Richard P. Traulsen, Esq. – State Bar # 016050
BEGAM, LEWIS, MARKS & WOLFE, P.A.
111 West Monroe Street, Suite 1400
Phoenix, Arizona 85003-1787
(602) 254-6071
Leslie A. Brueckner, Esq.
Michael J. Quirk, Esq.
TRIAL LAWYERS FOR PUBLIC JUSTICE
1717 Massachusetts Avenue, N.W. Suite 800
Washington, D.C. 20036
(202) 797-8600
Attorneys for Objectors
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
Christopher Boehr, an individual, on )
behalf of himself and all others similarly )
situated, )
) Case No. CIV’99 22 65 PHX PGR
Plaintiff, )
) OBJECTIONS TO PROPOSED
vs. ) AMENDED CLASS SETTLEMENT
) AGREEMENT
Bank of America, and DOES 1 through )
100, inclusive, )
)
Defendants. )
____________________________________)
Objecting class members Jon Romberg and Sharon Grace (the “Romberg Objectors”), hereby file these objections to the proposed amended settlement agreement filed with the Court on the day of the Fairness Hearing, September 10, 2001 (the “Amended Agreement”). The Amended Agreement was filed without any prior notice to the Romberg Objectors or, for that matter, any other member of this enormous class. Despite the lack of notice, and despite the fact that the terms of the proposed new distribution plan have not yet been worked out between class counsel and the Bank – let alone presented to the Court – the settling parties have asked the Court to approve the settlement and award class counsel over $1.5 million in attorneys’ fees. At the outset, we recognize that the Amended Agreement does represent an improvement over the original settlement in several important respects. First and foremost, in response to our objections, the bulk of the settlement’s value will no longer be given to charity (including Bank of America’s own “Consumer Education Fund”). Instead, the $1.3 million originally earmarked for charitable distribution will be combined with the $1.875 million damages fund, and any money not distributed as part of the claims process will be directly credited to current cardholders’ accounts. In addition, the cap on individual damages has been raised from $30 to $125 and the two-year injunction against all lawsuits against Bank of America has been eliminated. These are significant improvements that address several of the most glaring problems with the settlement.
Despite these improvements, the Amended Agreement is still flawed in several serious respects that render it inadequate on its face, as discussed in further detail below. In addition, notwithstanding class counsel’s claim that the recent improvements cure any defects in the fee application, the requested fee award is still unjustifiably large in light of the actual work done on the case. We therefore urge the Court to disapprove the settlement and deny the request for attorneys’ fees.
I. THE REQUEST FOR FINAL APPROVAL IS PREMATURE BECAUSE THE PROPOSED DISTRIBUTION PLAN HAS NOT BEEN FINALIZED.
As a threshold matter, we note that the request for final approval is premature because the proposed distribution plan has not yet been finalized. The Amended Agreement provides that “[t]he Charitable Organization Fund is changed so that instead of being sent to the listed Charities, the $1,316,700 (plus any amount leftover from the claims process) shall be distributed by way of credit to any individual who received a periodic statement from the Bank in the month that notice was provided. The parties will confer and submit a proposed plan for distribution to this Court within 10 days of the Final Approval hearing.” Brief in Support of Proposed Amendments ¶ 2 (emphasis added). As the italicized language makes clear, it is impossible to determine exactly how the damages will be distributed because the settling parties have not yet worked out the details between themselves.
It almost goes without saying that the Court should not approve a settlement that is not yet finished. On its face, Paragraph 2 appears to contemplate a pro rata distribution to all 9 million current Bank of America cardholders – a less than ideal solution, given that this would spread the class’ damages among millions of cardholders, the vast majority of whom were never harmed by the Bank’s misconduct and are not even members of the class. At the Fairness Hearing, however, class counsel advised the Court that the settling parties are still in the process of determining whether the Bank’s records would permit a more accurate distribution of the settlement fund. See Transcript of Fairness Hearing on September 10, 2001 (“Tr.”) at 19 (Mr. Strange: “Now we are checking, and may submit a plan, Your Honor, that involves a more specialized distribution. We’re trying to figure out what the bank can and cannot do . . .”); id. at 20 (Mr. Strange: “we’re trying to determine exactly what their bank records can do, and whether there’s a better method”). Obviously, this is work that should have been accomplished before the amended settlement was presented to the Court, not at the thirteenth hour after the final Fairness Hearing has already taken place.
Class counsel were undoubtedly hampered by the fact that they failed to take any formal discovery in this case, and thus have no hard evidence about what the Bank’s records actually do or do not show. Even counsel for the Bank seems unclear about the state of his client’s record-keeping system. See Tr. 33 (Mr. Wagner: “How many of those people who were assessed the late fee actually ended up paying it later on, we don’t really know. You know, I suppose we could hire a programmer, and pay him $50,000 to try and run a program for us and take a guess, but we don’t know”); Tr. 38 (“Your Honor has suggest[ed] that the bank and the plaintiffs see if they can do a slightly better job of targeting. And, you know, we’re still looking at that.”) According to a declaration of the Bank’s Vice President, however, it may be possible for the Bank to determine whether a particular customer had a payment credited on the business day following the due date. See Supplemental Declaration of Steven E. Gould at ¶ 6. Although a direct distribution to this group would still be overinclusive (in the sense that some of these customers might have paid late or, if they paid on time, might not have been assessed a late fee), such a distribution still would be preferable to the extremely broad pro rata distribution apparently contemplated by the settling parties.
The bottom line is that the Amended Agreement is incomplete. No plan is yet on the table and, as it stands, class counsel will be forced to rely on the Bank’s informal representations about the state of its record-keeping system in crafting the distribution plan for damages. In an attempt to get some actual information on this point, the Romberg Objectors are planning to seek discovery to determine what the Bank’s records actually contain. We respectfully submit that, unless and until (1) this information is produced; (2) a final distribution plan is presented to the Court (with an opportunity for the Romberg Objectors to file objections thereto); and (3) a new Fairness Hearing is conducted with respect to the final settlement, any decision approving the settlement would be premature.
II. THE REQUEST FOR APPROVAL IS ALSO PREMATURE BECAUSE THE COSTS OF NOTICE HAVE NOT BEEN DISCLOSED TO THE COURT.
The request for approval is also premature because the record is devoid of any
information about the actual value of the monetary relief being offered to the class. The
settlement provides that the costs of notice and of administering the settlement will be deducted
from the $1.875 million damages fund. See Settlement ¶ (b)(1)(1.2)(a). It is conceivable that the
notice costs could absorb a significant percentage of the fund, especially if the Bank attempts to
recoup the value of displaced advertising in its credit card statements. At the Fairness Hearing,
counsel for the Romberg Objectors pointed out that the notice costs have never been disclosed to
the Court. See Tr. 43-44. Neither class counsel nor counsel for the Bank offered any
information in response. At the least, the Court should not approve the settlement until the
settling parties reveal how much money will actually be available for distribution to the class.
III. INCOMPLETENESS ASIDE, THE AMENDED SETTLEMENT IS STILL NOT FAIR, ADEQUATE, OR REASONABLE BECAUSE THE AMENDED AGREEMENT FAILS TO CURE THE DEFECTS IN THE CLASS NOTICE.
Incompleteness aside, the most basic problem with the Amended Agreement is that it fails to cure the defects in the original notice to the class, which both misdescribed the claims process and omitted important information about the settlement. As explained in our original objections, the notice advised class members that they would be required to “prove, by documentary evidence,” that the Bank received their payments before noon on the due date. This facially impossible standard will undoubtedly chill the vast majority of class members from even attempting to submit claims under the settlement. See Gardner Declaration ¶ 26; Sturdevant Declaration ¶¶ 18-19. The notice also failed to advise class members that the costs of notice (which have yet to be disclosed to the Court) will be deducted from the $1.875 million damages fund and that the so-called injunctive components of the settlement merely codified Bank of America’s existing practices. The proposed Amended Agreement does nothing to cure these defects and, as explained below, in some ways makes new notice even more crucial.
First and foremost, unless class members are told that the actual claims process does not require them to prove the impossible, very few class members will even bother submitting claims. This enormous defect in the notice renders the claims process largely meaningless, stripping class members of any realistic opportunity to recover their actual damages from Bank of America. This would be less troubling if the settlement included some meaningful form of direct payment to class members that approximated their actual damages. As it stands, however, it appears that the settling parties are contemplating a distribution to all 9 million current cardholders, which would spread the class members’ damages very thin indeed. Under these circumstances, it is all the more important that a new notice be sent out explaining that the claims process will require a lesser standard of proof than that described in the original notice.
Second, without new notice, the increase in the damages cap from $30 to $125 is also stripped of much of its value to the class. As the Romberg Declaration makes clear, it could cost class members far more than $30 to make a claim in the first place, creating a substantial chilling effect on the claims process. It almost goes without saying that, if class members knew the cap had been raised to $125, more would file claims. Without new notice, however, class members will still be laboring under the illusion that their maximum possible recovery is $30 – an amount hardly worth pursuing given the extensive documentation required by the claims form.
Third, in the time since our original objections were filed, it has become even clearer that the original notice did not accurately describe the value of the nonmonetary components of the settlement. On this point, the notice contained the following language:
The settlement, if approved, will provide the following benefits to [class members]:
1. Bank of America has changed the cut-off time from 9:00 a.m. to 12:00 noon for receiving consumer credit card payments on any day on which the United States Postal Service delivers mail, and has modified its disclosure to customers to communicate that cut-off time. Plaintiff’s counsel estimate this will save class members interest charges of $1,988,000.00 over the next two years.
The first problem with this language is that it suggests that the change in the cut-off time
was attributable to class counsel’s efforts. Class counsel undoubtedly intended to give this
impression, as they have steadfastly contended throughout this proceeding that the Bank’s
decision to change its cut-off time from 9:00 a.m. to 12:00 noon was “in direct response to this
lawsuit.” Plaintiff’s Response to Jon Romberg’s and Sharon Grace’s Objections to Settlement at
13 -14 (emphasis in original). See also Tr. 11 (Mr. Strange: “they changed the cut-off time from
9:00 a.m. to noon, and that was done as a result of our settlement . . .”). However, the Bank’s
own Vice President Steven E. Gould has stated that Bank of America changed its cut-off time
before this lawsuit was even filed in response to other litigation against other banks. See
Supplemental Gould Declaration ¶ 2.
Notably absent from Mr. Gould’s declaration is any
suggestion that the change has anything to do with this case. Thus, the contention in the notice
that the change in cut-off time is attributable to this lawsuit is misleading, at best.
The notice also gives the misleading impression that the change in the cut-off time is
permanent. In their original papers filed in support of the settlement, class counsel claimed that
the settlement did obligate the Bank permanently to adhere to the noon cut-off time. See
Declaration of Brian R. Strange in Support of Motion for Preliminary Approval of Settlement ¶
2.
In response to the Romberg Objections, however, the Bank stated that, in its view, the
original settlement merely obligated it to “maintain the [noon] cut-off time so long as it is
commercially reasonable to do so (and so long as there is no change in the law that would affect
the legality or feasibility of the present cut-off time).” Supplemental Gould Declaration ¶ 2. In
response to this clarification, the Amended Agreement proposes to lock-in this change for a two-year period. See Amended Agreement ¶ 2. Thus, at most, class counsel extracted a promise
from the Bank to continue for two years to do what it was already doing before the lawsuit – a
minor accomplishment, at best.
None of the foregoing is reflected in the class notice. Instead, class members were given the misleading impression that class counsel achieved on their behalf a permanent change in the Bank’s practices – a change that, in turn, was used to justify the proposed $1,583,300.00 attorneys’ fee. Class members are entitled to know the truth about the settlement, and to object and/or opt out of the deal as they see fit. The notice in this case simply did not accomplish this result.
IV. THE ATTORNEYS’ FEE REQUEST IS STILL UNREASONABLE.
Finally, we turn to the attorneys’ fee application. For their work in filing the complaint and settling this case, class counsel seek $1.583,300.00 dollars, which is an amount roughly equivalent to 50% of the total cash value of the Amended Agreement. As explained in further detail below, there are two basic problems with the fee request: first, it is based on a grossly inflated estimate of the settlement’s value to the class; and, second, it amounts to an inappropriately high percentage of the actual value of the settlement fund. The Romberg Objectors believe that an appropriate benchmark would be10% of the total monetary fund allocated to the settlement ($4.75 million), yielding a fee award of $475,000.
Before addressing the specific problems with the fee request, we note that any reduction
in the requested fee should result in a corresponding increase in the amount allocated to the class
(rather than a reversion of funds to Bank of America). With respect to attorneys’ fees, the
original settlement agreement provides that, “[t]o the extent the fees and costs awarded by the
Court are less than $1,583,300.00, any remainder will be added to the amount used for charitable
contributions, as set forth in subparagraph b. above.” Settlement ¶ B(1)(1.2)(c). Because the
charitable contribution fund has been combined with the damages fund, any amount cut from the
fee request should be added to the total amount available to the class. Thus, if the Court agrees
that the fee should be based on 10% of the cash value of the settlement, the total fee award
should be reduced to $475,000 and the class recovery should be increased by $1,108,300.
A. The`Fee Application Is Based on a Grossly Inflated Estimate of the Settlement’s Value to the Class.
The first problem with the fee application is that it dramatically overestimates the value of the settlement to the class. To justify their fee, class counsel claimed that the settlement includes both $4.75 million in cash and $13,193,476 in injunctive relief, for a total settlement value of $17,943,476. See Plaintiffs’ Counsel’s Application for an Award of Attorneys’ Fees and Costs; Memorandum of Points and Authorities at 3-4. The claimed value of the injunctive relief is based on the assumption that the change in the cut-off time from 9:00 a.m. to 12:00 noon would be in place for at least five years. See Declaration of Laura Robinson at ¶ 13. Based on the $13 million estimate, class counsel characterized the requested $1.5 million fee as constituting a mere 8.8% of the total settlement value. Id. at 4; see also Declaration of Brian R. Strange in Support of Class Counsel’s Application for Attorneys’ Fees and Costs ¶ 8.
It has since become clear, however, that the injunctive relief is entitled to zero value for
purposes of determining an appropriate attorneys’ fee in this case. First, as noted above, the
Bank’s decision to change its cut-off time was in reaction to other litigation, not this case.
Second, the injunctive relief is only locked in for two years, not five (as assumed by the
Robinson Declaration). This two-year lock-in, moreover, was attributable to the efforts of the
Romberg Objectors, not class counsel, and thus is not entitled to any weight for purposes of
evaluating class counsel’s fee request.
Thus, the nonmonetary aspects of the settlement should
be disregarded in their entirety. At the most, for purposes of the fee application, the settlement is
worth $4.75 million in cash.
B.The Fee Application Seeks an Inappropriately High Percentage of the Actual Value of the Settlement Fund.
The only remaining question is how much of the $4.75 million should be allocated to class counsel. We recognize that the Ninth Circuit has established a “benchmark” of 25% for attorneys’ fee awards in common fund cases. See Six Mexican Workers v. Arizona Citrus Growers, 904 F.3d 1301, 1311 (9th Cir. 1990). The Court has cautioned, however, that “[t]he benchmark percentage should be adjusted, or replaced by a lodestar calculation, when special circumstances indicate that the percentage recovery would be either too small or too large in light of the hours devoted to the case or other relevant factors.” Id.
In this case, there is every reason to believe that a 25% benchmark is far too high “in light of the hours devoted to the case.” Id. As previously noted, there has been almost no litigation conducted in this case. There has been no motions practice and no formal discovery. Bank of America did not even file an answer. The proposed settlement was negotiated within months of the complaint being filed. And, tellingly, class counsel have refused to disclose any information regarding their actual hours spent on the case, even though courts have recognized that the lodestar is an important check on the reasonableness of a percentage-of-common-fund fee request. See, e.g., In re Immunex Securities Litigation, 864 F. Supp. 142, 144 (W.D. Wash. 1994) (“the lodestar method will be used as a cross-check on the percentage method, as often must be done to assure a fair and reasonable result.”). Class counsel thus have failed to establish that their 25% fee request is justified by any reference to the record in this case.
The minimal effort on behalf of the class is further reflected in the recent proceedings before this Court. Class counsel negotiated a settlement that included no permanent injunctive relief for the class, yet submitted a fee application valuing that relief at $13 million. Class counsel agreed to an initial deal that, if approved, would have resulted in little or no money being paid to the class, yet would have lined the pockets of a charity bearing the defendants’ own name. Class counsel agreed to a notice that omits significant information about the case and contains an almost laughably misleading description of the claims process. And now, due to their failure to conduct any discovery, class counsel are attempting to negotiate a distribution plan in the dark, without the benefit of any solid information regarding the Bank’s record-keeping practices. In short, class counsel have expended very little effort on this case, and it shows. Under these “special circumstances,” a downward adjustment of the 25% benchmark is both necessary and appropriate. See In re Quantum Health Resources, Inc., 962 F. Supp. 1254, 1259 (C.D. Cal. 1997) (reducing fee request from 30% to 10% of common fund in securities case where “minimal law and motion practice conducted by the parties” evidenced low risk nature of case). See also In re Cendant Corporation Prides Litigation, 243 F.3d 722, 742-43 (3d Cir. 2001) (vacating fee award of 5.7 to 7.3% of common fund in securities case where parties submitted settlement four months after complaint was filed and there was no significant motion practice), petition for certiorari filed 70 U.S.L.W. 3075 (July 13, 2001) (No. 01-78). Compare Six (6) Mexican Workers, 904 F.2d at 1311 (25% benchmark appropriate where “the litigation lasted more that 13 years, obtained substantial success, and involved complicated legal and factual issues.”).
This conclusion is bourne out by the two companion cases submitted along with class counsel’s fee application, both of which were filed by class counsel against other banks and involve virtually identical claims to this case. In Schwartz v. Citibank, et al., CV 00-00075 LGB (JWJx) (C.D. Cal.), the district court noted that the use of the percentage-of-recovery (“POR”) method to determine an appropriate fee in a settlement class action is dangerous insofar as “[t]his method can create the incentive for class counsel to enter settlements too willingly, in order to guarantee fees for themselves.” Id. at 14. “Furthermore,” the court noted, “POR fee awards run the risk of being excessive when not aligned to the work actually performed by class counsel.” Id. To counterbalance these problems, it is essential that the court presented with a POR fee request consider the actual work done on the case and reduce the benchmark as appropriate. Id. at 14, 23. In Schwartz, given the relatively small amount of litigation in the case, see id. at 21 n.10, the Court “conclude[d] that a downward adjustment of the benchmark to 20% is reasonable.” Id. at 23. In Mayemura v. Chase Manhattan Bank USA, et al., CV-00-753 LGB (JWJx), the Court similarly reduced the benchmark to 20% of the common fund. Id. at 20. The instant lawsuit presents a far more compelling case for a downward adjustment than either Schwartz or Mayamura. First, it appears that there was even less actual litigation in this case than in either of its predecessors. See Schwartz at 21 n.10; Mayemura at 18 n.9. Second, because this lawsuit involves identical legal claims as both Schwartz and Mayemura, class counsel were undoubtedly able to rely on much of their prior work, further reducing the time they spent on this case. This alone is further reason to cut the benchmark below the 20% mark. See Mayemura at 19-20 (noting that, because the settlement was similar to a prior deal reached with a different bank, “it would be safely assumed that this case demanded less time and resources and is thus more worth of a downward adjustment in attorneys’ fees”).
One way to end this speculation, of course, would be to require class counsel to file their time records with the Court. As the situation stands, all we know is that class counsel have spent “hundreds of hours” on this case. See Declaration of Brian R. Strange in Support of Class Counsel’s Application for Attorneys’ Fees and Costs ¶ 4. Generously assuming that they spent 500 hours working on this case, the requested fee of $1,583,300.00 would amount to an hourly rate of $3,166.00. “Even this crude cross-check using the lodestar method reveals that Counsel’s requested fee award is disproportionate to the amount of time expended on the case.” Mayamura at 19 (footnote omitted) (disapproving percentage that would have resulted in hourly rate of $800); see also Cendant Prides, 243 F.3d at 742 (cross-checking 5.7% fee request against lodestar and finding multiplier of 7 to 10, or $3,300 per hour, to be unreasonably high).
In short, there can be no serious question that the requested $1.5 million fee is excessive.
This is a cookie-cutter lawsuit that required very little time or effort on behalf of class counsel. Under these circumstances, there is no basis for awarding a fee equivalent to 50% of the total amount awarded to the class. At the most, the attorneys’ fee should be based on 10% of the total cash value of the settlement, and the remainder should be given to the class.
CONCLUSION
In light of the foregoing, the Romberg Objectors ask this Court to (a) reject the proposed Amended Agreement as unreasonable, unfair, and inadequate; (b) deny class counsel’s fee request as excessive; and (c) find that class counsel have not adequately represented the class.
RESPECTFULLY SUBMITTED BY:
_______________________________________
Richard P. Traulsen, Esq. – State Bar # 016050
BEGAM, LEWIS, MARKS & WOLFE, P.A.
111 West Monroe Street, Suite 1400
Phoenix, Arizona 85003-1787
(602) 254-6071
Leslie A. Brueckner, Esq.
Michael J. Quirk, Esq.
TRIAL LAWYERS FOR PUBLIC JUSTICE
1717 Massachusetts Avenue, N.W. Suite 800
Washington, D.C. 20036
(202) 797-8600
September 17, 2001
ORIGINAL FILED WITH THE CLERK AND COPY
OF THE FOREGOING HAND-DELIVERED THIS
17th DAY OF SEPTEMBER, 2001, TO:
The Honorable Paul G. Rosenblatt
U.S. District Judge
United States District Court
District of Arizona
230 North First Avenue
Phoenix, AZ 85025
COPY OF THE FOREGOING MAILED THIS
17TH DAY OF SEPTEMBER, 2001, TO:
Brian R. Strange, Esq.
Strange & Carpenter
12100 Wilshire Blvd., Suite 1900
Los Angeles, CA 90025
Arne Wagner, Esq.
Morrison & Foerster
425 Market Street
San Francisco, CA 94105