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Circuit court considers class cases

By

 

“I don’t settle cases very easily when I’m right.”

President elect Donald J. Trump (November 18, 2016), commenting on settlement of the University of Trump fraud lawsuit against him

Persuade your neighbors to compromise whenever you can.”

Abraham Lincoln (September 17, 1859)

The 8th Circuit Court of Appeals rarely adjudicates cases involving disposition of class action lawsuits, particularly those that have reached settlements in the lower courts. See “Six shattered settlement suits summarized in the October 10, 2016, edition of Minnesota Lawyer.

However, the appellate court, which oversees federal litigation in Minnesota and six surrounding states (why, except for the time zone, is Arkansas in the 8th Circuit?), decided a quartet of class action settlement cases within a month in the middle of this winter. As it was doing so, its Minnesota counterpart ruled upon the settlement of a mediated real estate dispute in St. Paul.

The cases shared some similarities. The three federal cases involved issues of attorney’s fees. All of the appeals affirmed the bulk of the lower court rulings, while leaving only one issue for further determination.

Attorneys’ attention

An issue that invariably arouses the attention of lawyers, the award of attorney’s fees, was addressed by the 8th Circuit in three of the cases.

A challenge to an attorney’s fees award in a class action over violation of the Telephone Consumer Protection Act, (TCPA), 47 U.S.C. § 227 by sending unsolicited text message advertisements resulted in a favorable outcome for class counsel in In re Lifetime Fitness Inc., TCPA Litigation847 F.3d 619 (8th Cir. Feb. 2, 2017).

Adjudicating the case from a Judicial Panel on Multi-District Litigation, U.S. Court Judge Joan Ericksen of Minnesota, approved a fee of $2.8 million representing 28 percent of the guaranteed minimum payment to class members, although counsel sought $200,000 more for 30 percent. But the reduced award was challenged by a class member, claiming it was excessive in light of the $688,000 lodestar of time spent by four law firms working on the case.

The 8th Circuit affirmed, holding that the trial court did not abuse its discretion in the fee award. It agreed with Ericksen that the challenge was “not well founded” in light of the effort and success of class counsel in achieving the settlement. Using a “percentage of the benefit method” was appropriate even if it exceeds the time and hourly rates of counsel comprising the lodestar.

Another fee fight came out favorable to class counsel in Huyer v. Buckley, 849 F.3d 395 (8th Cir. Feb. 16, 2017). The case successfully yielded a $25,759,000 settlement against Wells Fargo, which has had its share of legal problems lately, for ordering and charging fees for property inspections for customers who fell behind on their mortgage payments. The issue on appeal was whether the fees the plaintiff class counsel, which was adjudicated as one-third of the total amount, or $8.5 million, should be based on the gross amount of about $22.5 million, or after deducting costs of notice and settlement administration.

The trial court did not abuse its discretion in ordering fees based on the gross amount. Because the “end result is reasonable,” the award was proper, whether based on the gross or net amount. Here, the fee award satisfies this outcome because even on a net basis the 38 percent is “not excessive” for litigation of this type.

A challenge to the settlement by some members of one of the sub-classes in the case failed. The claimant objected to a requirement to submit proof of claim to obtain a cash award arising out of post-sale transactions, which other claimants who were entitled to awards without filing any forms.

The trial court upheld the class action certification and approved the settlement, but rejected the objection, reasoning that there were valid reasons for requiring the differential treatment of post-sale class members.

The 8th Circuit, however, dismissed the appeal, holding that the claimant failed to show that she satisfied the standing requirements of Article III of the Constitution, which forms the jurisdictional basis for federal court jurisdiction. Standing was lacking because the claimant had not suffered an injury in fact, since she was a member of the pre-sale class members who were to be paid in full. Therefore, she could not complain that post-sale class members were required to submit more onerous proof of claim forms, rather than automatically receiving cash awards. The claimant’s assertion that she does not want to be “over compensated” compared to others was not persuasive. Because the settlement did not adversely affect the claimant, there was a “lack (of) standing to appeal.”

Yet another challenge to attorney’s fees was addressed in McKeaeg v. TMBC847 F.3d 992 (8th Cir. Feb. 13, 2017). The case was brought as a class action challenging the practice of a nationwide company charging a document fee for selling boats and trailers. The trial court granted summary judgment in favor of the class claimants, awarding damages in excess of $21 million, which included treble damages, and then awarded class counsel nearly $2.5 million to be paid out of the common fund. Both sides appealed, the class defendant challenging class certification, and some claimants contesting the award of attorney’s fees to class counsel.

The 8th Circuit affirmed the class determination, but remanded for further proceedings by the claimants regarding the award of attorneys’ fees under the unauthorized practice of law statute under the statute in Missouri, where the case was litigated.

The class certification was proper, as was the application of Missouri law in transactions that occurred outside of the state. The class certification complied with the requirements of Rule 23 of the Federal Rules of Civil Procedure, which covers class actions. The class members were “clearly ascertainable,” and the requirements of common questions and their predominance were “satisfied” as well. Although the challenged documents were prepared in different ways on some occasions, the variety of services provided and differences between them were “not distinct enough to de-certify the case as a class action.”

Imposing liability for a transaction that took place outside the state of Missouri did not constitute an unconstitutional extra-territorial application of state law. The company specifically identified Missouri as the basis for choice of law purposes in the “standard form” contracts it used nationwide, which justified application of Missouri law to these transactions, even those outside of the state.

However, the trial judge may have erred in awarding attorney’s fees from the entire common fund, which included the trebled damages. Awarding of attorney’s fees from the common fund is permissible in order to ensure that lawyers are able to recoup reasonable compensation and avoid any risk that named plaintiffs alone will be required to pay the legal fees, which would result in unjustly enriching passive class members. But the case was remanded to reassess a new fee determination to allow the trial court to decide whether the fees should be awarded from the trebled amount or solely from the lesser amount, leaving the trial court to award any portion of the fund that it deems appropriate.

Duty determination

Another class action in which attorney’s fees were implicated concerned a challenge to the fiduciaries of an employer’s ERISA plan in Tussey v. ABB, Inc., 850 F.3d 951 (8th Cir. March 9, 2017). The appellate court sent the case back to the District Court for a second time after the trial judge erred in finding a breach of duty in changing an employee’s investment options for the class members in a 401(k) defined contribution retirement savings plan, but ruled in favor of the plan because of participants’ evidence of losses with the class, which followed a prior reversal and remand three years ago. 74 F.3d 327 (8th Cir. 2017).

The 8th Circuit, clearly frustrated, vacated that ruling and directed the trial judge to consider “other ways of measuring the [employee’s] losses” due to alternative investment options for the class members.

The appellate panel, which included Judge Diane Murphy of Minnesota, also instructed the trial judge “to adjust the award” of attorney’s fees relative to the particular accounts at issue if the participants in the plan ultimately “prevail on the liability issues.” As part of any fee determination, $25,000 “incentive awards” to named plaintiffs should come from the class recovery, rather than the ERISA fiduciaries, in addition to any other fees they might be ordered to pay if liability is determined.

Minnesota mediation

Meanwhile, as the 8th Circuit was deciding these class action cases, another mediated settlement agreement was upheld by the Minnesota Court of Appeals in Rocco v. Khan, 2017 Minn. App. LEXIS 147 (Minn. App. Feb. 13, 2017) (unpublished). The case concerned a dispute between owners of adjacent parcels of property in St. Paul when an alley between the two properties was vacated by the city. Disputing property ownership, the parties participated in a mediation which yielded a settlement. But one of the property owners subsequently refused to abide by it, leading to an action to enforce the settlement agreement by the other party.

The Ramsey County District Court granted a motion to enforce the mediated settlement agreement, and the appellate court affirmed. The contention that there was no meeting of the minds between the parties in the mediated settlement agreement was rejected because the settlement agreement contained all of the “essential terms” necessary to make it binding. The claimant’s contention that he had an interest in an additional term concerning traffic flow between the properties that was not part of the settlement agreement did not detract from the enforceability of the agreements which contained all essential terms.

The argument that the mediated settlement agreement was not followed by a written settlement agreement also did not defeat the agreement. The record reflected that the attorneys and the trial court considered the settlement to be final and binding after its terms were recited in open court and the attorneys orally agreed to it. While the claimant’s attorney stated the parties would sign on the document as reasonably necessary, no other documents were necessary at that point and the settlement agreement “was final and binding even though it was not reduced to writing.”

Congressional changes

As these cases were resolved, Congress is eyeing changes in class action law to make it harder to pursue them. A Republican-backed bill, called The Fairness in Class Action Litigation Act of 2017, would restrict class cases in several ways, including increasing the typically requirement and preventing individuals from serving as named plaintiffs on multiple occasions when represented by the same lawyers.

Proponents of the measure, including business groups, view it as a needed way to cut abusive class actions, while opponents see it as a means of limiting access to litigation by many claimants, including consumers and employees.

Existing legislation, also dubbed Fairness Class Action, 28 U.S.C. § 813.32(d), imposes some limitations, but this measure would go much further in impeding those cases to the pleasure of detractors of class actions and to the chagrin of their advocates and excessive fees paid to plaintiffs’ attorneys who are in the vanguard opposing the bill along with consumers and other groups.

The measure is likely be to be passed in the House of Representatives, but may encounter more opposition in the Senate, where Democrats have more clout. If enacted, the legislation could crimp a broad range of class cases, including those alleging securities fraud, employment discrimination, product defects, misleading advertising and other matters.

The observations cited above by the two presidents before they assumed office, reflect vastly different attitudes towards settlement of legal disputes. But these recent rulings reflect the various ways that appellate courts address these issues in efforts to effectuate dispute resolution in class action litigation.

PERSPECTIVES POINTERS

Basic requirements for class action treatment

  • Existence of common questions of law or fact.
  • Common questions predominate in the litigation.
  • Claims asserted by named plaintiffs are typical.
  • Named plaintiffs and counsel will provide adequate representation.

 

This article was originally published in Minnesota Lawyer.