Court Opinion

ID: 2667294
Source: CourtListenerOpinion
Date Created: 2014-04-04 13:39:08.119852+00
Date Added: 2024-06-11T13:02:59.875050
License: Public Domain

UNITED STATES DISTRICT COURT
                    FOR THE DISTRICT OF COLUMBIA

In Re: DEPARTMENT OF VETERANS      :
AFFAIRS (VA) DATA THEFT            :
LITIGATION                         :
______________________________     : Misc. Action No. 06-0506 (JR)
                                   : MDL Docket No. 1796
This Document Relates To:          :
ALL CASES                          :

                              MEMORANDUM

          In May 2006, burglars stole a laptop and an external

hard drive from the home of an employee of the Department of

Veterans Affairs.   The external hard drive contained the names,

dates of birth, and Social Security numbers of some 26.5 million

veterans and their spouses.    Affected veterans brought three

separate federal class action suits, alleging violations of the

Privacy Act, the Administrative Procedure Act, and the Fourth and

Fifth Amendments.

          In November 2006, the Judicial Panel on Multidistrict

Litigation transferred the three suits to this Court for

consolidated proceedings.   I dismissed all claims except the

Privacy Act claim, Dkt. 30, and referred the case to Magistrate

Judge Alan Kay for mediation.    With Judge Kay’s able assistance,

the parties reached a settlement agreement, which I approved

preliminarily earlier this year.    Dkt. 54.

          The agreement creates a $20 million fund.    Class

members can submit claims for 100 percent of their out-of-pocket
because of the hard drive theft.   Eligible claimants receive a

minimum reimbursement of $75 and can receive a maximum of $1,500.

After valid claims are paid out, and attorneys’ fees and other

expenses are deducted, the money remaining in the fund will be

split equally between two cy pres recipients, the Intrepid Fallen

Heroes Fund and the Fisher House Foundation, both not-for-profit

charitable organizations that help military personnel, veterans,

and their families.

           At the hearing on the parties’ joint motion for final

approval of the settlement, I asked for additional briefing on

two issues: the request of plaintiffs’ attorneys that I award

them 25 percent of the common fund ($5 million) in fees, and

their request that I require the sole objector to the settlement,

Tere Lawyer, to post an appeal bond that secured their attorneys’

fees and expenses.

           A. Attorneys’ fees

           An award of attorneys’ fees must be reasonable in light

of the results obtained.   Hensley v. Eckerhart, 461 U.S. 424, 440

(1983).   In a case such as this one, where the settlement

agreement creates a common fund against which individual

plaintiffs may make claims, I must “act as fiduciary for the

beneficiaries (who are paying the fee) . . . because few, if any,

of the action’s beneficiaries actually are before the court at

the time the fees are set,” and because “there is no adversary

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process that can be relied upon in the setting of a reasonable

fee.”    Court Awarded Attorney Fees, Report of the Third Circuit

Task Force, 108 F.R.D. 237, 251 (1985).

            In this Circuit, the “percentage-of the fund method

[rather than the lodestar method] is the appropriate mechanism

for determining the attorney fees award in common fund cases.”

Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1271 (D.C. Cir.

1993).    The question presented by the somewhat unusual facts of

this case is whether the fee should be a percentage of the total

common fund ($20 million) or of the funds that actually go to

class members.    In support of the latter approach, the objector,

Mrs. Lawyer, notes that, as of the final fairness hearing this

July, only 2100 reimbursement claims had been filed with the

common fund administrator.    Fairness Hearing Tr. (July 28, 2009),

at 11.    Even if claims were to double before the claims period

ended, and the average claim were for $500 -- both generous

suppositions for the plaintiffs’ attorneys -- the class members

would only claim $2.1 million.    Mrs. Lawyer argues that it would

be unfair to let the attorneys walk away with more than twice

what the individual class members would receive collectively.

She also submits that limiting the attorneys to a percentage of

actual claim would create an incentive for the attorneys and

their administrators to ensure that the class members receive as

much money as possible.

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            Mrs. Lawyer’s arguments have intuitive appeal, but they

go against the weight of the relevant precedent.    As Professor

William B. Rubenstein explains in his declaration accompanying

the plaintiffs’ briefing, the national trend, and the trend in

this Circuit, is toward awards that represent a percentage of the

total common fund, even when some portion of that fund will go to

a cy pres beneficiary.    See Dkt. 75, Ex. 2, at nn.18-19 (citing

cases).   Professor Rubenstein identifies three bases for this

approach:

            First, courts reason that the efforts of
            counsel created the entire fund and made it
            available to the class. Second, courts
            reason that the class itself benefits from
            the cy pres award, as in this case, [where]
            the veterans’ service organizations receiving
            the cy pres funds provide services that the
            members of the class would generally be
            eligible to receive. Third, and more
            generally, the primary purpose of small
            claims class actions is not individual
            plaintiff compensation but rather aggregate
            deterrence of the defendant’s activities.
            Compensation is not a primary goal because
            each class member has been harmed such a
            small amount that getting those funds to them
            may be inefficient and/or class members are
            unlikely to spend time coming forward to
            claim such small amounts. However, the
            aggregate effect of the defendant’s actions
            may be significant and need to be deterred.
            Creating a fund that truly penalizes the
            defendant by fully disgorging a significant
            amount of money serves this deterrent effect
            regardless of where the funds are sent.

Id. ¶ 26.

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          Professor Rubenstein does not have or cite to examples

of cases like this one, however, in which it seems likely that

the cy pres fund will turn out to have been by far the largest

component of the total fund.   That factors, it seems to me,

should affect the selection of the percentage of the common fund

that should be set aside for the attorneys.

          The majority of fee awards nationally appear to fall in

a range of 20 percent to 30 percent of the common fund.   See

Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1050 n.4 (9th Cir.

2002), cert. denied, 537 U.S. 1018 (2002) (summarizing fees

awarded in 34 common fund settlements from 1996-2001); see also

Federal Judicial Center, Manual for Complex Litigation, Fourth

§ 14.121, at 188 (2004).   Fees in this Circuit mirror the

nationwide numbers.   See, e.g., In re Lorazepam & Clorazepate

Antitrust Litig., 2003 WL 22037741 (D.D.C. June 16, 2003) (30%

fee); In re Baan Co. Sec. Litig., 288 F. Supp. 2d 14, 17 (D.D.C.

2003) (28% fee); Swedish Hosp. Corp, 1 F.3d at 1272 (20% fee).

          Plaintiffs’ attorneys’ request for 25 percent of the

common fund falls squarely within the standard range, but, as

noted above, this is not a standard common fund.   The cy pres

contribution will likely dwarf the amount paid to class members.

It will benefit two worthy charities, but charities that do not

deal explicitly or exclusively with identity theft (or anxiety

about identity theft, or protection from identity theft).    Here,

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I believe the proportional size of the cy pres contribution

counsels an award that is at the low end, or even below the low

end, of the standard range.

           The Third Circuit has “suggested that district courts

cross-check the percentage award at which they arrive against the

‘lodestar’ award method,” to determine whether the percentage

award roughly reflects the time and expertise the attorneys

invested in the case.   Gunter v. Ridgewood Energy Corp., 223 F.3d

190, 195 n.1 (3d Cir. 2000).   An award of the requested 25

percent of the common fund would be $5 million -- almost three

times class counsel’s lodestar ($1.8 million) as of June 30,

2009.   See Dkt. 61, at 21 n.48.   There is no consensus about when

a multiplier is too high, but Judge Ginsburg has observed that an

award of more than three times the lodestar is enough to raise

some eyebrows.   Swedish Hosp. Corp., 1 F.3d at 1273 (Ginsburg,

J., concurring in part and dissenting in part).

           In this case, given the complexity of the issues, the

risk the attorneys assumed in taking the case on a contingency

basis, the result they secured for their clients, and the

peculiar balance between the return to class members and the size

and nature of the cy pres contribution, I find that an attorneys’

fee award of $3.6 million -- about two times the lodestar and

about 18 percent of the common fund -- is sufficient.

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     B. Appeal bond

          While the plaintiffs may be correct that I have the

authority to require a substantial appeal bond to secure the

costs of appeal, see Marek v. Chesny, 473 U.S. 1 (1985), I see no

reason to exercise that authority at this time.

                        *       *       *

          The parties’ joint motion [#60] for final approval of

the class action settlement is granted, except as noted herein.

Counsel are instructed to submit a revised form of order and

final judgment (see #61-2) that is consistent with this

memorandum.

                                     JAMES ROBERTSON
                              United States District Judge

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