 1436 (3d Cir. 1988)(adopting this rule); Pennsylvania Environmental Defense Foundation v. Canoln-McMillian School, 152 F.3d 228, 231-32 (3d Cir. 1998). As the Court explained in Blum, to inform and assist the court in the exercise of its discretion, the burden is on the fee applicant to produce satisfactory evidence-- in addition to the attorney's own affidavits-- that the requested rates are in line with those prevailing in the community for similar services by lawyers of reasonably comparable skill. Id.
The percentage of the fund method has been endorsed or utilized for fee awards in several circuits. See e.g., Edmonds v United States, 658 F. Supp. 1126, 1144 (DSC 1987) (noting the percentage-of-the-fund method is the preferable approach to determine a reasonable fee in a common fund case); In re Ross Cosmetics Sec. Litig., Case No. 7-92-1706-3 (DSC) (Spartanburg Division) (30% award in securities law violations class action); Elmore v Cone Mills Corp., et al., CA No. 6:88-3258-17 (DSC) (Greenville Division) (common fund percentage fee award of 25%). Although no strict rule dictates the reasonable percentage a court should award class counsel, In re Smithkline Beckman Corp. Sec. Litig., 751 F. Supp. 525, 533 (E.D. Pa. 1990), noted that Courts have allowed attorney compensation ranging from 19 to 45% of the settlement fund. In general, to avoid windfalls, the percentage of recovery should "decrease as the size of the fund increases." Court Awarded Attorney Fees: Report of the Third Circuit Task Force (1985), reprinted 108 F.R.D. 237, 256.
In general, courts may look at the following factors derived from Johnson v Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974), in considering a fee petition: (1) the time and labor required; (2) the novelty and difficulty of the questions involved; (3) the skill requisite to perform the legal service properly; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the "undesirability" of the case; (11) the nature and the length of the professional relationship with the client; and (12) awards in similar cases. See also Camden I Condominium Assn. v Dunkle, 946 F.2d 768, 774 (11th Cir. 1991); accord Mashburn v National Healthcare, Inc., 684 F. Supp 679 (MD Ala 1988); Edmonds v United States, 658 F. Supp 1126, 1144 (DSC 1987). See Also Ressler v. Jacobson, 149 F.R.D. 651 (M.D. Fla. 1992); In re Ampicillin Antitrust Litigation, 81 F.R.D. 395 (D.C. 1978); In re Domestic Air Transportation Antitrust Litigation, 148 F.R.D. 297 (N.D. Ga. 1993); In re Prudential Ins. Co. of Am. Sales Practice Litig., 148 F.3d 283, 336-40 (3d Cir. 1998); In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 819-22 (3d Cir. 1995); MANUAL FOR COMPLEX LITIGATION (THIRD) § 24.121, at 207 (1995).
The law applicable to the award of attorneys fees throughout the United States is subject to some variation according to the Circuit in which the award is made. In 1984, in Blum v. Stenson, 465 U.S. 886, 900 n.16, 104 S. Ct. 1541, 79 L. Ed. 2d 891 (1984) the Supreme Court stated that "under the 'common fund doctrine,' . . . a reasonable fee is based on a percentage of the fund bestowed on the class." This statement provided a basis for a renewed application of the percentage of the fund method. A year later, the Third Circuit, which had been a strong voice for the lodestar method, see Lindy, 487 F.2d at 167, commissioned a task force of leading bar and judiciary members to review the matter. See Third Circuit Task Force, Court Awarded Attorney Fees, 108 F.R.D. 237 (1985). The Task Force urged a return to the percentage method in common fund cases, see id. at 258. That recommendation was ultimatley followed by the Third Circuit, albeit a decade later, see In re General Motors Corp. Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 821-22 (3d Cir. 1995).
Since Blum, six other circuits have held that district courts enjoy the discretion to use either the lodestar or the percentage method in awarding attorney fees. See Johnston v. Comerica Mortgage Corp., 83 F.3d 241, 244-46 (8th Cir. 1996); In re Thirteen Appeals Arising Out Of The San Juan Dupont Plaza Hotel Fire Litig., 56 F.3d 295, 305 (1st Cir. 1995); Rawlings v. Prudential-Bache Properties, Inc., 9 F.3d 513, 516 (6th Cir. 1993); Harman v. Lyphomed, Inc., 945 F.2d 969, 975 (7th Cir. 1991); Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d 268, 272 (9th Cir. 1989); Brown v. Phillips Petroleum Co., 838 F.2d 451, 454 (10th Cir. 1988); but see Longden v. Sunderman, 979 F.2d 1095, 1099 n.9 (5th Cir. 1992). The Second Circuit has also recognized that Blum indicates that "the percentage-of-the-fund method is a viable alternative," Savoie v. Merchants Bank, 166 F.3d 456, 460 (2d Cir. 1999). And although the Second Circuit was prior to 2000 a "lodestar" Circuit, the Court of Appeals did not meddle with the numerous district courts in that Circuit who chose the percentage method. See, e.g., Gwozdzinsky v. Sandler Assoc., 1997 U.S. Dist. LEXIS 23710, No. 95 Civ. 1400 (SHS) (S.D.N.Y. Feb. 11, 1997) (awarding fees on a percentage basis), aff'd 159 F.3d 1346 (2d Cir. 1998) (Table); see also In re Nasdaq Market-Makers Antitrust Litig., 187 F.R.D. 465, 484-85 (S.D.N.Y. 1998) (collecting cases).
In contrast to those Circuits which permit both lodestar and percentage awards, the District of Columbia and the Eleventh Circuit mandate the exclusive use of the percentage of the fund approach in common fund cases. See Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1271 ( D.C. Cir. 1993); Camden I Condominium Ass'n v. Dunkle, 946 F.2d 768, 774 (11th Cir. 1991).Back to Top
[§56] Distribution of Damages Awarded After Judgment
Distribution of any funds obtained for the benefit of the class must be made pursuant to court order. In a voluntary class settlement pursuant to Rule 23(b)(3), a formula for calculating the amount and an administrative procedure for disbursing funds may be developed and described in the class action notice. Thus, in a settlement class, the absent class members have the benefit of knowing both the amount and method by which they will receive compensation.
In a litigation context, if damages to individual class members may be calculated by simple mathematical means, the court may order that payment be made to class members by utilizing such a formula. See Windham v American Brands, Inc., 565 F.2d 59, 68 n 22 (4th Cir. 1997). For instance, if a fraud involved the sale of stock, payment could be ordered by a formula utilizing the number of shares and price paid for share.
In the a personal injury case, however, calculation of individual class members damages may not be possible on a class-wide basis. In such instances, a trial on common issues, including liability, may be necessary, followed by individual "mini-trials" on causation and damages. See Sala v Natl. R.R. Passenger Corp., 120 F.R.D. 494 (ED Pa 1988).