Conscientious Objector

The American Lawyer writes a profile on Center for Class Action Fairness' Ted Frank and his efforts to fight for settlements that benefit class members.

A settlement “in which the class unambiguously is the main beneficiary” is okay, he says: “I don’t oppose plaintiffs attorneys recovering legal fees, but their recovery should be proportional to what they’ve achieved for the class.” Frank adds, “The fundamental problem in class action settlements is a conflict of interest between class counsel and their clients.” The court approval process for approving settlements—and the legal test for determining a settlement’s fairness—“doesn’t always adequately scrutinize the nature of that conflict,” he says.

Frank’s challenges have helped create the precedents that he says didn’t exist before. His first big win came in 2011, when the U.S. Court of Appeals for the Ninth Circuit rejected a settlement of claims over Bluetooth headsets that would have given $850,000 to the plaintiffs lawyers and $100,000 in cy pres awards to nonprofit groups working on hearing loss—but nothing to class members. “The Bluetooth decision was important because that very much established that it wasn’t enough to simply count up factors, that you had to look at whether the attorneys were self-dealing,”Frank says.

Frank has continued to object to cy pres awards, which are usually charitable donations paid from unclaimed settlement funds. On February 19 a panel of the U.S. Court of Appeals for the Third Circuit rejected a proposed $35.5 million settlement of an antitrust class action against manufacturers of baby products, largely because $18.5 million would have been given in cy pres awards to charities. (In the suit, plaintiffs firms had accused Toys “R” Us and Babies “R” Us of coercing manufacturers to inflate prices for car seats, strollers, and other high-end baby products.) According to Frank, the Third Circuit ruling was important “because it explicitly made the point that what the class actually recovered was a relevant part of the settlement inquiry, and there were a lot of judges who were simply ignoring that part of the equation.”

The biggest target of Frank’s ire, however, are settlements that award what he sees as excessive legal fees to the plaintiffs attorneys. He’s currently challenging the proposed $590 million settlement of a class action brought in 2008 on behalf of Citigroup Inc. shareholders who accused the financial giant of misleading investors about the risks of its derivative business. Lead plaintiffs counsel firm Kirby McInerney has filed a request on behalf of all of the plaintiffs firms in the case that seeks $100 million in fees for 87,000 hours of work. The firm assumed a market rate of $350–$500 per hour, which rose to almost $1,000 per hour after it applied a 1.89 lodestar multiplier.

Read the full article at The American Lawyer.