Court Opinion

ID: 3004414
Source: CourtListenerOpinion
Date Created: 2015-09-24 22:50:05.657859+00
Date Added: 2024-06-11T11:39:14.702937
License: Public Domain

In the

United States Court of Appeals
                For the Seventh Circuit

No. 10-1154

IN RE:

    T RANS U NION C ORPORATION P RIVACY L ITIGATION.

A PPEAL OF:

    D AWN A DAMS W HEELAHAN.

              Appeal from the United States District Court
         for the Northern District of Illinois, Eastern Division.
              No. 00 C 4729—Robert W. Gettleman, Judge.

   A RGUED S EPTEMBER 17, 2010—D ECIDED JANUARY 14, 2011

  Before P OSNER, K ANNE, and W OOD , Circuit Judges.
   P OSNER, Circuit Judge. It is a curiosity of class action
litigation that often there is greater ferocity in combat
among the class lawyers over the allocation of attorneys’
fees than there is between the class lawyers and the
defendants. The contest among the lawyers is a zero-
sum game. But the contest between them and the defen-
dants is a positive-sum game because the class lawyers
2                                               No. 10-1154

are naturally very interested in the fee component of
any settlement, while the defendants care only about
the size of the settlement, including fees. So the lawyers
may be willing to settle for less for the class if the de-
fendants will help them obtain a generous fee award,
and the defendants will be happy to help them if the sum
of the fee award and the relief granted to the class is
smaller than it would be if the class lawyers pressed for
more generous relief for the class. E.g., Thorogood v. Sears,
Roebuck & Co., 624 F.3d 842, 848-49 (7th Cir. 2010); Vollmer
v. Selden, 350 F.3d 656, 660 (7th Cir. 2003); Reynolds v.
Beneficial National Bank, 288 F.3d 277, 282 (7th Cir. 2002);
In re General Motors Corp. Pick-Up Truck Fuel Tank Products
Liability Litigation, 55 F.3d 768, 778, 802 (3d Cir. 1995);
Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518,
524 (1st Cir. 1991).
  Indeed, class lawyers may try to fend off interlopers
who oppose a proposed settlement as insufficiently
generous to the class; and given the role of such
interlopers in preventing cozy deals that favor class
lawyers and defendants at the expense of class members,
their requests for fees must not be slighted. Mirfasihi v.
Fleet Mortgage Corp., 356 F.3d 781, 782-83 (7th Cir. 2006);
Vollmer v. Selden, supra, 350 F.3d at 659-60; Crawford v.
Equifax Payment Services, Inc., 201 F.3d 877, 880-82 (7th
Cir. 2000); In re General Motors Corp. Pick-Up Truck Fuel
Tank Products Liability Litigation, supra, 55 F.3d at 803.
  One such objecting lawyer in the present case, the
appellant, Dawn Wheelahan, was awarded $2.7 million
in attorneys’ fees by the district court for her contribu-
No. 10-1154                                              3

tion to the generous settlement of the Trans Union Corpo-
ration Privacy Litigation. She contends that she’s
entitled to three times as much as she was awarded,
both because the total attorneys’ fees awarded to class
counsel were too little and because her share of them
was too small. She is not opposed by the class action
defendant, Trans Union, because this is a “common fund”
suit; attorneys’ fees come out of the amount of damages
awarded the class, and so Trans Union has no stake in
the dispute over fees. Wheelahan’s only opponents are
some of the other class lawyers, who fear that an in-
crease in the amount of fees awarded to her would come
at their expense. They don’t object to an increase in the
total fees awarded, or indeed to an increase in the
share awarded to her that would not reduce their
fees. With the class members unrepresented and the
defendant indifferent to the overall award of attorneys’
fees, we must decide the appeal with limited assistance
from an adversary presentation. But this is a standard
dilemma in class action adjudication, as we noted at the
outset, and may be unavoidable without elongating
the litigation disproportionately to the stakes in the
fee dispute.
  The other lawyers for the class (with one exception) were
prepared to settle the case for $40 million, consisting
of $20 million in cash plus relief in kind valued at
$20 million. Wheelahan opposed the settlement, and as
a result solely of her opposition (she argues) the case
was eventually settled for a little under $110 million
(we’ll ignore the little under), of which $75 million was
in cash and the other $35 million was the estimated value
4                                              No. 10-1154

of the relief in kind included in the settlement. At the
oral argument Wheelahan told us that she should re-
ceive at least 20 percent of the added value of $70 million
as her fee. That would be $14 million, rather than the
$2.7 million that she was awarded. Her brief, however,
asks for only $8.4 million. As that amount is, as we’ll
see, excessive the $14 million is pie in the sky and can
be ignored.
  The dispute over fees grows out of a litigation that
began in 1998 with the filing of a number of class actions
charging Trans Union, a large credit-reporting agency,
with violating the Fair Credit Reporting Act, 15 U.S.C.
§§ 1681 et seq., by selling information in its consumer
credit files to advertisers without the consumers’ authori-
zation. The actions were consolidated for pretrial pro-
ceedings in the Northern District of Illinois. In 2006
lawyers referred to by the parties to the appeal as “MDL
Counsel,” who had filed the earliest cases, agreed with
Trans Union to a $40 million settlement. Wheelahan, who
had filed her own class action in 2005, opposed the pro-
posed settlement, and her opposition, together with that
of class counsel in a case filed against Trans Union
in Texas, persuaded the district judge to rescind his
preliminary approval.
  He approved the final settlement of $110 million in 2008.
The settlement placed a ceiling of $18.75 million on attor-
neys’ fees for the class lawyers (remember that the fees
come out of the common fund created by the settle-
ment). The lawyers urged the district court to award
this amount—17 percent of the estimated value of the
No. 10-1154                                                 5

settlement. The district judge, however, thought $18.75
million excessive and reduced it to $10.83 million, but
later reconsidered and referred the issue of fees to a
special master, who recommended an award of $13
million, of which about two-thirds ($7.8 million) would
go to the MDL counsel and most of the rest to Wheelahan
and to the Texas counsel. The district judge accepted
the recommendation.
  The special master arrived at these figures by first
determining the total amount of attorneys’ fees that
would be reasonable to award and then allocating that
amount among the lawyers. He placed little weight on
the contingent fee agreements between the lawyers and
the “clients” (the named plaintiffs in the class actions),
recognizing that named plaintiffs are usually cat’s paws
of the class lawyers. In re Cavanaugh, 306 F.3d 726, 737-38
(9th Cir. 2002); Goldberger v. Integrated Resources, Inc., 209
F.3d 43, 53 (2d Cir. 2000); John C. Coffee, Jr., “The Regula-
tion of Entrepreneurial Litigation: Balancing Fairness
and Efficiency in the Large Class Action,” 54 U. Chi.
L. Rev. 877, 885-86 (1987). That’s especially true when, as
in this case, the prospective relief for an individual
class member is minuscule: the class has 190 million
members!—though most have not filed claims and the
deadline for filing is past. The special master recognized
that his task was to estimate the contingent fee that
the class would have negotiated with the class counsel
at the outset had negotiations with clients having a real
stake been feasible. In re Synthroid Marketing Litigation,
264 F.3d 712, 718-20 (7th Cir. 2001); see also Missouri v.
Jenkins, 491 U.S. 274, 285-86 (1989); but see Goldberger v.
Integrated Resources, Inc., supra, 209 F.3d at 51-52.
6                                             No. 10-1154

  Such estimation is inherently conjectural, and what
the special master mainly did was examine data on
awards of attorneys’ fees in other class actions. He
relied heavily on an academic study which had found that
between 1993 and 2002 the average awards of attorneys’
fees in common fund consumer class actions had been
either 16.2 or 24.3 percent of the amount of the settle-
ment, depending on which of two datasets of such
awards were consulted. Theodore Eisenberg & Geoffrey P.
Miller, “Attorney Fees in Class Action Settlements:
An Empirical Study,” 1 J. Empirical Legal Stud. 27, 51
(tab. 1) (2004). The average award declined in percentage
terms as the size of the settlement increased, in recogni-
tion of the fixed-cost component of a lawyer’s activity in
a case—there is an irreducible minimum of lawyer
activity that must be undertaken if the client is to have
a reasonable chance of prevailing, no matter how small
the stakes in the case. In the case of settlements of
between $79 million and $190 million (the range within
which the settlement in this case fell), the study found
that the average attorneys’ fee awards were 17.6 or
19.5 percent of the settlement, again depending on the
dataset. Id. at 73 (tab. 7). The award that the parties to
the settlement in the present case recommended—$18.75
million—was just below that range: 17 percent of $110
million, as we said.
  The special master then looked at a group of securities
cases and from the fee awards made in them estimated
that if the settlement in such a case had as in this case
been $110 million the fee award would have been between
3.8 percent and 23.2 percent. He thought this range rele-
vant because plaintiffs’ discovery costs tend to be higher
No. 10-1154                                                 7

in securities class actions than in consumer class actions.
But he did not indicate how one might adjust the fee
award in this case to reflect the presumed lower cost of
discovery.
  He then considered the noncash portion of the settle-
ment: a choice, valued as we said at $35 million, between
two “free” credit monitoring services that Trans Union
would offer each class member who filed a complaint:
    (1) Get six months of free credit monitoring services
    (which retails for $59.75) that includes: (a) the ability
    to lock your credit report so third parties, such as
    lenders or other companies, will not be able to access
    your credit report without your consent (unless al-
    lowed by law); (b) unlimited daily access to your
    Trans Union credit report and credit score; and
    (c) credit monitoring with a 24-hour email credit
    notification service; OR
    (2) Get nine months of enhanced credit monitoring
    services (which retails for $115.50) that includes all
    the services listed above, plus a suite of insurance
    scores (which allows you to see your credit informa-
    tion as insurance companies do) and a mortgage
    simulator service (a customized report that shows
    the mortgage rates that you should qualify for).
In re Trans Union Privacy Litigation, “Detailed Notice,” p. 5,
www.listclassaction.com/content/Detailed_Notice.pdf
(visited Jan. 5, 2011) (emphasis in original). The special
master thought this in-kind relief worth less to class
members than $35 million in cash would have been
worth and that the attorneys’ fee awards should there-
8                                               No. 10-1154

fore be lower than the awards for cash relief—only
5 percent of the $35 million. In contrast, he awarded
15 percent of the cash portion of the settlement.
  The $35 million figure is the retail price of the offered
services multiplied by the number of class members
who asked for the services in lieu of cash. The value of
the services to a member of the class could be less
than the retail price. The members of the class were
presented with a choice between cash relief—not
knowing the actual amount they’d receive—and in-kind
relief. (This is a standard feature of settlements in
common fund class actions.) The amount of cash to
which each class member asking for cash rather than
services would be entitled would be $75 million divided
by the number of such claimants. If they are very numer-
ous, the cash that each would receive would be less than
the value of the in-kind relief even if a class member
valued that relief at less than its retail price. Suppose the
class member can obtain cash relief of only $30, and the
retail price of the service he could obtain instead is $60.
Then even if he values that service at only $31, he is
better off choosing it. (On the assumption that the
amount of fees requested was proper and that one
percent of the 190 million eligible claimants requested
cash relief, their individual recovery would be only
$29.60: $75 million, minus $18.75 million in attorneys’
fees, divided by 1.9 million.)
  But this possibility need not justify a lower attorneys’
fee award (let alone two-thirds lower) for the in-kind
component of the settlement. The fact that the amount
No. 10-1154                                                 9

of cash that a class member can expect to receive is likely
to be small makes the in-kind option very attrac-
tive—maybe not $35 million attractive but the special
master did not try to estimate a lower value.
  Next he considered the risk of losing that the lawyers
for the class faced when they embarked on the litigation.
If they lost they would receive no fees at all, and the
higher the risk of failure the larger the contingent
fee that a client would have to pay in an arm’s length
negotiation with the lawyer in advance of the suit. As
we’ve noted in previous cases, the logic of scaling the
fee to the risk leads to absurdity if pressed too hard: it
would justify an astronomical fee in a frivolous suit
in which the plaintiff prevailed by a fluke. Kirchoff v.
Flynn, 786 F.2d 320, 326 (7th Cir. 1986); McKinnon v. City
of Berwyn, 750 F.2d 1383, 1392-93 (7th Cir. 1984); see
also Pennsylvania v. Deer Valley Citizens’ Council for Clean
Air, 483 U.S. 711, 719-23 and n. 6 (1987); Laffey v. Northwest
Airlines, Inc., 746 F.2d 4, 26-27 (D.C. Cir. 1984), overruled
on other grounds by Save Our Cumberland Mountains, Inc.
v. Hodel, 857 F.2d 1516 (D.C. Cir. 1988); John Leubsdorf,
“The Contingency Factor in Attorney Fee Awards,” 90
Yale L.J. 473, 474 (1981). But within the set of colorable
legal claims, a higher risk of loss does argue for a
higher fee. Risk aversion to one side (for a lawyer with
a diversified portfolio of cases should not be risk
averse, Rand v. Monsanto Co., 926 F.2d 596, 599 (7th Cir.
1991)), if the market-determined fee for a sure winner
were $1 million the market-determined fee for handling
a similar suit with only a 50 percent chance of a favorable
outcome should be $2 million. E.g., In re Continental
10                                                 No. 10-1154

Illinois Securities Litigation, 962 F.2d 566, 569, 573 (7th Cir.
1992); Staton v. Boeing Co., 327 F.3d 938, 967-68 (9th Cir.
2003).
   The special master thought the risk of loss in the
present litigation had been low because in 2001, when
many of the separate class actions against Trans Union
that were eventually consolidated for pretrial pro-
ceedings had not yet been filed and those that had been
filed were still in their early stages, and so presumably
the costs that the lawyers would have borne in vain
if the suits collapsed were small, a decision by the
Federal Trade Commission holding that Trans Union’s
practices attacked in the class actions indeed violated the
Fair Credit Reporting Act was affirmed. Trans Union
Corp. v. FTC, 245 F.3d 809 (D.C. Cir. 2001). The special
master thought that outcome made the risk of loss to
the class counsel in this case less than the risk in In re
Synthroid Marketing Litigation, 325 F.3d 974, 980 (7th
Cir. 2003), where we had upheld a 22 percent attorneys’
fee award. Without trying to quantify the difference
in risk (“no one can know”), the special master con-
cluded that the attorneys’ fees in this case should be
limited to 12 percent of the settlement. (Fifteen percent
of the $75 million in cash plus 5 percent of the $35 million
of in-kind relief equals 12 percent of $110 million.)
  The 12 percent figure was plucked out of a hat, and a
hat with three holes in it: the unresolved comparison
with securities class actions, the arbitrary reduction in
attorneys’ fees for the nonpecuniary relief, and the per-
functory (less than a page) consideration, also left unre-
No. 10-1154                                              11

solved, of the relative risk of loss in the present case and
in Synthroid.
  Having lowered the attorneys’ fees ceiling to 12 percent
of the settlement from the 17 percent that the lawyers had
recommended to him, thus setting an overall limit on
attorneys’ fees of $13 million, the special master turned
to its allocation among counsel. He thought Wheelahan
and counsel in the Texas suit piggish to be requesting,
between them, $10.8 million of the $13 million. The
request was based on their claim to be responsible for
the entire $70 million increase in the final settlement
over the settlement to which MDL counsel had agreed
earlier. So far as we can judge, had it not been for the
efforts of Wheelahan and the Texas lawyer the class
would indeed be poorer by $70 million. The special
master did not suggest otherwise. But then, remarking
that the premise of Wheelahan’s and the Texas counsel’s
claims was that the initial, rejected settlement had not
reflected the true settlement value of the case—which
was obviously so—he asked: “But who ‘created’ that
extra value [the $70 million]? It was principally the
efforts of MDL Counsel.” The others had “helped unlock
the true enhanced value in this case, but they did not
solely create it,” and “MDL Counsel remain entitled to
share in the value of the case above and beyond the
original $20 million in cash and $20 million of in-kind
value embodied in the rejected settlement.” He decided
they should get full credit for having created the first
$20 million of the cash component of the final settle-
ment, for that was the amount that had been negotiated
in the first settlement agreement, and 50 percent of the
12                                                No. 10-1154

credit for the additional $55 million in cash in the
final settlement, for a total of 63 percent ($20 million plus
.5 x $55 million = $47.50 million ÷ $75 million = 63 percent)
of the cash component of the final settlement. He used
the same percentages in determining fees for the in-kind
relief, and so ended up awarding MDL counsel 63 percent
of the $13 million total of attorneys’ fees awarded. He
gave Wheelahan 22 percent of that total (hence the
$2.7 million that he awarded her) and Texas counsel
15 percent.
  In making these adjustments the special master was
wrestling with a problem of joint causation. The final
settlement was the result of the combined efforts of
MDL counsel and of the other two class lawyers.
The fact that these efforts were successive rather than
simultaneous has no significance. The MDL counsel
created an asset—the expected gain from the lawsuits—
the value of which they did not realize. The efforts of
the other lawyers enabled the full value to be obtained.
   Suppose the value of an uncut diamond owned by A
is $1,000, he hires B to cut it for $5,000, and after it is cut
it is worth $10,000. Does that mean that B should receive
not $5,000 but $9,000 because he created additional
value in that amount? That isn’t how prices are set in a
competitive market, or, since we’re talking about attor-
neys’ fees, wages either. The suggestion that they are
echoes the “comparable worth” theory of fair compensa-
tion. See Paul Weiler, “The Wages of Sex: The Uses and
Limits of Comparable Worth,” 99 Harv. L. Rev. 1728, 1756-
58 (1986). B in our example received $5,000 because that
No. 10-1154                                           13

was the competitive price for cutting the diamond. He
was not entitled to the surplus that his service created,
because he wasn’t the diamond’s owner. MDL counsel
correspond to A in our example and Wheelahan and
the Texas counsel to B.
  The special master may have had an inkling that his
percentage allocations were arbitrary, because he also
looked at the relative time productively invested
by the different lawyers, multiplied by a reasonable
hourly rate, and came up with an estimate of the rela-
tive costs incurred by the different lawyers. This com-
putation, which accords with the evidence, yielded a
ratio of MDL counsel’s costs to Wheelahan’s costs of 4.3
to 1, which is considerably higher than the 63 to 22 per-
cent ratio of fees that the special master awarded to
the two counsel. In effect he penalized MDL counsel
for having proposed an inadequate settlement. Those
counsel aren’t complaining, however.
  The special master did fine in his allocation of fees
among counsel, but, as we explained earlier, failed to
justify the $13 million ceiling on fees, and one re-
sult—critical to this appeal—is that because a $110
million settlement is large and Wheelahan’s contribu-
tion major though not so great as she contends, the
$2.7 million award for her contribution—a mere
2.5 percent—was too small. But as we have upheld the
allocation among counsel, her only valid complaint is
about the aggregate award.
  Remember that the special master ruled that as far as
the cash relief was concerned, an award of fees equal to
15 percent of the cash award was proper, and that he
14                                              No. 10-1154

failed to justify a lower percentage of the value of the in-
kind relief. An award of attorneys’ fees equal
to 15 percent of the entire $110 million award, which
would correct the special master’s error, would be $16.5
million. But considering that he erred consistently in
favor of reducing fees, we think he did not make a case
that the $18.75 million requested by the lawyers for
the class was excessive.
  Consider against that background what Wheelahan
is asking for. She wants an additional $5.7 million,
which on top of the $2.7 million awarded to her on the
recommendation of the special master would give her
the $8.4 million requested in her brief. If we are correct
that she is entitled to only 22 percent of the total attor-
neys’ fees awarded, the implication of her request is
that the special master should have recommended a
total fee award to all counsel of $38.2 million, because
$8.4 million is 22 percent of that amount. That would be
35 percent of the settlement. She does not defend
that percentage, or complain about the total of $18.75
million in attorneys’ fees agreed to in the final settlement
negotiations, but on the contrary that is the starting
point of the calculation that mysteriously generates her
claim to an $8.4 million award.
  We conclude that she’s entitled to 22 percent of the
$18.75 million in total fees that should have been
awarded, which is $4.125 million. Since she’s already
been awarded $2.7 million, she’s entitled to an additional
award of $1.425 million. No other lawyers have
appealed from the fee awards, so they are not entitled to
additional fees.
No. 10-1154                                           15

  The additional award to Wheelahan does only rough
justice, but a remand would produce only speculative
refinements, given the inherent uncertainties of estima-
tion in such a case, and would do so at a heavy cost
in judicial and party resources unlikely to be offset by
any benefit in greater precision, which would in any
event be illusory. We are mindful that the $1.425
million will come out of the relief awarded to the class
members, who are not represented in this appeal, but we
do not think that this litigation should be protracted
further by our appointing a lawyer to represent the class
in place of the existing class counsel, who at this stage
are concerned only with their fees. That lawyer’s fees
would come out of the common fund and so reduce
the amount of relief obtained by the members of the
class. We therefore order the judgment of the district
court to be modified as explained above, and we
remand for the entry of a corrected judgment.
   One issue remains to be addressed. The district court
had directed the special master not only to recommend
fee awards but also to investigate complaints that
Wheelahan had engaged in unethical behavior in the
litigation. The special master concluded that although
Wheelahan had behaved unprofessionally in various
respects, she had not behaved unethically, and so he
recommended against the imposition of any sanction
and the district judge accepted the recommendation.
Nevertheless her appeal challenges the judgment on the
further ground that the special master and the district
judge have made unwarranted criticisms of her. Whether
16                                          No. 10-1154

this is true or not, it is not a basis for an appeal. A
criticism is not an appealable order.
                              M ODIFIED AND R EMANDED.

                        1-14-11