Opinion
4:18-CV-00509-BRW
2020-04-13
Anthony VINES and Dominique Lewis, Individually and on Behalf of All Others Similarly Situated, Plaintiffs v. WELSPUN PIPES, INC., et al., Defendants
Daniel D. Ford, Joshua Sanford, Sanford Law Firm PLLC, Little Rock, AR, for Plaintiffs. Gregory James Northen, J. Bruce Cross, Cross, Gunter, Witherspoon & Galchus, P.C., Little Rock, AR, for Defendants Welspun Pipes Inc., Welspun Tubular LLC. J. Bruce Cross, Cross, Gunter, Witherspoon & Galchus, P.C., Little Rock, AR, for Defendant Welspun USA Inc.
Daniel D. Ford, Joshua Sanford, Sanford Law Firm PLLC, Little Rock, AR, for Plaintiffs.
Gregory James Northen, J. Bruce Cross, Cross, Gunter, Witherspoon & Galchus, P.C., Little Rock, AR, for Defendants Welspun Pipes Inc., Welspun Tubular LLC.
J. Bruce Cross, Cross, Gunter, Witherspoon & Galchus, P.C., Little Rock, AR, for Defendant Welspun USA Inc.
ORDER
Billy Roy Wilson, UNITED STATES DISTRICT JUDGE
The Joint Motion to Approve Settlement and Issuance of Notice (Doc. No. 81) is DENIED, without prejudice.
I. BACKGROUND
The parties first sought approval of the settlement of this run-of-the-mill FLSA collective-action case last September. Upon denying the motion, I informed the parties that "[t]o properly consider the fairness of the settlement to the ‘First Opt-In Class’ (one where the attorneys' fees are $89,000 and the amount going to an undisclosed number of Plaintiffs is $211,666.36), I need to see Plaintiffs' lawyers' billing records." Accordingly, I directed Plaintiffs' lawyers to provide three things: (1) a break-down of both the First and Second Opt-In Classes; (2) billing records for the entire litigation; and (3) an example of the contingency fee agreements with individuals in both opt-in classes. The parties filed a second motion on March 19, 2020, but complied with only point (1) above. I denied the motion. A third motion is now pending, which includes the requested documents.
Doc. No. 59.
Doc. No. 60.
I use lawyer rather than counsel or attorney, unless I am quoting something.
Doc. No. 79.
Doc. No. 80.
Doc. No. 81.
II. DISCUSSION
The Fair Labor Standards Act allows for reasonable lawyers' fees upon successful litigation of the claim. Congress included the fee-shifting language so citizens would have access to the courts to enforce their federal rights. While that concept is good in theory, it has become apparent that, in practice, lawyers' fees are the driving-force in many FLSA cases. This case presents the problem perfectly.
29 U.S.C.A. § 216 ("The court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney's fee to be paid by the defendant, and costs of the action.").
Morales v. Farmland Foods, Inc. , No. 8:08CV504, 2013 WL 1704722, *5 (D. Neb. April 18, 2013) (holding that the "purpose of the FLSA attorney's fee provision is to insure effective access to the judicial process," and "encourage the vindication of congressionally identified policies and rights").
See Jones v. RK Enterprises of Blytheville, Inc. , No. 3:13-CV-00252-BRW, 2016 WL 1091094, at *6 (E.D. Ark. Mar. 21, 2016), aff'd, 672 F. App'x 613 (8th Cir. 2016) ("The fact that a case involves fee shifting does not open the door to unwarranted billing that would otherwise never be incurred. Additionally, a lawyer is still required to do a cost-benefit analysis when considering whether to proceed to trial or settle a case, just as lawyer in a non-fee-shifting case would."); Goss v. Killian Oaks House of Learning , 248 F. Supp. 2d 1162, 1168 (S.D. Fla. 2003) (holding that "an entitlement to attorney's fees cannot be a carte blanche license for Plaintiffs to outrageously and in bad faith run up attorney fees without any threat of sanction" after finding that the plaintiff "leveraged a small sum as a stepping-stone to a disproportionately large award of attorney's fees").
Plaintiffs' lawyers even recognize the problem here. They candidly admit that, in their estimation, the total lawyers' fees, as of March 27, 2020, was $47,502.66. Yet, they somehow convinced Defendants to agree to pay $96,000 for fees in the proposed settlement. To justify this doubled amount, Plaintiffs' lawyers assert that billing would have been well over $96,000 if the case proceeded to trial. This may be true. However, if damages and lawyers' fees were actually negotiated separately, the cost of additional discovery or trial would not have been part of Defendants' calculation, because the future-costs concern was resolved when the parties settled the liability damages.
Doc. No. 81. Even this amount is inflated. Hourly Rates – Some time in May 2019, Mr. Josh Sanford's hourly rate increased from $225/hr to $325/hr – an unexplained increase of 30%. Additionally, Mr. Sanford's request for a $325/hr rate has repeatedly been rejected by judges in both the Eastern and Western Districts of Arkansas. Aubrey v. Zaman, LLC. , No. 4:17-CV-00446-JLH (E.D. Ark. Nov. 29, 2019) (granting $275/hr rather than the requested $325/hr); Wolfe v. Arafa , No. 5:17-CV-00245-DPM (E.D. Ark. Aug. 8. 2019) (same); Franklin v. Magnolia Flooring Mill, LLC , No. 1:17-CV-01073, 2019 WL 2427952, at *4 (W.D. Ark. June 10, 2019) (holding that an hourly rate of $325 for Mr. Sanford was too high); Perez v. Mian Enterprises, Inc. , No. 2:17-CV-02162, 2018 WL 10394810, at *2 (W.D. Ark. Oct. 26, 2018) (allowing $275/hr rather than the requested $325/hr). Excessive Billing – The billing also included a lot of nickel-and-diming hours for overstaffing, double-billing, and non-stop, intraoffice "conferences" between lawyers – practices for which Plaintiffs' counsel has repeatedly been criticized. West v. Zedric's LLC , No. SA-19-CV-00556-FB, 2019 WL 6522828, at *6 (W.D. Tex. Dec. 3, 2019) ("Plaintiff's counsel assigned five lawyers to work on this case at various times, and this led to inefficiencies and duplication of work. Plaintiff's counsel has been warned about this type of duplicative billing in the past."); Furlow v. Bullzeye Oilfield Servs., LLC , No. SA-15-CV-1156-DAE, 2019 WL 1313470, at *7 (W.D. Tex. Jan. 3, 2019) (holding that "fifteen time keepers on a single case resulted in many charges for intraoffice conferences to discuss various assignments"); Pierce v. Big River Steel LLC , No. 3:17-CV-63-DPM, 2017 WL 5709905, at *2 (E.D. Ark. Nov. 13, 2017), vacated in part sub nom. Barbee v. Big River Steel, LLC , 927 F.3d 1024 (8th Cir. 2019) ("Four main lawyers, with assists from five more, strikes the Court as too many hands."); Burchell v. Green Cab Co., Inc. , No. 5:15-CV-05076, 2016 WL 894825, at *3 (W.D. Ark. Mar. 8, 2016) (holding that "time spent on intra-firm communications was unnecessary and excessive" and noting that much of the communication was "oversight" and "education" of a new lawyer. Also finding that there was double-billing.); Davis v. Klenk , No. 3:12-CV-115-DPM, 2012 WL 5818158, at *2 (E.D. Ark. Nov. 15, 2012) ("Involving two lawyers also ran the bill up some with needless coordination"). Costs – Plaintiffs' lawyers claim $3,512.87 in costs, but I saw no documentation to support this total.
Doc. No. 81.
In Barbee v. Big River Steel, LLC. The Court of Appeals for the Eighth Circuit has held that parties must "negotiate the reasonable fee amount separately and without regard to the plaintiff's FLSA claim ...." I must "ensure the attorney fees were in fact negotiated separately and without regard to the plaintiff's FLSA claim, and there was no conflict of interest between the attorney and his or her client." As is common, the Joint Motion to Approve provides: "Attorneys' fees in this case were negotiated entirely separately from any negotiation of Plaintiffs' and opt-in Plaintiffs' settlement amount ...." This statement is contradicted by the record.
Barbee v. Big River Steel, LLC , 927 F.3d 1024, 1027 (8th Cir. 2019).
Id. at n.2.
Doc. No. 81 (emphasis in original).
First, Plaintiffs' lawyers' June 25, 2019 email, sent five days after the Barbee decision was issued (they were lawyers-of-record in Barbee ), reads: "Our present demand is for $450,000.00. This total is comprised of $211,666.36 in compensatory damages, an equal amount in liquidated damages, and attorneys' fees and costs." Defendants' counteroffer was $126,000, which was based on "one-half the amounts to each plaintiff" in the payroll summary, lawyers' fees, and representation payments to two named plaintiffs. The parties clearly were not separately negotiating damages and lawyers' fees, despite the claim above.
Doc. No. 82-1.
Id
Second, the agreement on liability damages obviously is contingent on the amount of lawyers' fees Defendants are willing to pay Plaintiffs. This practice is expressly prohibited by Barbee. From the beginning, both liability damages and lawyers' fees were simultaneously discussed during negotiations. In later emails the parties listed the damages and lawyers' fees amounts separately, but this practice does not negate the fact that an agreement on both liability damages and lawyers' fees was required before Plaintiffs' lawyers would agree to finalize settlement of the liability damages.
On August 7, 2019, Defendants offered to pay 50% of the alleged damages, an equal amount of liquidated damages, and lawyers' fees of $25,000. In the discussions that followed, the only amounts that ever changed were the offers and demands for lawyers' fees. Defendants offered to pay lawyers' fees of $25,000 (August 7); $45,000 (August 14); and $84,000 (August 19). Plaintiffs' lawyers demanded $115,000 in fees (August 15). The settlement package Plaintiffs' lawyers finally agreed to includes $96,000 in fees.
Id.
Id.
Id.
Doc. No. 81-1.
Based on the record, the parties agreed on the liability damages no later than August 15, 2019, when Plaintiffs responded:
Once again, we have no issue with structure, and our counteroffer is as follows:
50% + liquidation of current opt-ins {approximately $210k} $115k in attorneys fees.
No change in the terms relating to the second-notice opt-ins, we accept your parameters (sic) there.
Doc. No. 82-1.
Yet, the liability damages settlement was not final, because acceptance of Defendants' liability damages offer obviously was contingent on Plaintiffs' lawyers getting more fees than Defendants previously offered. Even more troubling is that during the two months of negotiations, Plaintiffs' lawyers' fees demand went from $26,667.28 to $115,000; yet, the billing records show less than $4,000 of additional work on behalf of their clients. This is absurd.
June 25 to August 15, 2019.
This assumes that lawyers' fees would be the money remaining from the $450,000 demand. However, Plaintiffs' lawyers could have stayed with the contingency fee agreements, netting $180,000. I would note that I believe the 40% contingency fee in this case is excessive.
Doc. No. 81-4.
Third, Plaintiffs' lawyers admit that liability damages and fees were intertwined:
While the total amount of billing to date was a factor in the Parties' separate negotiation of attorneys' fees, the primary factor considered was instead the likely total amount of billing should a case with more than 250 plaintiffs and opt-in plaintiffs proceed through extensive discovery, pre-trial, and trial.
Doc. No. 81.
I agree – why else would Defendants agree to pay Plaintiffs' lawyers fees that are nearly double the amount supported by the billing records (and even that amount is exaggerated, as noted in footnote 10)? Plaintiffs' lawyers' admission makes my point: liability damages and lawyers' fees were not negotiated separately. Had they been negotiated separately, Defendants would not have been worried about additional lawyers' fees exposure from discovery or trial, because they would have known there was not going to be additional discovery or trial. Furthermore, reasonable lawyers' fees are those reasonably expended in advancing the litigation, not those avoided because of settlement.
Fourth, Plaintiffs' lawyers' email exposes what is really going on here:
While I understand the reticence on your client's part regarding the attorneys' fees number, I think focusing on the global offer should give them some comfort that they are getting a substantial discount on total liability + fees (which is upwards of $450k) that they could face should this go to trial....
Doc. No. 82-1.
Because liability damages and lawyers' fees were negotiated simultaneously, Plaintiffs' counsel could invoke the threat of additional fees "should this go to trial" to pressure Defendants to pay lawyers' fees that are unreasonable. This is not the intent of the fee-shifting language and is contrary to Eighth Circuit law. The practice is patently inappropriate, and why is it not unethical?
Barbee , 927 F.3d at 1027 (holding that FLSA claim damages and lawyers' fees must be negotiated separately).
Defendants provided Plaintiffs with a payroll summary and damages calculation. Plaintiffs responded with a settlement demand based on that information. The parties agreed to liability damages quickly, but Plaintiffs' lawyers continued to demand more for fees. Based on the record, Plaintiffs' lawyers forced Defendants to pay a premium on lawyers' fees because, if they did not, Plaintiffs' lawyers would reject the liability damages offer, proceed to trial, and eventually demand even more fees. Essentially, Plaintiffs' lawyers knew the hand they were dealt – because Defendants had provided them with payroll summaries and calculations – and used that to squeeze excessive fees from Defendants before agreeing to settle. Even worse, Plaintiffs' lawyers admitted that they never performed the work that potentially would have supported the additional fees demand. This is exactly why FLSA liability damages and lawyers' fees must be negotiated separately.
Plaintiffs' lawyers "anticipate[ ] substantial additional billing during the course of administering the final settlement payouts." (Doc. No. 81). However, I doubt "substantial additional billing" is necessary, if the billing is reasonable. It certainly would not be double the billing that has been performed to date. In fact, $10,000 more in billing is probably generous.
When settling FLSA cases, the lawyers' fees must be an afterthought, not the primary focus. Discussions of lawyers' fees before the liability damages are finalized creates an uneven playing field (or at least the appearance of one), allowing the employees' lawyers to leverage an advantage to obtain a windfall in lawyers' fees, because the defendant is faced with the threat of the cost of continued litigation. It is apparent that this happened here.
If it were not for the mandatory language of the statute, and the Eighth Circuit's Barbee opinion, I would deny Plaintiffs' lawyers any fees, out-of-hand.
It seems to me that it would be better if the statute read "shall ... allow a reasonable attorney's fee to be paid by the defendant, and costs of the action," absent unusual circumstances, etc.
Repeatedly dealing with these issues has caused me to begin to sympathize with Lord Randall.
"For I'm weary wi' hunting, and fain wald lie down."
CONCLUSION
Based on the findings of fact and conclusions of law above, the Joint Motion to Approve Settlement and Issuance of Notice (Doc. No. 81) is DENIED, without prejudice.
When the parties return to the negotiating table, they are reminded that the settlement agreement provides that they will "attempt to negotiate in good faith in order to modify the Agreement in a form acceptable to both the Parties and the Court." Accordingly, any retreat from the liability damages the lawyers previously agreed upon would be viewed with a jaundiced eye.
Doc. No. 81-1.
IT IS SO ORDERED this 13th day of April, 2020.