Want to ward off class actions? Follow Starbucks’ lead on class fees

By Alison Frankel
September 17, 2013

This much is uncontested: In December 2008, Initiative Legal Group filed a wage-and-hour class action against Starbucks in federal court in Los Angeles. Lawyers at Initiative and, later, Capstone Law dedicated more than 8,000 hours to the case, which settled in May 2013 for $3 million. About 13,000 current and former Starbucks employees in California have made claims in the case, which resolves the coffee chain’s alleged failure to provide adequate meal breaks to workers when only two employees were on duty, as well as class assertions that Starbucks didn’t publish overtime rates on workers’ pay statements.

Lead class counsel Matthew Theriault and his colleagues believe they’re entitled to $4.2 million – roughly 90 percent of their total hourly billings for the effort they sank into the long-running case and the successful result they obtained for the class. Starbucks and its lawyers at Akin Gump Strauss Hauer & Feld are of quite a different mind. They contend that the $4.2 million request is “breathtakingly inflated,” considering that class counsel managed to win certification of only one of 13 alleged subclasses. Indeed, according to Starbucks, when you compare the $860 million valuation that plaintiffs lawyers initially put on their claims with the $3 million they ultimately recovered for the class, U.S. District Judge Gary Feess would be justified in awarding them absolutely nothing.

We can safely assume that a fair fee award to class counsel – which will be paid by Starbucks on top of the $3 million class settlement – lies somewhere between the extremes of zero and $4.2 million. But what’s much more interesting than the specific dollar amount Feess ultimately awards, and even more interesting than the arguments in support of and in opposition to class counsel’s fee request, is the mere existence of the fee dispute. As Theriault noted in class counsel’s brief, defendants in the vast majority of settled class actions do not contest fee requests by lawyers on the other side of the case. Instead, they agree in “clear sailing” provisions not to say anything when plaintiffs ask to be paid.

Why do defendants almost always promise to bite their tongues on class counsel fees? You know the answer: because plaintiffs lawyers make it a condition of settlement. And when legal fees come out of the class’s recovery, defendants don’t especially care how the money is being divided among lawyers and their clients.

Starbucks and Akin Gump opted for an unusual approach, though. According to Theriault’s declaration, Starbucks refused to include class counsel fees in the class settlement, insisting that they be negotiated separately, after Feess approved the class deal. (That’s similar to the arrangement Facebook demanded in its Sponsored Stories settlement earlier this year.) The Starbucks method gives the company every reason to fight Theriault and his colleagues on fees, since any award to them will come in addition to the $3 million it’s paying the class. Theriault’s declaration said that the unusual arrangement, which caps his potential fees at his lodestar of hourly billings, is evidence that the settlement was not collusive. He also argued that he should be rewarded for assuming the risk of a contested fee request in order to assure the class’s recovery.

Regardless of how much Feess decides to grant Theriault and his fellow lawyers, I think Starbucks is onto something important. I’ve said this before: The best way to deter class actions is to make sure it’s economically irrational for plaintiffs’ lawyers to bring them. Defendants don’t send a message of deterrence when they settle cases for nuisance amounts, but then acquiesce to millions of dollars in fees and expenses for the lawyers who filed the claims. That’s like wearing a “Sue Me” sign. But forcing class counsel to separate their interests from their duty to the class – and then contesting their fee request – is a good way to make plaintiffs’ lawyers think twice about dedicating resources to a suit against you.

Granted, Starbucks had good leverage in this case. Fierce litigation had hacked class claims down to a stub of the original suit, and even the single certified subclass was decertified last November because the lead plaintiff couldn’t show that she had been deprived of meal breaks. On the other hand, Theriault had won summary judgment on her right to bring statutory claims under California’s Private Attorney General Act. I’m sure Starbucks – whose counsel at Akin Gump did not respond to an email request for comment – didn’t want to go to trial on the PAGA claims. Both sides, in other words, had to compromise to reach the $3 million class settlement.

So other defendants should be able to extract similar deals, in which they put up money for the class but vow to contest fees for class counsel. Will Starbucks’ opposition succeed in curtailing Theriault’s award? I don’t know (and Theriault didn’t immediately send me a response to my request for comment). But I bet the coffeehouse has reduced its vulnerability to future class actions.

(Reporting by Alison Frankel)

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