UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
________________________________________________
GAIL L. ROBINSON )
and ALL OTHERS SIMILARLY SITUATED, )
) Case No. 95-C-5635
Plaintiff, )
)
vs. )
)
MARINE MIDLAND MORTGAGE )
CORPORATION, )
)
Defendant. )
OBJECTIONS OF CLASS MEMBER MARGARET QUINN
TO SETTLEMENT AGREEMENT AND FEE PETITION
Joseph A. Power, Jr., F. Paul Bland, Jr.
Power, Rogers & Smith, P.C. Adele Kimmel
35 West Wacker Drive Arthur H. Bryant
Suite 3700 Trial Lawyer for Public Justice, P.C.
Chicago, IL 60601 1717 Massachusetts Ave., N.W.
Fed. Ct. No. 02244276 Suite 800
Washington, D.C. 20036
Counsel for Margaret Quinn
Date: May 20, 1998
TABLE OF CONTENTS
Page
FACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
I. THE “ONE-WAY GAG ORDER” IS AN UNCONSTITUTIONAL
PRIOR RESTRAINT ON SPEECH.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
II. THE SETTLING PARTIES HAVE FAILED TO MEET THEIR
BURDEN OF ESTABLISHING THAT THE SETTLEMENT IS
FAIR.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
A. THE SETTLING PARTIES HAVE NOT MET THEIR BURDEN
OF DEMONSTRATING THAT THE CLAIMS PROCESS IS
FAIR TO CLASS MEMBERS WHO ARE FORMER
MORTGAGORS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
B. THE SETTLING PARTIES HAVE NOT MET THEIR
BURDEN OF DEMONSTRATING THAT THE COUPONS
ARE FAIR TO CLASS MEMBERS WHO ARE CURRENT
MORTGAGORS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1. The Settling Parties Have Not Produced Any Evidence to
Demonstrate that a Significant Number of Class Members
Will Actually Attempt to Redeem Their Coupons.. . . . . . . . . . . . . . . . . . . 7
2. The Settling Parties Have Given Marine Midland the
Ability to Easily Strip the Certificates of Any Value to
Those Class Members Who Actually Attempt to Redeem Them. . . . . . . 10
A. CLASS COUNSEL HAVE PRODUCED NO EVIDENCE TO
SUPPORT THEIR CLAIM THAT THEY HAVE ALREADY
OBTAINED REFUNDS FOR CLASS MEMBERS.. . . . . . . . . . . . . . . . . . . . . . 11
III. BY AGREEING TO A SETTLEMENT THAT CONTAINS AN
UNCONSTITUTIONAL ONE-WAY GAG ORDER AND WILL
PROVIDE NO RECOVERY TO THE VAST MAJORITY OF THE
CLASS, AND BY SEEKING ATTORNEYS' FEES VERY LIKELY
TO EXCEED THE CLASS'S RECOVERY, THE CLASS
REPRESENTATIVES AND CLASS COUNSEL DEMONSTRATED
THEIR INADEQUATE REPRESENTATION OF THE CLASS.. . . . . . . . . . . . . . . . . . 12
IV. THE PROPOSED SETTLEMENT AND CLASS COUNSEL'S
ATTORNEY FEE REQUEST SHOULD BE REJECTED BECAUSE
THE FORMER PERMITS AND THE LATTER SEEKS MORE
MONEY FOR CLASS COUNSEL THAN THE CLASS IS LIKELY
TO RECEIVE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
V. THE COURT SHOULD REQUIRE THE PARTIES TO FILE A
PUBLIC REPORT ON THE NUMBER OF FORMER MORTGAGORS
WHO FILE CLAIMS AND RECEIVE REIMBURSEMENT, AND
THE NUMBER OF CURRENT MORTGAGORS WHO REDEEM THEIR
COUPONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Class member Margaret Quinn, by and through her counsel Trial Lawyers for Public
Justice (“TLPJ”), hereby objects to the proposed settlement of this action and Class Counsel’s fee
petition in this action. These objections shall also serve as Margaret Quinn’s notice that she
intends to participate in this Court's fairness hearing through counsel.
FACTS
This class action was filed in 1995 on behalf of a nationwide class of current and former mortgagors of Marine Midland Mortgage Corp. (“Marine Midland”). In the course of servicing its customers’ residential mortgages, Marine Midland required homeowners to maintain excess “cushions” in their escrow accounts. Complaint ¶ 1. This practice allegedly deprived homeowners of substantial sums of money, in violation of the Real Estate Settlement Procedures Act, various state laws, and the class members’ contracts with Marine Midland. Id. ¶¶ 1-3.
In March 1998, the parties filed the proposed Settlement Agreement (“Agreement”), which gives different sets of relief to the current and former mortgagor class members. The Agreement permits former mortgagor class members who learn of the settlement to apply for a rebate of some undetermined figure that will be less than $10. Agreement ¶ 9. Marine Midland need not pay out more than $1 million in such rebates, but no minimum payment is specified. Id.
The Agreement would give each current mortgagor class member a “discount certificate” worth either $175 or $250 (depending on the date of the class member’s mortgage form) off the closing costs of any new or refinanced mortgage with Marine Midland. Id. ¶¶ 11-12. The certificates are only redeemable on Marine Midland loans; expire after five years; are nontransferable; and may not be redeemed for cash. Id. ¶ 11. Any class member whose loan was in foreclosure or bankruptcy is ineligible for the relief. Id. ¶ 12. Class members who do not qualify for a loan cannot use the certificates. Settlement Notice ¶ b.4. In exchange for this relief, class members would release every conceivable claim they might have against Marine Midland (and its affiliates and successors) relating to Marine Midland’s escrow practices and, in addition, “all claims and causes of action that have been or that could have been brought in this Litigation.” Agreement ¶ 28. Class Counsel would receive up to $665,000 in attorneys’ fees and expenses. Id. ¶ 14.
Notice of the proposed settlement was given to current mortgagors via direct mail and to former mortgagors via a one-time notice published in the New York Times or U.S.A. Today. Agreement ¶ 17.
The Agreement also contains a “one-way gag order” that forbids Class Counsel and counsel for any objecting class members – but not Marine Midland – from saying anything to anyone except their clients about the case. See Agreement ¶ 31. This provision forbids attorneys for any class members from “refer[ring] to, reveal[ing], or characteriz[ing] the Settlement Agreement or any of its terms . . . “ Id.
Class Counsel have entered into at least eight other settlements with mortgage banks that contain relief similar to the coupons provided to the current mortgagors in this case, and have entered into a number of other settlements with mortgage banks that establish claims processes similar to the one established for former mortgagors in this case. One of the earlier coupon settlements was reached well over two and one half years ago. See Settlement Agreeement, Bay v. Citicorp. Mortgage, Nos. 90 C 5357, 91 C 7020, and 93 C 3137 (N.D. Ill.) (providing a claims process for former mortgagors, and seven-year, nontransferable coupons worth $125 and $50 off closing costs of new or refinanced mortgages to current mortgagors) (Exhibit 1).
ARGUMENT
I. THE “ONE-WAY GAG ORDER” IS AN UNCONSTITUTIONAL PRIOR RESTRAINT ON SPEECH.
Generally speaking, any order that prohibits the utterance or publication of particular information or commentary imposes a “prior restraint” on speech. See United States v. Salameh, 992 F.2d 445, 447 (2d Cir. 1993). A prior restraint on constitutionally protected expression carries a heavy presumption against its constitutional validity. See, e.g., New York Times Co. v. United States, 403 U.S. 713, 714 (1971). Although the speech of a litigant participating in judicial proceedings may be subjected to greater limitations than could constitutionally be imposed on the press, the limitations on litigant/attorney speech may be “no broader than necessary to protect the integrity of the judicial system . . ..” Salameh, 992 F.2d at 447. Thus, gag orders on litigants in pending cases violate the First Amendment unless they are narrowly tailored to prohibit only statements posing a “substantial likelihood of material prejudice” to an ongoing adjudicative proceeding. Gentile v. State Bar of Nevada, 501 U.S. 1030, 1074-75 (1991). See also Chicago Council of Lawyers v. Bauer, 522 F.2d 242, 249 (1975) (district court’s rules that barred lawyers from making public comments about ongoing civil and criminal cases deprived litigants of their free speech rights under the First Amendment). Finally, this Court has also previously noted that such a gag order is improper. See Hearing Transcript, Cusack v. Bank United of Texas, No. 95 C 544, at 14 (N.D. Ill. March 4, 1998) (excerpts of which are attached as Exhibit 2 hereto) (“I’m glad that the parties agreed to get rid of the one-way gag order, because once objected to, I would not approve it”).
II. THE SETTLING PARTIES HAVE FAILED TO MEET THEIR BURDEN OF ESTABLISHING THAT THE SETTLEMENT IS FAIR.
Class Counsel have made the following claims: (1) the coupons provided to current mortgagors “will likely amount in the several millions of dollars by the time the credits expire in year 2003,” Memo in Support of Preliminary Approval at 3-4; (2) “[t]he settlement also creates a $1,000,000 cash fund for former mortgagors,” id. at 16; and (3) “[d]uring this litigation, plaintiff achieved the refund of overages” for the class, id. at 14. Class Counsel have cited to no evidence for any of these propositions. Marine Midland has not yet claimed, and also has produced no evidence whatsoever to suggest, that this settlement produces any benefits for the class. In fact, as these objections will establish, each of Class Counsel’s claims is extremely unlikely at best. Unless the Settling Parties present actual evidence to support their claims, or rework this settlement to guarantee that class members will receive meaningful benefits, this settlement should be rejected.
The Settling Parties have the burden of establishing that this settlement is fair. See Newberg & Conte, 1 Newberg on Class Actions § 11.42, at 11-94 (3d ed. 1993) (citing, inter alia, In re General Motors Corp. Engine Interchange Litig., 594 F.2d 1106 (7th Cir. 1979)). Class Counsel have cited several older cases for the proposition that reviewing courts need not worry much about the fairness of class action settlements. In fact, the most recent pronouncement by the Supreme Court mandates that this Court closely scrutinize the fairness of this settlement. In Amchem Products, Inc. v. Windsor, 117 S. Ct. 2231 (1997), the Supreme Court held that the rights of absent class members must be "the dominant concern" of the court, especially in the settlement context. The Supreme Court held that courts should provide "undiluted, even heightened attention in the settlement context" to certain Rule 23 requirements in order "to protect absentees . . . ." Id.
In fact, the Settling Parties had set out to design a claims distribution process that would discourage class members from participating in the settlement, they could hardly have done better than the process set forth in the Settlement Agreement. It is clear that the settling parties have the names and identifying information for all class members. Accordingly, Marine Midland could simply issue an automatic refund to all present mortgagors and send a check to all former mortgagors. Instead, the Agreement provides coupons to current mortgagors and virtually ensures that the vast majority of former mortgagors will receive nothing.
A. THE SETTLING PARTIES HAVE NOT MET THEIR BURDEN OF DEMONSTRATING THAT THE CLAIMS PROCESS IS FAIR TO CLASS MEMBERS WHO ARE FORMER MORTGAGORS.
Attached, as Exhibit 3 hereto, is an affidavit from Todd Hilsee, a nationally recognized expert on class action notices and an expert on financial institution marketing. Mr. Hilsee concludes that less than 1% of the former mortgagors will recover any money under the claims process. Ex. 3 at ¶ 6. In particular, Mr. Hilsee testifies that it is likely that less than 5% of all former mortgagors nationwide even saw the publications that contained the notice to them, id. at
¶ 8 (although a higher portion of New York residents may have seen these publications). Of course, many former mortgagors who did see these publications would never notice, much less read, the small box containing the notice’s fine print. Id. at ¶ 9(a). Even if a former mortgagor actually read the notice, moreover, a review of relevant marketing and class action data reveals that not more than 5%, and possibly less than 1%, of these persons would make claims under this process. Id. at ¶¶ 9-10 .
Accordingly, the process essentially ensures that Marine Midland will end up paying next to no money to former mortgagor class members. The result, for Marine Midland, is a complete release of its liability for paying only a fraction of the claims against it. This Court should find that an Agreement that effectively divides the class into two subclasses, and then creates a process that will predictably ensure that at least 99% of the members of the largest subclass receive no recovery at all, is unfair. This Court should reject the settlement unless it is revised to require Marine Midland to automatically send a check to former mortgagors owed money under the applicable formula.
Alternatively, the settlement should be rejected unless the Settling Parties either (1) demonstrate that a significant number of former mortgagors will use the claims process, by producing all data from previous similar settlements and/or other evidence establishing that fact; or (2) guarantee some minimum payment to former mortgagors (with any amount not paid out being spent for the indirect benefit of the class via cy pres principles)..
With respect to the first point, Class Counsel have a very good idea of how many people
will make claims because they have represented plaintiffs in a number of similar deals.
Accordingly, they should be required to disclose the claims rates in the various other settlements.
The Citicorp settlement has been in place for more than two and one half years. The claims
rates in that and Class Counsel’s other claims process cases are crucial evidence for evaluating
the value of the relief for former mortgagors provided in the Agreement.
With respect to a minimum payment, authorities calling for such guarantees in the closely analogous coupon context are set forth in Part II-B-1 below.
B. THE SETTLING PARTIES HAVE NOT MET THEIR BURDEN OF DEMONSTRATING THAT THE COUPONS ARE FAIR TO CLASS MEMBERS WHO ARE CURRENT MORTGAGORS.
1. The Settling Parties Have Not Produced Any Evidence to Demonstrate that a Significant Number of Class Members Will Actually Attempt to Redeem Their Coupons.
While Class Counsel assert that the coupons will lead to plaintiffs enjoying several millions of dollars in benefits, they offer no evidence to support that claim. In fact, a large body of evidence suggests that the coupons will be redeemed by very few class members.
The coupons established in the Agreement are a fairly common device in class action settlements. Similar coupons have been used in other cases over the last decade, and similar types of coupons are offered in a wide variety of other commercial settings. A number of marketing experts, academics, and diligent courts have taken a hard look at the percentage of consumers who actually redeem such coupons and certificates. Such information bears heavily upon the fairness of this settlement and the propriety of class counsel's requested fee. Nationwide, relatively few consumers expend the time and effort to redeem coupons. "[O]nly 2% of the nation's $180 billion of money-off coupons are redeemed annually." P & G's Sticky Bid to End Coupons, Wall Street Journal at A-1 (April 17, 1997), attached as Exhibit 4 hereto. Coupon redemptions in many class action cases have been even lower. In Buchet v. ITT Consumer Fin. Corp., 845 F. Supp. 684 (D. Minn. 1994), amended, 858 F. Supp. 944, for example, the court noted that the percentage of certificates actually redeemed in four class action settlements was 0.074%; 0.002%; 0.110%; and 0.103%. It should go without saying that if 99.998% of the current mortgagor class members were to receive nothing from this deal, the settlement would not be reasonable. See also Barry Meier, Fistfuls of Coupons: Millions for Class-Action Lawyers, Scrip for Plaintiffs, New York Times, p. C1 at C-5 (May 26, 1995) (attached as Exhibit 5 hereto) (only 1% of 300,000 Chrysler owners used coupon in Renault Encore case); and Strong v. Bellsouth Telecommunications, Inc., 173 F.R.D. 167, 172 (W.D. La. 1997), affirmed, 137 F.3d 844 (5th Cir. 1998) (class counsel characterized the agreement as producing a $64.5 million common fund; “the value of the actual credit requests submitted was $1,718.594.40....”).
A number of factors set forth in the attached affidavit of Mr. Hilsee, and the attached affidavit of Elizabeth Renuart (Exhibit 6), an attorney with the National Consumer Law Center who is an expert on the mortgage lending industry, indicate that the redemption rates are likely to be particularly low for the coupons in this case:
o Many consumers will perceive the coupons to be a solicitation, and as much as 75% of such mail is thrown out. Hilsee at ¶ 12(d). Consumers are particularly unlikely to respond to mailings from the mortgage industry. Id. at ¶ 13.
o Redemption rates will be enormously affected by whether Marine Midland’s loans are competitive with those offered by the hundreds of other mortgage lenders in the United States. Renuart at ¶ 9. The evidence here suggests that the difference between Marine Midland’s terms and those of other lenders with better rates would be more than enough to offset the value of the coupons. Hilsee at ¶ 14(b).
o If past data is a reliable guide, only 43% of class members are even likely to refinance or obtain a new mortgage, Hilsee at ¶ 14(a), indicating that at least 57% of the current mortgagor class members will receive no value from the coupons. In fact, it appears likely that refinancing rates will decline in the next few years, in light of the recent dynamics of the market. Renuart at ¶ 10.
o Marketing evidence shows that half or more of all consumers who refinance their loans do so with a different bank than the lender from their first loan. Hilsee at ¶ 14(c).
In light of the foregoing, the Court should reject the Agreement unless the settling parties either (a) come forward with evidence (if any exists) to demonstrate that the certificates will be redeemed by a significant number of class members – and will provide meaningful relief to the class; or (b) guarantee some minimum payment to the class (or, via cy pres principles, for the indirect benefit of the class members). With respect to the first point, as noted above, Class Counsel have engaged in several similar coupon deals, and they should be required to reveal the coupon redemption rates in cases such as Citicorp.
Alternatively, the settling parties could rework the agreement to ensure that it would
contain meaningful relief for class members. The limited value of the coupons here is
underscored by the fact that the Settlement Agreement includes no minimum guaranteed sum to
go to the class. Thus, if only 0.01% of the class were to redeem the Rebate Certificates, then
Marine Midland would simply keep the other 99.99% of the multi-million dollar "recovery"
claimed by Class Counsel. In a case where there is no strong evidence indicating that a sizeable
portion of class members will actually redeem the coupons, this failure to include a guaranteed
minimum payment justifies rejecting the settlement. See Buchet, 845 F. Supp. at 696 (“[T]he
Court can only assume that ITT's refusal to establish a minimum cash contribution reflects the
economic value it places on the possibility that these certificates will not be redeemed at the rates
predicted by its expert.”) (denying approval to proposed settlement of class action). See also the
National Association of Consumer Advocates’ Standards and Guidelines for Litigating and
Settling Consumer Class Actions, 176 F.R.D. 375, 384 (1997):
A settlement involving certificates should require a minimum level of redemption by the class members within a reasonable period of time. In the event actual redemption does not meet this minimum level, the defendant should provide alternative relief in the form of a common fund. This requirement protects against the use of a meaningless certificate settlement that has little or no impact on a defendant, and little or no compensatory value to the plaintiff class.
2. The Settling Parties Have Given Marine Midland the Ability to Easily Strip the Certificates of Any Value to Those Class Members Who Actually Attempt to Redeem Them.
Redemption rates aside, the certificates could have little or no value even to class members who attempt to use them. Bluntly put, Marine Midland is in the very unusual position of having complete control over whether it will provide any value to class members through the discount certificates.
First, the Agreement imposes no obligation on Marine Midland to treat class members like all other applicants for Marine Midland loans. Thus, Marine Midland could easily inflate a number of the costs charged to class members to offset the discount offered by the certificates. Renuart at ¶ 11. Second, Marine Midland could use different underwriting criteria to either deny class members with coupons refinancing altogether or to charge class members with coupons higher points and fees. Id. ¶ 13. This problem could easily be solved by the addition of “antidiscrimination” language to the settlement. For example, the settlement agreement negotiated by these same Class Counsel and approved by this Court in Gallardo v. PHH US Mortgage Corp., No. 97 C 0844 (N.D. Ill.), addresses the first point about potentially inflated fees. It states “PHH will not discriminate against any Class member who seeks to redeem a coupon by intentionally increasing its closing costs or fees to that Class member specifically in an effort to offset the value of the coupon presented.” See Gallardo Agreement, attached hereto as Exhibit 8, at page 10, ¶ 9. The Settling Parties here have chosen not to include nondiscrimination language related to inflated fees or underwriting criteria in the Agreement, rendering this settlement potentially worthless.
Thus, it is quite possible that the certificates provided by the Agreement will have no value to the class. If true, then the sole beneficiary of this deal will be Marine Midland, which will obtain a complete release from liability in exchange for an Agreement that could yield additional customers for the bank at no additional cost. Viewed this way, class members would be better off with a settlement that provided an actual refund of the interest earned on the inflated escrow accounts maintained by Marine Midland, rather than a deal that entices them into a refinancing that costs more than the face value of the certificate. Renuart at. ¶ 16.
This Court should not approve the settlement unless the Agreement is amended to
provide that class members’ loans will not be subject to any different terms, conditions, costs, and/or underwriting criteria than loans sought by other Marine Midland customers.
C. CLASS COUNSEL HAVE PRODUCED NO EVIDENCE TO SUPPORT THEIR CLAIM THAT THEY HAVE ALREADY OBTAINED REFUNDS FOR ANY CLASS MEMBERS.
As noted above, Class Counsel claim to have “achieved” the result of Marine Midland refunding monies to class members. Memo in Support of Preliminary Approval at 14. Class Counsel’s assertion is unaccompanied by any evidentiary support. Tellingly, Marine Midland has not made any such representation in this case. In fact, Marine Midland has already advised this Court “because of the change in federal regulations . . . MMMC has changed its method of escrow calculations to the aggregate method, and distributed refunds, for all MMMC’s mortgage portfolio.” Response to Plaintiffs’ Motion for Class Cert. at 6-7.
In the absence of any evidence on the matter, the sequence of events suggests that the activities of the state and federal governments -- and not Class Counsel’s handling of this case -- led to changes by Marine Midland. Years before this litigation began, several Attorneys General published a comprehensive report on this problem; the Attorneys General of 17 states brought a test case against GMAC Mortgage Company; and Congress conducted hearings on this topic. See Overchanging on Mortgages: Escrow Account Limits: Hearings Before the Senate Comm. On Governmental Affairs, 102nd Cong. 1st Sess. At 10-11, 83-101 (1991). In 1993, well before this case was filed, the U.S. government issued a proposed regulation that would require banks to change their accounting practices to eliminate excess escrow charges. See 58 Fed. Reg. 64066 (December 3, 1993). Those regulations were made final before this case was brought in this Court. Class Counsel are apparently suggesting that it is acceptable for this settlement to provide little or no new relief beyond that required by the regulation, and for Class Counsel to receive a fee greatly exceeding the “new” relief provided in the settlement, because Class Counsel supposedly caused Marine Midland to change its practices. If this is indeed the proposed factual predicate for approving this deal and this fee, Class Counsel must produce substantial admissible evidence to support this claim.
III. BY AGREEING TO A SETTLEMENT THAT CONTAINS AN UNCONSTITUTIONAL ONE-WAY GAG ORDER AND WILL PROVIDE NO RECOVERY TO THE VAST MAJORITY OF THE CLASS, AND BY SEEKING ATTORNEYS' FEES VERY LIKELY TO EXCEED THE CLASS'S RECOVERY, THE CLASS REPRESENTATIVES AND CLASS COUNSEL DEMONSTRATED THEIR INADEQUATE REPRESENTATION OF THE CLASS.
One of the essential requirements of the Federal Rules of Civil Procedure and Constitutional due process in class actions is that the representative parties -- and their counsel -- fairly and adequately represent the interests of the class. See Amchem Products, Inc. v. Windsor, 117 S. Ct. 2231 (1997); Fed. R. Civ. P. 23(a)(4). That requirement has not been met here.
As noted above, the proposed settlement in this case contains an unconstitutional one-way gag order and ensures that the vast majority of class members will very likely receive no compensation. This Court should hold that when class representatives and class counsel agree to such a settlement, those representatives and counsel have not adequately represented the class. In addition, as shown above and below, it is likely that the requested fee will greatly exceed the actual benefit conferred upon the class. In several states (and this is a nationwide class action, with class counsel claiming to represent plaintiffs from across the nation), it is normally a violation of the professional responsibility code for attorneys to charge a fee that exceeds their client's recovery. E.g., Attorney Grievance Comm'n of Maryland v. Korotki, 569 A.2d 1224, 1233 (Md. 1990) ("Without passing upon whether there can ever be circumstances justifying a contingent fee in excess of fifty percent, it is generally a violation of the rule for the attorney's stake in the result to exceed the client's stake.") This Court should find that a practice that violates the ethical codes of a number of states cannot constitute adequate representation under Rule 23 (a)(4). The excessive fee request is per se proof of inadequate representation.
IV. THE PROPOSED SETTLEMENT AND CLASS COUNSEL'S ATTORNEY FEE REQUEST SHOULD BE REJECTED BECAUSE THE FORMER PERMITS AND THE LATTER SEEKS MORE MONEY FOR CLASS COUNSEL THAN THE CLASS IS LIKELY TO RECEIVE.
Class Counsel have asked this Court to award them $665,000. As set forth above, the demonstrable reality is that only a tiny number of class members are likely to receive anything from this settlement. As a result, it is likely that the requested fee will greatly exceed the actual benefit conferred upon the class. For example, if 1% of the 100,000 former mortgagors receive $10 each, that group will receive a net benefit of $10,000. If 2% of the 90,000 current mortgagors redeemed their coupons for $250 each, that group will receive a net benefit of $450,000. Accordingly, under these fairly generous estimates (and the real numbers are likely to be much lower), the $665,000 attorneys’ fee requested here will greatly exceed the actual recovery to the class.
The Agreement here allows, and Class Counsel request, a fee based upon Class Counsel’s prediction of the class’s recovery. Unlike the contingent claims applications and coupons to be given to the class, Class Counsel propose to take their fee immediately in non-contingent, guaranteed cash. This Court should reject this proposal because an attorneys' fee award should properly be based upon the financial benefits actually provided to the class. See, e.g., Voege v. Ackerman, 67 F.R.D. 432, 436-37 (S.D.N.Y. 1975) (“the fee determination will be reserved until all claims of shareholders entitled to participate in the settlement have been filed and determined.”); Petruzzi's v. Darling Delaware Co., 1997 U.S. Dist. LEXIS 15073, *1-3 (M.D. Pa. Aug. 18, 1997) (noting that the requested fee was “nearly 12 times the sum that the settling class actually received,” to base class counsel’s fee on the defendants' potential liability "if all class members submitted verifiable claims plus the value of the settling defendants' obligation to pay counsel's fees," would base class counsel’s fee upon "a phantom common fund," and would lead to "a perverse result"); Goodrich v. E.F. Hutton Group, Inc., 681 A.2d 1039, 1049 (Del. 1996) (basing attorneys' fee upon actual, not potential, benefit conferred); NACA Guidelines, 176 F.R.D. at 399 (in cases involving certificates and no minimum settlement level, class counsel should not request a percentage fee "until such time as the court can accurately assess the actual value of the settlement (i.e. after the deadline for class member claims [or] after the certificates expire).")
Class Counsel have not yet provided any information about their actual time spent on the case. This Court should review counsel's lodestar as a reality check upon the reasonableness of the requested fee award. This is particularly necessary where, as here, the amount of the benefit actually conferred is imprecise. See Charles v. Goodyear Tire and Rubber Co., 976 F. Supp. 321, 326 (D.N.J. 1997) ("any settlement based upon an award of certificates may prove to be too speculative a value on which to base a fee award").
V. THE COURT SHOULD REQUIRE THE PARTIES TO FILE A PUBLIC REPORT ON THE NUMBER OF FORMER MORTGAGORS WHO FILE CLAIMS AND RECEIVE REIMBURSEMENT, AND THE NUMBER OF CURRENT MORTGAGORS WHO REDEEM THEIR COUPONS.
The question of how many coupons are actually redeemed in class action settlements – and thus whether those settlements actually confer meaningful value on class members – is an issue of concern to courts, policymakers, legal scholars, and the media. See, e.g., Buchet, 845 F. Supp. 684 (court rejected a proposed coupon settlement after finding that the coupon redemption rates in other, similar cases were so low that the settlement offered no real value to the class); “Class Action Lawsuits: Examining Victim Compensation and Attorney’s Fees,” Hearing of the U.S. Senate Judiciary Committee’s Subcommittee on Administrative Oversight and the Courts, October 30, 1997 (witnesses debated whether coupon settlements provide genuine benefits to class members); and Meier, “Fistfuls of Coupons,” supra, (Exhibit 5) (illustrative news article discussing whether coupons offer real value to consumers).
Class counsel and defendants should submit to the court and all counsel of record detailed information about redemption rates and coupon transfers during the entire life of the coupon. By doing so, a public record will be made of what works and what does not work in non-cash settlement cases.
NACA Guidelines, 176 F.R.D. at 384. Accordingly, this Court should reject the settlement because it does not require the settling parties: (1) to keep precise records of the number of class members who actually redeem their discount certificates; and (2) to file publicly with the Court both those records and a report summarizing their contents.
Respectfully submitted,
_________________________
Joseph A. Power, Jr. F. Paul Bland, Jr.
Power, Rogers & Smith, P.C. Adele Kimmel
35 West Wacker Drive Arthur H. Bryant
Suite 3700 Trial Lawyer for Public Justice, P.C.
Chicago, IL 60601 1717 Massachusetts Ave., N.W.
(312) 236-9381 Suite 800
Local Counsel Washington, D.C. 20036
Fed. Ct. No. 02244276 (202) 797-8600
Date: May 20, 1998
EXHIBIT LIST
1. Settlement Agreement, Bay v. Citicorp Mortgage, Nos. 90 C 5357, 91 C 7020, and 93 C 3137 (N.D. Ill.)
2. Excerpts from Hearing Transcript, Cusack v. Bank United of Texas, No. 95 C 544 (N.D. Ill. March 4, 1998)
3. Affidavit of Todd Hilsee
4. P&G’s Sticky Bid to End Coupons, Wall Street Journal (April 17, 1997)
5. Barry Meier, Fistfuls of Coupons: Millions for Class-Action Lawyers, Scrip for Plaintiffs, New York Times (May 26, 1995)
6. Affidavit of Elizabeth Renuart
7. Margaret Quinn’s Motion to Intervene in Bay v. Citicorp. Mortgage
8. Settlement Agreement, Gallardo v. PHH US Mortgage Corp., No. 97 C 0844 (N.D. Ill.)
CERTIFICATE OF SERVICE
I, _______________________, hereby certify that, on this ____ day of May, 1998, a true and correct copy of the foregoing was served by Federal Express overnight mail, delivery prepaid, on counsel for the settling parties as follows:
Charles S. Zimmerman, Esq.
Barry G. Reed, Esq.
Zimmerman Reed, P.L.L.P.
5200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-4123
M. Scott Barrett
Barrett and Associates
150 North Wacker Drive
Suite 2600
Chicago, Illinois 60606
(Class Counsel)
William A. Von Hoene, Jr.
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
(Counsel for Marine Midland)
I declare under penalty of perjury that the foregoing is true and correct. Executed on this ___ day of May, 1998.
________________________________