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State AGs push for lodestar fee in $310 mln Apple class appeal – despite their own contingency deals

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Apple logo is seen on the Apple store at The Marche Saint Germain in Paris, France July 15, 2020. REUTERS/Gonzalo Fuentes/File Photo

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  • Kaplan Fox & Kilsheimer LLP
  • Kellogg, Hansen, Todd, Figel & Frederick P.L.L.C.
  • Robins Kaplan LLP
  • Grant & Eisenhofer P.A.
  • Cotchett, Pitre & McCarthy, LLP

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In an 1841 essay titled “Self Reliance,” Ralph Waldo Emerson famously slammed hidebound conformists, writing, “A foolish consistency is the hobgoblin of little minds.”

If Emerson happened to be tracking dockets in the 9th U.S. Circuit Court of Appeals, where class action lawyers are fending off protests of their $81 million fee award in a $310 million settlement with Apple Inc, he would no doubt be pleased to learn that the highest-ranking legal officers in 10 states are not spooked by the hobgoblin of consistency.

The AGs told the 9th Circuit in an amicus brief that the Apple class action lawyers’ fees should have been limited to lodestar billings, rather than a percentage of the recovery they obtained, because plaintiffs lawyers would otherwise receive a windfall. Yet 10 of the 13 AGs who signed the amicus brief have engaged private lawyers to work on megacases on a contingency basis.

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To be fair, the AGs’ brief did acknowledge that what’s reasonable in one case is not necessarily reasonable in every litigation. But they broadly argued that fee awards in megacases with recoveries of more than $100 million should be based on lodestar billings.

U.S. District Judge Edward Davila of San Jose, the AGs said, abused his discretion by deciding to award a percentage-based fee simply because class counsel obtained a common fund for class members. (The case involved allegations that Apple throttled the performance of devices with aging batteries to induce owners to buy new devices; Apple denied the allegations.) The AGs said Davila compounded his initial error by awarding plaintiffs lawyers a slightly higher percentage than the 9th Circuit’s megacase benchmark of 25%.

The fee award is also being challenged by objecting class members, including Anna St. John, a colleague of Ted Frank at the Hamilton Lincoln Law Institute. Her brief, like the AGs’ filing, contends that a 26% award was excessive, considering that megafund percentages are usually around 10% to 12%. The St. John brief also argued that class counsel’s lodestar billings of about $36 million did not justify the fee award.

Class counsel Mark Molumphy of Cotchett, Pitre & McCarthy declined to comment on the 9th Circuit briefs. The class is also represented by Kaplan Fox & Kilsheimer.

Let’s look at how the AGs who signed the Apple amicus brief pay their outside lawyers. Kentucky AG Daniel Cameron, the lead signatory, has entered several contingency fee deals with outside counsel, including a year-old agreement with Morgan & Morgan in the opioids litigation. Morgan stands to make as much as $20 million in contingency fees, which are to be paid on a sliding scale, with a top rate of 20% for the first $10 million in recovery.

Florida’s contingency deal with outside lawyers in the opioids litigation, including Kellogg, Hansen, Todd, Figel & Frederick, allows for a fee of as much as $50 million. Arizona’s contingency fee contract with Consovoy McCarthy, which has a statutory cap of $50 million, includes a promise that the state will defend the fee in court.

Utah’s AG hired Motley Rice to handle opioids cases on a contingency basis, with a top potential fee of $50 million. Nevada agreed to pay outside counsel at least 19% and as much as 21.5% for recoveries obtained after discovery begins. Alabama and Arkansas are also paying contingency fees to private lawyers to pursue opioids claims.

Texas’ AG, you’ll probably recall, hired private lawyers from the Lanier Law Firm and Keller Lenkner for his antitrust case against Google. The firms reportedly have an option for contingency fee or hourly billing. Minnesota’s AG is paying a contingency fee to Robins Kaplan and Zimmerman Reed in the state’s deceptive marketing case against JUUL Labs Inc.

The Ohio AG’s office, a model of transparency, posts all of its contingency fee agreements with outside counsel on its website. In one example, the state’s deal with Grant & Eisenhofer in environmental litigation against Monsanto includes sliding-scale contingency fees with a top rate of 25% and a maximum recovery of $50 million.

Private lawyers working on opioids litigation for the Louisiana AG are reportedly being paid on an hourly basis, but Louisiana is an exception among the AGs who signed the amicus brief in the Apple case. (So are Nebraska and North Dakota, which don’t appear to have big contingency deals with outside counsel.)

I reached out to spokespeople for the 10 AGs on the Apple amicus brief who have contingency fee agreements with outside counsel, asking about the apparent inconsistency between their own contingency fee deals and their call for class counsel in the Apple case to be paid a lodestar fee.

“There is nothing inconsistent about the position we have taken,” said Ohio AG spokesperson Bethany McCorkle by email. “Unlike attorneys retained in class action cases, contingency fee counsel for the State of Ohio are subject to (statutory) fee limitations.” The AGs’ position in the Apple case, she said, is not that contingency fee contracts are anathema but that the fees awarded to class counsel were excessive compared to class members’ recovery.

Elizabeth Kuhn, a spokesperson for the Kentucky AG said by email that class action fees merit extra scrutiny because class members generally don't get much money. In the Apple case, said Kuhn, "the fee awarded by the district court is unreasonable and takes money out of the pockets of consumers."

The Nevada AG's office pointed out that state law requires contingency fees for its contracts with outside counsel, "so a lodestar agreement is not in play."

My point here isn’t to call gotcha on the AGs. It’s to highlight the advantages – even in big-money cases – of contingency fees. It’s just good sense to incentivize lawyers to obtain the most money for their clients, whether those clients are class members or state AGs.

Yes, it’s true, as the AGs argue in their Apple amicus brief, that every dollar paid to class counsel is a dollar out of the pockets of class members. But the same is true in the AGs' contingency fee deals with outside counsel. Should they be accused of lifting money from taxpayers when they agree to pay private lawyers a share of the state’s recovery? I’m guessing they'd say no.

There are obviously some circumstances that call for lodestar-based fee awards, as U.S. District Judge Lucy Koh has written in several cases over the last few years.

But I believe – and I’d bet even the AGs would agree – that contingency fees should be a first resort, not a last.

The opinions expressed here are those of the author. Reuters News, under the Trust Principles, is committed to integrity, independence and freedom from bias.

Read more:

Class counsel in Apple ‘throttling’ case beat multifront attack to land $81 million in fees

UPDATE: This column has been updated with comment from the Nevada Attorney General's office.

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.

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