MCCOY v. HEALTH NET, INC., et al

Filing 957

MEMORANDUM OPINION AND ORDER denying 921 Motion to equitable allocate costs and fees incurred during Special Master Proceeding. Signed by Magistrate Judge Leda D. Wettre on 10/8/15. (sr, )

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

ZEV and LINDA WACHTEL,
individually and on behalf of their minor
children, TORY, JESSE, and BRETT
WACHTEL, and on behalf of all others
similarly situated,

Plaintiffs,

Civil Action No.

01-4183 (MCA) (LDW)

MEMORANDUM OPINION
AND ORDER

v.
HEALTH NET, INC., HEALTH NET
OF THE NORTHEAST, [NC., and
HEALTH NET OF NEW JERSEY,
INC.,
Defendants.

RENEE E. McCOY, individually and on
behalf of all others similarly situated,

Civil Action No.
03-1801 (MCA) (LDW)

Plaintiff,
V.

HEALTH NET, INC., HEALTH NET
OF THE NORTHEAST, [NC., and
HEALTH NET OF NEW JERSEY,
INC.,
Defendants.

Civil Action No.

STEWART SCHARFMAN, individually
and as executor of the estate of his son,
SPENSER SCHARFMAN, ZEV and
LINDA WACHTEL, individually and on
behalf of their children, TORY, BRETT,
and JESSE WACHTEL, and RENEE
McCOY, individually and on behalf of
all others similarly situated,

05-301 (MCA) (LDW)

Plaintiffs,
v.
HEALTH NET, INC., HEALTH NET
Of THE NORTHEAST, INC.,
HEALTH NET Of NEW YORK, INC.,
and HEALTH NET LIFE INSURANCE
CO., INC.,
Defendants.

Plaintiffs’ counsel in these long-settled class actions, Wilentz, Goldman & Spitzer, P.A.
(“Wilentz”) and Pomerantz LLP (“Pomerantz”) (collectively, “movants”), move for an order
“equitably reallocating” the costs of proceedings before a special master. (Civ. A. No. 01-4183,
ECFNo. 922; Civ. A. No. 03-1801, ECFNo. 921; Civ. A. No. 05-301, ECFNo. 146).’ Movants
specifically seek reimbursement of costs from plaintiffs’ former counsel, Sills, Cummis & Gross,
P.C. (“Sills”) and from two individual attorneys, formerly employed at Sills and then Wilentz, who
worked on the actions while at those firms. The Court heard oral argument of the motion on
August 17, 2015. For the reasons stated below, the motion is DENIED.

All ECF numbers cited in this Opinion are from Civil Action No. 01-4183, and all cited
page numbers are to the numbers printed on each page (as opposed to the ECF-assigned page
numbers), unless otherwise indicated.
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I.
FACTUAL BACKGROUND
A. The Litigation And Settlement

The instant motion arises out of a special master proceeding ordered by the Court long after
the settlement of these three intensely litigated, consolidated class actions.2 Attorneys Barry
Epstein and Barbara Quackenbos reportedly conceived and commenced these class actions while
they were attorneys with Sills, which firm long acted as co-lead class counsel. (Civ. A. No. 031801, ECF No. 927, at 1—2). The actions’ dockets reflect that Epstein and Quackenbos actively
litigated the actions from the filing of the first action in 2001 through the settlement of all three
actions in July 2008. Other class counsel included Pomerantz as co-lead counsel with Sills, as
well as attorneys from Cuneo Gilbert & Laduca, L.L.P., The Alpert Law Firm, P.A., and Siegel
Brill Greupner Duffy & Foster P.A. Sills was co-lead counsel for the class until Epstein and
Quackenbos left Sills to join Wilentz in July 2007. (ECF No. 802-1). Upon those attorneys’
departure from Sills, Wilentz substituted for Sills as co-lead class counsel. (See ECF Nos. $02,
$10). Epstein and Quackenbos remained at Wilentz until June 2013. (Civ. A. No. 03-1801, ECF
No. 927 at 1).
After seven years of contentious litigation, the parties submitted a proposed settlement
agreement to the Court in April 200$. The Honorable Faith S. Hochberg, U.S.D.J., granted final
approval of the settlement, and the Court entered judgment on July 24, 2008. (ECF Nos. $68,
$70). The settlement agreement included injunctive relief as well as a cash settlement of $215

The class actions alleged breach of contract and violations of the Employee Retirement
Insurance Security Act of 1974 (“ERISA”) related to defendants’ purportedly inappropriate
reliance on a database, known as the Prevailing Healthcare Charge System database, to calculate
the usual, customary, and reasonable fees for medical services and the consequent reduction of
class members’ reimbursements for such services.
2

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million. forty million dollars of that settlement was to be paid into a “prove-up fund” intended to
satisfy claims by class members whose out-of-network medical costs had not been fully covered
by defendants. While a third-party claims administrator, Berdon Claims Administration LLC
(“Berdon”), was assigned to oversee distribution of the bulk of the settlement funds, defendant
Health Net, Inc. (“Health Net”) was to administer the prove-up fund. Any portion of the $40
million in the prove-up fund that went undistributed was to revert to Health Net.
As part of the settlement, class counsel sought a fee award of over $71 million. Judge
Hochberg, noting “Class Counsel’s skill and tenacity, and the excellent result,” awarded class
counsel a total of $69,720,000, calculated as approximately 32% of the monetary settlement value
or approximately 28% of the estimated overall settlement value. (ECF No. 870 at 53). Judge
Hochberg’s Opinion also crosschecked the fee’s propriety with the lodestar-multiplier method,
noting a lodestar of $30,355,758.55 and an effective multiplier of just under 2.3. (Id at 53—54).
Her Final Order and Judgment directed Wilentz and Pornerantz, as then co-lead class counsel, to
allocate the awarded fees amongst class counsel who had worked on the case. (ECF No. 868 at 5—
6). They apparently divided the fees as follows: $41,967,206 to Sills, $22,568,324 to Pomerantz,
and $4,103,332 to Wilentz.3
B. Post-Settlement Proceedings
In early 2012, the parties moved before Judge Hochberg to amend the settlement agreement
to add $6.25 million to the main settlement pool, in resolution of disputes concerning Health Net’s
administration of the prove-up fund and an unexpectedly low number of successful claims against
it. (Civ. A. No. 03-1801, ECf No. 878). As a result of that application, Judge Hochberg became

The balance of the approved fees apparently were allocated to other firms that had worked
on the actions. Interest on the fees was distributed proportionately to Wilentz, Pomerantz, and
Sills in 2010.
4

aware that that only a small portion of settlement funds had been disbursed to the class members
in the several years since she had approved the settlement. Health Net had paid out less than $1
million of the $40 million in prove-up funds, and none of the remaining settlement pooi had yet
been distributed.
At a hearing on May 29, 2013, Judge Hochberg expressed her dismay that “virtually
nothing has been paid out to the members of the class, while

.

.

72 million dollars, has been paid

to counsel, and HealthNet is still sitting on over a hundred million dollars.” (Civ. A. No. 03-1801,
ECF No. 894, at 3). She directed that the claims administrator immediately distribute at least fifty
percent of the main settlement pooi, and she ordered the parties to show cause why the matter
should not be referred to a special master for review of the following five issues:
(1) a factual inquiry into the reasons for the length of time that elapsed
between the Final Order and Opinion approving the Settlement in 200$ and
the submission of the Motion to Amend the Settlement in 2012, including the
reasons for the disputes, the merits of the disputes, and whether they could
have been resolved in a more expeditious manner;
(2) a factual inquiry into why no partial distributions were made from the
Settlement Fund until after the hearing on May 29, 2013;
(3) a factual inquiry into Health Net’s rejections of claims against the ProveUp fund, including a statistical sampling of the rejections, to determine
whether they were legitimate and made in good faith;
(4) a recommendation as to whether Class Counsel should be replaced or
ordered to repay any or all of the counsel fees it received based on the amount
of the original Settlement and any diminution to date;
(5) a recommendation as to whether sanctions should issue or any other
disciplinary actions taken against either side, either Health Net or Class
Counsel, on any grounds within the authority of this Court.
(ECf No. 885; see also Civ. A. No. 03-1801, ECF No. $94 at 50—5 1, 54).

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After announcing her intention to refer the above issues to a special master, Judge
Hochberg made several statements at the May 2013 hearing that are pertinent to this motion. She
said as follows:
The cost of this [special master proceeding] will not, not one cent will
come out of the class cash fund. It will be shared jointly by the multiple on the
attorneys’ fees already awarded, which are more than generous, and HealthNet.
And they will be subject to cost shifting if one side or the other is shown is
shown by the special master and adopted by this Court as having been not
appropriate in executing the settlement.
—

The next time and the only time you’ll ever hear from me will be in
reviewing the special master’s Report and Recommendation. That’s the
inclination.
Obviously, you have a right to be heard. That’s what I’m telling you now,
that’s one of the reasons why I brought you into open court. We’ll listen to, you
know, we’ll look at your briefs, you also have the right to suggest names of the
special master.
(Civ. A. No. 03-1801, ECF No. 894 at 52).
Judge Hochberg’s August 13, 2013 Order subsequently appointed Paul H. Zoubek, Esq. to
act as special master (the “Special Master”) to address these five issues, pursuant to Federal Rule
of Civil Procedure 53. (ECf No. $95). This Order, in relation to the Special Master’s fees,
specifically directed as follows:
Plaintiffs’ share shall be paid by plaintiffs’ counsel, not out of funds set aside
for payment to class members. The charges of the Special Master initially
shall be split equally between the plaintiffs and defendant. The Court shall
retain the right to shift all or part of the charges to one party or the other after
submission of the Special Master’s Report.
(Id. at5).
On August 15, 2013, two days after the appointment of the Special Master, Wilentz
contacted Sills to advise that one of the issues the Special Master would be examining at the
Court’s direction was the potential clawback of counsel fees. (See ECF No. 921-5, at ECF pp. 8—

6

10). Wilentz’s letter recounted that Judge Hochberg ordered “plaintiffs’ counsel” to pay half the
Special Master’s fees and demanded that Sills “voluntarily participate in the payment of the
Special Master’s charges because it received the largest portion of the Court-awarded attorneys’
fees received by plaintiffs’ counsel.” (Id. at ECf p. 9). The letter further proposed that each firm
pay the Special Master in proportion to their share of the counsel fees received in the settlement.
(Id.). Sills unambiguously and expressly rejected Wilentz’s proposal by email of August 16, 2013.
(Id. atECFp. 19).
C.

The Special Master Proceeding
Upon commencement of the special master proceeding, Wilentz reportedly requested that

the Special Master order Sills to share in the plaintiffs’ counsels’ fee obligations for the special
mastership. (ECF No. 945, at 55). The Special Master, apparently relying on the Court’s August
13, 2013 Order specifying payment was to be made by “plaintiffs’ counsel”—namely, Wilentz and
Pomerantz—declined to order Sills’ participation in fees.

(Id. at 56).

Neither Wilentz nor

Pomerantz raised the issue again until filing this motion.
After extensive proceedings before the Special Master over the following year, he issued a
detailed report and recommendation on September 12, 2014. (ECF No. 298). He recommended,
with respect to his inquiry on the fourth item ordered by Judge Hochberg, that class counsel not
be replaced and that the Court not order clawback of counsel fees already paid, opining there was
not sufficient basis for the Court to order such remedies. Although noting that Federal Rule of
Civil Procedure 60(b) permits the sna sponte amendment of a damages award, under certain
extraordinary circumstances and within a reasonable time, he recommended no amendment of the
fees awarded in these actions. The Special Master based this recommendation on a factual finding
that class counsel in good faith believed that the prove-up portion of the settlement fund, though

7

potentially reversionary, would be exhausted by satisfaction of successful claims. (ECF No. 8981 at 220).
The Special Master did note that “class counsel’s conduct in connection with the claims
administration was not without fault.” But he also noted the significant efforts that class counsel
undertook to assist the class during the administration of the settlement and concluded that “this is
not a situation where class counsel abdicated their responsibilities after receiving their attorneys’
fees.”

(Id. at 22 1—22).

He further concluded that the changed circumstances required no

repayment of the fees awarded to class counsel, as measuring the counsel fees against the realized
(instead of initially projected) value of the settlement, with or without the proposed amendment,
would not render the fees grossly disproportionate. (Id. at 225). He found that the diminished
settlement value did nothing to alter the lodestar-multiplier calculation that Judge Hochberg
originally used to crosscheck the reasonableness of the fees.

(Id. at 226). Given the above

findings, the Special Master concluded that there were not adequate grounds for replacing class
counsel. (hI at 226—22).
The Special Master observed that assessing sanctions against a party or counsel generally
requires a finding of bad-faith conduct. (Ic at 229). As the conduct of both Health Net and class
counsel during the administration of the settlement suggested no bad faith, he found that sanctions
would be unwarranted. (Id. at 231, 233). While identifying several ways in which Berdon did not
sufficiently assist class members and acknowledging that class counsel bore the ultimate
responsibility for such assistance, despite delegating the task to Berdon, the Special Master
concluded that such failures did not raise to the level of bad faith. (Id. at 234—38). Nonetheless,
the Special Master recommended withholding from Berdon its fees charged for the cure period,
when its failures to assist occurred.

(Id. at 239).

8

Emphasizing class counsel’s ultimate

responsibility for the claims administration, however, he recommended that the Court “order class
counsel to pay Berdon 50% of the amount withheld from Berdon during this period to be split
equally between the Wilentz and Pomerantz firms.” (Id. at 240).
In October 2014, both Health Net and class counsel moved the Court to adopt the Special
Master’s report and recommendation, and Berdon expressed its non-objection. (ECF Nos. 899,
900, 901). Judge Hochberg adopted the report and recommendation on January 30, 2015. (ECF
No. 920). She also granted on March 3, 2015, after conducting a fairness hearing, final approval
of the parties’ jointly proposed amendment to the settlement agreement. (ECf No. 931).
II.

DISCUSSION
Wilentz and Pomerantz now move, pursuant to federal Rule of Civil Procedure 53 and
equitable principles, for an Order requiring Sills, and attorneys Epstein and Quackenbos
individually, to reimburse a portion of the costs and fees that movants incurred in the special master
proceeding.4 Movants contend that it is inequitable for them to have borne all the labor and
expense of the special master proceedings to protect former plaintiffs’ counsel against a potential
clawback of fees that movants argue was threatened by the Court’s May 30, 2013 Order. They
posit that Sills’ receipt of more than sixty percent of the awarded fees, and Epstein’s and
Quackenbos’ alleged receipt of millions in compensation from Sills, as a result of the settlement
justifies a reallocation of the special master fees and expenses to require Sills, Epstein, and

Movants report that they paid special master fees totaling $1,174,196, auditor fees of
$646,324.02, court-reporter fees of $23,998.32, and other master-related fees of $16,020.38.
Movants also point out that Wilentz expended 4427.1 hours of time in the special master
proceedings, worth $2,431,008, and that Pomerantz put in 1363.45 hours, worth $1,130,232.25.
9

Quackenbos to share the fees and expenses in proportion to the financial benefit they received
from the settlement.
Federal Rule of Civil Procedure 53 permits the Court to allocate special master fees among
the parties and to amend such an allocation after the proceeding “to reflect a decision on the
merits.” Fed. R. Civ. P. 53(g). The Court, in rendering such a decision, must consider “the nature
and amount of the controversy, the parties’ means, and the extent to which any party is more
responsible than other parties for the reference to a master.” Id The Court is afforded broad
discretion in making a determination as to whether reallocation is appropriate. See Luppino v.
Mercedes Benz USA, LLC, Civ. A. No. 2:09-cv-05582 (DMC) (JAD), 2013 WL 5025229, at *6,
2013 U.S. Dist. LEXI$ 13022$, at *18 (D.N.J. Sept. 11, 2013); Agostino v. Quest Diagnostics,
Inc., Civ. A. No. 04-4362 (SRC), 2012 WL 2344865, at *4, 2012 U.S. Dist. LEXIS 85431, at *9_
10 (D.N.J. June 20, 2012); Thabault v. Chait, Civ. A. No. 85-2441 (HAA), 2009 WE 69332, at
*16, 2009 U.S. Dist. LEXIS 576, at *50 (D.N.J. Jan. 7, 2009).
Before reaching the issue of whether reallocation of fees under Rule 53 is appropriate,
however, the Court views it as informative first to examine what was intended by the Court’s Order
initially allocating the costs and fees of the special master proceeding. After all, one of movants’
primary arguments—that those counsel who benefited financially from the class settlement in 200$
were correspondingly obliged to pay the fees and expenses later incurred in protecting those fees—
equally could have been made upon appointment of the Special Master as after the conclusion of
his work.
The Court’s August 13, 2013 Order Appointing Special Master explicitly allocated fees
and costs of the Special Master equally between plaintiffs and defendants, with “Plaintiffs’ share
[to] be paid by plaintiffs’ counsel.” (ECF No. $95 at 5). There clearly is no basis in this language

10

upon which the Court fairly could infer that Judge Hochberg intended to impose costs and fees of
the Special Master proceeding upon plaintiffs’ former counsel at Sills, much less upon individual
attorneys Epstein and Quackenbos. “Plaintiffs’ counsel” at that time was Pomerantz and Wilentz.
Sills had not been plaintiffs’ counsel since 2007, which Judge Hochberg well knew given her many
years of handling as the assigned District Judge what she termed this “scorched earth litigation.”
(Civ. Action No. 03-180 1, ECf No. 894 at 3). Quackenbos and Epstein (although neither they nor
Wilentz had filed withdrawals of their appearance in these actions when they left Wilentz in June
2013) were no longer employed at Wilentz in August 2013 and thus were no longer attorneys
employed by “plaintiffs’ counsel”—i.e., Wilentz or Pomerantz.
Movants did not seek from the Court a clarification or reconsideration of the August 13,
2013 Order that would have required Sills, Epstein, or Quackenbos to participate in the fees and
expenses of the special mastership. This is despite the Court’s invitation at the May 29, 2013
hearing for counsel summoned to the hearing—Wilentz and Pomerantz (not Sills)—”to be heard”
on what she had proposed about the costs of the special mastership. (kJ at 52). To the extent that
current class counsel found ambiguous Judge Hochberg’s reference at the May 2013 hearing to
costs of the Special Master being “shared jointly by the multiple on the attorneys’ fees already
awarded,” a concept that the Court did not later incorporate in the superseding August 13, 2013
Order, they did nothing contemporaneously to pursue a clarification from the Court.
Instead, Wilentz chose to pursue informal means of arranging a different payment
structure. Wilentz contacted Sills in writing shortly after the August 13, 2013 Order was issued to
seek Sills’ “voluntary” participation in paying for the Special Master.

Sills promptly and

unambiguously refused. Wilentz’s subsequent request of the Special Master that he order Sills’
participation in payment of his fees likewise was rejected by the Special Master. (ECf No. 945 at

11

56).

Similarly, the Special Master clarified with Wilentz’s counsel on the record in September

2013 that Epstein and Quackenbos were no longer counsel to plaintiffs and their participation in
the special master proceedings, if at all, would be as fact witnesses and not counsel. (Civ. A. No.
03-1801, ECF No. 927 at 2—3). He declined Wilentz’s and Pomerantz’s request to bill Epstein and
Quackenbos for his fees. (ECF No. 921-1, at 2). Having thus been rebuffed in their informal
attempts to compel the financial participation of former counsel in the special master proceedings,
Wilentz and Pomerantz opted not to make further efforts to seek to have Sills, Epstein, and
Quackenbos held responsible for the Special Master’s fees and instead decided to await completion
of the proceedings to seek reallocation of the fees under Rule 53. (See Id. at 56—59).
The motion thus turns on whether there is adequate basis under Federal Rule of Civil
Procedure 53 or equitable principles to order reallocation of fees and expenses to Sills, Epstein,
and Quackenbos under the facts and circumstances presented here. Movants’ arguments under
Rule 53 seem to focus on two considerations for reallocation: (1) “the extent to which any party
is more responsible than other parties for the reference to a master”; and (2) the “parties’ means.”
Fed. R. Civ. P. 53(g)(3). Movants further argue on equitable grounds that reallocation is justified
because they protected non-movants’ fees from a threatened clawback. The Court addresses each
argument in turn.
Whether One Party Was More Responsible Than The Other For The Special Mastership
At the outset, the Court notes that it is by no means clear that this Rule 5 3(g) consideration
even applies to the instant motion, as the movants do not seek to reallocate fees among “the
parties,” but rather among former and current counsel of the same parties. Regardless, the Court
will consider this argument, even if it can fairly be viewed as based more on equitable than
statutory grounds.

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Movants essentially contend that Sills, and presumably Epstein and Quackenbos, are
“responsible” to some extent for the appointment of the Special Master because the diminished
actual value of the settlement resulted from flaws inherent to the prove-up fund, which allegedly
was developed conceptually while Sills was co-lead counsel.5 Sills refutes this characterization
and argues that the problems that led to the appointment of the Special Master resulted from
failures in administering the prove-up fund after Sills’ departure from the case, not from the basic
structure of the prove-up fund. As Sills argues, the Special Master’s report and recommendation,
which Judge Hochberg adopted, found fault on the part of Berdon and “class counsel” due to their
failures affirmatively to provide class members with assistance in satisfying claims against the
prove-up fund.6 The Special Master identified, however, no intrinsic problem with the prove-up
fund as causing the diminished settlement value.
The Special Master specifically noted that there was “no evidence that class counsel knew
at the time that it entered the Settlement Agreement that the amount of documented claims against
the Prove-Up Settlement Fund would be as limited as it ultimately was” and that “class counsel
thought that the Prove-Up Settlement Fund would be exhausted.” (ECF No. $98-i at 220). Indeed,
an argument that the prove-up fund was erroneously overvalued from early in its development is
refuted by assertions of the instant movants, as well as Berdon, at the May 29, 2013 hearing that

Movants acknowledge, however, that the decision to include the prove-up fund in the
settlement was not made until it was included in a memorandum of understanding after (albeit
shortly after) Wilentz had substituted in for Sills. (ECF No. 92 1-1 at 2).
6
Despite assigning this fault to Berdon and class counsel, the Special Master made clear that
he did not view their failures as the primary problem. He commenced the relevant portion of his
report with the statement, “Had my investigation established that the reversion of the remaining
amount from the Prove-Up Settlement Fund was caused solely or even substantially by class
counsel’s failure to assist claimants and essentially amounted to an abandonment of class members
at this critical stage of the settlement process, I would not hesitate to recommend that the award of
counsel fees be reopened and a portion of the fees be clawed back and made available to the class
in the Cash Settlement Fund.” (ECF No. 898-1 at 220).
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initial claims against the prove-up fund amounted to $60 million. (See Civ. A. No. 03-1801, ECf
No. 894 at 21, 29—30, 46). Consequently, no basis exists to support a finding that Sills’ role in
developing the settlement, rather than movants’ subsequent administration, caused the discrepancy
between the settlement’s projected and actual values that in turn contributed to appointment of the
Special Master. Therefore, it does not appear that Sills’, Epstein’s, or Quackenbos’ development
of the prove-up fund rendered them responsible at all, much less “more responsible” than Wilentz
or Pomerantz, for the reference to the Special Master.
To the contrary, it is patently apparent from the Court’s Orders and the transcript of the
May 29, 2013 Hearing before Judge Hochberg that what precipitated the special mastership was
the Court’s profound disappointment to learn in 2013 that only a small percentage of the settlement
funds that it had approved years earlier, in 2008, had yet been paid to the class members. The
Court clearly attributed this to problems in the administration of the settlement between 2008 and
2013, a period when Sills was no longer counsel and while Epstein and Quackenbos were members
of Wilentz. (See generally Civ. A. No. 13-1801, ECF No. $94). Moreover, the Order to Show
Cause that resulted in the appointment of the Special Master addressed primarily the issues
surrounding claims administration: the reasons for delays in distributions to class members; the
reasons for and causes of delay in resolving claims-administration disputes; the propriety of high
rejection rates for prove-up-fund claims; whether class counsel should be replaced; and whether
class counsel or Health Net should be sanctioned. (See ECf No. 885). Because it is abundantly
clear that neither Sills nor Epstein and Quackenbos individually were “more responsible” than
Wilentz and Pomerantz for appointment of the Special Master, there is no basis on that ground to
order reallocation of the special mastership costs to them.

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Consideration Of The Parties’ Means To Pay The Special Master Costs
Movants further argue that an obligation on the part of Sills, Epstein, and Quackenbos to
share the costs of the special mastership arose by virtue of the benefit each had received by sharing
in the settlement.7 As with the other 5 3(g) criteria, consideration of “the parties’ means” appears
inapplicable to nonparties Sills, Epstein, and Quackenbos. Nevertheless, the Court considers the
equitable arguments raised by movants.
There is no doubt that Sills received a large fee award in the settlement. Although the
compensation paid by Sills to Epstein and Quackenbos is not of record, the Court will assume
arguendo that they received substantial compensation as a result of the settlement. But in the
Court’s view, their receipt of fees did not per se obligate them to contribute at all to the special
master proceeding. As movants concede, Sills, Epstein, and Quackenbos were compensated in the
settlement as a result of what they already had contributed to the litigation over the years and their
role in reaching a favorable settlement for the class. Movants admit that “EpsteinlQuackenbos did
vigorously engage with Health Net and zealously advocated on behalf of the Class from final
approval of the Settlement in August 2008 until their departure from Wilentz in July 2013.” (ECF
No. 921-1 at 12). Movants also acknowledge repeatedly Epstein’s and Quackenbos’ substantial
contributions to the underlying litigation. (Id. at 4, 5). Six years of their efforts and contributions
to the class were made while they were attorneys at Sills. Simply stated, Sills, Epstein, and
Quackenbos were compensated in 2008 for their previous contributions. Movants’ argument that
their compensation carried with it an implied obligation to contribute financially to later

Movants allege upon “information and belief’ that Epstein and Quackenbos received from
Sills approximately $19 million of the settlement fees pursuant to an agreement between Epstein
and Sills. (ECf No. 921-1 at 5). The amount of their compensation, however, was never
established in the special master proceeding. for purposes of the instant motion, the Court finds
the amount of their compensation immaterial to the analysis of the issues presented on this motion.
15

proceedings that arose out of a period when Sills was no longer counsel, and while Epstein and
Quackenbos worked on the actions as members of Wilentz, is unconvincing.
The Possibility Of Clawback
Finally, movants argue that Sills, Epstein, and Quackenbos should in equity be required to
contribute to the costs of the special master proceeding because their fees were subject to clawback
and movants expended considerable efforts preventing that result.

Movants base this argument

on item (4) of the Court’s August 13, 2013 Order, requiring the Special Master to make “a
recommendation as to whether Class Counsel should be replaced or ordered to repay any or all of
the counsel fees it received based on the amount of the original Settlement and any diminution to
date.” (ECF No. 885). While Judge Hochberg’s statement fairly could have created concern that
she would consider a clawback of fees from counsel who had benefitted from the settlement, there
are several reasons that this argument does not support the remedy movants seek.

Foremost

among these reasons is that “class counsel” at the time of the August 2013 Order did not include
Sills, and it certainly did not include individual attorneys Epstein and Quackenbos, who at that
time were not even attorneys at class counsel firm Wilentz. The interpretation of “class counsel”
as referring only to current counsel is further supported by the portion of item (4) that also
instructed the Special Master to make a recommendation as to whether “Class Counsel should be
replaced,” which could only refer to current counsel.
Moreover, the Court’s not having ordered Sills to appear at the May 2013 hearing nor
referencing the firm specifically in the August 2013 Order Appointing Special Master further
compels the conclusion that the Court was not considering a clawback of fees from former class
counsel. A clawback of fees from Sills, which had not been summoned to the May 2013 hearing
and was not required to participate in the special master proceedings, would have been fraught

16

with due process concerns. Such concerns would not have been lost on an experienced jurist like
Judge Hochberg.
Nor is the Court convinced from an equity perspective that Wilentz and Pomerantz bore
any greater burden in protecting Sills’ fees from clawback than they were required to expend in
any event to protect their own fees. Movants have not pointed to any further work done or
arguments made by them on behalf of Sills that went beyond the efforts needed to defend their
own fee awards. Indeed, the Special Master’s report and recommendation makes clear that the
entire focus of the special master proceeding was the administration of the settlement starting in
2008, when Sills was no longer counsel. The Special Master’s report mentions Sills only in passing
and not in any substantive discussion of problems with the settlement. (See generally ECf No.
898, at 1—3).
The Court further notes that, while Wilentz, in making its equity argument, relies on the
fact that the labor value and costs of the special mastership to it were disproportionate to the small
percentage of fees it received in the settlement, this arguably unfavorable ratio of benefits to costs
appears to be at least partly self inflicted. Notably, Wilentz apparently struck a labor-sharing
arrangement with Pomerantz in the special master proceeding that caused it to shoulder five times
more of the labor burden than Pomerantz, and it divided equally with Pomerantz the Special
Master’s and auditor’s fees. This was despite Pomerantz’s having received fees more than five
times greater than Wilentz’s in the settlement. When questioned at oral argument about this
division of labor and expenses between Wilentz and Pomerantz, movants responded that the deal
had been struck between movants’ firms “by agreement and for convenience.” (ECf No. 945 at
22). While that was certainly their prerogative, Wilentz’s decision to contribute more heavily

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overall to the special master proceedings than Pomerantz cannot in fairness inure to the detriment
of Sills, Epstein, and Quackenbos.
What remains of movants’ argument is essentially their criticism of Sills’ business
judgment in declining to participate in the special master proceeding when Sills’ fees might be in
jeopardy.

But even if Sills’ fee award could fairly have been viewed as subject to clawback by

virtue of Judge Hochberg’ s statements at the May 2013 hearing and the August 2013 Order, that
did not give rise to an obligation on Sills’ part to participate in the special master proceeding when
neither the Court nor the Special Master had ordered Sills’ participation. It was Sills’ option under
these circumstances to act upon its contrary view that its fees were not in jeopardy and not
“voluntarily” share in the costs of the special mastership.
As for Epstein and Quackenbos individually, they did participate in the special master
proceedings by means of Quackenbos’ appearance on their beha1f as a witness.

The Special

Master made clear that Epstein and Quackenbos, who were no longer at Wilentz, would not act as
attorneys in the proceedings but rather only as witnesses. He declined to invoice Quackenbos and
Epstein for his fees. (Civ. A. No. 13-1801, ECF No. 927 at 2—3; ECF No, 921-1 at 2). Epstein
and Quackenbos participated in the special master proceedings to the extent called as witnesses.
There was no additional obligation on their part to contribute to the special master fees based on a
hypothetical threat of clawback of compensation they had received as individual attorneys as part
of a compensation agreement with Sills. The assertion that these individual attorneys’ fees were
subject to clawback by virtue of anything contained in the record of these actions is unsupported.

Epstein and Quackenbos reportedly had by that time formed their own firm after leaving
Wilentz.
1$

CONCLUSION

for the foregoing reasons, the Court finds no basis in law or equity on which to order
reallocation of the special master fees to Sills, Epstein, or Quackenbos. Therefore, the motion is
hereby DENIED. The Clerk of Court accordingly is directed to terminate the motion, which was
filed in several different docket numbers, as follows: ECF No. 922 in 01-CV-41$3, ECF No. 921
in 03-C V-l801, and ECF No. 146 in 05-CV-301.
IT IS, on this 8th day of October 2015, SO ORDERED.

LyL

Hon. Leda Dunn Wettre
United States Magistrate Judge

Original:
cc:

Clerk of the Court
Hon. Madeline Cox Arleo, U.S.D.J.
All Parties

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