Guschausky v. American Family Life Assurance Company of Columbus et al
Filing
94
ORDER granting 61 Motion for Attorney Fees. Signed by Judge Donald W. Molloy on 4/2/2012. (dle)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
HELENA DIVISION
PAMELA K. GUSCHAUSKY, individually )
and on behalf of all other similarly situated, )
)
Plaintiffs,
)
)
vs.
)
)
AMERICAN FAMILY LIFE ASSURANCE )
COMPANY OF COLUMBUS, AFLAC
)
INCORPORATED, AND DOES 1-10,
)
)
Defendants.
)
___________________________________ )
CV 10-59-H-DWM
ORDER
The plaintiffs in this class action (“the class”) move for an award of
attorney’s fees under Federal Rules of Civil Procedure 23(h)(1) and 54(d)(2) and
pursuant to their settlement agreement with the defendants (collectively
“AFLAC”). AFLAC opposes the motion in part. The Court must make findings of
fact and state its conclusions of law under Rule 23(h)(3) and 52(a). The Court does
so here, granting the class’s motion.
FINDINGS OF FACT
1.
This class action arises from AFLAC’s allegedly wrongful retention of
insurance premiums.
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2.
The case began as a $559.80 premium dispute between Pamela Gushausky,
the named plaintiff, and AFLAC but evolved into a potentially multi-million
dollar class action.
3.
In its complaint, the class alleges that AFLAC wrongfully retained
premiums for dependent child coverage, even though a dependent child
might never have existed or was otherwise ineligible for dependent child
coverage.
4.
The class alleges that, under this practice:
[I]f a policyholder never notified [AFLAC] that he or she was
being charged for family coverage but had no eligible dependent
children, [AFLAC] would continue to collect family coverage
premiums, a scenario that [AFLAC] admits, as a general
insurance principle, is wrong.
5.
Based on its allegations, the class filed a complaint on December 16, 2010,
asserting claims for breach of contract, negligence, and unjust enrichment.
(Doc. 1.) The complaint also included a request for punitive damages.
6.
The parties reached a settlement and the Court preliminarily approved it on
December 12, 2011. (Doc. 55.)
7.
Under the settlement agreement, AFLAC will refund the premiums owed to
class members that submit a valid claim. In other words, AFLAC has not
created a specific or definitive fund to pay the settlement claims. Instead, it
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will pay those claims as they are made and reviewed.
8.
In addition to the provisions related to the refunds, the settlement contains a
section governing attorney’s fees. (See Settlement Agreement, doc. 52 at §
8.)
9.
AFLAC does not oppose the class’s entitlement to reasonable attorney’s
fees and expenses, and both parties stipulate that the Court has “sole[ ] and
exclusive[ ]” discretion to determine those amounts:
8.1 Within the time set forth in the Preliminary Approval
Order, or as otherwise directed by the Court, Class Counsel
may apply to the Court for an award of attorneys’ fees and
reimbursement of expenses, which amount shall be
determined solely and exclusively by the Court at or after
the final fairness hearing. [AFLAC] does not oppose Class
Counsel’s entitlement to an award of attorneys’ fees and
expenses, but it reserves its right to object to the amount of
attorneys’ fees and expenses sought by Class Counsel.
Class Counsel’s attorneys’ fees and expenses, if any, as
approved and ordered by the Court, shall be paid within
fourteen (14) days after Final Approval and shall be paid
without reducing or depleting the Settlement Payments to
be made to the Class Members and without diminishing
any other amount owed by [AFLAC], if any, under the
terms of this Settlement Agreement.
(Settlement Agreement, doc. 52 at § 8.1.) (emphasis added).
10.
After the Court preliminarily approved the settlement, the class counsel
moved for an award of attorney’s fees. The parties briefed the motion and
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both filed affidavits in support of their positions: the class counsel asking
for an award based on a contingency fee or percentage of the settlement
value and AFLAC asking for a much smaller award based on a lodestar
calculation.
11.
The Court held a hearing on March 21, 2012, to address the motion for
attorney’s fees and the parties’ joint motion for final approval of the class
action settlement.
12.
Over the course of this litigation, the parties’ estimation of the settlement
value has converged significantly. Initially, class counsel moved for
attorney’s fees in the amount of $5,323,907.25. This calculation was based
on a projected settlement value of $21,295,629.00, according to the class.
AFLAC placed a much smaller value on the settlement—$4,254,782.00.
Later, after actuaries for both parties acknowledged errors in their
calculations, the parties stipulated to a number—$6,601,633.00. (Doc. 82.)
The class argues that this sum is the minimum settlement value, while
AFLAC argues that it is the maximum settlement value.
13.
The plaintiffs argue that the $6.6 million sum should be higher for three
reasons:
a.
The $6.6 million sum incorrectly excludes “Policies where the
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treatment date giving rise to the claim is before the policy’s issue
date and policies where the treatment date giving rise to the claim
is after the policy’s termination date, or after 2/15/2012, if the
policy is active[.]” If AFLAC included those policies, the
calculated value of the settlement would increase to
$6,728,171.00.
b.
c.
14.
If the settlement calculation was based on the publicly available
data for average premiums, which are more reliable than
AFLAC’s data, the settlement value would increase to
$9,103,652.
The settlement calculation does not include the future and or
equitable benefits to the injunctive relief class, which the
plaintiffs claim are worth $9,278,148.00 in the next eight years
alone and would be much higher if extended out further.
AFLAC agrees that it might have to pay out $6.6 million to the settlement
beneficiaries. But it claims that this sum is the maximum settlement value
because there are several reasons other than age-based denials for why
AFLAC might have coded a denial as “dependent not covered” and, thus,
why a policy holder might not have a valid settlement claim. AFLAC
argues, for instance, that the policy holder might not have paid for
dependent coverage.
15.
The class argues in response that the reason for denial is irrelevant. Instead,
what matters is whether a policy holder paid a premium for Family
Coverage without any covered dependents.
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16.
The class’s actuary assumed that all of the policyholders listed in the
stipulated spreadsheet, (doc. 75-3)—the spreadsheet upon which the
stipulated sum of $6,601,633.00 is based—are class members. AFLAC, on
the other hand, claims that not all of the policyholders in the spreadsheet are
necessarily class members and, thus, not all of the policy holders in the
spreadsheet are entitled to a refund. Therefore, it argues that the $6.6
million sum is the maximum payout.
17.
While apparently claiming that not all of the policy holders listed in the
stipulated spreadsheet are class members, AFLAC has not offered any
definitive guidance on how many policy holders in the spreadsheet are class
members and how many are not. Instead, AFLAC acknowledges that it
might potentially have to pay out $6.6 million to settlement beneficiaries.
18.
Even assuming that not all of the policy holders in the stipulated
spreadsheet are class members, the settlement value might still meet or
exceed $6.6 million for the reasons given by the class in its explanation of
why the settlement value should be higher (see supra).
19.
Both parties agree that the settlement value could potentially be
$6,601,633.00, and, in the Court’s view, that sum represents a reasonable
estimation of the settlement value.
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20.
Class counsel argue that they should be awarded attorney’s fees in the
amount of $1,650,408.25, which is 25% of the $6,601,633.00 estimated
settlement value.
21.
AFLAC argues that class counsel should be awarded attorney’s fees in the
amount of $300,000.
22.
Class counsel also argue that they should be awarded reasonable expenses
and costs, which totaled $54,872.55 at the time of the parties March 12,
2012, stipulation.
CONCLUSIONS OF LAW
23.
Attorney’s fees and costs may be awarded in a class action when the award
is authorized by law or the parties agree to the award. In re Bluetooth
Headset Prods. Liab. Litig., 654 F.3d 935, 941 (9th Cir. 2011) (citing Fed.
R. Civ. P. 23(h)).
24.
When a court awards attorney’s fees and costs, the court must ensure that
the award is reasonable. Id.
25.
There are two acceptable methods for calculating an award, depending on
the circumstances: the lodestar method and the percentage-of-recovery
method. Id.
26.
“The lodestar figure is calculated by multiplying the number of hours the
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prevailing party reasonably expended on the litigation (as supported by
adequate documentation) by a reasonable hourly rate for the region and for
the experience of the lawyer.” Id. at 941. The Ninth Circuit explained:
The “lodestar method” is appropriate in class actions
brought under fee-shifting statutes (such as federal civil
rights, securities, antitrust, copyright, and patent acts),
where the relief sought—and obtained—is often primarily
injunctive in nature and thus not easily monetized, but
where the legislature has authorized the award of fees to
ensure compensation for counsel undertaking socially
beneficial litigation.
Id. (citations omitted).
27.
The lodestar figure is “presumptively reasonable,” but courts may adjust
that figure upward or downward by a multiplier that reflects “a host of
reasonableness factors, including the quality of representation, the benefit
obtained for the class, the complexity and novelty of the issues presented,
and the risk of nonpayment.” Id. at 941–42 (citations omitted).
28.
The U.S. Supreme Court, though, has called this practice into serious doubt.
See Perdue v. Kenny A. ex rel. Winn, 130 S. Ct. 1662 (2010) (noting that
lodestar multipliers should be applied in only “rare” and “exceptional”
circumstances because the lodestar calculation already takes into account
the reasonableness factors, such as quality of representation and the
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complexity of the case).1
29.
Where “a settlement produces a common fund for the benefit of the entire
class, courts have discretion to employ either the lodestar method or the
percentage-of-recovery method.” In Re Bluetooth, 654 F.3d at 942. This
doctrine—the Common Fund Doctrine—applies when: “(1) the classes of
persons benefitted by the lawsuits are small in number and easily
identifiable; (2) benefits can be traced with some accuracy; and (3) the court
has confidence the costs of litigation can indeed be shifted with some
exactitude to those benefitting.” Stavenjord v. Mont. St. Fund, 146 P.3d 724,
125 (Mont. 2006) (citing Boeing Co. v. VanGemert, 444 U.S. 472, 478
(1980)).
30.
“The doctrine rests on the perception that persons who obtain the benefit of
a lawsuit without contributing to its cost are unjustly enriched at the
successful litigant’s expense.” Boeing, 444 U.S. at 478.
31.
The Common Fund Doctrine recognizes that the only way to equitably
spread the attorney’s fees across all the beneficiaries is to levy the attorney’s
In Perdue, the Supreme Court was addressing an award of attorney’s fees
under the fee-shifting statute in 42 U.S.C. § 1988. But the Court’s reasoning
applies to the lodestar method more generally, regardless of whether the award is
made under a fee-shifting statute.
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fees against the common fund. That does not imply, however, that the
Common Fund Doctrine is inapplicable where, as here, attorney’s fees are
paid independently of the sum made available to the settlement
beneficiaries. When attorney’s fees are paid independently, the aggregate
amount of attorney’s fees and class settlement payments may be viewed as a
“constructive common fund.” Lobatz v. U.S. W. Cellular of Cal., Inc., 222
F.3d 1142, 1146–47 (9th Cir. 2000) (citations omitted); Vista Healthplan,
Inc. v. Warner Holdings Co. III, Ltd., 246 F.R.D. 349 (D.D.C. 2007); see
also In re Bluetooth, 654 F.3d at 943 (quoting Johnston v. Comerica Mortg.
Corp., 83 F.3d 241, 246 (8th Cir. 1996)). The Eighth Circuit explained in
Johnston:
Although under the terms of each settlement agreement,
attorney fees technically derive from the defendant rather
than out of the class’ recovery, in essence the entire
settlement amount comes from the same source. The award
to the class and the agreement on attorney fees represent a
package deal. Even if the fees are paid directly to the
attorneys, those fees are still best viewed as an aspect of
the class’ recovery . . . . Accordingly, the direct payment of
attorney fees by defendants should not be a barrier to the
use of the percentage of the benefit analysis in the cases.
Johnston, 83 F.3d at 246.
32.
Even if the common fund elements are not technically met, the Court may
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still apply the percentage-of-recovery method if the court is able to
reasonably estimate the settlement value based on the terms agreed by the
parties. See e.g. Suzuki v. Hitachi Global Storage Techs., Inc., 2010 WL
956896 (N.D. Cal. Mar. 12, 2010). For example, even if the settlement does
not result in a definite amount of money that is deposited into an account
and made available to the beneficiaries, the court may still treat the
settlement as creating a common fund if the court can reasonably estimate
the settlement value. See Shaffer v. Continental Cas. Co., 362 Fed. Appx.
627, 631 (9th Cir. Jan. 12, 2010). In Shaffer, the Ninth Circuit approved the
district court’s use of the percentage-of-recovery method, even though no
cash fund was created and the settlement value was based on actuarial
testimony:
Here, no cash fund exists. However, class counsel’s expert
actuary estimated the value of class benefits to be $24–33
million. Of the $5 million for costs, attorneys’ fees and
incentive payments, about $4.4 million represents
attorneys’ fees. Thus, attorneys’ fees represent about
13–18% of the value of class benefits – well below the
25% benchmark.
Id. at 632–33. Similarly, the Middle District of Pennsylvania has observed:
[T]he “economic reality” is that the agreement to pay
verified settlement claims of class members as well as
counsel fees yields a mathematically calculable amount
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that can be regarded as “a constructive common fund.”[2]
[In re General Motors Corp. Pick-Up Truck Fuel Tank
Products Liability Litigation, 55 F.3d 768, 820 (3rd Cir.
1995)]. Indeed, “[c]ourts have relied on ‘common fund’
principles and the inherent management powers of the
court to award fees to lead counsel in cases that do not
actually generate a common fund.” In General Motors,
supra, our Court of Appeals suggested that the preferred
“primary determinant” of an award of attorneys’ fees in a
“constructive” common fund case is the percentage of
recovery method. Id. at 821.
Petruzzi’s Inc. v. Darling-Del. Co., Inc., 983 F. Supp. 595, 604 (M.D. Pa.
1996).
33.
Finally, as the Shaffer court remarked, the Ninth Circuit has repeatedly held
that the “benchmark” for an award based on the percentage-of-recovery
method is 25%. 362 Fed. Appx. at 633; In Re Bluetooth, 654 F.3d at 942
(collecting cases). “Special circumstances,” however, may justify a
departure. In Re Bluetooth, 654 F.3d at 942. (citations omitted).
34.
The settlement here did not necessarily create a common fund in the
traditional sense. There is not, for instance, a dedicated sum of money set
The cases cited above show that the term “constructive common fund” has
two meanings. The term may refer to the aggregation of the sum of money paid to
the settlement beneficiaries and the independent sum paid for attorney’s fees. See
Lobatz, 22 F.3d at 1146–47. And the term may refer to a settlement that does not
technically meet the traditional elements of a common fund but whose value is
nonetheless reasonably estimable by the court. See Petruzzi’s Inc., 983 F. Supp. at
604.
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aside for the settlement beneficiaries to draw upon. Instead, AFLAC will
pay claims as they are made and reviewed. Moreover, AFLAC will pay the
attorney’s fees and expenses independently from the money that is paid to
settlement beneficiaries—that is, they will not be paid directly out of a fund
that is made available for settlement claims.
35.
While the settlement might not have created a traditional common fund, it
created a constructive common fund (in both senses of the term, see supra
note 2). There is not a definitive sum of money that has been set aside for
settlement claims, but the Court can reasonably estimate the settlement
value, as explained above. See Shaffer, 362 Fed. Appx. at 631; Petruzzi’s
Inc., 983 F. Supp. at 604. That sum, when aggregated with the independent
payment of attorney’s fees, creates a constructive common fund. See Lobatz,
22 F.3d at 1146–47; In re Bluetooth, 654 F.3d at 943. In short, even if the
traditional elements of the Common Fund Doctrine are not met here, the
Court may still utilize the percentage-of-recovery method for calculating
attorney’s fees. In re Bluetooth, 654 F.3d at 942.
36.
Both parties agree that the settlement value could potentially be
$6,601,633.00, and, in the Court’s view, that sum represents a reasonable
estimation of the settlement value.
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37.
The class asks the Court to apply the 25% “benchmark” for calculating
attorney’s fees, and the Court sees no reason to deviate from that
presumptively reasonable percentage. See Shaffer, 362 Fed. Appx. at 633; In
Re Bluetooth, 654 F.3d at 942. Consequently, the Court awards the class
$1,650,408.25 in attorney’s fees.
38.
Applying the lodestar method in this instance—and awarding attorney’s
fees in the amount of $300,000—would result in a windfall to AFLAC. The
class might very well have prevailed at trial and recovered more than $6.6
million, particularly in light of the punitive damages count. If that were the
case, then the plaintiffs would likely have received a contingency fee far in
excess of $300,000.
39.
Finally, the Court awards the class its costs and expenses, which totaled
$54,872.55 at the time of the parties March 12, 2012, stipulation in
accordance with the terms of the parties’ settlement agreement.
IT IS ORDERED that the class’s motion for attorney’s fees (doc. 61) is
GRANTED. The defendant shall pay the class’s attorney’s fees in the amount of
$1,650,408.25 in accordance with the terms of the parties’ settlement agreement.
IT IS FURTHER ORDERED that the defendant shall pay the class’s
reasonable costs and expenses in the amount of $54,872.55 plus additional
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reasonable costs and expenses that the class has incurred since the parties March
12, 2012, stipulation.
Dated this 2nd day of April 2012.
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