Wednesday, August 28, 2019

Cert petition seeks uniform application of definition of reasonable attorney's fees

By Rodney F. Tonkovic, J.D.

A petition for certiorari asks the Supreme Court to examine constraints on awarding "reasonable attorneys' fee" from a common-fund settlement. After the settlement in this case, the lead counsel was granted a larger-than-lodestar fee award. The petitioner, an objecting class member, asserts that awarding more-generous fees to counsel who settle than they would receive for winning the case produces perverse incentives. The Second Circuit held, in accord with several other circuits, that the presumption that an unenhanced lodestar is sufficient does not apply to the award of fees case from a common fund created after a settlement (Isaacson/Weaver Family Trust v. Fresno County Employees' Retirement Association, August 23, 2019).

BioScrip action. This action goes back to 2013, when respondent Fresno County Employees' Retirement Association was appointed as lead plaintiff. The complaint alleged that share prices for BioScrip, Inc., a home infusion and pharmacy provider, declined after it failed to disclose possible violations of the Anti-Kickback Statute (AKS) and False Claims Act (FCA) and that one of its most profitable business segments was collapsing. A motion to dismiss the action was denied in 2015.

The parties entered into a preliminary settlement agreement in 2016 under which BioScrip agreed to pay $10.9 million into a common fund. The lead counsel then applied for a fee award under FRCP 23(h), asking for 25 percent of the fund ($2,725,000, plus interest). The counsel acknowledged that this amount was a 1.39 multiplier of the lodestar, or nearly 40 percent more than the lawyers' regular hourly rates.

Fee objection. The Isaacson/Weaver Family Trust, a class member and petitioner here, filed an objection to the fee application. According to the Trust, the meaning of a "reasonable attorney's fee" had been addressed by the Supreme Court in Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 546 (2010). This case held that the lodestar fee is presumptively sufficient and fees exceeding an unenhanced lodestar are permitted only in exceptional circumstances. The objection noted further that the federal securities' regime of fee shifting provisions authorizes courts to award "reasonable attorney's fees" and argued that class counsel should not be able to obtain a larger-than-lodestar fee award by settling claims and seeking fees from the common-fund settlement. The proposed settlement was approved in June 2016.

In July 2017, the district court overruled the Trust's objections and granted the challenged attorney's fees. According to the court, Perdue's presumption against a lodestar enhancement does not apply to a fee award from a common fund created after a settlement because no claim settled in this case contains a fee-shifting provision. The court then approved a fee award amounting to a 39 percent enhancement of the lodestar. The Second Circuit affirmed, stating that "regardless of whether a case is brought pursuant to a statute with a fee-shifting provision, if the parties settle the case by creating a common fund, common-fund principles control class counsel's fee recovery." Common fund awards, the court said, are not constrained by Supreme Court precedents defining "a reasonable attorney's fee."

Petition. The petition asks whether Supreme Court precedent in fee-shifting cases also constrains the award of "reasonable attorneys' fees" under FRCP 23(h) from a common-fund settlement. And, the petition asks if the relevant securities law provisions subject to Perdue's rule that a reasonable attorney's fee ordinarily will be limited to the lawyers' unenhanced lodestar.

The petitioner maintains that the Court's decisions defining reasonable attorney's fees in fee-shifting cases should also apply in common-fund settlements. The Second Circuit in this case, however, joined with several others (e.g., the Seventh, Ninth, and Eleventh Circuits) in holding that fee-shifting principles and the common-fund doctrine occupy separate realms. This, the petition argues, leads to a situation where lawyers winning a case under a fee-shifting statute can expect to receive only their unenhanced lodestar. But, if they settle, they can expect significant enhancements to their lodestar. Examining Supreme Court precedent, the petition stresses that the Court has never held that counsel seeking a common-fund award are entitled to a fee that is more than sufficient to induce a capable attorney to take a meritorious case. In other words, the Court's precedent limits attorney's fees to what is reasonably necessary to compensate the lawyers.

Lastly, the petition argues that the securities laws provide for a regime of statutory fee shifting governed by the Court's decisions defining "a reasonable attorney's fee." The Second Circuit offered no comment on this issue, but if the Court takes it up, the petitioner asserts that there is no basis to conclude either that the fee-shifting provisions did not apply in this case or that they would be exempt from the Court's precedent defining reasonable fees.

The petition is No. 19-244.