Monday, January 04, 2010

In Re Cellphone Termination Cases (Cal. Ct. App. - Jan. 4, 2010)

Here's something I hadn't seen before.

It's a class action settlement, but the parties can't agree on the amount of the fees. So they agree to arbitrate, with a floor of $500,000 and a cap of $2,950,000. Objectors object, claiming (among other things) that they won't be allowed to participate the arbitration. The trial court agrees, and sets the fees itself.

The Court of Appeal holds that the arbitration procedure was okay, and should have been approved, at least here. Which I agree with, at least if there's a strong emphasis on that last caveat. Here, the trial court expressly found that there was no collusion and the entire range of the possible fee awards were reasonable. Given that finding, I agree there's no reason why the parties can't arbitrate the precise amount. Sure, the objectors can't participate in an arbitration (as opposed to a judicial fee-setting process). But it doesn't matter at that point -- the fees ain't going to or coming from the class, and we've already agreed that even an award at the top level would be reasonable. So that seems right to me.

I did want have one deeper-level thought, however. The case definitely highlights for me the wierd nature of fee awards in class actions. Let's say, for example, that the parties had agreed upon a fee award of between $0 and $400 million -- assume the second number reflects that counsel for plaintiff just has bizarre dreams, which the defendant is willing to entertain since it thinks there's no chance for an actual award of this amount -- and have agreed to arbitrate this dispute. Assume again a finding of no collusion, and a reasonable settlement on the merits.

Is this too a proper way to resolve the dispute, even though the entire range isn't within the realm of the reasonable? After all, again, the money's not going to or from the class either way. Why should they care, or be allowed to participate/object? Plus, if the court did indeed express a proper view as to the reasonableness of such a settlement, is the appropriate way to do so to allow it only if the entire range would be proper, or merely to find that the risk-adjusted number is reasonable; e.g., even if $400 million would be silly, since the award was almost certainy to be around a reasonable $1 million, approve the thing?

Which in turn makes me wonder what role the court legitimately has in reviewing an agreed-upon fee award in the first place. Don't get me wrong: I'm all for making sure the settlement isn't a sweetheart deal. Indeed, I think that this is vital, and not done nearly enough currently. (True probably even here, where the attorneys get millions and the class gets pretty much nothing but virtually meaningless warnings. And definitely true generally.)

But once a court's decided that the settlement on the merits is fair, why should objectors get to object to -- or a court approve -- the agreed-upon (or arbitrated) fee? At least when, as here, it is not coming from or to the class? That's "bonus money" at that point.

Sure, an excessive fee award might indicate a sweetheart deal, and hence establish collusion. So I see why the court should have to approve it on that basis. But assume that the settlement on the merits was reasonable -- e.g., pretend that, here, everyone who got a cellphone got $1000, a figure that's totally cool with everyone. Why do we care at all if the attorneys get $0 or $100 million? That's up to the parties, no? (I've got a separate thought about the fact that any "range" fee case is probably a one-way rachet, since an award of $0 is alway fine and not a basis for objecting to the settlement since it only harms the attorney, but that's for another day.)

One final comment. In the middle of the opinion, Justice Simon says: "Importantly, the trial court could have, and perhaps should have, delayed final approval of the settlement, including determination of the reasonableness of the fee award, until after the arbitration," which was an option that the defendant had expressly suggested in the trial court. I thought the "perhaps should have" part was a classic example of something you occasionally see when the Court of Appeal says to itself "I think maybe this should be the rule, but am not totally sure, and don't want to have to actually think about it enough to make a for-sure holding, so am going to fudge." Definitely helpful, but not as helpful as actually thinking the whole thing totally through.

So those are my class action thoughts for this first working day of 2010.