Opinion
CAUSE NO. EV 95-128-C H/L
August 14, 2003
ENTRY ON ATTORNEY FEE AWARD
This action has been resolved by settlement, but the issue of attorney fees for the plaintiff class counsel remains for decision. During a hearing on March 6, 2003, the court certified the plaintiff class and approved the parties' class action settlement agreement. Under the terms of the settlement, distributions of cash and other benefits to class members could go forward before the fee issue was decided. The court reserved a final decision on the fee request. After the hearing, class counsel supplemented their arguments in favor of an award of the maximum $470,000 allowed under the settlement agreement. As explained below, the court finds that the maximum reasonable award for fees and costs here is $278,448, which is approximately equal to the net value of the settlement to the class members themselves.
I. Background
In 1995, a case entitled Folkerts v. Illinois Bell Telephone Co., No. 95-L-912 was filed in the Illinois state court in Madison County. The Folkerts plaintiffs were Illinois Bell customers who alleged that Illinois Bell had engaged in unfair and deceptive practices in marketing its inside wire maintenance service ("IWMS"). The parties in Folkerts reached a class settlement in November 1997. At that time, similar lawsuits were then pending in Indiana, Michigan, and Ohio against other Ameritech subsidiaries.
On November 10, 1997, the same day that the parties in Folkerts presented their proposed settlement to the Circuit Court of Madison County, Illinois, the attorneys who represented the Folkerts class also filed in the same court a complaint entitled Todt v. Ameritech Corp., No. 97-L-1020, and a proposed class settlement in that case. See Todt v. Ameritech Corp., 763 N.E.2d 389, 391-92 (Ill.App. 2002) (affirming approval of class settlement and describing background of litigation). The Todt case brought similar claims on behalf of a proposed class of telephone customers in the Illinois state courts against Ameritech's subsidiaries in Indiana, Michigan, Ohio, and Wisconsin. Thus, the Todt case essentially tried to supersede the other lawsuits pending in those states, where the customers and the specific Ameritech subsidiaries were located. Two days after Todt was filed, the Madison Circuit Court gave preliminary approval to the proposed settlement and ordered notice to the class.
This action was one of those cases in other states that Todt sought to supersede. It had been filed in June 1995 on behalf of a similar class of Indiana telephone customers, with Dennis Brinkmeyer as the original lead plaintiff. With the apparent consent of the parties, and under several different district judges, the case stayed dormant until the Todt case proceeded toward settlement. Plaintiff Susan Sloop then sought to become the class representative here, with the consent of the earlier named plaintiffs, and with new attorneys. In the late summer of 1998, a flurry of motions and briefing occurred as Sloop and her attorneys sought to use this case to block the Todt settlement in Illinois, at least as it applied to Indiana customers in the proposed plaintiff class. By entry of September 30, 1998, this court allowed Sloop to file her amended complaint substituting her as the class representative, denied her motion to enjoin proceedings in the Illinois state courts, and then stayed this action as an exercise of Colorado River abstention pending developments in the Illinois courts.
Attorneys and other Indiana customers working with Sloop and her attorneys intervened in the Illinois courts to object to the settlement in the Todt case. They viewed the proposed settlement as unfair, inadequate, and collusive. For example, the settlement of the Folkerts case provided $28.5 million in cash for the class of Illinois customers, plus a variety of other benefits. The Todt settlements, by contrast, did not provide any cash to class members in Indiana, Michigan, Ohio, or Wisconsin, but provided for up to $1.9 million in cash in additional fees for the attorneys representing both the Folkerts and Todt classes. See Def. Br. at 11-13 (Docket No. 204); Todt, 763 N.E.2d at 395 (summarizing terms of Todt settlement).
The parties in Todt presented an estimate of the settlement value for the Indiana, Michigan, Ohio, and Wisconsin class members of more than $200 million. 763 N.E.2d at 395. Of that value, however, only $1.9 million was cash, and all of that was for attorney fees and expenses. The rest of the value estimate consisted of various discounts for telephone services and claimed improvements in service.
The objections to the Todt settlement were not successful. The Illinois trial court approved the Todt settlement, and the Illinois Appellate Court affirmed. Todt v. Ameritech Corp., 763 N.E.2d 389 (Ill.App. 2002). The Illinois Supreme Court denied discretionary review on May 30, 2002. 775 N.E.2d 10 (Ill. 2002).
Out of approximately 3.7 million Indiana class members in the Todt case, 1,420 opted out of the class action and settlement in Todt. Those customers' potential claims against Ameritech therefore were not resolved in Todt. This action then came back to life as a putative class action consisting of a class of the Indiana customers who had opted out of the Todt class. Sloop's attorneys and Ameritech's attorneys began negotiating a settlement. The parties submitted a proposed settlement to this court, which gave preliminary approval on November 6, 2002, to allow notice to the class, an opt-out period, and an opportunity to object to the settlement. No members objected to the proposed settlement, which the court approved on March 6, 2003, leaving the question of a fee award for later resolution.
II. The Terms of the Settlement
Under the terms of the settlement in this action, members of the Sloop class action may receive the following benefits, which are substantially greater per person than the rather meager benefits of the Todt settlement:
A. Cash Benefits
Unlike the Todt settlement, the settlement in this case provides for cash payments to class members. The maximum payment is $316 for members who had IWMS service for three years or more and never used a repair. Members who had IWMS service for three years or more but who used the repair service may be paid $196. Class members who had IWMS for less than three years and who never used a repair may be paid $175. Class members who had IWMS for less than three years and who used the repair service may be paid $55. Class members for whom Ameritech does not have records showing they ever signed up for IWMS may claim $30 if they certify that they had IWMS for at least a year.
The settlement also provides that named class representative Sloop shall be paid $10,000, and that Kennedy and Brunetti, who intervened in Todt to object to the class settlement, be paid $5,000 each. The court approved the overall settlement, noting that Seventh Circuit precedent exposes a named class representative to liability for costs, on top of the commitment of time and energy that may be needed to represent the class. E.g., White v. Sundstrand Corp., 256 F.3d 580, 586 (7th Cir. 2001).
B. The Todt Benefits
Sloop and the other class members here are also receiving all the benefits that were available to Indiana members of the Todt class. These include: (a) pre-paid cards with a face value of $15.00 that can be used in Ameritech pay telephones to make local or local toll calls (intraLATA, in telephonese); (b) nine "pay per use" activations (such as three-way calling, automatic callback, or repeat dialing), one per month for nine consecutive months; and (c) the opportunity to receive replacement of non-standard inside telephone wires at a 50 percent discount off of Ameritech's standard rates for five years. The Sloop class members also receive the benefit of certain changes in training and supervision of Ameritech employees. Also, Ameritech has eliminated the "Non-Standard Wire" exclusion from its IWMS plans.
C. Additional Notices from Ameritech
Ameritech agreed to send two additional notices to all Indiana IWMS customers reminding them that the service is optional and may be canceled at any time.D. Administrative Costs
As part of the settlement, Ameritech agreed to administer the costs of class notices, the processing of class responses, and the costs of distributing the benefits to the class. These services would typically be performed by or at the expense of plaintiffs' counsel. The parties have not provided any estimate for the cost or value of these services.
E. Attorney Fees
The Sloop settlement provides that Ameritech will pay to class counsel no more than $470,000 for fees and costs, but any fee request is subject to the court's approval. The parties agree that the fee provision of the settlement was negotiated after agreement was reached on all the other issues.
III. The Fee Request
Class counsel have requested the maximum amount allowed under the settlement agreement, $470,000. They assert that the fees will be shared with two other groups of attorneys. The first group represented the Kennedy and Brunetti intervenors in the Todt action for four years in the Illinois courts. The second group of attorneys represented the original named plaintiffs (Brinkmeyer and others) in this action from 1995 to 1998.At the hearing on approval of the settlement, class counsel argued that the requested fee of $470,000 was reasonable because of the overall benefits the settlement provided to the class. The original submissions made no effort to identify the hours reasonably worked or the reasonable hourly rates for any of the attorneys involved. After the court questioned the actual value of the settlement for the Sloop class, at least in comparison to a fee request of $470,000, class counsel shifted gears. After the hearing, they submitted billing information and argued that the request was justified under the so-called lodestar method familiar to all federal courts under fee-shifting statutes like 42 U.S.C. § 1988. See Hensley v. Eckerhart, 461 U.S. 424, 433-37 (1983).
A. Settlement Value to the Class
Under class counsel's original theory for supporting the fee award, the requested amount of $470,000 is substantially greater than a reasonable amount. The parties' papers have sought to attribute the greatest possible value to the settlement. Their efforts have, in the court's view, substantially exaggerated that value.Beginning with the cash benefits, which are the most important component, the $430,000 amount is the maximum that Ameritech agreed to pay. That number substantially exaggerates the actual benefit to the class and does not provide a reliable benchmark for determining a reasonable fee. The parties could not have expected at the time the settlement was negotiated that Ameritech would pay anything close to that amount. To predict that $430,000 would actually be paid, one would have to make the heroic assumptions that nearly all 1,420 members of the class would file claims and would be entitled to the maximum payment of $316 each. As shown below, at least for purposes of deciding a reasonable fee for class counsel, the law justifies the assumption that all class members would file claims for money available to them. But the second assumption using the maximum payment of $316 for each claimant is not justified on the facts of this case.
The class notices that were sent to the Sloop class members stated the amount that each class member would be entitled to receive based upon Ameritech's records of the duration of the customer's IWMS service and whether the customer used repair services. Some class members were told they would receive $316, but many were told they would receive $196, $175, $55, or only $30. Any class member who disagreed with those calculations had the right to present evidence along with the claim form. Apart from that wrinkle, though, as far as Ameritech and class counsel were concerned, each class member had a right to at least "an undisputed and mathematically ascertainable" sum. That phrase is from Boeing Co. v. Van Gemert, 444 U.S. 472, 479 (1980), which held that an attorney fee in a common-fund class action award should be based on the total amount available to class members for the asking, regardless of whether the entire sum was actually claimed by class members. Based on Boeing, the court is not discounting the value of the settlement to class members on the ground that not all class members filed claims.
This case is a little different from Boeing in two respects, but neither affects the application of the principle that the fee should be based on the amount available to the class rather than the amount actually claimed. The first difference is that the common fund in Boeing was one from which the fee award would be subtracted. In this case, by contrast, the settlement agreement separates the payments to the class from payments to class counsel. Nevertheless, as in a pure common fund case, the court is still concerned with the proportion between the net benefits to the class and the fee for class counsel as an important factor in considering the reasonableness of any fee award, especially where class counsel have attempted to support their fee request based on the benefits to the class. The second difference is that the Sloop class members have the opportunity to seek more than the calculated amounts set forth in the class notices. There is no information before the court about whether any class members used that opportunity or what additional amounts they recovered.
Under these circumstances, the relevant number for evaluating cash benefits to the class members is the total of the individual calculations for all Sloop class members, whether they made claims or not, and whether they opted out or not. Boeing establishes that class members' failures to make claims should not diminish the fee. But the individual calculations are the amounts that were, under the reasoning of Boeing, available to class members upon proof of nothing more than identity. See 444 U.S. at 479-80. Those are the amounts that measure the benefit the attorneys earned for the class, not the theoretical cap that might be paid if nearly all class members qualified for the maximum payment.
The sum of the individual calculations was not included in the written submissions by the parties. The court conferred by telephone with counsel for each side (Mr. Price for plaintiffs and Mr. Ellis for defendants) in early August 2003 and asked the parties to provide the court that sum of the individual calculations. On August 11, 2003, the parties informed the court that the sum of the individual calculations was $220,297.
To that number must be added $20,000, consisting of $10,000 cash to Sloop and $5,000 each to Kennedy and Brunetti, for a total of $240,297 in cash benefits that were available to class members for the asking.
The non-cash benefits to Sloop class members that were also provided to the Todt class are more difficult to value. Ameritech has estimated that the prepaid phone cards are worth $21,300. Def. Ex. 56 ¶ 6. That estimate values the cards at the face value of $15.00 per person. If Ameritech or anyone else were prepared to give the Sloop class members $15.00 in cash in exchange for the cards, that estimate would be reasonable. Ameritech has not expressed any interest in such an exchange, nor has it provided any estimate of the actual cost of the cards to Ameritech or the expected levels of use. Given the restrictions on use of the cards — they may be used only at Ameritech's own pay phones, and only for local calls and local toll calls of short duration, and only within six months of mailing — the use of the face value is not reasonable. The court attributes a total value of $5,000 to the cards, which seems a generous estimate in light of all those restrictions on use.
Ameritech estimates the value of the pay per use services for the Sloop class members to be between $4,793 and $12,141. Def. Ex. 56 ¶ 6. The specific basis for that estimated range is not set forth, but the number is modest enough and opaque enough that the court accepts it at face value for these purposes. Ameritech estimates the value of the discounted services and elimination of the non-standard wire exclusion to be between $7,599 and $12,665. Again, the court accepts that modest estimated range. Ameritech also included an estimate of $352 for the Sloop class members' share of the value of its agreed training and customer service improvements. The court also accepts that estimate.
These estimates add up to a range of $17,744 to $30,158 for the value to Sloop class members of these non-cash benefits awarded under the Todt settlement.
Ameritech also estimates that the two additional notices to Indiana customers informing them that IWMS is optional and may be cancelled at any time should be valued for Sloop class members at $50,000 to $200,000. This number stems from the affidavit of Barbara E. Robinson, a consultant who worked on the notices in this case. Def. Ex. 57 ¶ 8. The additional notices were to be placed in customers' bills. Robinson's affidavit does not explain how she estimated the value within the broad range of $50,000 to $200,000, though one possible explanation would be that that was Ameritech's cost of providing those notices to all of its Indiana customers.
Even the lower number is far greater than the value of receiving the notice to the members of the Sloop class. Ameritech has calculated that all members of the Sloop class paid a total of about $151,000 for their IWMS services during the entire class period. The reasonable value of receiving two additional reminders that the service is optional and can be cancelled at any time must be much lower than the actual payments for the service itself. If each notice was worth $10 to each class member, which the court views as a generous estimate, that value would be $14,200 for the Sloop class.
Using these figures, a fair estimate of the actual value of the settlement to the Sloop class is between $272,241 and $284,655. The middle point of that range is $278,448. (This estimate does not attribute, for the parties did not attribute, any specific value to Ameritech's administrative services in notifying class members and administering claims and payments to the class, though the value is greater than zero.)
In light of this more realistic and less exaggerated estimate of the value of the settlement to the members of the Sloop class, the claim for $470,000 in attorney fees and costs is unreasonable. Although there are many variables, fee awards based on benefit to the class typically range from 20 to 35 percent of the total value. Newberg on Class Actions § 14:6, at 550-51 (4th ed. 2002). The Newberg treatise notes that 50 percent is usually the upper limit for a fee award from a common fund. Id. Keeping in mind that the attorney fee is being paid separately rather than from the cash available to the class, a fee award in this case of $278,448 would represent roughly a 50 percent fee award, where the attorneys' total compensation roughly equaled the net benefit to class members.
In the court's view, that amount is at the highest possible end of any reasonable range for a fee based on the result achieved for the class. Two circumstances persuade the court that such an unusually high percentage is reasonable and justified in this case. First, under the settlement, the class members are entitled to receive in the aggregate more cash than they actually paid for IWMS service during the class period. Thus, even this settlement for the cost of defense provides value that exceeds class members' actual damages if they were to prevail on the most optimistic damage theory. Second, no class members have objected to the fee. Accordingly, the court is satisfied that a fee of $278,448 is reasonable in this unusual case, on the basis of benefit to the class, which was the original basis for class counsel's request.
This fee determination does not represent an attempt to cap the attorney fee award at the level of the class members' recovery under a fee-shifting statute. Such a cap is not appropriate under fee-shifting statutes. See, e.g., Tuf Racing Prods., Inc. v. American Suzuki Motor Corp., 223 F.3d 585, 592 (7th Cir. 2000) (under fee-shifting statute, affirming fee award that exceeded damages awarded to plaintiff; one purpose of fee-shifting is to enable litigation of claims that have modest value but are expensive to litigate). In this case, however, the court is dealing with a settlement, and with a fee request that was submitted and supported in terms of the benefit to the class. Treating the case as in essence a common fund case, a fee award approximately equal to the value of the benefits for the class members is at the very high end of what could be reasonable.
This case illustrates a potential problem with the procedure used here: having separate negotiations on payments to class members and payments to class counsel. After both negotiations were ended, it was apparent that Ameritech was willing to pay the sum of $470,000 for fees, plus the cost of the class members' benefits to resolve this case. Even if one assumes that all class members would claim the amounts of cash available to them — let's say $240,000 — the result is that most of total of $710,000 in Ameritech cash was made available only to the attorneys and not to the class members. By separating the negotiations, class counsel did not know how much cash Ameritech was willing to pay in total until after they had already reached an agreement that capped the cash benefits for the class. With the benefit of hindsight, it appears that the class members might have wound up better off with one negotiation producing one common fund of cash that left the decision of a fee to the court. Nevertheless, in this case the class counsel negotiated a settlement that gained all the cash that class members could reasonably have hoped to recover in actual damages, so the court sees no material harm to their interests. Also, no class members objected to any terms of the settlement.
B. The Lodestar Method
As noted, after the court raised questions about the actual benefit to the class, class counsel shifted gears and tried to support the fee petition with the lodestar method used under most fee-shifting statutes. The claims in both this case and Todt included some under statutes that provide for fee awards for prevailing parties. The lodestar method calls for a determination of the reasonable hourly rates of attorneys multiplied by the hours reasonably worked on the matter in question. See generally Hensley, 461 U.S. at 433. A court may then adjust the lodestar upward or downward based on the factors derived from Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1974). See People Who Care v. Rockford Board of Education, 90 F.3d 1307, 1310-11 n. 1 (7th Cir. 1996). Both the Supreme Court and the Seventh Circuit have cautioned that those Johnson factors are usually accounted for by the lodestar hours and rates themselves. Hensley, 461 U.S. at 434 n. 9; People Who Care, 90 F.3d at 1310-11.After the hearing, plaintiffs' counsel submitted for the first time some specific information about their hours and requested hourly rates:
The law firm of Price Jackson Waicukauski Mellowitz kept separate files for the Sloop and Todt matters. Over the course of the Sloop matter, the Price Jackson firm recorded billable hours totaling $121,090.50. Over the course of the Todt matter, the Price Jackson firm recorded billable hours totaling $203,743.50.
Attorney Nels Ackerson changed law firms during this litigation. He and his colleagues recorded all of their time in a file called Sloop v. Ameritech, which included work on the Todt case. The first law firm, The Ackerson Group, recorded billable hours totaling $193,451.25. The second law firm, Sommer Barnard Ackerson, recorded billable hours totaling $27,740.00.
Actually, the file appears to include some hours on other matters. The time entries for June 6-7, 1999, for example, refer to legal research on abandonment of federal land grant rights-of-way. That issue seems to have been more relevant to Mr. Ackerson's work on a separate set of class actions against AT T before this court in Multi District Litigation No. 1313. The claims arise from AT T's installation of fiber optic cables along railroad rights of way, including those accompanied by federal land grants in the 19th century, and have nothing to do with the Sloop or Todt matters. See generally In re AT T Fiber Optic Cable Installation Lit., 2001 WL 1397295 (S.D.Ind. 2001).
Attorney Mark Goldenberg appears to have worked solely on the Todt action in Illinois, at the request of Mr. Price and Mr. Ackerson. He did not appear as counsel for the plaintiff class in this case. Mr. Goldenberg and his firm provided no detail of the hours spent, but recorded a total of $152,697.50 in billable hours.
Attorney George Shadoan also appears to have worked solely on the Todt action in Illinois, also at the request of Mr. Price and Mr. Ackerson. He also did not appear as counsel for the plaintiff class in this case. Mr. Shadoan provides no specific information but asserts that he spent more than 800 hours on the case, and that he values the time at $350 per hour for a total of at least $280,000.
When costs are added, these claimed amounts add up to more than $1 million. Class counsel propose that a reasonable lodestar fee in this case should be nearly $700,000, though they recognize that the agreement caps any payment by Ameritech at $470,000. The estimate of nearly $700,000 cuts the Price Jackson work on Todt and Mr. Goldenberg's and Mr. Shadoan's work on Todt to 50 percent of the recorded amounts. There is no similar discount for Mr. Ackerson's firms' work on Todt. Costs would take the proposed lodestar amount up to $709,103.55.
The court assumes without deciding that the claimed hourly rates and recorded hours are largely reasonable. (But see note 3, above.) The most important premise of the lodestar calculation is that class counsel should be compensated substantially, even if not completely, for their work opposing the Todt settlement. The court finds no persuasive basis for rewarding class counsel in this case for their unsuccessful work, on a contingent fee basis, in Todt. If counsel had succeeded in derailing the Todt settlement, the prospect of a lucrative fee would have been substantial. On its own terms, however, that work was completely unsuccessful. The Illinois trial court overruled the objections to the proposed settlement. The Illinois Appellate Court affirmed, and the Illinois Supreme Court denied review.
Despite this lack of success, class counsel contend that their work in Todt inured to the benefit of this class by increasing the number of Todt class members who opted out. The information before the court does not offer anything other than speculation and wishful thinking to support class counsel's conclusions about their Todt efforts helping the Sloop class members. The information before the court indicates that the Todt class included about 3.7 million Indiana customers, of whom 1,420 opted out — less than one twentieth of one percent. Even if the 3.7 million figure is too high, the fraction who opted out is still tiny.
One theory offered by class counsel to support the fee petition is that their efforts to block the Todt settlement caused the court in Todt to order a new notice for Indiana class members, see Todt, 763 N.E.2d at 396, thus increasing the number of opt-outs from the Todt settlement and increasing the size of the class here. Class counsel have not offered any actual evidence of such an effect, and as noted, the percentage of all opt-outs was very small. Defendants' Exhibit 38, the affidavit of Michelle Evans, includes information that tends to undermine class counsel's theory. She reviewed and organized all opt-out requests. Of 1360 requests covered by her affidavit, 45 stated expressly, though they were not required to say anything about the subject, that they wanted to be represented by Mr. Price. Evans Exhibit A, a master index of Todt opt-outs, identifies with two asterisks all individuals who opted out "due to Re-notice." That number is ten, which is a tiny fraction of all the opt-outs. This minimal expansion of the Sloop class does not support the requested expansion of the fee request based on efforts in the Todt case.
Class counsel state that they were prepared in Todt to file a petition for certiorari with the Supreme Court of the United States, and they hint that their willingness and ability to do so might have affected the settlement negotiations in this case. See Docket No. 213 at 4. The court is not convinced that the mere possibility of filing a petition with only a minimal chance of being granted played any significant role in the settlement of this case.
Accordingly, the court finds that the proposed lodestar calculation for determining a reasonable fee for class counsel is far too high. The court adheres to the original proposed basis for calculating a reasonable fee — the benefit to the class — but based on a more reasonable estimate of the actual benefit to the class. The court awards a fee equal to the estimated actual net value of the settlement available to the Sloop class members. That amount is $278,448. The court is entering a separate judgment to that effect.
So ordered.