On The Case

Judge Koh trims $7 million from fee request in “unremarkable” Yahoo data breach case

(Reuters) - Is there any federal judge who scrutinizes fee requests in class actions with the same rigor as U.S. District Judge Lucy Koh of San Jose? Remember the no-poach class action against Dreamworks and Disney in which class counsel asked for more than $30 million and Judge Koh gave them $18.5 million? Or the $115 million Anthem data breach class action in which the judge was so concerned about plaintiffs’ billing records that she appointed a special master to analyze them? In that case, class counsel had asked for nearly $38 million. Judge Koh agreed they’d achieved a great result for the class but awarded (2018 WL 3960068) $31 million.

The judge took out her machete again on Tuesday night. She approved a $117.5 million class action settlement of Yahoo customers’ claims that their personal information was compromised in multiple, undisclosed breaches of Yahoo’s security. But the judge rejected class counsel’s arguments that they should receive 25.5% of the class recovery, or $30 million. Instead, Judge Koh awarded class counsel about $22.8 million – based not on a percentage of the class fund but on their lodestar billings.

What’s particularly interesting about Judge Koh’s record on fee awards in class actions is that she doesn’t always use the same method, even in mega settlements of more than $100 million. She is always tough. And she analyzes her awards under both the lodestar and percentage-of-fund methodologies. But in some cases, she bases fees on lodestar billings and in others on fund percentages. In the Dreamworks no-poach class action and a previous, $415 million no-poach class action settlement with Google, Apple and other tech companies (2015 WL 5158730), Judge Koh awarded fees based on lodestar billings to assure plaintiffs lawyers did not receive an unwarranted windfall. But in the Anthem case, even after intense review of class counsel’s hourly billing records, the judge opted to award fees based on a percentage of the class recovery, albeit with a lodestar cross-check.

Given that context, it’s understandable that class counsel in the Yahoo case wavered in their preferred approach to a fee award, according to Judge Koh’s opinion on Tuesday. In their original motion for preliminary settlement approval, the judge recounted, class counsel said their request for $35 million was based on lodestar billings and multiplier. Judge Koh denied that original motion (2019 WL 387322) in January 2019, in part because she thought the requested fees might be “unreasonably high.” In a subsequent request for fees earlier this year, class counsel proposed an award based on a percentage of the $117.5 million class fund. “It is not clear to the court why class counsel’s position has changed,” Judge Koh said.

I emailed class counsel from Morgan & Morgan; Robbins Geller Rudman & Dowd; Casey Gerry Schenk Francavilla Blatt & Penfield; Tadler Law; Lockridge Grindal Nauen; and Robinson Calcagnie but didn’t hear back. Yahoo counsel Ann Marie Mortimer of Hunton Andrews Kurth referred my email to a Verizon spokesperson who declined to comment.

So why did Judge Koh go with a lodestar approach in the Yahoo case? She cited her own previous analysis in the high-tech no-poach case – which she has described as “novel and highly complex” – to explain that the lodestar method allows for consistency across class actions. And she said that the 9th U.S. Circuit Court of Appeals’ benchmark of 25% in fees based on a share of class recovery would be a windfall for plaintiffs lawyers. In the Yahoo case, Judge Koh said, the magnitude of the settlement was more of a reflection of the vast size of the class of nearly 200 million Yahoo customers than of the efforts of plaintiffs lawyers.

“The $117.5 million settlement fund is fair, adequate, and reasonable, but unremarkable,” wrote Judge Koh. The case “did not present particularly complex issues,” the judge said. After all, she said, rulings in previous data breach class actions, including her own in the Anthem litigation, have set precedent on such questions as constitutional standing for plaintiffs at risk of identity theft and a causal link between data breaches and alleged injuries.

And though $117.5 million is, in absolute terms, the second-biggest cash recovery for members of a data breach class, Judge Koh said, the class recovery is far less impressive in per capita terms. The Equifax, Anthem, Home Depot and Target data breach class members all recovered more, on a per capita basis, than Yahoo plaintiffs, Judge Koh said – and Yahoo was arguably at great risk of liability because it experienced multiple breaches and was accused of failing to disclose them. Moreover, Yahoo customer data, Judge Koh said, was sold on the dark web. In light of those factors, the judge said, the $117.5 million settlement seemed to be “a function of the size of the settlement class, and not a result of any special efforts by class counsel.”

The judge quibbled with some of class counsel’s lodestar billings but ended up approving a lodestar of $19.8 million for past and future billings, only about $400,000 less than plaintiffs requested lodestar of just under $20.2 million. Judge Koh applied a 1.15 multiplier, to reward class counsel for the risk of contingency fee litigation, to arrive at the fee award of $22.8 million.

For class counsel, the message from Judge Koh’s fee rulings in megacases is to prepare for a bruising. You might not be able to predict how she will come to a decision. But you know this judge is going to make you earn your money.