Source: https://casetext.com/case/staton-v-boeing-co-2
Timestamp: 2018-12-11 22:47:28
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327 F.3d 938 (9th Cir. 2003)
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United States Court of Appeals, Ninth CircuitApr 29, 2003
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Alan B. Epstein, Spector Gadon Rosen, P.C., Philadelphia, PA, for the Plaintiffs-Objectors-Appellants.
Bruce A. Harrell and Oscar E. Desper III, Harrell, Desper, Connell Roesch, Seattle, Washington, and Charles K. Wiggins, Bainbridge, WA, for the Plaintiffs-Appellees.
C. Geoffrey Weirich and Maureen E. O'Neill, Paul, Hastings, Janofsky Walker LLP, Atlanta, GA, for the Defendants-Appellees.
The full court was advised of the petitions for rehearing en banc. A judge of the court requested a vote on whether to rehear the matter en banc. The en banc request failed to receive a majority of the votes of the nonrecused active judges in favor of en banc consideration. Fed.R.App.P. 35.
This case involves a consent decree in an employment discrimination class lawsuit. The action was brought in 1998 by a class of approximately 15,000 African-American employees of the Boeing Company ("Boeing" or "the Company") against the Company. The decree requires Boeing to pay $7.3 million in monetary relief to the class, less reversions and an opt-out credit, and releases Boeing from race discrimination-related and other claims. It further provides for certain injunctive relief, although much of this relief appears to be largely precatory in nature. Finally, the decree awards to the lawyers for the class ("class counsel") $4.05 million in attorneys' fees.
After applying the reversion and opt-out provisions, the damages awarded by the decree amount to approximately $6.5 million.
This amount includes $3.85 million in fees and costs to class counsel and $200,000 to objectors' counsel.
A group of class members objected to the proposed consent decree, arguing that the class fails to meet the certification requirements of Fed.R.Civ.P. 23(a) ("Rule 23(a)") for class actions and that the settlement contained in the decree is unfair, inadequate and unreasonable under Fed.R.Civ.P. 23(e) ("Rule 23(e)"). The district court approved the decree despite the objections, and the objectors appealed to this court. After oral argument, we requested supplemental briefs from the parties concerning the attorneys' fees issues.
The decree goes on to certify a settlement class pursuant to Fed.R.Civ.P. 23(b)(2) for purposes of equitable relief. That class consists of all African-Americans employed by Boeing from the beginning of the applicable limitations periods until the expiration of the decree (including new employees hired after the preliminary approval date of the decree). No opt-outs are allowed from the equitable relief class. The effect of this provision may be that no African-American employed by Boeing during the pertinent period, including new hires, can obtain any injunctive relief — reinstatement, promotion, or change in working conditions, for example — even if he or she opts out of the class for purposes of monetary relief and proves race discrimination in a separate action.
It is possible that new hires are not so barred. The decree provides, in a separate provision, that nothing in the decree "bars any claims of members of the Settlement Class . . . based on or arising out of events occurring after the Preliminary Approval date."
The class receives a total monetary award of $7.3 million. Out of the approximately 15,000-member class, a group of 264 individuals — less than two percent of the class — made up of the named plaintiffs and other class members identified by class counsel as having actively participated in the litigation (together, the "individually identified recipients" or "IIRs") is to receive $3.77 million, more than half the monetary award. The $3.77 million will be distributed among the IIRs in amounts established by class counsel, who credit the assistance of an independent claims adjuster for consultation on many, but not all, of the claims. There is ample evidence in the record that before retaining this claims adjuster class counsel extensively discussed specific award amounts with some IIRs. Moreover, the record indicates that class counsel made the final decisions concerning many of these designated payments.
After opt-outs this group was reduced to 237 persons.
— up to $100,000 for explaining the decree to class members; and
The full $100,000 has already been paid to class counsel, by order of the district court.
(3) Boeing will hire one or more consultants "to assist it in developing and assessing the success of alternative and/or supplemental human resources systems designed to accomplish the objectives in this Section [describing the injunctive relief] of the Decree." The consultant is to be chosen by Boeing and class counsel. The consultant is to investigate the degree to which the decree successfully addresses various of the class members' concerns and to report back to Boeing and class counsel. Nothing in the decree requires Boeing to take any action in response to these reports or otherwise to take any action suggested by the consultant.
The decree appears to provide — but is not lucid in this respect — that Boeing is to designate a group of three nominees from which the consultant will be selected, taking into consideration nominees proposed by plaintiffs.
(4) Boeing — unilaterally — will develop and implement systems for providing information to hourly employees about the Company's promotion systems and will develop and "pilot" a program designed to enable hourly employees to learn who received a particular promotion. Boeing is required to meet and confer with class counsel about the effectiveness of these programs once implemented but is not required to adopt any suggestions class counsel make or, with regard to the "pilot" promotion information program, to do anything more than "determine the feasibility of implementing that program, or comparable programs" throughout the Company.
If Boeing decides that there are "significant impediments to implementing . . . programs" providing information about who received a particular promotion, Boeing is to "meet and confer with Class Counsel regarding alternative approaches." Again, there is no requirement that Boeing actually implement any such alternative approaches.
(7) Boeing "presently plans" to expand its First Level Management Selection Process (FLMSP) to all its operations over the first two years of the decree. The FLMSP, thus far a pilot program at Heritage Boeing locations, attempts to create a standardized, fair process for selecting first-level managers. If "Boeing decides not to implement FLMSP in certain portions of the Company's operations, Boeing will advise Class Counsel of the alternative selection methods which will be utilized in such operations, and Class Counsel will provide feedback to Boeing regarding any systemic concerns about such alternative methods which they believe may impact upon the Settlement Class members." Boeing can modify the FLMSP or eliminate it altogether; if it does so, Boeing must advise class counsel "and consider feedback provided by Class Counsel regarding such changes."
"Heritage Boeing" refers to the portion of the Company that existed before its purchase of the McDonnell Douglas Corporation and parts of Rockwell International.
In partial response, most of the named plaintiffs and Boeing submitted summaries of allegedly comparable average monetary awards in other employment class actions; declarations of several experts, including the Reverend Jesse Jackson, praising the proposed decree (largely on the understanding that the decree would provide individual class members with free legal representation with regard to their employment issues at Boeing); and evidence that Boeing had vigorously contested race discrimination cases brought to trial against the Company, with victorious results that led class counsel, as stated in a declaration to the district court, to be "hard pressed to find anything that would support a nationwide victory over Boeing."
In September 1999, the district court certified a settlement class and approved the decree. In its order approving the decree, the district court concluded that "there are important advantages to class-wide resolution in this type of dispute." The court cited Boeing's past success in defending against individual claims of race discrimination; the court's assessment of the effectiveness of the injunctive relief; and the cooperative nature of the settlement. It found no merit to the objectors' qualms over the class's certification. Plaintiffs' "allegations clearly raise class-wide legal and factual issues sufficient to satisfy the [commonality] requirement." Moreover, typicality was assured by the "broadly selected cross-section . . . of Boeing employees" serving as named plaintiffs. The court proceeded to certify the class.
The "heart of the matter" according to the district court was the amount of the settlement; it reviewed the decree's components and found that the objectors "have not presented any evidence to suggest that the amount of payments appear [ sic] inadequate or unfair when compared with the other cases [cited by Boeing]." Further, the court decided that "the awards to the named parties are not excessive." Without reviewing the proposed decree in any detail in its order, the district court concluded that the injunctive provisions are not "toothless," but "present a novel and potentially effective response to the problem of race discrimination." After rejecting categorically allegations of collusion between class counsel and Boeing, the court concluded, citing this court's precedent, that "the mere possibility of a better settlement is not sufficient grounds for finding the agreement unfair." As a final matter, the district court found the award of attorneys' fees "to be reasonable given the nature of the case, the risks to the plaintiffs' counsel's firm, and the amount of pre-filing and post-settlement work performed."
To vindicate the settlement of such serious claims, however, judges have the responsibility of ensuring fairness to all members of the class presented for certification. Especially in the context of a case in which the parties reach a settlement agreement prior to class certification, courts must peruse the proposed compromise to ratify both the propriety of the certification and the fairness of the settlement. First, the district court must assess whether a class exists; "[s]uch attention is of vital importance, for a court asked to certify a settlement class will lack the opportunity, present when a case is litigated, to adjust the class, informed by the proceedings as they unfold." Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 620, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). Second, the district court must carefully consider "whether a proposed settlement is fundamentally fair, adequate, and reasonable," recognizing that "[i]t is the settlement taken as a whole, rather than the individual component parts, that must be examined for overall fairness. . . ." Hanlon v. Chrysler Corp. 150 F.3d 1011, 1026 (9th Cir. 1998) (citations omitted). When, as here, the parties have entered into a settlement agreement before the district court certifies the class, reviewing courts "must pay `undiluted, even heightened, attention' to class certification requirements. . . ." Id. at 1019 (quoting Amchem, 521 U.S. at 620, 117 S.Ct. 2231). Moreover, concerns about the fairness of settlement agreements "warrant special attention when the record suggests that settlement is driven by fees; that is, when counsel receive a disproportionate distribution of the settlement. . . ." Id. at 1021.
In this case, the objectors contend that the lawsuit does not qualify for class action status under Rule 23(a). We review under the abuse of discretion standard a district court's decision to certify a case as a class action. Armstrong v. Davis, 275 F.3d 849, 867 (9th Cir. 2001). Although we have some concerns, largely relating to litigation management, as to whether the case could be maintained as a class action if the litigation continues, the district court did not abuse its discretion in certifying the case for settlement purposes pursuant to Rule 23.
The objectors argue in the alternative that the district court should not have approved the settlement agreement under Rule 23(e). "We have repeatedly stated that the decision to approve or reject a settlement is committed to the sound discretion of the trial judge because he is exposed to the litigants, and their strategies, positions and proof." Hanlon, 150 F.3d at 1026 (citation and internal quotation marks omitted). Nonetheless, the district court did in this case abuse that discretion. To repeat what this court had reason recently to state: "Although we are always cautious to reverse the . . . approval of a settlement agreement because of the time and effort dedicated by the parties and the district court, we are compelled to do so in this case because of the unjust terms of the decree." Molski v. Gleich, 318 F.3d 937, 956 (9th Cir. 2003).
In fact, the named plaintiffs and objectors share the contention that discriminatory practices at Boeing are widespread and entrenched. According to the district court, "both the supporters of the consent decree and the objectors spoke forcefully of institutional problems with race discrimination." The court may not go so far, of course, as to judge the validity of these claims. "Although some inquiry into the substance of a case may be necessary to ascertain satisfaction of the commonality and typicality requirements of Rule 23(a), it is improper to advance a decision on the merits to the class certification stage." Moore v. Hughes Helicopters, Inc., 708 F.2d 475, 480 (9th Cir. 1983), citing Eisen v. Carlisle Jacquelin, 417 U.S. 156, 177-78, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). But the breadth and consistency of class counsel's initial evidence places the district court's finding of commonality well within that court's discretion.
We understand footnote fifteen of Falcon to present a demonstrative example rather than a limited exception to the overall skepticism toward broad discrimination class actions. That is, as we read Falcon, it does not generally ban all broad classes but rather precludes a class action that, on the basis of one form of discrimination against one or a handful of plaintiffs, seeks to adjudicate all forms of discrimination against all members of a group protected by Title VII, § 1981, or a similar statute.
One Fifth Circuit opinion may reflect the latter approach. In Vuyanich v. Republic Nat'l Bank, 723 F.2d 1195 (5th Cir. 1984), that court over-turned the certification of a class of women and African-American employees and applicants (which was divided into five subclasses). The decision relied in part on the existence of objective factors in the hiring process, referring to the comment in footnote fifteen as a "`general policy of discrimination' exception." "The district court's finding that the Bank relied on two objective inputs — education and experience — in its necessarily subjective hiring process . . . precludes reliance on this `general policy of discrimination' exception." Id. at 1199-1200.
Bouman v. Block, 940 F.2d 1211 (9th Cir. 1991), confirms our reading of Falcon. Bouman was a post-Falcon case in which we upheld the certification of a class of female applicants for a sergeant's position. Defendant Los Angeles County objected to the lack of an evidentiary hearing on the commonality question, citing Falcon. We noted that the district court had concluded "that there were common questions in that `plaintiff is attacking defendants' discriminatory practices against females, and this is not just as it applied to plaintiff only.' This statement identifies a common legal issue, discrimination against women, and a common factual problem, discrimination as applied in the Sheriff's Department." Id. at 1232. We found the Falcon concern inapplicable because class status was not sought on the basis of a single discriminatory practice "as it applied to plaintiff only." Id. For similar reasons, Falcon does not bar a commonality finding in this case.
Third, objectors contend that decision-making at Boeing is too decentralized to permit a class that combines plaintiffs from disparate locales. Objectors rely for this argument on Doninger v. Pac. Northwest Bell, 564 F.2d 1304 (9th Cir. 1977), in which we upheld a district court's denial of certification to an attempted class of female employees and applicants.
Additionally, plaintiffs in Doninger wanted to rely, in the style that Falcon later rejected, on the experiences of a few individuals. Ruling on the commonality question, we found it significant that Pacific Northwest Bell was divided into six "establishments," each with its own affirmative action program, while "[a]ll of the named plaintiffs are employed in one of three establishments. . . ." Id. at 1310. We reasoned that "[s]ince different affirmative action programs, and thus possibly different patterns and practices, exist in each establishment, appellants would have considerable difficulty in adequately representing class members from the other three PNB establishments." Id. at 1311 (footnote omitted).
As noted above, Boeing is responsible for the employment practices of all its units. Class counsel introduced evidence of centralized decisionmaking. The unsurprising fact that some employment decisions are made locally does not allow a company to evade responsibility for its policies. See, e.g., Bates v. United Parcel Serv., 204 F.R.D. 440, 446 (N.D.Cal. 2001); Morgan v. United Parcel Serv. of Am., 169 F.R.D. 349, 356 (E.D.Mo. 1996).
The named plaintiffs . . . include a very broadly selected cross-section of the different categories of Boeing employees. Salaried and hourly, management and line-worker, union and non-union are all represented, as are each of the major geographic hubs of Boeing's operations and each of the pre-merger companies. Particularly in a case in which the requested relief applies evenly to the various sub-groups, this cross-section of Boeing employees suffices to insure that the interests of these sub-groups have been adequately represented, and meets the typicality requirement of Rule 23(a).
That level of specificity is not necessary for class representatives to satisfy the typicality requirement. In Hanlon, we stated that "[u]nder the rule's permissive standards, representative claims are `typical' if they are reasonably coextensive with those of absent class members; they need not be substantially identical." 150 F.3d at 1020. Typicality "does not mean that the claims of the class representative[s] must be identical or substantially identical to those of the absent class members." 5 Herbert B. Newberg Alba Conte, Newberg on Class Actions, § 24.25 at 24-105 (3d ed. 1992); see also Armstrong, 275 F.3d at 869. The district court here was within its discretion to find that the representatives' claims are "reasonably coextensive with those of absent class members." Hanlon, 150 F.3d at 1020.
Rule 23(a)(4) permits the certification of a class action only if "the representative parties will fairly and adequately protect the interests of the class." To determine whether the representation meets this standard, we ask two questions: (1) Do the representative plaintiffs and their counsel have any conflicts of interest with other class members, and (2) will the representative plaintiffs and their counsel prosecute the action vigorously on behalf of the class? Hanlon, 150 F.3d at 1020; see also Molski, 318 F.3d at 955 (quoting Crawford v. Honig, 37 F.3d 485, 487 (9th Cir. 1995), and stating a similar standard).
Counsel conducted broad research, assertedly interviewed some 1,300 employees, held many meetings with class members at various Boeing sites, and achieved some relief from a company that has historically been successful in defending against discrimination claims. See, e.g., Croker v. Boeing Co., 662 F.2d 975 (3d Cir. 1981) (court found against class on all issues of liability; nominal damages granted to individual plaintiffs; decision overruled on other, procedural grounds). Although we later question whether the settlement agreement, as opposed to class counsel's pre-settlement activity, was the result of disinterested representation, that question is better dealt with as part of the substantive review of the settlement than under the Rule 23(a) inquiry. Otherwise, the preliminary class certification issue can subsume the substantive review of the class action settlement. The district court also permitted discovery on the allegations of outright collusion between class counsel and Boeing and concluded that there was no proof that collusion had occurred. The district court neither abused its discretion in finding that counsel's representation was appropriately vigorous for purposes of class certification nor clearly erred in finding that there was no overt collusion.
In Molski, we found inadequate representation under Rule 23(a)(4) primarily because of the different circumstances of the named plaintiff and some members of the class. We did look to the terms and circumstances of the ultimate agreement as confirmation of inadequate representation, but did not base the finding of inadequacy of representation on the substance of the agreement alone. 318 F.3d at 955-56.
Even when there is no direct proof of explicit collusion, there is always the possibility in class action settlements that the defendant, class counsel, and class representatives will all pursue their own interests at the expense of the class. For that reason, the absence of direct proof of collusion does not reduce the need for careful review of the fairness of the settlement, particularly those aspects of the settlement that could constitute inducements to the participants in the negotiation to forego pursuit of class interests. See p. 960, infra.
With regard to the first of the two adequacy questions, objectors contend that a conflict arises from the facts that the class cuts across the levels of authority of Boeing employees and that, in particular, some class members supervise some of their fellow class members. This concern about classes that involve both supervisors and rank-and-file workers can be a valid one in some circumstances. In Wagner v. Taylor, 836 F.2d 578 (D.C. Cir. 1987), for example, the court affirmed a district court's finding of inadequate representation because a representative plaintiff in a Title VII case purported to represent a broad class that included non-supervisory employees. Wagner was both a senior executive and the only representative of an attempted class of all grade GS-9 and above African-American employees of, and applicants to, the Interstate Commerce Commission. The court worried that "[s]upervisory employees are often inappropriate representatives of nonsupervisory employees because the structure of the workplace tends to cultivate distinctly different interests between the two groups. Although each group shares the interest in freedom from discrimination, potential conflicts may and do arise within a class including both." Id. at 595 (footnotes omitted).
"Plaintiffs attempting representation of nonsupervisory employees by supervisory employees . . . must offer evidence of coextensive interests or at least allege the existence of a general discriminatory policy." Newberg and Conte, supra, § 24.42 at 24-170-71. Class counsel have met this burden here. The finding of adequacy was within the district court's discretion.
" Fed.R.Civ.P. 23(e) requires the district court to determine whether a proposed settlement is fundamentally fair, adequate, and reasonable." Hanlon, 150 F.3d at 1026 (citation omitted). The objectors contend that the settlement agreement fails to meet Rule 23(e)'s standards.
To determine whether a settlement agreement meets these standards, a district court must consider a number of factors, including: "the strength of plaintiffs' case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class action status throughout the trial; the amount offered in settlement; the extent of discovery completed, and the stage of the proceedings; the experience and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement." Molski, 318 F.3d at 953 (citation omitted); see also Officers for Justice v. Civil Serv. Comm'n of San Francisco, 688 F.2d 615, 625 (9th Cir. 1982) (noting that the list of factors is "by no means an exhaustive list of relevant considerations, nor have we attempted to identify the most significant factors").
That the class representatives are available for consultation and approval is no solution, for two reasons: First, the class representatives have their own incentives to advance their interests at the expense of the class. Second, class counsel ultimately owe their fiduciary responsibility to the class as a whole and are therefore not bound by the views of the named plaintiffs regarding any settlement. See In re GMC Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 801 (3d Cir. 1995) ("Beyond their ethical obligations to their clients, class attorneys, purporting to represent a class, also owe the entire class a fiduciary duty once the class complaint is filed.").
We have characterized these inherent dangers of class settlements as encompassing the possibility that "the agreement . . . is the product of fraud or overreaching by, or collusion between, the negotiating parties. . . ." Officers for Justice, 688 F.2d at 625; see also Hanlon, 150 F.3d at 1027. By so stating, we do not mean to indicate concern only with overt misconduct by the negotiators. The incentives for the negotiators to pursue their own self-interest and that of certain class members are implicit in the circumstances and can influence the result of the negotiations without any explicit expression or secret cabals. That is why district court review of class action settlements includes not only consideration of whether there was actual fraud, overreaching or collusion but, as well, substantive consideration of whether the terms of the decree are "fair, reasonable and adequate to all concerned." Officers for Justice, 688 F.2d at 625.
Still, both the difficulties of judicial assessment of a compromise settlement, discussed above, and the rule that "[t]he district court's final determination to approve the settlement should be reversed `only upon a strong showing that the district court's decision was a clear abuse of discretion,'" Hanlon, 150 F.3d at 1027 (quoting In re Pac. Enters. Sec. Litig., 47 F.3d 373, 377 (9th Cir. 1995)), circumscribe our inquiry on appeal into the fairness question. As a practical matter we will rarely overturn an approval of a class action consent decree on appellate review for substantive reasons unless the terms of the agreement contain convincing indications that the incentives favoring pursuit of self-interest rather than the class's interests in fact influenced the outcome of the negotiations and that the district court was wrong in concluding otherwise. See Molski, 318 F.3d at 953-54.
Our inquiry therefore most usefully focuses primarily upon whether the particular aspects of the decree that directly lend themselves to pursuit of self-interest by class counsel and certain members of the class — namely, attorneys' fees and the distribution of any relief, particularly monetary relief, among class members — strictly comport with substantive and procedural standards designed to protect the interests of class members. This is not to say that we do not consider the remaining terms of the settlement agreement as well. "It is the settlement taken as a whole, rather than the individual component parts, that must be examined for overall fairness," and "[t]he settlement must stand or fall in its entirety." Hanlon, 150 F.3d at 1026; see also Strong v. BellSouth Telecomms., 137 F.3d 844, 848 (5th Cir. 1998) ("To be enforceable, the Agreement require[s] the final approval of each federal court, pursuant to [Rule] 23(e). Any modification to the Agreement, whether by a party or a court, would render the Agreement void.").
In this case, we are somewhat uneasy, reading the settlement as a whole, about whether in reaching the settlement, class counsel adequately pursued the interests of the class as a whole. Provisions giving rise to this unease include the extent of Boeing's release from liability, which includes any breach of contract action by any class member; the stipulation that the prohibition on race discrimination cannot be enforced in individual cases; the numerous instances in which Boeing is permitted to develop its own remedial schemes (and, in some instances, unilaterally to abandon such schemes as infeasible), with an obligation only to consult with class counsel but with no obligation to submit to any enforcement or dispute resolution mechanism if the schemes are unsatisfactory; the limited role for the consultant Boeing is required to hire; and the incorporation in the agreement of promotion and complaint programs Boeing had already developed and implemented, with no obligation on the part of the Company to continue those programs in their present form or alternatively to substitute programs of the same efficacy.
The racial harassment provisions of the proposed consent decree illuminate the defects in many of the other remedial sections: Unlike the promotion and complaint provisions, the section covering the harassment policy does contain some enforceable standards should Boeing choose to change its policy — "the amended policy [must have] the same import as the [present] Harassment Policy and [be] reasonably designed to achieve the same effect as the Harassment Policy in respect to preventing and remedying racial harassment." Similar language is noticeably absent from all the other sections concerning the programs Boeing is to develop or has developed to remedy discrimination against the class.
We also note that, unlike the district court, we decline to rely in our assessment of the injunctive provisions upon "the approval of several disinterested experts in race discrimination, the Reverend Jesse Jackson first among them." The experts' positive assessments all rely heavily on the assertion that the decree provides all members of the class with three years of free legal assistance to, as one declaration put it, "review their employment history, review proposed or actual job opportunities, . . . assist them with job applications, and . . . challenge the selection of someone else for the jobs." As noted above, Boeing has expressed its skepticism that the decree embodies any obligation on the part of class counsel to provide such free individualized legal assistance or on the part of Boeing to respond to such individualized representation by attorneys. Reading the decree carefully, we share that skepticism.
The attorneys' fees provision provides $750,000 to class counsel for "monitoring, administration, implementation and defense of the Decree," including, in particular, "Class Counsel's time and expenses involved in the processing of claims under Section XI(c)(4) and the distribution of all monetary awards . . . including expenditures by Class Counsel in regard to compensating the Claims Arbitrator. . . ." That language hardly encompasses the individualized representation for future claims of discrimination the experts' declarations assume. Nor does any provision in the decree specifically require Boeing to confer with class counsel about individuals' promotion applications. It may be that class counsel, commendably, intend to attempt to provide such individual representation, although nothing in the factual record indicates a commitment to do so. If so, $750,000 is unlikely to go very far in compensating class counsel for such representation, given the size of the class and the other representational duties for which the decree specifically earmarks the money. Since the experts' understanding of the proposed settlement appears less than precise, the district court should not have relied so heavily upon those assessments, and we do not do so.
Additionally, we cannot say with the requisite certainty that the district court erred in concluding that "the cooperative process which led to the agreement, and the provisions for oversight of the decree by independent observers . . . will lead to genuine improvements in Boeing's internal race relations." The district court was in a position to assess the level of good-will between the parties at the point of settlement, as we are not.
We stress once again that, as this case has not been litigated, we have no way of knowing whether there was in fact race discrimination in employment at Boeing.
In short, the injunctive aspects of the proposed settlement neither directly reflect pursuit of self-interest by favored members of the class nor, standing alone, strike us as being so beyond the pale as a compromise of claims to merit reversal of the district court's fairness assessment. At the same time, the questionable factors we have noted do suggest the possibility that class counsel and the IIRs could have agreed to relatively weak prospective relief because of other inducements offered to them in the course of the negotiations. We therefore scrutinize with particular care the aspects of the proposed settlement that provide monetary benefits directly to class counsel and to the IIRs: the attorneys' fees and damages distribution provisions.
Also contributing to our determination to scrutinize the attorneys' fees provisions with special care is the nature of the notice to the class with respect to fees. The class notice did not break out the amount of attorneys' fees provided for in the settlement agreement, although an alert class member could have calculated those fees from the information provided.
Notice of the amount of fees serves as "adequate notice of class counsel's interest in the settlement." Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Cir. 1993); see also Goldenberg v. Marriott PLP Corp., 33 F.Supp.2d 434, 441 (D.Md. 1998) ("Notice of the potential extent of attorneys fee awards is deemed essential because it allows class members to determine the possible influence of the fees on the settlement and to make informed decisions about their right to challenge the fee award."). Where the class was informed of the amount of fees only indirectly and where the failure to give more explicit notice could itself be the result of counsel's self-interest, the courts must be all the more vigilant in protecting the interests of class members with regard to the fee award.
a. Necessity of Scrutiny: Attorneys' fees provisions included in proposed class action settlement agreements are, like every other aspect of such agreements, subject to the determination whether the settlement is "fundamentally fair, adequate, and reasonable." Fed.R.Civ.P. 23(e). There is no exception in Rule 23(e) for fees provisions contained in proposed class action settlement agreements. Thus, to avoid abdicating its responsibility to review the agreement for the protection of the class, a district court must carefully assess the reasonableness of a fee amount spelled out in a class action settlement agreement. See, e.g., Piambino v. Bailey, 610 F.2d 1306, 1328 (5th Cir. 1980) ("the District Court abdicated its responsibility to assess the reasonableness of attorneys' fees proposed under a settlement of a class action, and its approval of the settlement must be reversed on this ground alone"); Strong, 137 F.3d at 848-50; In re GMC, 55 F.3d at 819-20; Jones v. Amalgamated Warbasse Houses, Inc., 721 F.2d 881, 884 (2d Cir. 1983) (holding with regard to attorneys' fees that "[t]he presence of an arms' length negotiated agreement among the parties weighs strongly in favor of approval, but such an agreement is not binding on the court.").
Jones held that a district court could, after reviewing the attorneys' fees awarded as part of a class action settlement, reduce the amount of fees, apparently while retaining the binding nature of the remainder of the agreement. Such a procedure is not consistent with Evans v. Jeff D., 475 U.S. 717, 726-27, 106 S.Ct. 1531, 89 L.Ed.2d 747 (1986), decided after Jones. Evans held that, with respect to attorneys' fees provisions as with respect to any other provision, "the power to approve or reject a settlement negotiated by the parties before trial does not authorize the court to require the parties to accept a settlement to which they have not agreed. . . . Rule 23(e) does not give the court the power, in advance of trial, to modify a proposed consent decree and order its acceptance over either party's objection." (Footnote omitted). See also Hanlon, 150 F.3d at 1026 (stating, without exception, that "[t]he settlement must stand or fall in its entirety").
That the defendant in form agrees to pay the fees independently of any monetary award or injunctive relief provided to the class in the agreement does not detract from the need carefully to scrutinize the fee award. Ordinarily, "a defendant is interested only in disposing of the total claim asserted against it . . . the allocation between the class payment and the attorneys' fees is of little or no interest to the defense. . . ." In re GMC, 55 F.3d at 819-20 (internal quotation marks and citation omitted); see also Evans v. Jeff D., 475 U.S. 717, 732, 734, 106 S.Ct. 1531, 89 L.Ed.2d 747 (1986) (recognizing that "the possibility of a tradeoff between merits relief and attorney's fees" is often implicit in class action settlement negotiations, because "[m]ost defendants are unlikely to settle unless the cost of the predicted judgment, discounted by its probability, plus the transaction costs of further litigation, are greater than the cost of the settlement package.") (Emphasis added).
We have, in closely analogous contexts, recently so recognized. See Zucker v. Occidental Petroleum Corp., 192 F.3d 1323 (9th Cir. 1999); Lobatz v. U.S. West Cellular, 222 F.3d 1142 (9th Cir. 2000). In Zucker, for example, we stated that "[i]n a class action, whether the attorneys' fees come from a common fund or are otherwise paid, the district court must exercise its inherent authority to assure that the amount and mode of payment of attorneys' fees are fair and proper," 192 F.3d at 1328 (emphasis added); see also id. at 1327 ("In a class action . . . [t]he absence of individual clients controlling the litigation for their own benefit creates opportunities for collusive arrangements in which defendants can pay the attorneys for the plaintiff class enough money to induce them to settle the class action for too little benefit to the class (or too much benefit to the attorneys, if the claim is weak but the risks to the defendants high)."). Similarly, in Lobatz, where the defendant had agreed that it would not contest a fee request of $1 million that was apart from the settlement fund, we noted that "[s]uch an agreement has the potential of enabling a defendant to pay class counsel excessive fees and costs in exchange for counsel accepting an unfair settlement on behalf of the class." 222 F.3d at 1148.
b. Substantive Scrutiny of Statutory Fees: Generally, litigants in the United States pay their own attorneys' fees, regardless of the outcome of the proceedings. In order to encourage private enforcement of the law, however, Congress has legislated that in certain cases prevailing parties may recover their attorneys' fees from the opposing side. When a statute provides for such fees, it is termed a "fee-shifting" statute. Under a fee-shifting statute, the court "must calculate awards for attorneys' fees using the `lodestar' method," Ferland v. Conrad Credit Corp., 244 F.3d 1145, 1149 n. 4 (9th Cir. 2001), which involves "multiplying the number of hours the prevailing party reasonably expended on the litigation by a reasonably hourly rate," Morales v. City of San Rafael, 96 F.3d 359, 363 (9th Cir. 1996) and, "if circumstances warrant, adjust[ing] the lodestar to account for other factors which are not subsumed within it," Ferland, 244 F.3d at 1149 n. 4; see also Caudle v. Bristow Optical Co., 224 F.3d 1014, 1029 (9th Cir. 2000). The rules governing both reduction and enhancement have become increasingly refined over time, and we have therefore required careful explanations by district courts of statutory fee determinations.
See, e.g., City of Burlington v. Dague, 505 U.S. 557, 112 S.Ct. 2638, 120 L.Ed.2d 449 (1992) (prohibiting pure contingency enhancements of the lodestar under fee-shifting statutes); Ferland, 244 F.3d at 1149, 1151 (holding that where the district court cuts substantially the number of hours compensated because of perceived inefficiency, the court must either "calibrate the number [of hours] chosen to demonstrable inefficiency in carrying out particular tasks" or provide an explanation of the level of reduction chosen); Caudle, 224 F.3d at 1029, 1029 n. 11 (finding an abuse of discretion where the district court did not "explicitly follow [lodestar] procedures" and noting that a modest amount of recovery cannot be used to reduce a fee award below the lodestar); Van Gerwen v. Guar. Mut. Life Co., 214 F.3d 1041, 1049 (9th Cir. 2000) (concluding that the district court did not abuse its discretion in refusing to award fees for hours spent on discovery unrelated to the record); Guam Soc'y of Obstetricians Gynecologists v. Ada, 100 F.3d 691, 697 (9th Cir. 1996) (" Dague left undisturbed earlier Supreme Court case law allowing a fee applicant to recover more than the lodestar figure where the applicant has met the burden of showing that such an adjustment is necessary to the determination of a reasonable fee." (internal quotation marks and citations omitted)); Morales, 96 F.3d at 365 (vacating attorneys' fee award because the exception to lodestar calculation for nominal damages cases in which the plaintiff's success is de minimis did not apply); Gates v. Deukmejian, 987 F.2d 1392, 1398, 1400 (9th Cir. 1992) (rejecting the district court's reduction of the lodestar based on the absence of "concise but clear" explanatory language to show that it did not "uncritically accept plaintiffs' suggested reductions and fail independently to review the record"); Cunningham v. County of Los Angeles, 879 F.2d 481, 487, 489 (9th Cir. 1988) (holding four justifications for adjusting the lodestar improper because they are subsumed in the lodestar determination itself).
Both Title VII, § 2000e, et seq., and § 1981 — the two federal statutes under which this suit was brought — have fee-shifting provisions. See § 2000e-5 (k) ("In any action or proceeding under this subchapter the court, in its discretion, may allow the prevailing party . . . a reasonable attorney's fee. . . ."); 42 U.S.C. § 1988 ("In any action or proceeding to enforce a provision of section 1981 . . . the court, in its discretion, may allow the prevailing party . . . a reasonable attorney's fee. . . ."). The parties therefore could have negotiated an award of fees under § 2000e-5(k) and § 1988. Had they done so, the district court's review would have focused on the reasonableness of the fee request under the lodestar calculation method. Were the amount of fees Boeing agreed to pay in the settlement agreement distinctly higher than the fees class counsel could have been awarded by the district court using the lodestar method, the court would almost surely have had to find the fees unreasonable. Absent some unusual explanation, a defendant would not agree in a class action settlement to pay out of its own pocket fees measurably higher than it could conceivably have to pay were the fee amount litigated, unless there was some non-fee benefit the defendant received thereby.
Before we can decide whether the attempted common fund justification in this case was adequate, we must resolve whether the existence of potentially applicable fee-shifting statutory provisions precludes class counsel from recovering attorneys' fees under the common fund doctrine. We conclude, as have the two other circuits that have addressed the issue, that there is no preclusion on recovery of common fund fees where a fee-shifting statute applies.
See Brytus v. Spang Co., 203 F.3d 238, 246-247 (3d Cir. 2000) (holding that common fund fees can be appropriate in both settled and litigated cases where statutory fees are available); Cook v. Niedert, 142 F.3d 1004 (7th Cir. 1998) (approving fees measured by common fund rather than statutory principles where statutory fees were available); Florin v. Nationsbank, 34 F.3d 560, 564 (7th Cir. 1994) (common fund principles "properly control a case which is initiated under a statute with a fee shifting provision, but is settled with the creation of a common fund."); Skelton v. General Motors Corp., 860 F.2d 250, 256 (7th Cir. 1988) ("[W]hen a settlement fund is created in exchange for release of the defendant's liability both for damages and for statutory attorneys' fees, equitable fund principles must govern the court's award of the attorneys' fees."); 1 Mary Francis Derfner and Arthur D. Wolf, Court Awarded Attorney Fees, ¶ 2.05[7] at 2-81 (2001) ("[T]he mere fact that a fee-shifting statute is implicated in the action does not ensure that fees will be awarded under that statute. . . . [F]ees may be taxed against the [settlement] fund under the common fund doctrine." (citing Skelton and Florin)).
Id. (citation omitted). Thus, the common fund doctrine ensures that each member of the winning party contributes proportionately to the payment of attorneys' fees. In contrast to fee-shifting statutes, which enable a prevailing party to recover attorneys' fees from the vanquished party, the common fund doctrine permits the court to award attorneys' fees from monetary payments that the prevailing party recovered in the lawsuit. Put another way, in common fund cases, a variant of the usual rule applies and the winning party pays his or her own attorneys' fees; in fee-shifting cases, the usual rule is rejected and the losing party covers the bill. See generally Wininger v. SI Mgmt. L.P., 301 F.3d 1115 (9th Cir. 2002).
The procedures used to determine the amount of reasonable attorneys' fees differ concomitantly in cases involving a common fund from those in which attorneys' fees are sought under a fee-shifting statute. As in a statutory fee-shifting case, a district court in a common fund case can apply the lodestar method to determine the amount of attorneys' fees. In common fund cases, however, the court can apply a risk multiplier when using the lodestar approach. See In re Wash. Pub. Power Supply Sys. Sec. Litig., 19 F.3d 1291, 1299 (9th Cir. 1994) ("WPPSS") ("[The City of Burlington v. Dague, 505 U.S. 557, 112 S.Ct. 2638, 120 L.Ed.2d 449 (1992)] rationale for barring risk multipliers in statutory fee cases does not operate to bar risk multipliers in common fund cases."). A "multiplier" is a number, such as 1.5 or 2, by which the base lodestar figure is multiplied in order to increase (or decrease) the award of attorneys' fees on the basis of such factors as the risk involved and the length of the proceedings.
Alternatively, in a common fund case, the district court can determine the amount of attorneys' fees to be drawn from the fund by employing a "percentage" method. See Hanlon, 150 F.3d at 1029 ("In `common fund' cases where the settlement or award creates a large fund for distribution to the class, the district court has discretion to use either a percentage or lodestar method."). As its name suggests, under the percentage method, "the court simply awards the attorneys a percentage of the fund. . . ." Id. "This circuit has established 25% of the common fund as a benchmark award for attorney fees." Id.
In Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1882), the 1853 Act was read as not interfering with the historic power of equity to permit the trustee of a fund or property, or a party preserving or recovering a fund for the benefit of others in addition to himself, to recover his costs, including his attorneys' fees, from the fund or property itself or directly from the other parties enjoying the benefit. That rule has been consistently followed. . . . These exceptions are unquestionably assertions of inherent power in the courts to allow attorneys' fees in particular situations, unless forbidden by Congress. . . .
Application of the common fund doctrine to class action settlements does not compromise the purposes underlying fee-shifting statutes. In settlement negotiations, the defendant's determination of the amount it will pay into a common fund will necessarily be informed by the magnitude of its potential liability for fees under the fee-shifting statute, as those fees will have to be paid after successful litigation and could be treated at that point as part of a common fund against which the attorneys' fees are measured. Conversely, the prevailing party will expect that part of any aggregate fund will go toward attorneys' fees and so can insist as a condition of settlement that the defendants contribute a higher amount to the settlement than if the defendants were to pay the fees separately under a fee-shifting statute.
The Seventh Circuit reasoned similarly in Florin:
The settlement agreement approved by the court provides that the defendants are released from potential liability for statutory attorney's fees and that class counsel may instead petition the court for an award of fees from the settlement fund. Thus, the settlement agreement seems to anticipate that the amount paid by the defendants into the fund includes an unspecified sum for class counsel's fees. An award of attorney's fees from the fund would therefore be consistent with the goal of the fee-shifting provision to allow the offending party [to] bear the costs of the award . . . Furthermore, an award of fees from the settlement fund comports with the fee-shifting policy of enabling meritorious plaintiffs who would not otherwise be able to afford to bring a lawsuit . . . to pursue their claims.
Under regular common fund procedure, the parties settle for the total amount of the common fund and shift the fund to the court's supervision. The plaintiffs' lawyers then apply to the court for a fee award from the fund. See Paul, Johnson, Alston Hunt v. Graulty, 886 F.2d 268, 271 (9th Cir. 1989) (in a common fund case, "a court has control over the fund — even one created pursuant to a settlement, as here . . . and assesses the litigation expenses against the entire fund so that the burden is spread proportionally among those who have benefited.") (citing Van Gemert, 444 U.S. at 478, 100 S.Ct. 745); see also Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1046 (9th Cir. 2002) (after approval of the settlement, class counsel applied to the district court for an award of attorneys' fees); Cook, 142 F.3d at 1011 ("In common fund cases, after attorneys obtain a settlement for the class, they petition the court for compensation from the fund. . . ."); Florin, 34 F.3d at 563 (in a common fund case, "the defendant typically pays a specific sum into the court, in exchange for a release of its liability. The court then determines the amount of attorney's fees that plaintiffs' counsel may recover from this fund, thereby diminishing the amount of money that ultimately will be distributed to the plaintiff class.").
On one occasion, we permitted a carefully conceived procedure to substitute for completely independent judicial determination of lodestar-based common fund fees. Hanlon, 150 F.3d at 1029 (fees were negotiated only after the merits agreement was concluded and a mediator present at the negotiations provided assurance to the court "that the fee was not the result of collusion or a sacrifice of the interests of the class" before the district judge reviewed the award using the lodestar, not percentage, method, "requiring class counsel to submit detailed evidence of their work on behalf of the class").
Vizcaino, 290 F.3d at 1052. See also In re Coordinated Pre-trial Proceedings in Petroleum Prods. Antitrust Litig., 109 F.3d 602, 608 (9th Cir. 1997) ("In a common fund case, the judge must look out for the interests of the beneficiaries, to make sure that they obtain sufficient financial benefit after the lawyers are paid. Their interests are not represented in the fee award proceedings by the lawyers seeking fees from the common fund").
The concern motivating the decision in Evans — that prohibiting simultaneous negotiations and agreements as to merits and fees will discourage settlements — simply does not exist, however, in a case, such as this one, in which the parties to the negotiations seek to justify attorneys' fees as coming from a putative fund and to apply common fund principles. Usually, an agreement that provides lawyers fees on a common fund basis constitutes a "lump-sum" agreement, Evans, 475 U.S. at 733, 106 S.Ct. 1531, one that enables defendants to know the precise extent of their liability regardless of the amount of attorneys' fees eventually awarded from the fund. Thus, the parties could have simply agreed upon the total amount of the putative fund, as well as the damages and injunctive relief, and left the division of that fund as between the class and counsel to the district court, as is usual in common fund cases. Requiring the parties to so proceed or, in the alternative, to agree to a fee award as part of the settlement agreement in an amount no higher than could be justified by statutory fee-shifting principles, fully serves the defendant's only legitimate interest in class counsel's fee award. See In Re GMC, 55 F.3d at 819-20 ("[A] defendant is interested only in disposing of the total claim asserted against it . . . the allocation between the class payment and the attorneys' fees is of little or no interest to the defense." (internal quotation marks and citations omitted)); Florin, 34 F.3d at 562 n. 1 ("The parties agreed that attorney's fees were to come out of the settlement fund. Defendants have satisfied their obligation to pay into the settlement fund, and thus have no interest in the amount of fees class counsel want to extract from the fund."). That requirement thereby provides the requisite impetus to settlement on the defendant's part while protecting against a maldistribution of the total settlement package between the class and its counsel.
The description of the total amount of the fund need not take any particular form and could result from adding up separately-enumerated amounts in the agreement.
The parties in this case did not follow either of these procedures, or any other that adequately protected the class from the possibility that class counsel were accepting an excessive fee at the expense of the class. The district court therefore erred in approving the consent decree.
By spelling out these alternatives, we do not mean to preclude all others. Rather, the parties have flexibility in negotiating class action settlement agreements, including the attorneys' fee provisions. The alternatives outlined in the text are paradigms. Any variants, to be reasonable, would have to provide equivalent assurance that the inherent tensions among class representation, defendant's interests in minimizing the cost of the total settlement package, and class counsel's interest in fees are being adequately policed by the court.
Precisely because the value of injunctive relief is difficult to quantify, its value is also easily manipulable by overreaching lawyers seeking to increase the value assigned to a common fund. We hold, therefore, that only in the unusual instance where the value to individual class members of benefits deriving from injunctive relief can be accurately ascertained may courts include such relief as part of the value of a common fund for purposes of applying the percentage method of determining fees. See Van Gemert, 444 U.S. at 478-79, 100 S.Ct. 745. When this is not the case, courts should consider the value of the injunctive relief obtained as a "relevant circumstance" in determining what percentage of the common fund class counsel should receive as attorneys' fees, rather than as part of the fund itself. See Vizcaino, 290 F.3d at 1049. Alternatively, particularly where obtaining injunctive relief likely accounted for a significant part of the fees expended, courts can use the common fund version of the lodestar method either to set the fee award or as a cross-check to assist in the determination of how the "relevant circumstance" of the injunctive relief should affect a percentage award. See id. at 1050 ("Calculation of the lodestar, which measures the lawyers' investment of time in the litigation, provides a check on the reasonableness of the percentage award.").
Appellees cite cases in which fees have been awarded as a percentage of what they refer to as "non-monetary" benefits. But there is no appellate case cited that supports the fee award here. Two of the cases cited concerned not a common fund but the inapplicable common benefit doctrine. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 392, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); Loring v. City of Scottsdale, 721 F.2d 274, 275 (9th Cir. 1983). And in Hanlon, supra, and Wing v. Asarco Inc., 114 F.3d 986, 990 (9th Cir. 1997), attorneys' fees were calculated (as opposed to cross-checked) not by a common fund percentage approach but using the lodestar method.
As Vizcaino notes, where attorneys' fees are awarded on a common fund basis, "[t]he bar against risk multipliers . . . does not apply," so the lodestar approach can include a risk multiplier. 290 F.3d at 1051; see also Florin, 34 F.3d at 564; WPPSS, 19 F.3d at 1299-1300.
The district court also did not abuse its discretion by including the cost of providing notice to the class of the proposed consent decree as part of its putative fund valuation, although the cost of providing two notices rather than one should not have been included. We have said that "the choice of whether to base an attorneys' fee award on either net or gross recovery should not make a difference so long as the end result is reasonable. Our case law teaches that the reasonableness of attorneys' fees is not measured by the choice of the denominator." Powers v. Eichen, 229 F.3d 1249, 1258 (9th Cir. 2000). The post-settlement cost of providing notice to the class can reasonably be considered a benefit to the class. Also, where, as here, it is the defendant who pays for the notice, we may assume that the inherent incentives to minimize the cost involved are sufficient. Additionally, the court's supervision of the form of notice and the method of communication assures that the costs expended are contained. We conclude that where the defendant pays the justifiable cost of notice to the class — but not, as here, an excessive cost — it is reasonable (although certainly not required) to include that cost in a putative common fund benefiting the plaintiffs for all purposes, including the calculation of attorneys' fees.
The district court "considered this disparity carefully because excessive payments to named class members can be an indication that the agreement was reached through fraud or collusion." Indeed, "[i]f class representatives expect routinely to receive special awards in addition to their share of the recovery, they may be tempted to accept suboptimal settlements at the expense of the class members whose interests they are appointed to guard." Weseley v. Spear, Leeds Kellogg, 711 F.Supp. 713, 720 (E.D.N.Y. 1989); see also Women's Comm. for Equal Employment Opportunity v. Nat'l Broad. Co., 76 F.R.D. 173, 180 (S.D.N.Y. 1977) ("[W]hen representative plaintiffs make what amounts to a separate peace with defendants, grave problems of collusion are raised.").
Class counsel represent that an individual became an IIR due to his or her willingness to step forward, risk retaliation, contribute to the attorneys' costs, and assist in coordination of the lawsuit. The contention is that the individuals with the strongest claims were the most likely to participate in this manner. But that generalization greatly oversimplifies. Some further, considerably more direct evidence regarding the strength of the IIRs' claims is necessary to justify the large disparities in damages.
For instance, a declaration by one of the class lawyers states that the named plaintiffs were those who were willing to take the risk of appearing as named plaintiffs; being team leaders; assisting the regional groups in gathering documents, evidence, and identifying other witnesses; coordinating the information flow to and from class counsel; assisting in efforts to raise sums to pay for the cost of this litigation; and/or agreeing to come forward with their claims and be witnesses. In our minds, each of these people was in effect a class representative or at least prepared to be a class representative.
Such special rewards for counsel's individual clients are not permissible when the case is pursued as a class action. Generally, when a person "join[s] in bringing [an] action as a class action . . . he has disclaimed any right to a preferred position in the settlement." Officers for Justice, 688 F.2d at 632. Were that not the case, there would be considerable danger of individuals bringing cases as class actions principally to increase their own leverage to attain a remunerative settlement for themselves and then trading on that leverage in the course of negotiations.
In In re Cont'l Ill. Sec. Litig., 962 F.2d 566, 571 (7th Cir. 1992) (hereinafter " Continental Illinois"), the Seventh Circuit approved of "incentive fees" to compensate named plaintiffs for the risks they take and their vanguard role in the class action. See id. ("Since without a named plaintiff there can be no class action, such compensation as may be necessary to induce him to participate in the suit could be thought the equivalent of the lawyers' nonlegal but essential case-specific expenses, such as long-distance phone calls, which are reimbursable."). Continental Illinois would not justify the damages distribution in this case, as the much higher awards in the consent decree went to a large group of class members, not only to the class representatives. The two hundred-odd IIRs who were not class representatives were not essential to the litigation, although they may have been helpful to it.
We have, however, approved incentive awards of $5,000 each to the two class representatives of 5,400 potential class members in a settlement of $1.725 million. See In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 463 (9th Cir. 2000); see also In re U.S. Bancorp Litig., 291 F.3d 1035, 1038 (8th Cir. 2002) (approving $2,000 incentive awards to five named plaintiffs out of a class potentially numbering more then 4 million in a settlement of $3 million); Cook, 142 F.3d at 1016 (approving, in the context of a recovery of more than $14 million, an incentive payment of $25,000 to one named plaintiff who "spent hundreds of hours with his attorneys and provided them with `an abundance of information'"); Continental Illinois, 962 F.2d at 571-72 (upholding a district court's rejection of a proposed $10,000 award to a named plaintiff "for his admittedly modest services"); In re SmithKline Beckman Corp. Sec. Litig., 751 F.Supp. 525, 535 (E.D.Pa. 1990) (approving $5,000 awards for one named representative of each of nine plaintiff classes involving more than 22,000 claimants in a settlement of $22 million). In the proposed consent decree in this case, 29 named class representatives are designated to receive payments totaling $890,000. Compared to the three cases just mentioned, the different orders of magnitude in the present case concerning the number of named plaintiffs receiving incentive payments, the proportion of the payments relative to the settlement amount, and the size of each payment — here up to $50,000, with an average of more than $30,000 — are obvious. Nevertheless, named plaintiffs, as opposed to designated class members who are not named plaintiffs, are eligible for reasonable incentive payments. The district court must evaluate their awards individually, using "relevant factors includ[ing] the actions the plaintiff has taken to protect the interests of the class, the degree to which the class has benefitted from those actions, . . . the amount of time and effort the plaintiff expended in pursuing the litigation . . . and reasonabl[e] fear[s of] workplace retaliation." Cook, 142 F.3d at 1016.
Additionally, class members can certainly be repaid from any cost allotment for their substantiated litigation expenses, and identifiable services rendered to the class directly under the supervision of class counsel can be reimbursed as well from the fees awarded to the attorneys. See Missouri v. Jenkins, 491 U.S. 274, 285, 109 S.Ct. 2463, 105 L.Ed.2d 229 (1989). Similarly, if class members other than the named plaintiffs demonstrate that they were in fact retaliated against — or at least make some credible allegation of past or possible future retaliation — based on their role in the lawsuit, higher damages awards for such individuals than for other members of the class would be justified. But any plaintiff assumes the risk of retaliation, and we hesitate to single out non-named plaintiff IIRs as entitled to special payments simply for undertaking such risk.
According to class counsel, counsel will return to the IIRs the monies they paid under retainer agreements, so the damages awards do not cover those funds.
All these concerns about incentive or risk payments to certain class members are exacerbated in this case by the allegation, and in one case (that of Cordell Bolder) the apparent reality, that IIR awards went to individuals who were not proper members of the class. Again, if those individuals rendered compensable services to the lawyers, then the lawyers should pay for those services from the amount of the fund properly awarded for costs or fees, as appropriate. But if one or more of these individuals is clearly not a member of the class and therefore not entitled to any damages award, any proposed decree should be approved only if the provision awarding that person or those persons damages is deleted. If, alternatively, an individual's class membership is debatable, then the award to him or her can be considered an element of the compromise.
On remand, the parties will have a choice concerning whether to attempt to justify the present proposed agreement under the principles outlined above or, instead, to renegotiate the aspects of the agreement we have indicated are questionable. If they choose the former course and are able to justify the damages distribution (which on the present record appears quite unlikely), they will then also have to substantiate the fee award using a lodestar calculation under the applicable fee-shifting statutes rather than on a common fund basis. For the reasons stated, the fee as it stands cannot be justified on a common fund basis, and the court can only approve or disapprove the present agreement in its entirety. Thus, if the fee cannot be justified on the fee-shifting statutory basis, the entire agreement will have to be renegotiated.
In that case, the limitation on risk multipliers announced in Dague, supra, would apply.
The Objectors correctly direct our attention to the rule that we have an obligation to police the settlement of class actions for evidence of collusion. See Fed.R.Civ.P. 23(e) ("A class action shall not be dismissed or compromised without the approval of the court. . . .") "The purpose of this salutary requirement is to protect the nonparty members of the class from unjust or unfair settlements affecting their rights" as well as to minimize conflicts that "may arise between the attorney and the class, between the named plaintiffs and the absentees, and between various subclasses." Piambino v. Bailey, 610 F.2d 1306, 1327-28 (5th Cir. 1980). We are to be cognizant of the "`danger . . . that the lawyers might urge a class settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment for fees.'" In re General Motors Corp. Pick-Up Truck Fuel Products Liab. Litig., 55 F.3d 768, 819 (3d Cir. 1995) (quoting Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 524 (1st Cir. 1991)). In fact, this is the precise rationale fueling the Objectors' challenge to the attorneys' fees agreement: it suggests (1) that the attorneys "exploited the class action device to obtain large fees at the expense of the class," and (2) that the representation was deficient.
Furthermore, this case, like all such cases, is unique in its facts and circumstances, and the district court's clear understanding of all of its aspects, as expressed in the court's Order of approval, dated September 30, 1999, explain away the "troublesome" dimensions of the settlement over which my colleagues — and the Objectors — fret. Three of these circumstances are covered by the first three Hanlon factors the district court must — and did — independently verify to determine that the consent decree is fair, adequate, and reasonable: (1) the strength of the plaintiffs' case; (2) the risk, expense, complexity, and likely duration of further litigation; and (3) the risk of maintaining class action status throughout the trial. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998). The district court made the following findings and conclusions about these factors:
In June 1998, I was asked if I would review the racial issues pertaining to The Boeing Company ("Boeing") and, if I felt there was a problem, if I could offer some assistance. Before agreeing to do so, I reviewed a substantial number of documents regarding promotional opportunities for African-Americans at Boeing. I met many of the named plaintiffs in the class action to hear, first hand, what they perceive to be the roadblocks to equal opportunity at Boeing. I was impressed by the named plaintiffs, their candor, and their ability to articulate what they perceive to be the hurdles to equal opportunity. In conversations with them it was clear they were pursuing this litigation not for monetary gain for themselves or to receive a substantial monetary award for the class or particular individuals with grievous discriminatory claims but, instead, they were committed to trying to find a mechanism which would over time permit qualified minorities to have the jobs they deserved but only after full and fair competition with non-minorities. They were not looking for freebies but simply a fair opportunity to be considered and to be promoted on their own merits. After listening to these named plaintiffs, and after discussing the matter with McKAY HUFFINGTON HARRELL DESPER ("Plaintiffs' Class Counsel"), I agreed to participate in the process. I contacted senior management at Boeing and scheduled several meetings with them. I personally met with Phil Condit and other senior management officials. We openly and candidly discussed the racial issues at Boeing and they provided materials that I requested so that I could review the significance and magnitude of the issues at Boeing. After these meetings, I met with and worked with Plaintiffs' Class Counsel and the named plaintiffs in defining the goals of this litigation, what could be achieved and how to achieve it. I have not been paid any compensation [for] my services and advice, nor have the organizations with which I am affiliated been paid anything for my services, and there have been no promises of nor is there an expectation of payment in the future either for past or future services regarding this litigation or Boeing.
The success of any diversity initiative is dependent on how much the employer polices itself. In today's corporate environment, effective diversity efforts are being moved beyond H.R. organizations and made the responsibility of line managers. Human Resources and EEO resources are never sufficient. The management team will always choose to devote its limited resources and money to activities that more directly generate income. Putting these two phenomenon [ sic] together means that even the best affirmative action plan cannot achieve optimal results. However, if an organization is willing to allow an outside firm to assist in these efforts, incredible value is bestowed upon the employee, with bottom line improvements being passed on to the organization.
My colleagues express similar concern about attaching value to what they dismiss as "changes already . . . implemented," as though matters in the works somehow do not count, or have no value. Yet, they overlook why the changes which they discount came to pass. To quote Boeing in its brief to this court:
The concerns — and litigation threats — expressed by the two groups centered around perceived unfairness in promotions, especially: (1) the ERT ("Employee Request for Transfer") system used by Boeing as an element of selecting persons for promotions within the hourly ranks; (2) perceived unfairness in the selection of entry-level managers; and (3) perceived ineffectiveness of the EEO investigation and corrective action function. While Boeing did not believe that these systems were discriminatory, the company nevertheless began to develop improved processes in response to these concerns and threats of litigation. Equitable relief to address these concerns — as well as additional relief addressing other issues — is now found in the Consent Decree. When a defendant takes voluntary action to address claims raised by plaintiffs in litigation, its actions are hardly considered "illusory" — under appropriate circumstances plaintiffs in such cases may be considered "prevailing parties" entitled to recover attorneys' fees. See, e.g., Stivers v. Pierce, 71 F.3d 732, 751 (9th Cir. 1995) (citing Farrar v. Hobby, 506 U.S. 103, 113 S.Ct. 566, 121 L.Ed.2d 494 (1992)).
The standard of review we are bound to employ is highly deferential, as it should be. As the majority admits, "We have repeatedly stated that the decision to approve or reject a settlement is committed to the sound discretion of the trial judge because he is exposed to the litigants, and their strategies, positions, and proof. Hanlon, 150 F.3d at 1026 (citation and internal quotation marks omitted). Accordingly, a district court's final determination to approve the settlement should be reversed `only upon a strong showing that the district court's decision was a clear abuse of discretion' . . ." Hanlon, 150 F.3d at 1026 (quoting In re Pac. Enters. Sec. Lit., 47 F.3d 373, 377 (9th Cir. 1995)). Here, not only do the majority fail to adhere to this deferential standard, adopting instead a standard of "somewhat uneasy with the settlement as a whole"; but in my view, they do so in a case where the district court's approval of the settlement and of the attorneys' fees was clearly an appropriate exercise of discretion. The district court judge responsible for this case is highly experienced, capable, and astute, one over whose eyes no one pulls the wool. It is a rare settlement that will delight all parties, but this settlement has much to say for it. Accordingly, I dissent from a decision that will have the effect of unnecessarily delaying full implementation of this efficacious solution for four years — if not more — from the date the district court found it to be appropriate.