A district court is supposed to assume the role of fiduciary for class plaintiffs when awarding attorneys' fees from a common fund. Since there is an inherent conflict of interests when plaintiffs' lawyers are simultaneously negotiating for the class and their own fees, courts have the power (and obligation) to reject excessive and unreasonable fees.
Unfortunately, lawyers often negotiate agreements where defendants agree not to object to their fee requests and judges, who have an incentive to close the case so they can get it off their docket, often just rubber stamp a fee application.
In a rather unusual case, Toyota recently challenged the $1.7 million fee request from five law firms in the Prius Class Action. U.S. District Judge Manuel Real carefully reviewed the fee application and ruled “[t]he amount of fees is unreasonable high, if not on the cusp of being an outrageously unreasonable fee." He reduced the fee by almost $1 million. The lawyers' winning appeal from the Ninth Circuit Court of Appeals required the judge to calculate the fee based on the “lodestar” (i.e., reasonable hours with a reduction for any excessive, duplicative or unreasonable time multiplied by a reasonable rate).
A detailed review of the billing records revealed issues that make Mr. Victor's allegations of overbilling by DL Piper and the now infamous “Churn that bill, baby” email look tame. Toyota claims that unreasonable billing issues include:
- Lawyers billed 520 hours ($228,686) for negotiating the settlement. That amount could be run up by lawyers working 10.8 hours/day, seven days/week over 48 consecutive days.
- Even though the judge allowed all of the parties only five minutes for their arguments in connection with a motion to transfer, a Cohen Milstein associate billed the class members 72 hours to prepare and appear at a hearing on that motion.
- After the settlement had been reached and all adversarial litigation had ended, the lawyers billed an additional 575 hours at $477 an hour. Toyota accused the lawyers of running up excessive bills knowing they would lose their chance to continue billing once the settlement had been approved.
This case was heard on April 7 and the disposition has not yet been made public. If Toyota's allegations of class counsel knowingly running up the bill with no attendant benefit to the class are true, Judge Real should not only significantly reduce the fees but should consider the disallowance of the fees in their entirety, for which there is precedent given the egregious nature of the invoices.