On The Case

VW, class counsel ask 9th Circuit to refuse fees for ‘ghost lawyers’

(Reuters) - The 9th U.S. Circuit Court of Appeals has never had to decide whether and under what circumstances trial judges overseeing multidistrict litigation can award fees to lawyers who weren’t part of court-appointed steering committees. It’s now facing those questions in one of the most epic MDLs in recent memory, the $15 billion litigation over VW clean diesel cars outfitted with devices to deceive emissions tests.

Scores of plaintiffs’ firms stampeded to lead the consolidated case after state and federal regulators issued word in late 2015 of VW’s so-called defeat devices. In January 2016, U.S. District Judge Charles Breyer of San Francisco appointed Elizabeth Cabraser of Lieff Cabraser Heimann & Bernstein as lead counsel and named 21 additional firms as members of a steering committee.

As members of the plaintiffs’ team drafted a consolidated complaint and prepared for litigation against VW, Cabraser participated in whirlwind, tripartite negotiations with VW and regulators. Within months, VW agreed to a $15 billion deal to resolve private and federal government claims.

Judge Breyer granted final approval of the settlement, which was structured as a class action, in October 2016. He awarded fees of $175 million to Lieff Cabraser, members of the steering committee and other plaintiffs’ firms that executed legal work authorized by Lieff Cabraser for the benefit of class members. In all, about 100 firms shared in the fees, which VW paid.

Not everyone was satisfied with the outcome, however. Judge Breyer denied fee requests by nearly 250 plaintiffs’ lawyers who represented individual VW owners but weren’t authorized to work on behalf of the class. Those lawyers wanted VW to pay their fees, arguing, in particular, that their pre-consolidation efforts helped push the company into a settlement and that they’d expended time apprising class members – their clients - about the terms of the deal. Judge Breyer ruled last April that none of that work actually benefited the class and that it was not covered by VW’s agreement to pay the fees of Cabraser and her team.

Led by Nagel Rice and Hyde & Swigart, 18 firms appealed Judge Breyer’s decision to deny them fees to the 9th Circuit. (I’m going to focus on their joint brief and not on separate appeals by a class member alleging its lawyers weren’t compensated for suggesting an important edit to the settlement agreement and a Virginia plaintiffs’ lawyer protesting a since-dissolved injunction on filing a lien against clients’ recoveries.) The Nagel Rice brief contended that the federal rules for class actions allow fee awards to lawyers not named as class counsel, as both the 3rd and 10th Circuits have acknowledged in, respectively, In re Cendant and Gottlieb v. Barry. In this case, the brief said, the real work took place before Lieff Cabraser was named to lead the case: developing initial legal theories, “creating a massive offensive across the country resulting in upwards of 451 possible related filings in some sixty districts,” screening clients, filing motions to force VW to preserve evidence and coordinating with other plaintiffs firms doing the same thing.

Judge Breyer’s alternative view of their contributions to the settlement, they said, is just wrong. “The court’s attempt to attribute the success of the class as a whole as springing only from the heads of Class Counsel beginning on the first day of their appointment, some four months into the filing of the case, is wholly arbitrary and without any basis in fact,” the appellate brief said. “By the time class counsel was appointed on Jan. 21, 2016, there had already been 451 potentially related cases filed across the nation in some 60 federal districts; at least four motions to preserve evidence; at least three motions for interim lead counsel positions; various preliminary discovery attempts; and at least eight conferences for attorneys across the country to analyze, discuss and refine approaches to bringing the cases.” Basically, the brief argued, Lieff Cabraser and its team received all of the credit – and fees – when all they did was meld and duplicate the work other plaintiffs’ lawyers had already done.

VW and the Lieff team filed their response briefs this week. VW’s lawyers at Sullivan & Cromwell submitted a sober explanation of why it believes it owes nothing to lawyers who didn’t bother to follow Judge Breyer’s pre-trial orders for requesting fees. Among the reasons: There’s no common fund in the class settlement, and VW never agreed to pay lawyers other than those Lieff Cabraser identified.

Lieff Cabraser’s brief, which was also signed by the other firms on the VW plaintiffs steering committee and New York University professor Samuel Issacharoff, is a more entertaining read than VW’s, leading off with a memorable account of the long ago “ghost riders” of New Jersey buses and trains, who would appear out of nowhere to claim injuries whenever one of the vehicles was involved in an accident. A similar phenomenon occurs in mass tort litigation, the brief said: “Successful lawsuits spawned claims of parental rights by lawyers whose participation in the case came as a surprise to all. These ‘ghost lawyers’ would appear at the end of the litigation claiming that the work they performed on behalf of an individual client was indispensable to the success of the common enterprise.”

The plaintiffs’ firms asking the 9th Circuit to award them fees in the VW case are ghost lawyers, according to the Lieff brief, “emerging from the shadows only after the case has been resolved (to) claim credit for the result.” In fact, Lieff and its team argued, the lawyers offered “no work product evidence of having engaged in the actual prosecution or resolution of the consolidated case.”

MDL courts, like New Jersey transit systems, have adopted systems and protocols to dissuade claims by freeloaders, the brief said. Judge Breyer followed best practices when he picked a leadership team, ordered documentation of its work and awarded fees based on that documentation. To hold otherwise, the Lieff team said, the 9th Circuit would have to be convinced the judge abused his discretion.

“There is simply no basis for any such argument. Not only was the district court not clearly erroneous in its fact finding and case management, but the handling of this extraordinary litigation serves as a model for complex case oversight,” the brief said. “Appellants run headlong into well-documented findings by the district court below on how this litigation was handled and by whom.”

My guess is that the 9th Circuit would rather not second-guess fact-finding by a well-regarded judge who prodded for the quick and successful resolution of a megacase. Regardless, the appeals court will establish important precedent on how MDL judges should evaluate fee requests by plaintiffs’ lawyers outside of the leadership structure. Final briefs are due in three weeks.