RED FLAGS: THE NINTH CIRCUIT TARGETS EXCESSIVE ATTORNEY FEES IN CLASS ACTION SETTLEMENTS
The Ninth Circuit has twice in the past year addressed attorneys’ fees in class action settlements. Both decisions called for heightened scrutiny to prevent class counsel from receiving excessive fees for their work, and significantly shifted the landscape for settlement negotiators. The recent focus may indicate an increased appetite to tackle situations where class counsel is disproportionately benefitted by settlement agreements.
Additionally, it seems the Ninth Circuit is signalling to class action litigators that the mere appearance of certain terms in an agreement will trigger heightened scrutiny, even where award distribution facially may seem reasonable, and even where an experienced mediator oversees the settlement process. District courts already have adopted this heightened scepticism in examining class settlements and increasing scrutiny is likely to occur. Given that hundreds of class action settlements are approved each year, worth tens of billions of dollars at a minimum, this heightened scrutiny may have a substantial impact.
In June 2021, the Ninth Circuit decided Briseño v. Henderson, where the parties had been litigating whether placing a 100 percent natural’ label on cooking oil (which allegedly contained genetically modified organisms) was misleading for nearly 10 years. The panel began by analysing the 2018 amendment to Rule 23(e) that provided specific factors for courts to consider in determining whether a settlement is “fair, reasonable, and adequate”, and addressing the three “subtle signs”, known as Bluetooth factors, which herald the need for closer examination of a class action settlement to – as the Briseño panel put it – “smoke out potential collusion”, citing In re Bluetooth Headset Products Liability Litigation (2011).
Jul-Sep 2022 issue
Skadden, Arps, Slate, Meagher & Flom LLP