Judge in Facebook class action: no fees for lawyers for non-cash relief

August 27, 2013

It’s a self-evident truth that if contingency fee lawyers don’t see value in a case, they won’t bring it. With that in mind, I’ve often wondered whether class action defendants should be more vociferous about big fee requests by class counsel. I know what you’re thinking: Plaintiffs lawyers won’t agree to settle unless defense counsel pledge not to oppose their fee request. And realistically, defendants’ main concern is making a case go away as cheaply as possible. How settlement money is divided between class members and their lawyers is, for defendants, a secondary issue, at best. If objecting to class counsel’s fee request will prevent a deal from going through, most defendants won’t object.

That’s short-term thinking, though. Contingency fee lawyers are perhaps the most rational economic actors in the legal business. The best way to curtail nuisance litigation is to make it economically unattractive. And one way to do that – even in cases in which the size of the class and the potential of statutory damages makes settlement unavoidable – is for defendants to argue for minimal class counsel fees.

That’s what Facebook and its lawyers at Cooley did in the Sponsored Stories class action that was approved Monday by U.S. District Judge Richard Seeborg of San Francisco. As you probably recall, this case, which involves Facebook’s supposed misappropriation of users’ names and profile photos in sponsored advertising, has something of a tortured history. Faced with the potential of $750 per class member in statutory damages to a class numbering as many as 100 million Facebook users, the company agreed to a $20 million cy pres settlement in 2012, of which $10 million was to go to class counsel from The Arns Law Firm and Jonathan Jaffe Law. Judge Seeborg rejected the deal, questioning why plaintiffs’ lawyers were slated to recover so much when class members were to receive no individual compensation.

In that first proposed deal, Facebook had agreed not to oppose class counsel’s fee request. But when the two sides presented Seeborg with a revised settlement last November, that provision was out. Cash payments, meanwhile, were in: up to $10 to each class member, depending on how many filed claims. After Seeborg gave preliminary approval to the revised $20 million deal in November, about 600,000 claims were filed. Because that was a relatively low number, Facebook agreed to raise individual payments to $15. (Fourteen consumer and Internet education charities will share millions more in unclaimed funds.)

Facebook also agreed to make changes in its Sponsored Stories program, disclosing when and how users’ information is republished and giving them control over that use. When it came time to request fees, class counsel asserted that the injunctive relief it obtained from Facebook was worth between $57.4 million and $226 million to the class. So even though they asked for $7.5 million – 37.5 percent of the $20 million in cash in the settlement fund – they argued that the fee request actually amounted to less than 10 percent of the entire value of the settlement, even at the low end of their evaluation of the injunctive relief.

Facebook and Cooley, however, objected to the $7.5 million fee request, and in terms that were not flattering to plaintiffs’ lawyers. The company did not take issue with the plaintiffs’ estimation of the value to the class of the changes in its Sponsored Stories policies, but argued that Seeborg ought to use an hourly lodestar method to award fees, rather than award a percentage of the settlement fund. Facebook’s brief said that the time records submitted by plaintiffs lawyers showed unreasonable hourly rates, including $425 for a solo practitioner fresh out of law school when the case began. “Not only have plaintiffs’ counsel failed to show that anyone has paid or would pay them at these rates, their expert’s declaration shows that their claimed rates are beyond market rates for similar services,” the Facebook brief said. Class lawyers were also inefficient, according to Facebook. The class typically sent multiple lawyers to depositions at which, by contrast, Facebook was represented by a single Cooley lawyer, often an associate. Nearly 40 percent of the plaintiffs’ reported hours were billed by a $950-per-hour senior lawyer when, according to Facebook, he could have delegated much of the work he did to lower-cost, less experienced lawyers.

Judge Seeborg didn’t end up basing his fee award on Facebook’s scrutiny of class counsel’s time sheets because he opted to use a percentage-of-the-settlement methodology rather than a lodestar calculation (though he did include a lodestar check). But Seeborg did not agree with class counsel on the value of their services to the class. He concluded that the injunctive relief, purportedly worth as much as $226 million in the telling of the plaintiffs’ lawyers, was worthless in terms of cash to the class.

“There is nothing to suggest,” he wrote, “that any class member will see a single dollar more in his or her pocket as a result of any of the injunctive provisions, directly or indirectly. There is no indication, for example, that by having the opportunity to limit and control appearances in Sponsored Stories, a Facebook member will be able to exploit his or her name or likeness to greater commercial advantage elsewhere. There certainly are no circumstances under which a member will obtain monetary compensation from Facebook as a result of the injunctive provisions.”

Seeborg said he wasn’t going to award fees based on “an abstract theoretical construct, not cash benefits actually obtained for the class.” (He did say that injunctive relief is a consideration in evaluating the overall fairness of the settlement.) Instead, he said, he’d grant class counsel a benchmark 25 percent of the cash portion of the settlement – but only after subtracting from the base figure their costs and incentive awards to name plaintiffs. Plaintiffs lawyers will end up with a bit less than $5 million.

That’s still a lot of money, of course, and probably not an outcome that will deter future class actions against Facebook. Nevertheless, Facebook’s willingness to oppose class counsel’s fees – and Seeborg’s own concern about maximizing the class’s share of the spoils – shows something is afoot in class action land.

I emailed Richard Arns and Jonathan Jaffe for comment but neither got back to me.

(Reporting by Alison Frankel)

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