Good et al v. American Water Works Company, Inc. et al
Filing
1146
MEMORANDUM OPINION AND ORDER denying without prejudice the parties' 1136 JOINT MOTION for Preliminary Approval of Class Settlement, Conditional Class Certification, Directing Notice to the Class, and Entry of Scheduling Order; the parties are directed to file such modified settlement agreement as they may wish that is consistent with this opinion and order; denying in part and granting in part plaintiffs' 1140 MOTION for Award of Attorneys' Fees, Reimbursement of Costs, and Incentive Awards, in accordance with Part II of this opinion; directing the clerk to enter the fee letter on the docket. Signed by Judge John T. Copenhaver, Jr. on 7/6/2017. (cc: counsel of record; any unrepresented parties) (taq)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON
CRYSTAL GOOD, individually and as
parent and next friend of minor children
M.T.S., N.T.K., and A.M.S.,
and MELISSA JOHNSON,
individually and as parent of her unborn child,
MARY LACY and JOAN GREEN and JAMILA AISHA OLIVER,
WENDY RENEE RUIZ and KIMBERLY OGIER and ROY J. McNEAL and
GEORGIA HAMRA and MADDIE FIELDS and BRENDA BAISDEN, d/b/a
FRIENDLY FACES DAYCARE, and ALADDIN RESTAURANT, INC., and
R. G. GUNNOE FARMS LLC, and DUNBAR PLAZA, INC.,
d/b/a DUNBAR PLAZA HOTEL,
on behalf of themselves and all others
similarly situated,
Plaintiffs,
v.
Civil Action No. 14-1374
WEST VIRGINIA-AMERICAN WATER COMPANY,
d/b/a WEST VIRGINIA AMERICAN WATER,
and AMERICAN WATER WORKS SERVICE
COMPANY, INC., and AMERICAN WATER
WORKS COMPANY, INC., and
EASTMAN CHEMICAL COMPANY and
GARY SOUTHERN and DENNIS P. FARRELL,
Defendants.
MEMORANDUM OPINION AND ORDER
Pending is the parties’ Joint Motion for Preliminary
Approval of Class Settlement, Conditional Class Certification,
Directing Notice to the Class, and Entry of Scheduling Order,
filed April 27, 2017 (ECF No. 1136).
Also pending is
plaintiffs’ Motion for Award of Attorneys’ Fees, Reimbursement
of Costs and Incentive Awards, filed May 8, 2017 (ECF No. 1140).
After reviewing the procedural history of this case and the
terms of the proposed Settlement Agreement, the court will turn
first to the motion for certification and preliminary approval
and then to the motion for attorneys’ fees and costs.
FACTS AND PROCEDURAL HISTORY
A.
Background
On January 9, 2014, over 224,000 residents in
Charleston, West Virginia, and the surrounding area suffered an
interruption in their water supply.
The interruption was caused
by a spill into the Elk River of a mixture composed primarily of
a chemical known as Crude MCHM.
Crude MCHM consists primarily
of the chemical 4-methylcyclohexane methanol.
The mixture was
prepared and owned by, and being stored in a facility owned and
operated by, Freedom Industries, Inc. (“Freedom Industries”).
Freedom Industries called the mixture that spilled into the Elk
River “Shurflot 944” and marketed it to coal companies for coal
cleaning purposes.
Shurflot 944 mixed Crude MCHM with other
elements, present in relatively small proportion.
The mixture
containing Crude MCHM infiltrated and contaminated the water
treatment plant in Charleston, known as the Kanawha Valley
Treatment Plant, which draws its water from the Elk River.
2
Following the spill, individuals and businesses
asserting claims against various defendants commenced dozens of
civil actions in federal and state courts.
This action was
filed in federal court on January 14, 2014, and later
consolidated with several other cases.
See Good v. Am. Water
Works Co., 2:14-CV-01374, 2014 WL 2481821, at *1 (S.D.W. Va.
June 3, 2014).
Other similar litigation, including putative
class actions against the same defendants, was filed in state
court, and some of it was removed to this court, consolidated,
and then remanded to state court.
Desimone Hosp. Servs., LLC v.
W. Va.-Am. Water Co., 2:14-CV-14845, 2015 WL 9244434, at *5
(S.D.W. Va. Dec. 17, 2015).
Following remand, the state court
consolidated the various cases before the West Virginia Mass
Litigation Panel (“MLP”) in the case captioned In re Water
Contamination Litigation, Civil Action No. 16-C-6000, which has
been stayed.
Plaintiffs filed a First Amended Consolidated Class
Action Complaint in this case on December 9, 2014.
Plaintiffs’
class action allegations stated that they intended to represent
“[a]ll persons and businesses supplied with, using, or exposed
to water contaminated with Crude MCHM and provided by West
Virginia-American Water Company in Logan, Clay, Lincoln, Roane,
Jackson, Boone, Putnam, and Kanawha Counties and the Culloden
3
area of Cabell County, West Virginia as of January 9, 2014.”
First Am. Consolidated Class Action Compl. ¶ 123.
Plaintiffs
brought suit against West Virginia-American Water Company (“WV
American Water”), American Water Works Service Company, Inc.,
and American Water Works Company, Inc. (collectively, “the water
company defendants,” although at times referred to simply as WV
American Water), as well as Eastman Chemical Company
(“Eastman”), Gary Southern, and Dennis P. Farrell.
Plaintiffs asserted that the water company defendants
and Eastman could have prevented the incident with better
precautions, regulatory compliance, and use of reasonable care.
Some class members operated businesses that lost revenue due to
the interruption.
Others claimed physical injuries, asserting
that exposure to Crude MCHM in the environment through human
pathways caused bodily injury and necessitated medical
monitoring.
Still others were alleged to have incurred costs
for property damage, water replacement, travel, and other
associated expenses.
On October 8, 2015, the court granted plaintiffs’ class
certification motion and certified an issues class under Fed. R.
Civ. P. 23(c)(4) respecting fault and comparative fault issues
defined by the court.
Good v. Am. Water Works Co., Inc., 310
F.R.D. 274, 299 (S.D.W. Va. 2015).
4
The certified class included
residents and businesses served by WV American Water and all
persons who were hourly wage earners working for businesses served
by WV American Water, all of whom are also included within the
proposed settlement class.
Id. at 299–300.
In late October 2016, on the eve of the Phase I fault
trial in this court, the parties participated in extended
settlement negotiations.
These negotiations resulted in
settlements with Eastman and WV American Water that were
memorialized in Term Sheets lodged with the court on October 25
and October 31, 2016, respectively (ECF Nos. 1096, 1108).
After extensive negotiations, the parties submitted
the pending Settlement Agreement for preliminary approval on
April 27, 2017 as a resolution of all claims — both claims at
issue in this case and claims at issue in the various state
court actions filed against defendants in relation to the
Freedom Industries spill.
Class Counsel in this case allied
themselves with state MLP counsel to reach a global settlement,
and consequently intend that the proposed settlement will
remunerate both federal and state counsel, their clients, and
all other proposed class members.
The parties represent that
the settlement of this action may affect a class composed of
over 224,000 class members in some 105,000 households and over
7,000 businesses and governmental entities.
5
Pls.’ Mem. in Supp.
Joint Mot. Prelim. Approval 19 (ECF No. 1137) [hereinafter “Mot.
for Prelim. Approval”].
The parties’ proposed settlement has a two-tier common
fund from which the Settlement Administrator will pay monies to
class-member claimants through a claims submission process.
The
first tier, dubbed the guaranteed fund, consists of $101 million
supplied separately by funds from each of Eastman and WV
American Water.1
The guaranteed fund is intended to pay “Simple
Claims” that do not require documentary support or proof of
causation.
The parties have estimated amounts for each type of
Simple Claim, although those amounts are subject to change
depending on the number of Simple Claims actually paid out of
the funds.
After attorney fees and costs are paid, the
guaranteed fund will be used to pay Simple Claims, to pay checks
mailed to WV American Water’s residential customers who did not
submit claims, to pay claimants who submit claims through an
“Individual Review Claim” process with more stringent proof and
1
When referring to “the guaranteed funds” or “the guaranteed
fund” in this Order, the court refers to both the Eastman Fund
and the West Virginia American Water Guaranteed Fund, together
totaling $101 million. Both of these funds seem likely to be
fully exhausted by the claims process and are frequently treated
as a single guaranteed fund. Because the individual defendants’
settlement has not been finalized, the court will refer to the
associated settlement funds proposed by the two individual
defendants as the Individual Settlement Funds and will not
consider them part of the guaranteed funds for purposes of this
Order.
6
causation requirements, and, if the guaranteed fund is not
exhausted, to make additional payments to Residential Simple
Claimants, in that order.
It is likely that all or almost all
of the guaranteed fund will be paid out to class members through
this process.
The second tier, dubbed the contingent fund, consists
of $50 million supplied entirely by WV American Water to pay
Individual Review Claims only if the guaranteed fund is
exhausted.
The Settlement Agreement requires the Settlement
Administrator to seek permission from the court before issuing
either Simple Claim or Individual Review Claim payments.
B.
Settlement Class
The Settlement Agreement defines the Settlement Class
in this matter as follows:
1) All natural persons, including adults and minors
(including in utero), who resided in residential dwellings
that were supplied tap water by West Virginia American’s
Kanawha Valley Water Treatment Plant (“KVTP”) on January 9,
2014.
2) All businesses, and non-profit and governmental
entities, that operated in real property locations that
were supplied tap water by the KVTP on January 9, 2014.
3) All natural persons who were regularly employed as
hourly wage earners for businesses that operated in real
property locations that were supplied tap water by West
7
Virginia American’s KVTP on January 9, 2014.2
C.
Settlement Agreement Terms
1. Types of Claims
The settlement contemplates payment of four types of
claims: Residential Claims, Business Claims, Wage Earner Claims,
and Medical Claims.3
In order to submit any type of claim, a
claimant must be a member of the defined class.
Within each
category, however, various distinctions exist that may affect
the amount of money a claimant can receive.
a. Residential Claims
2
Additionally, the following persons and entities are excluded
from the Settlement Class:
The water company defendants and their officers, directors,
and employees, and any affiliates of the water company
defendants and their officers, directors, and employees;
Eastman and its officers, directors, and employees, and any
affiliates of Eastman and their officers, directors, and
employees;
Judicial officers and their immediate family members and
associated court staff assigned to this case;
Settlement Class Counsel and attorneys who have made an
appearance for defendants in this case;
The Settlement Administrator, Notice Administrator,
guardian ad litem, or other consultants and associated
staff assigned to this case; and
Persons or entities who exclude themselves from the
settlement class (“opt outs”).
3
The agreement also provides for Pregnancy Claims, which for the
sake of brevity this Order will treat under the heading of
Medical Claims.
8
Residential Claims are claims by residents of homes
and multiunit residences within the area affected by the
incident who were customers of WV American Water.
The residents
have claims for damages arising from physical damage to their
property caused by the presence of contaminated water within
their pipes.
Residents may also have claims that arise from
expenses incurred in buying bottled water, throwing out and
replacing food, repairing or replacing appliances affected with
contaminated water, seeking alternate lodging, and other extra
expenses.
To be entitled to file a Residential Claim, a person
must have been a resident of the affected area on January 9,
2014.
Residents include both renters and homeowners.
Relatedly, a person may file a Residential Claim whether their
water was supplied under a contract between them and WV American
Water or a contract their landlord had with WV American Water.
Consequently, a resident that lived in a multi-unit apartment
building is entitled to recover under the same terms as a
resident that lived in a single family home, even if the
apartment resident was not a direct customer of the water
company.
Under the Settlement Agreement, only one Residential
Claim may be filed per household.
9
“Household” includes all
residents of a single family home or unit within a multi-unit
residential building as of January 9, 2014, whether related or
unrelated.
The individual making the claim is generally
responsible for distributing it to other household members,
although the Settlement Administrator may also issue separate
payments to individual household members.
To file a Residential Claim, a resident may submit a
Simple Claim Form or an Individual Review Claim Form.
On the
Individual Review Claim Form, the resident is required to state
the amount of damage suffered because of the incident, with
documentation to support the claim for damages.
The Settlement
Administrator will review claims submitted using the Individual
Review Claim Form and accompanying documentation to determine if
the resident is entitled to the full amount sought, or some
lesser amount.
Alternatively, a resident my file a claim using the
Simple Claim Form.
The Simple Claim Form requires the resident,
on behalf of the household, to sign an attestation that he or
she suffered property damage, including the presence of
contaminated water in his or her pipes, due to the incident, but
does not require the resident to itemize his or her damage or
provide documentation.
Residents submitting claims using the
Simple Claim Form will receive a fixed payment based on the size
10
of their household in January 2014.
Based on the parties’
estimates, a resident submitting a Residential Claim using the
Simple Claim Form will receive a base payment of $525, plus $170
for each additional resident of the household.
For example, a
resident submitting a claim on behalf of a household of four
people would be entitled to receive $1,035 ($525 base + $170 x 3
additional residents).
Residents must evaluate whether they can
prove more extensive damages than the estimated amount before
determining whether to submit an Individual Review Claim Form or
a Simple Claim Form.
If a resident submits an Individual Review
Claim Form and the Settlement Administrator determines that the
resident would be entitled to a greater amount with the Simple
Claim Form, the Settlement Administrator will notify the
resident and provide the opportunity to resubmit the claim using
the Simple Claim Form.4
b. Business Claims
Business Claims are claims made by or on behalf of a
business that conducted operations at real property supplied
with tap water by the KVTP on January 9, 2014.
Businesses may
have claims that arise from physical damage to their property
4
The court notes that this process seems unduly duplicative of
the work a claimant has already done. In this instance, it
would be more efficient simply to award a Simple Claim payment
based on a claimant’s submission of the Individual Review Form.
11
caused by the presence of contaminated water within their pipes,
repair/replacement costs for affected appliances and equipment,
lost profits, lost revenue, lost inventory, and reasonable extra
expenses.
The Settlement Agreement distinguishes between three
types of businesses that may file claims: commercial businesses
that were shut down or partially shut down by government order
during the incident; lodging (hospitality) businesses; and
“other” eligible business locations, including government and
non-profits.
Commercial businesses that were “shut down or
partially shut down” are those that: 1) were conducted at a
location where the business possessed a West Virginia Business
Registration Certificate for the location; and 2) respecting
that location, were subject to a regulation requiring them to
cease operations or a direct order or instruction from a
regulatory agency to cease operations as a result of the
incident, extending from January 9 to as long as January 18,
2014, when the cessation order was lifted for the last affected
area.
This category excludes non-profit and governmental
entities.5
5
The court notes that the parties should limit the number of
governmental entities that may recover, for instance by setting
a cap on the number of state government agencies, county
government agencies, and municipal government agencies allowed
12
Lodging businesses are those that provide traveler
accommodation and have the characteristics for classification
under the North American Industry Classification System prefix
“721.”
This category excludes RV parks and campgrounds.
Other
eligible business locations include all other businesses located
at real property supplied with tap water by the KVTP on January
9, 2014.
This category includes non-profit and governmental
entities.
As with Residential Claims, business claimants may
submit either an Individual Review Claim Form, which requires
the claimant to provide documentation of damages, or a Simple
Claim Form, which provides a fixed compensation per claim.
The
amount of compensation available under the Simple Claim Form
varies based on the type of Business Claim and the business’s
annual revenue.
For the category of commercial businesses that
were shut down or partially shut down, there are three tiers of
payment.
For those businesses with annual revenue above zero up
to $250,000, the parties estimate a fixed payment amount of
$6,250.
For businesses with annual revenue greater than
$250,000 up to $1 million, the parties estimate a fixed payment
amount of $12,500.
Finally, for a commercial business shut down
or partially shut down with annual revenue above $1 million, the
to make claims.
13
parties estimate a fixed payment of $25,000.
For lodging business claimants using the Simple Claim
Form, the Settlement Agreement also establishes three tiers of
payment.
For lodging businesses with annual revenue up to
$500,000, the parties estimate a fixed payment of $10,000.
For
lodging businesses with annual revenue greater than $500,000 up
to $2 million, the parties estimate a fixed payment of $20,000.
For lodging businesses with annual revenue greater than $2
million, the parties estimate a fixed payment of $40,000.
For other eligible business claimants submitting a
Simple Claim Form, the parties estimate a fixed payment of
$1,875.
c. Medical Claims
Medical Claims are those submitted by or on behalf of
class members that suffered illness or injury because of
exposure to contaminated water, sought medical treatment for a
reaction or illness attributed to the incident, or had existing
medical conditions exacerbated by the incident.
The Settlement
Agreement recognizes three different types of Medical Claims:
contemporaneous medical treatment claims, other medical issues
claims, and water interruption medical issues claims.
All
Medical Claims must be submitted using an Individual Review
14
Claim Form with appropriate documentation; there is no Simple
Claim Form option.
A class member with a Medical Claim may also
file a Residential Claim and/or Wage Earner Claim, if eligible.
Contemporaneous medical treatment claims may be filed
by those who (1) were exposed to contaminated tap water between
January 9 and February 15, 2014 and (2) sought and received a
diagnostic evaluation or treatment, between January 9 and
February 15, for a physical injury or condition the claimant
believed6 to have been caused by exposure to the contaminated tap
water.
Claimants with contemporary medical treatment claims may
receive a payment equal to the unreimbursed cost of their
documented medical care, up to a maximum of $5,000, plus an
additional payment of $750.
Other medical issues claims may be filed by or on
behalf of class members that suffered illness or death because
of exposure to contaminated water.
In order to be eligible for
an other medical issues claim, a class member must demonstrate
with appropriate documentation the following: (1) that the class
member sought and received medical care for an illness, injury,
or exacerbation of an existing condition; (2) that the condition
6
The court notes that the Settlement Administrator needs to be
provided with express authority to question and require
reasonably necessary proof that a given condition was in fact
related to contaminated tap water.
15
was diagnosed by a licensed health care provider; (3) that the
condition is causally related to exposure to contaminated water
from the incident; and (4) that the complained-of condition
manifested between January 9 and February 28, 2014.
Other
medical issues claims do not include physical injuries or
illnesses that are subject to contemporaneous treatment claims.
Claimants must demonstrate medical expenses in excess of $5,000.
If a claimant fails to demonstrate expenses in excess of $5,000,
the claim must proceed as a contemporaneous treatment claim.
For valid other medical issues claims, a claimant may receive a
base payment of $50,000, plus two times medical costs.
Claimants sustaining permanent visual impairment may receive a
base payment of $150,000, plus two times medical costs.
Claimants sustaining wrongful death may receive a base payment
of $350,000 plus four times medical costs, up to a total maximum
cap of $750,000.
Claimants sustaining total occupational
disability may receive a base payment of $500,000 plus five
times medical costs, up to a total maximum cap of $1,000,000.
Claims for permanent visual impairment, wrongful death, or total
occupational disability may also be presented as water
interruption medical issues claims, with the same base payments
and limits.
Water interruption medical issues claims may be filed
16
by those class members who experienced a delay in treatment for
an existing chronic illness because of an interruption in water
service resulting from the Freedom Industries spill.7
In order
to be eligible for a water interruption medical issue claim, a
class member must demonstrate, with appropriate documentation,
(1) that the delay directly caused an aggravation or progression
of an illness or condition and (2) that the aggravation or
progression of the illness would not have occurred but for the
delay.
The claimant must also have medical expenses in excess
of $5,000; if medical expenses are less than $5,000, the claim
must proceed as a contemporaneous medical treatment claim.
Finally, class member residents of the affected area
who were pregnant on January 9, 2014, were exposed to
contaminated water, and who do not submit any other type of
Medical Claim may also file a Pregnancy Claim.
Persons
submitting valid Pregnancy Claims may receive a single payment
of $1,500.
d. Wage Earner Claims
Wage Earner Claims are those submitted by or on behalf
of individuals who were hourly employees at business locations
7
The parties must clarify whether the interruption must have
been to the services of the medical provider or to some other
person or entity.
17
that shut down because of the incident and lost wages because of
the shutdown.
All Wage Earner Claims must be submitted using an
Individual Review Claim Form with appropriate documentation;
there is no Simple Claim Form option or fixed payment.
documented lost wages may be reimbursed.
Only
A resident with a wage
earner claim may also file a Residential Claim and/or Medical
Claim, if eligible.
Under the Settlement Agreement, the
aggregate payment of Wage Earner Claims is capped at $4 million.
As with other claims, in the event Wage Earner Claims exceed $4
million, the payment to each claimant will be reduced, pro rata.
Wage Earner Claims may be filed by class members that
resided within the affected area on January 9, 2014, or by those
living outside the area.
To be eligible to file a Wage Earner
Claim, a class member (1) must have been employed as an hourly
employee at an eligible business location that was shut down or
partially shut down and (2) must have been scheduled to work
during the period in which the business was shut down or
partially shut down.
Regarding businesses that were partially
shut down, the claimant must have been scheduled to work at the
portion of the business that was partially shut down.
2. Settlement Funds and Payment Distribution
Under the Settlement Agreement, defendants have agreed
to pay a sum of money ranging between $101 million and $151
18
million.
The amount of money paid will depend on the type of
claims and the total value of claims filed.
The money will come
from four separate funds: the Eastman Fund, the WV American
Water Guaranteed Fund, the WV American Water Contingent Fund,
and the two Individual Settlement Funds.
The type of claim
filed, and the order in which a claim is processed relative to
other claims, determines the fund from which the Settlement
Administrator will pay a claim.
The Eastman Fund consists of $25 million.
The
Eastman Fund will first be used to pay Residential and Business
Claims that attest to property damage8 submitted using the Simple
Claim Form.
If the claims made with the Simple Claim Form do
not exhaust the Eastman Fund, the fund will next be used to pay
any claims alleging property damage or physical injury submitted
using the Individual Review Claim Form.
The Eastman Fund will
not be used to pay Wage Earner Claims.
After the Eastman Fund is exhausted, claims are next
paid from the Individual Settlement Funds.
The Individual
Settlement Funds consist of the money collected, if any, from
the settlements of Gary Southern and Dennis Farrell.
The
Individual Settlement Funds will be used to pay Residential
8
All Simple Claim Forms require a claimant to attest to property
damage.
19
Claims submitted under the Simple Claim Form option.
After the Individual Settlement Funds are exhausted,
the Settlement Administrator will pay claims using the WV
American Water Guaranteed Fund (“AW Guaranteed Fund”).
The AW
Guaranteed Fund consists of $76 million paid by WV American
Water.
The fund is first used to pay Residential and Business
claims submitted using the Simple Claim Form.
If money remains
in the AW Guaranteed Fund after Simple Claims have been paid,
the fund will then be used to pay claims under the “Check
Distribution” method.9
Finally, if money remains in the AW
Guaranteed Fund after the payment of Simple Claim Form claims
and the distribution of checks, the fund will be used to pay
claims submitted with the Individual Review Claim Form.
If the $101 million in the Eastman Guaranteed Fund and
AW Guaranteed Fund is not enough to satisfy all claims, then the
WV American Water Contingent Fund (“AW Contingent Fund”) will be
used to pay remaining claims submitted with the Individual
Review Claim Form.10
The AW Contingent Fund consists of an
9
Under the Check Distribution method, the Settlement
Administrator will mail payments of $525 to any customers of WV
American Water (as of January 9, 2014) that the Settlement
Administrator identifies as having failed to file a Residential
Claim.
10
In the event that all claims submitted using the Simple Claim
Form cannot be fully paid from the AW Guaranteed Fund, those
20
amount of money, up to a maximum of $50 million, funded by the
WV American Water only in the event that additional funds beyond
the guaranteed funds just discussed are required to satisfy
claims.
WV American Water will contribute to the fund only to
the extent required to satisfy remaining claims submitted using
the Individual Review Claim Form.
3.
Attorneys’ Fees, Costs, and Awards
The Settlement Agreement also governs the payment of
attorneys’ fees, costs, and incentive awards.
With respect to
attorneys’ fees, the parties propose that the current Class
Counsel in this case be designated Lead Settlement Class Counsel
and that the firms who serve as Lead Counsel in the state MLP
cases be designated Settlement Class Counsel.
The proposed
Settlement Agreement awards attorneys’ fees to both Class
Counsel and state MLP counsel (together, “counsel” or
“Settlement Class Counsel”) as follows:
Settlement Class Counsel will conjointly receive 30% of the
combined Eastman and AW Guaranteed Funds (the combination
of which the court refers to as “the guaranteed fund”),
without regard to whether claimants exhaust the remainder
claims will be reduced on a pro rata basis.
21
of the guaranteed fund.
The proposed total fee on the $101
million guaranteed fund is therefore $30,300,000,11 but, as
will be noted, additional contingent attorney fees may be
levied on Individual Review claims paid out of the
guaranteed fund.
Settlement Class Counsel will receive 25% of the aggregate
amounts paid out of the AW Contingent Fund, which pays only
Individual Review Claims.
If the entire $50 million AW
Contingent Fund were to be exhausted, though it is
unlikely, this would amount to an additional $12,500,000.
Attorneys may not seek fees for assisting with filing
Simple Claims.
For some reason, Settlement Class Counsel will also receive
25% of the aggregate Individual Review Claim amounts paid
out of the Eastman Fund.
This 25% fee would be in addition
to the 30% fee paid at the outset from the guaranteed fund,
which of course includes the $25 million Eastman Fund.
Consequently, this combination of fees makes for at least a
55% fee on Individual Review Claims paid out of the Eastman
Fund.
11
Settlement Class Counsel also seek 30% of the settlement with
defendants Southern and Farrell, but as that settlement has not
yet been accepted, the court will not analyze fees on those
funds at this time.
22
Finally, any attorneys — whether Settlement Class Counsel
or not — representing claimants in the Individual Review
process under a contract of representation may earn a
contingency fee on such claims that is not constrained by
the Settlement Agreement, unless an attorney entered into
such a contract on or after October 31, 2016, in which case
the fee is limited to 15% of the recovery.
But no such 15%
limitation applies to contracts entered into before October
31st, which will be the decided majority of such contracts.
The only other limit placed on contingent attorneys’ fees
on an Individual Review award in the Settlement Agreement
is that, in an instance where an attorney is limited to 15%
of an award because he or she entered into a contract on or
after October 31, 2016, the “net payment” to the claimant
must exceed the relevant Simple Claim amount (assuming
there is a corresponding Simple Claim).
Joint Mot. for
Prelim. Approval Ex. A § 13.2 [hereinafter “Settlement
Agreement”].
The term “net payment” is undefined but
presumably means the payment to the claimant after the
attorneys’ contingency fee has been deducted.
With respect to administrative costs, counsel have not
submitted estimates or analysis of these costs in conjunction
23
with their motion for attorneys’ fees and costs.
In a letter12
independently sent to the court, counsel estimate administrative
costs to be $1,973,500 for the Settlement Administrator,
SmithCochranHicks PLLC (“SCH”), and $681,591 for the Notice
Administrator13 totaling $2,655,091.
The Notice Administrator
has directly provided notice cost estimates to the parties.
Costs for settlement administration, on the other hand, appear
to be estimates based on an itemized fee schedule reflecting
each administrative processing function that SCH will perform.
The parties calculated the total settlement administration costs
for SCH by multiplying the fee estimate for each processing
function by the number of anticipated claims requiring that
function.
They appear to assume that 37,000 simple residential
claims will be processed, 5,000 simple business claims will be
processed, 57,000 residential checks will be mailed, and
approximately 3,100 Individual Review Claims (residential,
12
Pursuant to Order entered this same date, the court directs
the clerk to enter the fee letter on the docket.
13
The parties have not submitted any documentation with their
petition for fees that explains the notice costs anticipated by
the proposed notice program, although they have identified the
proposed Notice Administrator as Kinsella Media, LLC. In the
parties’ prior fee letter, however, the parties did itemize
notice costs, which the court will use for assessment purposes
here. In that letter, the parties proposed both Rust Consulting
and Kinsella Media, LLC, as Notice Administrators. Since Rust
Consulting does not appear in the parties’ recent filings, the
court will refer to Kinsella Media, LLC, as the only Notice
Administrator.
24
business, and medical) will be processed.
With respect to litigation costs, counsel represent
that these costs now total $2,377,376.93.
Counsel have provided
data in support of this figure that itemizes costs, including
court reporter costs for depositions, travel costs for out-ofstate attorneys and others, legal research costs, mediation
costs, and the costs of retained experts.
This figure will
presumably rise somewhat due to the accretion of additional
post-settlement duties.
These costs include expenses from both
federal and state lawyers and firms.
The parties also propose
$15,000 incentive awards for the fourteen class representatives
in this case and $10,000 incentive awards for ten named
plaintiffs in the state court case captioned In re Water
Contamination Litigation, No. 16-C-6000.
25
DISCUSSION
I.
Rule 23 Certification and Approval
a.
Applicable Law
The court’s ultimate role in overseeing class action
settlements is to ensure that any settlement proposed by the
parties is “fair, reasonable, and adequate.”
23(e)(2).
Fed. R. Civ. P.
After assessing the fairness of a proposed
settlement, “[t]he trial judge must then make a determination as
to whether or not to approve the settlement, or he may make
suggestions to the parties for modifications of the proposal.
Approval must then be given or withheld.”
F.2d 1326, 1331 (5th Cir. 1977).
Cotton v. Hinton, 559
See also Evans v. Jeff D., 475
U.S. 717, 727 (1986) (district court “might have advised
petitioners and respondents that it would not approve their
proposal unless one or more of its provisions was deleted or
modified”).
Settlement negotiations, even when they are armslength, often involve only the attorneys who have been
litigating the case.
“While [those attorneys’] representation
is no doubt vigorous in most cases, on occasion the negotiating
parties may find that their individual interests can best be
served by a settlement which is not in the best interests of the
26
class as a whole.”
Armstrong v. Bd. of Sch. Dirs. of City of
Milwaukee, 616 F.2d 305, 313 (7th Cir. 1980) overruled on other
grounds by Felzen v. Andreas, 134 F.3d 873, 876 (7th Cir. 1998).
Consequently, Rule 23(e) is concerned particularly with “the
protection of class members whose rights may not have been given
adequate consideration during the settlement negotiations.”
In
re Jiffy Lube Sec. Litig., 927 F.2d 155, 158 (4th Cir. 1991).
See also Berry v. Schulman, 807 F.3d 600, 612 (4th Cir. 2015),
cert. denied sub nom. Schulman v. LexisNexis Risk & Info.
Analytics Grp., Inc., 137 S. Ct. 77 (2016).
Courts often employ a two-stage review process of
proposed settlement agreements, consisting of a preliminary and
a final approval stage.
See, e.g., Armstrong, 616 F.2d at 313.
The preliminary approval stage requires analysis of Rules 23(a)
and 23(b), governing certification, as well as the fairness and
adequacy of the settlement under Rule 23(e).
[At preliminary approval,] counsel submit the proposed
terms of settlement and the judge makes a preliminary
fairness evaluation. . . . The judge should make a
preliminary determination that the proposed class
satisfies the criteria set out in Rule 23(a) and at
least one of the subsections of Rule 23(b). . . . The
judge must make a preliminary determination on the
fairness, reasonableness, and adequacy of the
settlement terms [under Rule 23(e)] and must direct
the preparation of notice of the certification,
proposed settlement, and date of the final fairness
hearing.
27
Manual for Complex Litigation (Fourth) § 21.632 (2004).
Following preliminary approval, the court directs reasonable
notice to the class.
The second stage, final approval, occurs
after the court issues notice, the period for opting out or
objecting to the settlement has passed, and the court has
conducted a “fairness hearing.”
Fed. R. Civ. P. 23(e)(2).
Rule 23 of the Federal Rules of Civil Procedure
governs the two components of a district court’s review of class
action settlements — certification and approval.
In general, a
district court’s certification decision is “accorded great
deference.”
Simmons v. Poe, 47 F.3d 1370, 1380 (4th Cir. 1995).
Certification, moreover, is equally as important in the
settlement context as in the litigation context.
See Amchem
Prod., Inc. v. Windsor, 521 U.S. 591, 619 (1997) (“Settlement is
relevant to a class certification.”).
The safeguards provided by the Rule 23(a) and (b)
class-qualifying criteria, we emphasize, are not
impractical impediments — checks shorn of utility — in
the settlement-class context. . . . [T]he standards
set for the protection of absent class members serve
to inhibit appraisals of the chancellor’s foot kind —
class certifications dependent upon the court’s
gestalt judgment or overarching impression of the
settlement’s fairness.
Id. at 621.
Certification, in other words, provides some
measure of objectivity to counterbalance what might become a
28
subjective evaluation by a court.
Class certification requires the parties to meet the
prerequisites of Rule 23(a) and at least one of the three
conditions of Rule 23(b).
See id. at 614.
First, the parties
must demonstrate the following in order to fulfill the
requirements of Rule 23(a):
(1) the class is so numerous that joinder of all
members is impracticable; (2) there are questions of
law or fact common to the class; (3) the claims or
defenses of the representative parties are typical of
the claims or defenses of the class; and (4) the
representative parties will fairly and adequately
protect the interests of the class.
Berry, 807 F.3d at 608; Fed. R. Civ. P. 23(a).
The Fourth
Circuit has summarized these four aspects as “(1) numerosity of
parties; (2) commonality of factual and legal issues; (3)
typicality of claims and defenses of class representatives; and
(4) adequacy of representation.”
Gunnells v. Healthplan Servs.,
Inc., 348 F.3d 417, 423 (4th Cir. 2003).
Additionally, certification can proceed only if the
proposed class “fit[s] within one of the three types of classes
listed in Rule 23(b).”
Berry, 807 F.3d at 608.
Rule 23(b)(3),
under which plaintiffs have sought certification here, provides
that a class action may proceed if “the court finds that the
questions of law or fact common to class members predominate
29
over any questions affecting only individual members, and that a
class action is superior to other available methods for fairly
and efficiently adjudicating the controversy.”
23.
Fed. R. Civ. P.
Courts refer to these two prongs of Rule 23(b)(3) as its
predominance and superiority requirements.
348 F.3d at 424.
See, e.g., Gunnells,
Rule 23(b)(3) also sets forth the following
factors relevant to analyzing both predominance and superiority:
(A) the class members’ interests in individually
controlling the prosecution or defense of separate
actions; (B) the extent and nature of any litigation
concerning the controversy already begun by or against
class members; (C) the desirability or undesirability
of concentrating the litigation of the claims in the
particular forum; and (D) the likely difficulties in
managing a class action.
Fed. R. Civ. P. 23(b)(3).
In addition to certification, a court must also decide
whether to approve a proposed settlement.
Approval is governed
by Rule 23(e), which provides that “[i]f the proposal would bind
class members, the court may approve it only after a hearing and
on finding that it is fair, reasonable, and adequate.”
Civ. P. 23(e)(2).
Fed. R.
Simply put, fairness and adequacy are the two
touchstones of class action settlement approval.
Lube, 927 F.2d at 158.
See Jiffy
The Fourth Circuit has observed that
Rule 23(e)’s settlement approval process provides
additional protection, ensuring that . . . class
members receive notice of a proposed settlement and an
30
opportunity to object, and that a settlement will not
take effect unless the trial judge — after analyzing
the facts and law of the case and considering all
objections to the proposed settlement — determines it
to be fair, adequate, and reasonable.
Berry, 807 F.3d at 612.
See also Amchem, 521 U.S. at 621.
Importantly, courts approach Rule 23(e)’s requirements with “a
liberal rather than a restrictive construction, adopting a
standard of flexibility in application which will in the
particular case best serve the ends of justice for the affected
parties and . . . promote judicial efficiency.”
Gunnells, 348
F.3d at 424 (quotation marks omitted).
As earlier noted, the parties propose to define the
Settlement Class to which the Settlement Agreement applies as
follows:
1) All natural persons, including adults and minors
(including in utero), who resided in residential dwellings
that were supplied tap water by West Virginia American’s
Kanawha Valley Water Treatment Plant (“KVTP”) on January 9,
2014.
2) All businesses, and non-profit and governmental
entities, that operated in real property locations that
were supplied tap water by the KVTP on January 9, 2014.
3) All natural persons who were regularly employed as
hourly wage earners for businesses that operated in real
property locations that were supplied tap water by the KVTP
on January 9, 2014.
The court will apply the Rule 23 analysis with this definition
in mind.
31
b.
Certification: Rules 23(a) and 23(b)
i.
Rule 23(a) Prerequisites
The four factors governing certification of a
settlement class under Rule 23(a) are, succinctly, (1)
numerosity, (2) commonality, (3) typicality, and (4) adequacy of
representation.
Gunnells, 348 F.3d at 423.
Importantly, “Rule
23 contains no suggestion that the necessity for individual
damage determinations destroys commonality, typicality, or
predominance, or otherwise forecloses class certification.”
Id.
at 427–28.
1.
Numerosity
With respect to numerosity, the proposed settlement
class numbers over 224,000 residents and 7,000 businesses, nonprofits, and governmental entities at locations supplied tap
water by the Kanawha Valley Treatment Plant on January 9, 2014.
“Joinder is thus impracticable and the numerosity requirement is
satisfied.”
2.
Good, 310 F.R.D. at 294.
Commonality
The Supreme Court has found that “Rule 23(a)(2)’s
‘commonality’ requirement is subsumed under, or superseded by,
the more stringent Rule 23(b)(3) requirement that questions
32
common to the class ‘predominate over’ other questions.”
Amchem, 521 U.S. at 609.
Accordingly, commonality will be
analyzed in conjunction with Rule 23(b)(3) predominance as set
forth below.
3.
Typicality
To ensure typicality, “a class representative must be
part of the class and possess the same interest and suffer the
same injury as the class members. . . .
That is not to say that
typicality requires that the plaintiff’s claim and the claims of
class members be perfectly identical or perfectly aligned.”
Deiter v. Microsoft Corp., 436 F.3d 461, 466 (4th Cir. 2006)
(quotation marks omitted).
As the court noted in its prior
certification opinion, the class representatives each allege
harms in contract or tort arising out of the spill.
These
interests run the gamut of claims and suffice to qualify the
representatives as surrogates for the class.
See Good, 310
F.R.D. at 295.
4.
Adequacy of Representation
Adequacy hinges on whether a “fundamental” conflict of
interest exists sufficient to defeat the propriety of
representation.
Gunnells, 348 F.3d at 430.
33
As noted in the
court’s prior opinion, the class representatives here have the
same interests as the class at large, namely, to establish the
liability of Eastman and WV American Water.
Good, 310 F.R.D. at
295 (“[T]here is no suggestion that the representatives are
anything other than adequate.”).
ii.
Rule 23(b)(3) Certification
Rule 23(b) states as follows:
A class action may be maintained if Rule 23(a) is
satisfied and if:
. . . .
(3) the court finds that the questions of law or
fact common to class members predominate over any
questions affecting only individual members, and
that a class action is superior to other
available methods for fairly and efficiently
adjudicating the controversy. The matters
pertinent to these findings include:
(A) the class members’ interests in
individually controlling the prosecution or
defense of separate actions;
(B) the extent and nature of any litigation
concerning the controversy already begun by
or against class members;
(C) the desirability or undesirability of
concentrating the litigation of the claims
in the particular forum; and
(D) the likely difficulties in managing a
class action.
34
Fed. R. Civ. P. 23(b).
Put simply, Rule 23(b)(3) is satisfied
when common issues of law and fact predominate over individual
issues and when the class action mechanism is superior to other
methods of resolution.
Gunnells, 348 F.3d at 424.
In a class action, common issues of law and fact must
predominate over concerns that are more protean.
“[A] class-
wide proceeding must be able to generate common answers that
drive the litigation.”
(4th Cir. 2015).
Brown v. Nucor Corp., 785 F.3d 895, 909
Predominance in fact merges with and
“subsumes” the commonality inquiry in the settlement context
under Rule 23(b)(3).
Amchem, 521 U.S. at 609.
A settlement,
however, “obviates the difficulties inherent in proving the
elements of varied claims at trial,” and consequently, “courts
are more inclined to find the predominance test met [in the
settlement context].”
Sullivan v. DB Invs., Inc., 667 F.3d 273,
304 & n.29 (3d Cir. 2011) (alteration in original).
The Supreme Court in Wal-Mart Stores, Inc. v. Dukes,
564 U.S. 338 (2011), emphasized that a recitation of just any
common questions is not sufficient to fulfill this requirement:
“[c]ommonality requires the plaintiff to demonstrate that the
class members have suffered the same injury.”
564 U.S. at 350
(quotation marks omitted) (finding a lack of commonality where a
class of approximately 1.5 million Wal-Mart employees alleged
35
sex discrimination by different local managers making a variety
of employment-related decisions).
As the Fifth Circuit has
noted, however, “the legal requirement that class members have
all ‘suffered the same injury’ can be satisfied by an instance
of the defendant’s injurious conduct, even when the resulting
injurious effects — the damages — are diverse.”
In re Deepwater
Horizon, 739 F.3d 790, 810–11 (5th Cir. 2014) (quoting Dukes,
564 U.S. at 350) (affirming district court’s certification of
settlement class whose injuries arose from British Petroleum’s
allegedly injurious conduct in connection with the Deepwater
Horizon oil spill, even when injuries differed).
As the parties emphasize, courts since Dukes have
continued to find predominance in the mass tort arena when a
single common event or common cause gave rise to the claims of
each class member.
See, e.g., In re Nat’l Football League
Players Concussion Injury Litig., 821 F.3d 410, 434 (3d Cir.)
(finding that common questions as to National Football League’s
knowledge and conduct in light of medical evidence regarding
concussions in players predominated even in the mass tort
context), as amended (May 2, 2016); In re Deepwater Horizon, 739
F.3d 790, 817 (5th Cir. 2014) (affirming finding that common
questions of law and fact arising from the Deepwater Horizon oil
spill predominated).
Furthermore, Fourth Circuit law permits a
36
court to find predominance and commonality in the mass tort
context.
In cases where a single accident putatively gives rise
to tort damages, “[the Fourth Circuit] has embraced the view
that the mass tort action for damages may . . . be appropriate
for class action, either partially o[r] in whole.”
Cent.
Wesleyan Coll. v. W.R. Grace & Co., 6 F.3d 177, 185 (4th Cir.
1993) (quotation marks omitted and second alteration in
original) (affirming the use of subclasses in suit by colleges
and universities alleging liability for asbestos-related
property damage in a variety of states and settings).
In cautioning against too ready a use of the class
certification tool, the court in Central Wesleyan contrasted the
easily ramifying complexities of asbestos litigation with “a
mass tort suit involving only a single defendant . . . and a
single product.”
6 F.3d at 189.
In this case, the facts are
more closely analogous to a mass tort suit arising from a
singular occurrence than to asbestos litigation.
Although there
are, in effect, two major defendants, their relationship to
plaintiffs and alleged liability stem from the same event, the
Freedom Industries spill.
The common issues raised by their
association with the spill are determinative of their liability
and predominate over the individual differences in, for example,
damages claimed by particular class members.
37
See Good, 310
F.R.D. at 296.
Although Eastman and WV American Water may be
liable under somewhat different theories, both residential and
business class members allege breach of similar duties.
Where
different kinds of injuries are alleged — e.g., personal
injuries versus property damage — objective criteria assist in
providing the appropriate compensation to victims.
Here, those
criteria are set forth in the distribution protocols and claims
forms.
The fact that the parties have agreed on a settlement
itself recommends finding that ample commonality exists to
justify certification of a settlement class.
at 304 n.29.
Sullivan, 667 F.3d
Moreover, in its prior certification opinion, the
court found that common issues of fact and law predominate,
including “the water company defendants’ liability for their
alleged negligent failure to prepare for the spill or react
swiftly enough once alerted to the approaching Crude MCHM, the
impracticability defense of those same defendants to the breach
of contract, and defendant Eastman’s liability for its alleged
inadequate product stewardship and negligent failure to warn.”
Good, 310 F.R.D. at 294.
These issues each arise from a single
common event, the Freedom Industries spill, and the court will
not disturb its prior findings at this juncture.
Additionally, superiority considerations recommend in
38
favor of certification here.
As the Fourth Circuit noted in
Gunnells,
it appears likely that in the absence of class
certification, very few claims would be brought
against [the defendant], making “the adjudication of
[the] matter through a class action . . . superior to
no adjudication of the matter at all.” Thus, class
certification will provide access to the courts for
those with claims that would be uneconomical if
brought in an individual action.
348 F.3d at 426 (quoting 5 James Moore et al., Moore’s Federal
Practice § 23.48[1] (1997)).
No deluge of individual small-
claims litigation has arisen in tandem with this litigation.
Nor is it economical for residents, in particular, to bring
claims alleging hundreds of dollars in damages using individual
litigation that accrues thousands of dollars in fees.
Rule 23’s
class mechanism is a far superior path to relief in a mass tort
case such as this one, where an identifiable class suffered
discrete harms resulting from a singular tragedy.
Analysis of the four factors established in Rule
23(b)(3) further supports certification.
In the settlement
context, the fourth factor concerning manageability is no longer
relevant:
Confronted with a request for settlement-only class
certification, a district court need not inquire
whether the case, if tried, would present intractable
management problems, see Fed. Rule Civ. Proc.
39
23(b)(3)(D), for the proposal is that there be no
trial.
Amchem, 521 U.S. at 620.
As noted in the court’s prior opinion,
the first three factors of the Rule 23(b)(3) analysis recommend
in favor of certification here.
See Good, 310 F.R.D. at 297.
Accordingly, both predominance and superiority are satisfied and
serve firmly to support commonality as well.
Thus, the
requirements of both Rule 23(a) and Rule 23(b)(3) are met so
that certification of a settlement class as proposed by the
parties here is plainly warranted.
For reasons elaborated in the following section,
however, the court will defer entering an Order effecting
settlement class certification.
Class certification will
proceed if and when the parties meet the conditions for
preliminary approval now explained.
40
c.
Approval: Rule 23(e)
Fairness and adequacy are the touchstones of class
action settlement approval.
Jiffy Lube, 927 F.2d at 158.
Rule
23, however, does not provide a specific set of guidelines for
the approval process.
Rather, the rule states simply that “[i]f
the proposal would bind class members, the court may approve it
only after a hearing and on finding that it is fair, reasonable,
and adequate.”
Fed. R. Civ. P. 23(e).
Generally, preliminary approval precedes notice of a
proposed settlement to the class.
See In re Gen. Motors Corp.
Pick-Up Truck Fuel Tank Prod. Liab. Litig., 55 F.3d 768, 785 (3d
Cir. 1995) (“Before sending notice of the settlement to the
class, the court will usually approve the settlement
preliminarily.”).
Although Rule 23(e) does not delineate a procedure for
court approval of settlements of class actions, the
courts generally have followed a two-step procedure.
See Armstrong v. Bd. of Sch. Dirs., 616 F.2d 305, 312
(7th Cir. 1980); In Re Mid–Atlantic Toyota Antitrust
Litig., 564 F. Supp. 1379, 1384 (D. Md. 1983). First,
the court conducts a preliminary approval or prenotification hearing to determine whether the proposed
settlement is “within the range of possible approval”
or, in other words, whether there is “probable cause”
to notify the class of the proposed settlement. See
Armstrong, 616 F.2d at 314; Toyota Antitrust Litig.,
564 F.Supp. at 1384. Second, assuming that the court
grants preliminary approval and notice is sent to the
class, the court conducts a “fairness” hearing, at
which all interested parties are afforded an
41
opportunity to be heard on the proposed settlement.
The ultimate purpose of the fairness hearing is to
determine if the proposed settlement is “fair,
reasonable, and adequate.”
Horton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 855 F.
Supp. 825, 827–28 (E.D.N.C. 1994).
See also, e.g., Whitlock v.
FSL Mgmt., LLC, 843 F.3d 1084, 1094 (6th Cir. 2016) (discussing
district court’s preliminary approval of settlement); Smith v.
Res-Care, Inc., No. CV 3:13-5211, 2015 WL 6479658, at *4 (S.D.W.
Va. Oct. 27, 2015) (reaffirming two-stage approval process
adumbrated in Horton).
Much of the court’s role in protecting
the interests of litigants and ensuring the fairness and
adequacy of a proposed settlement will happen after class
members have had the opportunity to object at the final approval
stage.
The Fifth Circuit has noted that
[b]y weighing the competing evidence and evaluating
the legal arguments, we think the court should be able
to reach a just conclusion. It is for this reason that
the court can generally fulfill its responsibilities
by “examin(ing) the settlement(s) in light of the
objections raised [prior to final approval] and (by)
set(ting) forth on the record a reasoned response to
the objections including findings of fact and
conclusions of law necessary to support the response.”
In re Corrugated Container Antitrust Litig., 643 F.2d 195, 213
(5th Cir. 1981) (parenthetical alterations in original) (quoting
Cotton v. Hinton, 559 F.2d 1326, 1331 (5th Cir. 1977)).
The court’s role is more circumscribed at the
42
preliminary approval stage than at the final approval stage.
As
one court has explained,
[a]t the preliminary approval stage, the bar to meet
the fair, reasonable and adequate standard is lowered,
and the court is required to determine whether the
proposed settlement discloses grounds to doubt its
fairness or other obvious deficiencies such as unduly
preferential treatment of class representatives or
segments of the class, or excessive compensation of
attorneys, and whether it appears to fall within the
range of possible approval.
In re Nat’l Football League Players’ Concussion Injury Litig.,
961 F. Supp. 2d 708, 714 (E.D. Pa. 2014) (quotation marks
omitted); Horton, 855 F. Supp. at 827 (“[T]he court conducts a
preliminary approval or pre-notification hearing to determine
whether the proposed settlement is within the range of possible
approval . . . .” (quotation marks omitted)).
However,
“[p]reliminary approval is not merely a judicial rubber-stamp of
the parties’ agreement, and must be exacting and thorough.”
Winingear v. City of Norfolk, No. 2:12CV560, 2014 WL 12526327,
at *1 (E.D. Va. June 5, 2014) (citing In re Nat’l Football
League, 961 F. Supp. 2d at 714).14
14
Another court has explained that the preliminary approval
process is a response to the need to notice the class.
Rule 23 does not provide for “preliminary approval” or
a “preliminary fairness determination.” Over the
years, however, the Complex Litigation Manual has come
to use that term for what a court does in deciding to
43
A district court’s role at the preliminary review
stage is to determine whether a particular settlement is “within
the range of possible approval” and, if so, to submit that
settlement to class members.
Armstrong, 616 F.2d at 314.
In
making this evaluation, the court must be mindful of the general
concerns that supervene on all judicial review of settlement
agreements.
“The court’s role in reviewing a negotiated class
settlement is to [sic] ‘to ensure that the agreement is not the
product of fraud or collusion and that, taken as a whole, it is
fair, adequate, and reasonable to all concerned.’”
Marshall v.
Nat’l Football League, 787 F.3d 502, 509 (8th Cir. 2015)
(quoting In re Wireless Tel. Fed. Cost Recovery Fees Litig., 396
F.3d 922, 934 (8th Cir. 2005)), cert. denied, 136 S. Ct. 1166
(2016).
The factors that merit consideration during the
approval process may be broken into “two major categories: those
which go to ‘fairness’ and those which go to ‘adequacy’ of a
settlement.”
In re Montgomery Cty. Real Estate Antitrust
order notice to the class of a settlement. Before
incurring the expense of widescale notice, it makes
sense for a judge to say that a particular settlement
has no chance of approval.
In re New Motor Vehicles Canadian Exp. Antitrust Litig., 236
F.R.D. 53, 55–56 (D. Me. 2006). See also, 7B Charles Alan
Wright & Arthur R. Miller, Federal Practice and Procedure Civil
§ 1797.5 (3d ed. April 2017) (“[T]he rule does not require or
suggest that the court should preliminarily approve the fairness
of a proposed settlement before sending notice to the class,
although some courts have followed that approach.”).
44
Litig., 83 F.R.D. 305, 315 (D. Md. 1979); Jiffy Lube, 927 F.2d
at 158.
i.
Fairness and Adequacy of the Proposed Settlement
Fairness analysis aims to “ensure that a settlement
[is] reached as a result of good-faith bargaining at arm’s
length, without collusion.”
marks omitted).
Berry, 807 F.3d at 614 (quotation
Courts sometimes use the following factors in
analyzing the question of fairness: “(1) the posture of the case
at the time settlement was proposed, (2) the extent of discovery
that had been conducted, (3) the circumstances surrounding the
negotiations, and (4) the experience of counsel in the area of
[mass tort] class action litigation.”
Jiffy Lube, 927 F.2d at
159 (citing In re Montgomery, 83 F.R.D.).
In this instance, the parties reached a settlement
proposal in principle after three years of litigation on the eve
of trial of liability issues.
Cf. Flinn v. FMC Corp., 528 F.2d
1169, 1174 (4th Cir. 1975) (approving a settlement that followed
“protracted discussions and was reached on the eve of trial
after prior negotiations had failed”).
While settlement during
the pre-discovery stages of litigation would “rais[e] questions
of possible collusion among the settling parties,” Jiffy Lube,
927 F.2d at 159, no such inference arises here.
45
Indeed,
discovery closed on April 22, 2016, a full six months before the
parties reached an agreement in principle as set forth in their
settlement term sheets.
It would take the parties another six
months of negotiations before they finalized their settlement on
April 27, 2017.
“The fact that all discovery has been completed and
the cause is ready for trial is important, since it ordinarily
assures sufficient development of the facts to permit a
reasonable judgment on the possible merits of the case.”
528 F.2d at 1173.
Flinn,
The parties note that they “participated in
more than 100 depositions, including 20 experts, and
approximately 500 hundred [sic] thousand pages of documents were
exchanged.”
Mot. for Prelim. Approval 14.
Simultaneously, some of the attorneys who now seek to
be named Settlement Class Counsel were engaged in litigating
similar claims in West Virginia state court.
The proposed
Settlement Agreement is global in nature in that it purports to
resolve not only the federal claims specifically alleged in this
case but also any other claims arising out of the Freedom
Industries spill that were raised or capable of being raised in
a forum other than bankruptcy court.
The parties note that
various individuals and businesses involved in this litigation
were also involved in the hearings before the West Virginia
46
Public Service Commission (“PSC”) and in the Freedom Industries
bankruptcy litigation.
Mot. for Prelim. Approval 14-15.
The
West Virginia cases were consolidated before the Mass Litigation
Panel (“MLP”), and MLP Lead Counsel have been actively involved
in the negotiations leading to this global settlement.
Consequently, their expertise and contributions further
demonstrate that the issues in this litigation have been
exhaustively vetted and the relevant bargaining positions
clarified.
The motions practice in this case was also extensive.
The parties seriously contested motions over the adequacy of the
pleadings, and the class certification stage involved
substantial controversy over the nature and dimensions of the
class.
Following discovery, plaintiffs, Eastman, and WV
American Water each submitted multiple motions for summary
judgment at the dispositive motions stage.
The parties also
proffered and responded to various aspects of the proposed Trial
Plan and submitted dozens of Daubert motions and motions in
limine in the weeks prior to the trial date.
Furthermore, the court sees no evidence of chicanery
in the circumstances surrounding settlement.
The parties
reached settlement during negotiations in order to attempt a
resolution of the class litigation that did not incur the
47
enormous time and expense required by a liability phase trial
followed by a number of separate damages trials.
The parties’
negotiations were exhaustive: they included a number of insurers
and associated non-parties in negotiations over the settlement
terms, and both plaintiffs and defendants endeavored to reach
global settlement in consultation with parties in the West
Virginia state cases.
Moreover, the attorneys for the parties possess an
abundance of experience.
The three lead Class Counsel in this
case alone conjointly possess over seventy years of class action
and mass tort litigation experience, see Pls.’ Mem. in Supp.
Mot. for Award of Attys.’ Fees [hereinafter “Pet. for Fees”]
(ECF No. 1140) Exs. 1-3, and the attorneys for defendants are
well-known and accomplished litigators.
No one has challenged
the “good faith and competency” of these lawyers.
528 F.2d at 1174.
See Flinn,
Class members will have the opportunity to
raise objections to these observations during the objection
period.
Adequacy is also relevant to determining whether a
settlement is ready for preliminary approval under Rule 23(e).
Factors that courts use to guide analysis of a settlement’s
adequacy include
48
(1) the relative strength of the plaintiffs' case on
the merits, (2) the existence of any difficulties of
proof or strong defenses the plaintiffs are likely to
encounter if the case goes to trial, (3) the
anticipated duration and expense of additional
litigation, (4) the solvency of the defendants and the
likelihood of recovery on a litigated judgment, and
(5) the degree of opposition to the settlement.
Jiffy Lube, 927 F.2d at 159 (citing In re Montgomery, 83
F.R.D.).
Without yet having received objections from class
members, the court will defer consideration of the fifth
adequacy factor.
Further, the solvency of defendants is not
here disputed, and insolvent defendants presumably would not
agree to a $151 million settlement proposal.
“The strength of the plaintiffs’ claims on the merits”
is “the most important factor in weighing the substantive
reasonableness of a settlement agreement.” Berry, 807 F.3d at
614.
In order to assess how adequate a proposed settlement is,
the court must consider the rights that class members are giving
up in the bargain.
Id.
The Settlement Agreement releases any
claims that class members in this or other litigation might
otherwise bring against Eastman and WV American Water in
relation to the Freedom Industries spill, save for those class
members who opt out of the agreement.
The field of possible
claims is expansive, and it includes, inter alia, breach of
contract claims by WV American Water’s customers as well as tort
claims for negligence and gross negligence in preparing for and
49
responding to the spill.
Both the breach of contract and the
negligence claims survived dispositive motions and,
consequently, had sufficient merit to give plaintiffs leverage
in negotiations.
Those same observations apply to the tort
claims against Eastman.
The proposed settlement is the result of negotiations
taken up in light of the potential merits of plaintiffs’ claims,
and it represents a strong result in two primary respects.
First, the proposal entitles class members to substantial
compensation based on their status as residents or businesses at
the time of the spill, as earlier outlined.
The anticipated
sums represent substantial amounts that few claimants could
expect to recoup through independent litigation that would
likely engulf similar compensation amounts with high litigation
costs and fees.
Second, the Settlement Agreement provides substantial
flexibility to address the claims of those class members who
deem their injuries insusceptible of redress through the Simple
Claims process.
The agreement provides for an Individual Review
process through which claimants can present claims, with
supporting documentation, that they posit exceed the flat
amounts available under the Simple Claims process.
The
Individual Review mechanism represents an outstanding result for
50
class members: individuals and businesses may tailor their
claims based on whether they claim, for example, medical injury
(of various types), lost wages or profits, or property damage.
The proposal circumvents the enormous expense of taking these
matters to individual or bellwether trials, and it strikes a
balance between claimants who would have difficulty proving
their damages — who may use the Simple Claims process — and
those who are prepared to go forward in the Individual Review
process.
The option of individually tailored remedies is a
hallmark of a strong outcome for the class.15
The court’s discretion, however, extends most
importantly to determining whether the settlement’s terms are,
on the whole, “fair, adequate, and reasonable to all concerned.”
Marshall, 787 F.3d at 509; Fed. R. Civ. P. 23(e).
“The primary
concern addressed by Rule 23(e) is the protection of class
members whose rights may not have been given adequate
consideration during the settlement negotiations.”
927 F.2d at 158.
Jiffy Lube,
Thus, the court remains particularly concerned
by four aspects of the proposed settlement: (1) the tiered
15
Defendants, furthermore, achieve a global resolution of their
claims through this proposal, which reduces their exposure to
ongoing litigation by orders of magnitude. They have the option
to terminate the agreement in the event that the number of opt
outs reaches a certain threshold, and they may dispute claims
issued through the IR process. Consequently, defendants’
interests are also well protected.
51
compensation structure for certain businesses, (2) the review
and “appeals” process when disputes over claims arise, (3) the
fixed base payments to certain medical claimants, and (4) the
delay of payments pending appellate review.16
First, the tiered compensation structure generates
unfairness to business claimants whose revenues are at the upper
margins of the various tiers.
For businesses shut down or
partially shut down by the public health authorities in the wake
of the spill, claimants with annual revenue under $250,000 can
receive an estimated payment of $6,250; businesses with annual
revenue between $250,000 and $1 million, $12,500; and businesses
with $1 million or more in annual revenue, $25,000.
Consequently, for a business earning just under the $250,000
cap, the Settlement Agreement provides a payment of $6,250
equaling approximately 2.5% of the business’s annual revenue,
whereas a self-employed individual with annual revenue of
$20,000 would receive the same $6,250, or 31.2% of annual
revenue, for a nine-day shut down period.
For a business
earning just under the $1 million cap, the Settlement Agreement
provides a payment of $12,500 equaling approximately 1.25% of
the business’s annual revenue.
For businesses with just over
16
The court is also concerned with the attorneys’ fees and costs
requested by plaintiffs’ counsel, but it will address those
concerns in a separate section of this opinion, infra.
52
$250,000 in revenue, the Settlement Agreement provides for a
payment of $12,500 that equals approximately 5% of the
business’s annual revenue, yielding a recovery that is four
times the rate of that for a business just below the $1 million
mark.
A similar tiered structure generates analogous problems
for business claimants in the lodging and hospitality industry
as well.
A tiered compensation structure is of course a
mechanism sometimes used to allocate economic rewards
proportionately.
A tiered structure is sometimes also used to
apportion compensation in a class action settlement.
See, e.g.,
In re Baby Prod. Antitrust Litig., 708 F.3d 163, 174 (3d Cir.
2013) (settlement included tiers for cash distributions, based
not on claimant’s income or revenue but on whether they could
prove their damages).
An allocation plan, however, must be fair
to all claimants, see Jiffy Lube, 927 F.2d at 158, and must have
some rational justification, see, e.g., In re Global Crossing
Securities and ERISA Litigation, 225 F.R.D. 436, 462 (S.D.N.Y.
2004).
In this instance, the tiered structure is a blunt
instrument where a more surgical approach is required.
Although tiers may allow the parties better to
forecast the compensation that the settlement will distribute
through the Simple Claim process, they cannot do so at the
53
expense of fairness to the claimants.
When one business
receives 5% of its revenues through the claims process and
another 1.25%, the disparity calls into question the fairness of
the proposal to those parties.
Although certain costs imposed
by the spill and water contamination might be equivalent for
many businesses, surely others were costs in proportion to the
size of a given business.
A 3.75% variance, which may be
significant especially for small businesses, does not appear
rationally related to any relevant facts about the particular
businesses.
The tiered structure instead appears to provide a
windfall to certain businesses on no account of their own.
More
equitable, however, would be a structure that allowed business
claimants — those currently categorized under the tiered
structures — to recover the same or a less disparate percentage
of their annual revenues in the Simple Claims process as other
business claimants under the same structure.
The court
therefore deems this aspect of the Settlement Agreement unfair
to many business class members currently categorized under the
tiered structures, and it will require the parties to amend
these structures in order for the Settlement Agreement to
achieve preliminary approval.
Second, the court is concerned with the procedure for
resolving disputes over claims filed under the Settlement
54
Agreement.
Currently, the settlement proposal envisions a
tripartite review process, with ultimate discretion allocated to
the Settlement Administrator in most cases.
First, the
Settlement Administrator reviews a claimant’s eligibility and
evaluates the appropriate amount of compensation in accordance
with the terms of the agreement.
Second, claimants who dispute
their awards may “appeal” to the Settlement Administrator for
reconsideration.
Third, the Settlement Administrator may refer
any issues or questions about the Settlement Agreement that
arise during implementation of the claims process to a “Claims
Oversight Panel” composed of four members, two selected by
plaintiffs and one selected by each of Eastman and WV American
Water.
Interpretations of the Settlement Agreement by the
Claims Oversight Panel only have binding authority on the
Settlement Administrator when issued unanimously.
Settlement
Agreement § 6.2.5-6.2.6.
Given the sprawling complexity of this litigation, one
mark in favor of the settlement is that it provides a mechanism
by which to address differences between the various damages
claims without embroiling the parties in further litigation.
That justification suffers appreciably, however, when the review
process is not exhaustive enough to prevent the court’s further
involvement in administrative matters.
55
It is not difficult to
imagine scenarios in which claimants unsatisfied with the
singular authority of the Settlement Administrator will look to
the court to resolve disputes over claims and other matters
entrusted to the Settlement Administrator.
Absent some kind of
independent review panel that can hear appeals directly, rather
than merely advise the Settlement Administrator, the court is
concerned that one of the key justifications for settlement —
avoidance of further litigation — evaporates.
An appeals or mediation panel, or both, would
facilitate resolution of claims without the court’s involvement
and the concomitant expense and drain on judicial resources.
Regarding certain lost profits and lost revenues claims, the
Settlement Agreement already incorporates an appeals process
under which disputants (including the parties in this case) may
select and submit disputes to an experienced, independent third
party for final determination.
The court sees no reason to
confine this process to lost profits and lost revenues claims.
So it is that the court deems this aspect of the Settlement
Agreement to be inadequate, and it will direct the parties to
include a more robust dispute resolution process in the proposed
Settlement Agreement.
Third, fixed base payments for other medical issues
claims and water interruption medical issues claims also raise
56
concerns.
Both types of claim provide for a fixed base payment
of $50,000, which can be higher for permanent visual impairment
($150,000), wrongful death ($350,000), and total occupational
disability ($500,000).
Fixed payments of that magnitude fail to
account for inevitable and substantial differences between
claims, and such payments for those with minor injuries or
lesser losses tend to disparage the integrity of the
distribution process and may serve to diminish the sums
ultimately recovered by other claimants.
An appropriate award
will depend on the facts of a particular claim.
Accordingly,
the parties may institute a cap on the base payment for these
types of claim, such that a claimant may receive an award of “up
to” a certain dollar amount, but they may not use fixed base
payments for these types of claim that do not allow for
adjustment based on particular circumstances.
Consequently, the
court deems this further aspect of the Settlement Agreement to
be unfair, and it directs the parties to provide a more flexible
compensation mechanism in any updated Settlement Agreement.
Fourth, the court is concerned by provisions of the
Settlement Agreement that will cause delay in the distribution
of claims payments.
As drafted, the Settlement Agreement does
not allow payments to claimants to begin until all appeals have
been resolved and any further appeals period has expired.
57
Delays of over a year are not uncommon for a case on appeal, and
an appeal of relatively minor issues should not be allowed to
stall the timely issuance of claims payments.
If particular
appeals present substantial risks to defendants, a mechanism may
be devised in the Settlement Agreement that sequesters adequate
funds to meet an adverse determination.
However, they may not
occlude the entire claims payment process until resolution of
all appeals.
The court deems this aspect of the Settlement
Agreement to be inadequate, and the parties are directed to
devise a provision that meets the court’s concerns.
Consequently, the court does not direct notice at this
time.
Fed. R. Civ. P. 23(e)(1).
Likewise, the court postpones
appointing the Notice Administrator, Settlement Administrator,
Settlement Class Representatives, and Settlement Class Counsel
until the court grants preliminary approval.
Instead, the court
declines to approve the proposed Settlement Agreement until the
parties submit an agreement and preliminary approval motion
meeting the foregoing conditions.
See Evans v. Jeff D., 475
U.S. 717, 727 (1986) (district court may “advise[] petitioners
and respondents that it [will] not approve their proposal unless
one or more of its provisions was deleted or modified”).
58
II.
Attorneys’ Fees, Costs, and Incentive Awards
A.
Attorneys’ Fees
Generally, there are two competing methods by which
courts evaluate attorneys’ fees in the class action context: the
percentage-of-recovery method and the lodestar method.
The percentage-of-recovery method is generally favored
in cases involving a common fund, and is designed to
allow courts to award fees from the fund in a manner
that rewards counsel for success and penalizes it for
failure. The lodestar method is more commonly applied
in statutory fee-shifting cases, and is designed to
reward counsel for undertaking socially beneficial
litigation in cases where the expected relief has a
small enough monetary value that a percentage-ofrecovery method would provide inadequate compensation.
In re Cendant Corp. PRIDES Litig., 243 F.3d 722, 732 (3d Cir.
2001) (citations and quotation marks omitted).
The lodestar
method uses an attorney’s billable rate and the number of hours
worked to arrive at a fee.
See Gunter v. Ridgewood Energy
Corp., 223 F.3d 190, 195 (3d Cir. 2000).
“The Fourth Circuit has neither announced a preferred
method for determining the reasonableness of attorneys’ fees in
common fund class actions nor identified factors for district
courts to apply when using the percentage method.”
Kay Co. v.
Equitable Prod. Co., 749 F. Supp. 2d 455, 463 (S.D.W. Va. 2010).
The circuits to consider the percentage method have found that
trial courts may use that method in class actions in order to
59
assess attorneys’ fees.
See Goldberger v. Integrated Res.,
Inc., 209 F.3d 43 (2d Cir. 2000); Cook v. Niedert, 142 F.3d
1004, 1013 (7th Cir. 1998); In re Thirteen Appeals Arising out
of San Juan DuPont Plaza Hotel Fire Litig., 56 F.3d 295, 307
(1st Cir. 1995); In re Wash. Pub. Power Supply Sys. Litig., 19
F.3d 1291, 1295 (9th Cir. 1994); Gottlieb v. Barry, 43 F.3d 474
(10th Cir. 1994); Rawlings v. Prudential–Bache Props., Inc., 9
F.3d 513, 516 (6th Cir. 1993); Longden v. Sunderman, 979 F.2d
1095, 1099 (5th Cir. 1992); In re Cont’l Ill. Sec. Litig., 962
F.2d 566 (7th Cir. 1992); Camden I Condo. Ass’n, 946 F.2d 768,
773–74 (11th Cir. 1991); Paul, Johnson, Alston & Hunt v.
Graulty, 886 F.2d 268, 272 (9th Cir. 1989); Brown v. Phillips
Petroleum Co., 838 F.2d 451, 454, 456 (10th Cir.), cert. denied,
488 U.S. 822 (1988); Bebchick v. Wash. Met. Area Transit Comm’n,
805 F.2d 396, 406–07 (D.C. Cir. 1986).17
Perhaps most important,
the Fourth Circuit has stated that “despite our very deferential
review in this area, we do require district courts to set forth
17
“District courts within the Fourth Circuit have consistently
endorsed the percentage method.” Deem v. Ames True Temper,
Inc., 6:10-CV-01339, 2013 WL 2285972, at *4 (S.D.W. Va. May 23,
2013) (citing, e.g., Muhammad v. Nat’l City Mortg., Inc., Civil
Action 2:07–CV-0423, 2008 WL 5377783, at *7 (S.D.W. Va. Dec. 19,
2008); In re Royal Ahold N.V. Sec. & ERISA Litig., 461 F. Supp.
2d 383, 385 (D. Md. 2006); League v. Bakker, 213 F. Supp. 2d
571, 583 (W.D.N.C. 2002); Goldenberg v. Marriott PLP Corp., 33
F. Supp. 2d 434, 438 (D. Md. 1998); Strang v. JHM Mortg. Sec.
Ltd. P’ship, 890 F. Supp. 499, 502 (E.D. Va. 1995)).
60
clearly findings of fact for fee awards so that we have an
adequate basis to review for abuse of discretion.”
Berry, 807
F.3d at 617.
The court here adopts the percentage method rather
than the lodestar method in order to evaluate the fee request,
although the court will employ a “lodestar cross-check” as one
element of the analysis.
1.
The Benchmark Approach
Settlement Class Counsel18 rely on cases out of the
Ninth Circuit to argue that their requested award of 30% is
reasonable because it represents a justifiable departure from a
typical “benchmark” fee of 25% in common fund cases.
The Ninth
Circuit has in one case “note[d] with approval that one [lower]
court has concluded that the ‘bench mark’ percentage for the fee
award should be 25 percent.”
Paul, 886 F.2d at 272.
Even the
Ninth Circuit has cautioned that the benchmark approach should
not be applied indiscriminately to every common fund case.
See
Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1048 (9th Cir. 2002)
18
Plaintiffs filed their petition for fees through their
proposed Settlement Class Counsel, a group comprising (A) three
attorneys and associated firms who are Class Counsel in this
federal case – Van Bunch, Kevin Thompson, and Stuart Calwell –
and (B) three attorneys and associated firms who are lead
counsel in the state MLP cases – Anthony Majestro, Benjamin
Bailey, and Marvin Masters.
61
(“The 25% benchmark rate, although a starting point for
analysis, may be inappropriate in some cases.”).
More
generally, the Ninth Circuit has found that often “fee awards
range from 20 percent to 30 percent of the fund created.”
Paul,
886 F.2d at 272.
The Eleventh Circuit has observed the following:
[T]his court has often stated that the majority of
fees in these cases are reasonable where they fall
between 20–25% of the claims. Id. Where the requested
fee exceeds 25%, the court is instructed to apply the
twelve Johnson factors. Id. The Johnson factors
include: (1) the time and labor required; (2) the
difficulty of the issues; (3) the skill required; (4)
the preclusion of other employment by the attorney
because he accepted the case; (5) the customary fee in
the community; (6) whether the fee is fixed or
contingent; (7) time limitations imposed by the client
or circumstances; (8) the amount involved and the
results obtained; (9) the experience, reputation, and
ability of the attorneys; (10) the undesirability of
the case; (11) the nature and length of the
professional relationship with the client; and (12)
awards in similar cases.
Faught v. Am. Home Shield Corp., 668 F.3d 1233, 1242–43
(11th Cir. 2011).
In their fee request, counsel cite to
empirical studies by Professors Thomas Eisenberg and
Geoffrey P. Miller finding that the mean percentage fee in
69 cases ranging from approximately $70 million to
approximately $175 million was 19.4%.
Pet. for Fees 20-21.
See Thomas Eisenberg & Geoffrey P. Miller, Attorney Fees
and Expenses in Class Action Settlements: 1993-2008, 7 J.
62
Empirical Legal Stud. 248 (2010) [hereinafter “Attorney
Fees . . . 1993-2008”]; Thomas Eisenberg & Geoffrey P.
Miller, Attorney Fees in Class Action Settlements: An
Empirical Study, 1 J. Empirical Legal Stud. 27 (2004)
[hereinafter “Attorney Fees . . . An Empirical Study”].
Settlement Class Counsel champion Eisenberg and
Miller’s argument that “fee requests falling within one
standard deviation above or below the mean should be viewed
as generally reasonable and approved by the court unless
reasons are shown to question the fee.”
Pet. for Fees 20;
Eisenberg & Miller, Attorney Fees . . . An Empirical Study,
supra, at 74.
In addition, Settlement Class Counsel urge
the authors’ argument that “fee requests falling between
one and two standard deviations above or below the mean
should be viewed as potentially reasonable but in need of
affirmative justification.”
Pet. for Fees 20; Eisenberg &
Miller, Attorney Fees . . . An Empirical Study, supra, at
74.
The authors, Eisenberg and Miller, report the mean for
common funds ranging from $70 to $175 million as 19.4% with
a standard deviation of 8.4%, placing the fee request here
in the second category — that lying between one and two
standard deviations from the mean.
63
Attorney Fees . . . An
Empirical Study, supra, at 74.
The court, however, does
not endorse the recommendations of the authors.
First, it is not apparent why fee awards that are
8.4% higher or lower than the mean should be presumptively
reasonable absent an affirmative showing that such a fee is
inappropriate.
When, as in the case of common fund fee
awards, the parties’ relationship is no longer adversarial,
who would bear the burden of such a showing?
Second and
more important, such an approach would appear to place an
imprimatur of reasonableness on a 27.8% award, which is
8.4% higher than the mean, regardless of fund size.
This
approach subverts precisely the concerns about a windfall
with which courts are regularly so concerned when applying
the percentage-of-recovery method.
The better approach is
the one that this court adopts: that common fund fee
requests require affirmative justification regardless of
the percentage fee.
Some circuits have expressly disagreed with a
benchmark approach.
William B. Rubenstein, Newberg on Class
Actions § 15:78 (5th ed.) (“Both the Second and Third Circuits
have explicitly rejected the benchmark approach.”).
The Second
Circuit has declined to adopt a simple benchmark approach,
instead noting the importance of distinctions between common
64
fund cases of various types and sizes:
We are . . . disturbed by the essential notion of a
benchmark. We agree that many class actions serve a
useful purpose, that lawyers who successfully
prosecute them deserve reasonable compensation, and
that market rates, where available, are the ideal
proxy for their compensation. The problem is that we
cannot know precisely what fees common fund plaintiffs
in an efficient market for legal services would agree
to, given an understanding of the particular case and
the ability to engage in collective arm’s-length
negotiation with counsel. . . .
Moreover, even a theoretical construct as flexible as
a “benchmark” seems to offer an all too tempting
substitute for the searching assessment that should
properly be performed in each case. Starting an
analysis with a benchmark could easily lead to routine
windfalls where the recovered fund runs into the
multi-millions. “Obviously, it is not ten times as
difficult to prepare, and try or settle a 10 million
dollar case as it is to try a 1 million dollar case.”
[In re Union Carbide Corp. Consumer Prod. Bus. Sec.
Litig., 724 F. Supp. 160, 166 (S.D.N.Y. 1989).]
Indeed, empirical analyses demonstrate that in cases
like this one, with recoveries of between $50 and $75
million, courts have traditionally accounted for these
economies of scale by awarding fees in the lower range
of about 11% to 19%.
Goldberger, 209 F.3d at 51–52.
Even without accounting for fund size, the empirical
literature clearly demonstrates that a 30% fee is higher than
that awarded in the vast majority of class actions.
Recent
empirical studies have found the mean fee awards for circuits
using a “benchmark” across all fund sizes to be between 21% and
28%.
Rubenstein, supra, § 15:78 tbl.1.
In the Fourth Circuit,
three empirical studies have found mean fee awards on funds of
65
all sizes in the last two decades to range from 20% to 27.7%,
with the latter figure of 27.7% coming from the most recent
study of cases from 2006 to 2011.
Id. § 15:83 tbl.2.
In one
case, the Ninth Circuit compiled a table of class actions
between $50 million and $200 million, finding that “most . . .
awards [were] around 10–30% and a bare majority . . . clustered
in the 20–30% range.”
Vizcaino, 290 F.3d at 1050 n.4 & app.
The case at bar provides even less reason to adopt a
25% benchmark fee because of the size of the common fund.
Courts have found through empirical analysis that larger common
funds typically have smaller percentage fees.
See, e.g., In re
Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148
F.3d 283, 339 (3d Cir. 1998) (fees in common fund cases
exceeding $100 million “ranged from 4.1% to 17.92%”); Carlson v.
Xerox Corp., 596 F. Supp. 2d 400, 405 (D. Conn.), aff'd, 355 F.
App’x 523 (2d Cir. 2009) (providing a chart of some of the
largest class action settlements and noting that in only 6 of
the top 26 cases was the fee awarded higher than 20% and in no
case was it higher than 28%).
As the Third Circuit has noted,
there is an “inverse relationship” between fund size and
attorney fee percentage.
In re Prudential, 148 F.3d at 339.
See also Rubenstein, supra, § 15:81 (Eisenberg and Miller’s
studies show that “the mean award for recoveries of $1.1 million
66
and less was 37.9%, while the mean for recoveries over $175.5
million was 12%”).
Commentators have noted the differences between fees
awarded on large and small recoveries.
The American Bar
Association’s Task Force on Contingent Fees has endorsed
Eisenberg and Miller’s conclusions regarding the scaling effect
of contingent fees.
See Report on Contingent Fees in Class
Action Litigation January 11, 2006 Task Force on Contingent
Fees, Tort Trial and Insurance Practice Section of the American
Bar Association, 25 Rev. Litig. 459, 486 (2006) [hereinafter
“Report on Contingent Fees”] (“[Eisenberg and Miller] also
discovered that the percentage fee awarded declines as the size
of the fund grows, a so-called ‘scale effect.’”).
In addition,
one study found that
the average award for funds under $750,000 was 28.8%,
while the average award for funds over $72.5 million
was 18.4%; as the recoveries increased over $72.5
million, the effect continued, with recoveries up to
$100 million receiving a 23.7% fee on average, while
those with $1 billion or more received 13.7%.
Rubenstein, supra, § 15:81 (citing Brian T. Fitzpatrick, An
Empirical Study of Class Action Settlements and Their Fee
Awards, 7 J. Empirical Legal Stud. 811, 839 (2010)).
The court need not here decide that the benchmark
approach is the appropriate starting point.
67
Instead, the court
simply notes that the Ninth Circuit’s 25% benchmark is a
relevant consideration in assessing the reasonableness of the
parties’ requested 30% fee on the guaranteed fund and 25% fee on
the contingent fund.
The court further observes that a fee of
approximately 30% is, by any comparative metric, at the high end
of the range in class actions generally, and well beyond the
high end of the usual range for class actions of this size.
See, as earlier noted, In re Prudential, 148 F.3d at 339
(finding that fees in settlements over $100 million “ranged from
4.1% to 17.92%”).
Counsel argue that in fact the overall percentage
award will be lower than the 30% number when fees on contingent
funds are included.
They request a 25% fee on all monies
actually paid out of the $50 million AW Contingent Fund, and
note that, in the unlikely event that the entire contingent fund
is fully exhausted, the blended fee requested would amount to
only 28.3%.
Counsel are of course correct that the total fee
may be lower than 30%.
Conversely, there is a risk that
claimants will not access the contingent fund at all.
Indeed,
the court is mindful that it may be particularly difficult for
many claimants to access contingent funds, which require
submission of an Individual Review Claim, because the
documentation and causation thresholds adopted by the parties
68
for Individual Review Claims are more onerous than the
requirements for Simple Claims.
The court will keep in mind all
of these considerations when making its fee determination below.
2.
Analysis of Relevant Factors
Courts commonly focus particular attention on the
following factors to assist in evaluating the reasonableness of
a common fund fee award: (1) the benefits obtained for the
class, (2) the quality, skill, and efficiency of the attorneys,
(3) the complexity and duration of the litigation, (4) the risk
of nonpayment, (5) awards in similar cases, (6) objections, and
(7) public policy.19
243 F.3d at 733.
See Kay, 749 F. Supp. 2d at 464; PRIDES,
At the preliminary approval stage, the sixth
factor relating to objections will not yet be relevant, although
it will be of great importance at the final approval stage.
The
court will analyze each of the other factors in turn and will
balance them in considering a fee determination at the
19
These factors simply consolidate the twelve Johnson/Barber
factors that are relevant to the assessment of attorneys’ fees
awards under the lodestar method. See Barber v. Kimbrell’s,
Inc., 577 F.2d 216, 226 (4th Cir. 1978) (citing Johnson v.
Georgia Highway Exp., Inc., 488 F.2d 714, 718 (5th Cir. 1974)).
The seven factors analyzed here “are substantially similar to
the [Johnson/Barber] factors mandated in this Circuit when
employing the lodestar method.” In re The Mills Corp., 265
F.R.D. at 265. See also Berry, 807 F.3d at 617.
69
preliminary approval stage.
i.
The Benefits Obtained
Counsel argue persuasively that they have obtained a
substantial benefit for the class.
The most critical factor in
calculating a reasonable fee award is “the degree of success
obtained.”
Cir. 1998).
McDonnell v. Miller Oil Co., 134 F.3d 638, 641 (4th
Both Class Counsel in this action and state counsel
in a variety of related matters have coordinated their efforts
to achieve an outstanding financial result.
First, the right to
a recovery for injuries stemming from the Freedom Industries
spill is itself a significant benefit to class members.
Second,
even beyond the mere right, class members may obtain a material
benefit by submitting claims for reimbursement.
The amounts may
be substantial, with awards of $1,035 for a household of four,
tens of thousands of dollars for some businesses, and
potentially far greater awards for those who have suffered
personal injuries.
Additionally, the benefit to the public of a
prophylactic against future water contamination should not be
underestimated.
Counsel represent that they have, inter alia,
advocated before the PSC and secured measures to improve the
water system generally and the level of emergency response by
the water company.
Furthermore, WV American Water has developed
70
technologies that may be used in the future to detect and
prevent water contamination and has agreed to provide local
authorities with access to these technologies.
Pet. for Fees 8.
Consequently, the substantial public benefits obtained through
this litigation weigh in favor of a substantial fee award.
ii.
The Quality, Skill, and Efficiency of the
Attorneys
Counsel in this case have advocated assiduously for
their class over approximately three and one-half years.
The
percentage-of-recovery method, unlike the lodestar method, aims
to increase the efficiency of litigation by “reward[ing] counsel
for success and penaliz[ing] it for failure.”
at 732.
PRIDES, 243 F.3d
Settlement negotiations in this case were spurred on
particularly as trial approached, although counsel’s skillful
motions practice doubtless assisted in clarifying the issues and
motivating settlement considerations.
Counsel also correctly
note that they generated and advanced important arguments
regarding liability by investigating WV American Water’s complex
water system.
In particular, they advanced the proposition that
WV American Water’s plant should have included a proposed second
water intake or continued operation of a pre-existing intake at
Coonskin Shoals on the Elk River.
Pet. for Fees 13.
They
advocated as well that, had the water company fully used its
71
water storage facilities to capacity, sufficient storage water
would have been available to serve the system while the
contaminated spill flowed by.
These arguments required
substantial dedication to the case and a learned familiarity
with a complex water system that had been largely foreign to
counsel prior to filing this case.
Counsel also rightly contend
that developing the case against Eastman required diligent
research and still further education.
Their work endeavored to
understand the chemical properties of the MCHM compound and the
concomitant effects on the Freedom Industries tank in which it
was stored.
The court has been confident in counsel’s
qualifications, diligence, and skill throughout this litigation.
iii.
The Complexity and Duration of the Case
The case has taken several years to resolve,
illustrating the tension between the second and third factors in
the analysis — the former rewarding efficiency and the latter
emphasizing duration.
In terms of duration, while it is true
that plaintiffs filed this civil action in January 2014, the
case has not lasted orders of magnitude longer than a typical
federal class action case of this size.
of this scope often last multiple years.
Indeed, class actions
See, e.g., Vizcaino,
290 F.3d at 1050 (affirming a $96 million settlement fund and a
28% fee in a case that lasted eleven years); Sullivan, 667 F.3d
72
at 285 (affirming a $295 million settlement fund in a case in
which, prior to settlement, numerous individual cases had been
in litigation for years); Kay, 749 F. Supp. 2d (approximately
$30 million settlement negotiated after four years); In re
Cardinal Health Inc. Sec. Litigations, 528 F. Supp. 2d 752, 756
(S.D. Ohio 2007) (class action litigated for three years and
ending in $600 million settlement).
With respect to complexity, there are good reasons to
award higher-than-typical fees when the issues in a case are
particularly “novel and complex.”
See PRIDES, 243 F.3d at 740.
Counsel argue that the approximate 30% fee in this case is
justified by the complexity of this class action.
They cite the
existence of the complicated class certification litigation,
extensive discovery, use of numerous expert and counter-expert
witnesses on both sides, quite extensive motion practice, and
prolonged preparations for trial.
They likewise note that they
have been involved in ancillary litigation and negotiations
surrounding the spill, including the Freedom Industries
bankruptcy which complicated progress in this case, the
remediation of the site, and related proceedings before the PSC.
Pet. for Fees 14-16.
They do not show, however, that this is
unusual for a class action of this size and scope.
In fact,
many of the characteristics just listed are endemic to
73
substantial class actions, and as such, they do not warrant
awarding an atypically high fee.
Further, this case has not involved the generation or
application of new law, nor did it involve appellate relief,
unlike cases where fee awards have been larger.
F.3d at 740.
Cf. PRIDES, 243
In Vizcaino, for example, the court justified an
award of 28% on a $96 million settlement fund in part because
plaintiffs lost in district court twice on the merits, only to
revive their claims on appeal “in the absence of supporting
precedents.”
290 F.3d at 1048.
Instead, the arguments here
have generally revolved around the application of largely
settled law to the particular facts of the Freedom Industries
spill.
Consequently, although Class Counsel have been skillful
and diligent and have been resisted by equally formidable
counsel for defendants, the complexity and duration of this case
have not been so extraordinary as to justify the requested fee
award.
iv.
The Risk of Nonpayment
Counsel also emphasize that they bore significant
risks in undertaking this litigation, as indeed they did.
Like
all class action litigation, this case imposed the risk of
nonpayment upon counsel.
relevant risk.
This is not alone, however, the
The risks relevant to assessing an atypically
74
large or small fee request are the distinctive risks specific to
a particular litigation.
Goldberger, 209 F.3d at 54 (“Risk
falls along a spectrum, and should be accounted for
accordingly.”); Kay, 749 F. Supp. 2d at 466 (noting that “[i]n
determining the reasonableness of an attorneys’ fee award,
courts consider the relative risk involved in litigating the
specific matter”).
In this case, Class Counsel pursued water
contamination claims of an exceptional nature against venerable
water company opponents.
But counsel soon learned that they
were doing so with the benefit of their opponents’ alleged
failure to maintain either a second intake or adequate water
storage, by virtue of which they were enabled to contend that
the contaminated water was allowed to invade the water system
instead of the system being closed off while the spill flowed
by.
Adding Eastman to the mix became a safe decision inasmuch
as Eastman was quickly known to have supplied the contaminated
substance, MCHM, to Freedom, where it was stored in the tank
that leaked it into the Elk River.
While Class Counsel soundly
built their case against both the water company and Eastman at
considerable expenditure of skilled and determined effort and
some $2 million in out-of-pocket expenses, the ultimate risk of
nonpayment was not so great as to merit an atypically high
75
award.
v.
Awards in Similar Cases
The fee request here — which with respect to certain
claims will be substantially greater than 30% — is significantly
higher than awards in many similar cases.
As canvassed above in
subsection 1, empirical analyses have attempted to gauge the
universe of attorneys’ fees in class actions, although the
Fourth Circuit has not spoken directly to this question.
In
general, the empirical literature and case surveys strongly
support the conclusion that class actions ranging from $100
million to $150 million tend to have an average award of less
than 25% of the common fund.
See, e.g. Goldberger, 209 F.3d at
51–52 (percentages in common fund cases between $50 and $75
million ranged between 11% and 19%); In re Prudential, 148 F.3d
at 339 (fee percentages in common fund cases exceeding $100
million “ranged from 4.1% to 17.92%”); Eisenberg & Miller,
Attorney Fees . . . 1993-2008, supra (average percentage fee in
69 cases ranging approximately from $70 million to $175 million
was 19.4%).
It is true as Settlement Class Counsel point out that
state and federal courts in West Virginia sometimes speak of a
one-third contingency fee as the going rate in West Virginia.
Counsel cite to, for instance, decisions by courts in West
76
Virginia noting the “presumptive reasonableness” of a one-third
common fund fee.
Pet. for Fees 19-20.
Importantly, however,
these cases involve common funds that are far less substantial
than the fund contemplated here, which reaches nine figures.
See Deem, 2013 WL 2285972, at *7 (awarding a one-third fee
totaling only $135,000); Archbold v. Wells Fargo Bank, N.A.,
3:13-CV-24599, 2015 WL 4276295, at *7 (S.D.W. Va. July 14, 2015)
(awarding a one-third fee totaling approximately $185,000);
Helmick v. Columbia Gas Transmission, 2:07-CV-00743, 2010 WL
2671506, at *7 (S.D.W. Va. July 1, 2010) (awarding a one-third
fee totaling approximately $141,000); Muhammad, 2008 WL 5377783,
at *10 (awarding a one-third fee totaling $233,333).
Consequently, these cases are not relevant here.
Furthermore, percentage fees are inversely correlated
with the size of the fund, and this “scaling” effect strongly
mitigates against awarding the requested fee here.
In re Prudential, 148 F.3d at 339.
See, e.g.,
“[D]istrict courts setting
attorneys’ fees in cases involving large settlements must avoid
basing their awards on percentages derived from cases where the
settlement amounts were much smaller.”
PRIDES, 243 F.3d at 736.
Even a 25% award in this case would be higher than most
attorneys’ fee awards on common funds of this magnitude.
77
vi.
Public Policy
Two competing policy considerations influence the
award of attorneys’ fees in common fund cases.
First, the court
must act to “prevent windfalls” to plaintiff attorneys.
Hensley
v. Eckerhart, 461 U.S. 424, 444 (1983) (quotation marks
omitted).
The risk of a windfall arises because defendants
typically agree to a single fund amount, regardless of how that
amount is divided among class members and attorneys.
Subsequent
to settling on that amount, defendants are often no longer
concerned with the specifics of dividing the fund and no longer
ensure an adversarial relationship, although the water company
defendants in particular do have an interest in limiting the
total payout to the guaranteed fund.
See Boeing Co. v. Van
Gemert, 444 U.S. 472, 482 (1980) (defendant “had no cognizable
interest in further litigation between the class and its lawyers
over the amount of the fees ultimately awarded from money
belonging to the class”); Report on Contingent Fees, 25 Rev.
Litig. at 489.
Second, public policy promotes attorneys taking on
class claims that might otherwise go unremedied because the
financial incentives are not high enough to justify standard
litigation, and that policy counsels in favor of a substantial
fee.
See Amchem, 521 U.S. at 617.
78
The court’s challenge is to
award a fee that both compensates the attorneys with a risk
premium on their skill and labor and avoids a windfall.
In
making this determination, the court is mindful that a larger
case does not necessarily mean a proportionally larger amount of
work, simply because “increasing the number of class action
plaintiffs does not necessarily increase the amount of time
class counsel spends on a case.”
Kay, 749 F. Supp. 2d at 469.
Counsel have provided no reasons to think that awarding a fee
lower than 30% here will dissuade future litigators from taking
on similar cases.
Consequently, public policy tends to counsel
against awarding the requested, above-average fee of 30%.
3.
The Lodestar Cross-Check
Courts have also incorporated a “lodestar cross-check”
in order to provide an independent metric against which to
measure the percentage fee.
Manual for Complex Litigation
(Fourth) § 14.121 (2004); Goldberger, 209 F.3d at 50; Gen.
Motors, 55 F.3d at 820. “The central concern about the pure
percentage method is that it may produce windfall fees; the
purpose of the lodestar cross-check is to guard against this
concern by enabling a court to ascertain the relationship of the
percentage award to counsel’s billing for the case.”
Rubenstein, supra, § 15:85.
Importantly, however, employing the
lodestar as a cross-check does not require the same level of
79
exhaustive scrutiny as employing the lodestar method alone.
Goldberger, 209 F.3d at 50.
The Third Circuit has analyzed common fund awards in
excess of $100 million and noted that the multipliers “range
from 1.35 to 2.99.”
PRIDES, 243 F.3d at 742.
Other guidance on
the acceptable range of numerical values for multipliers is
sparse, but the empirical literature suggests that “most
multipliers are in the relatively modest 1-2 range.”
Rubenstein, supra, § 15:87 (citing Fitzpatrick, supra, at 833–34
(noting that in 204 cases employing a lodestar cross-check the
“lodestar multiplier . . . ranged from 0.07 to 10.3, with a mean
of 1.65 and a median of 1.34”)).
See also Eisenberg & Miller,
Attorney Fees . . . 1993–2008, supra, at 273 (noting that in
nearly 700 state and federal cases over a 16-year period, “the
mean multiplier ranged from 1.19 in the Eleventh Circuit to 2.43
in the Fourth Circuit”).
Counsel in the case at bar have provided documentation
breaking down the hourly rates of attorneys and staff into six
categories, including numerous categories of attorney (by name
and/or billing rate) and staff.
Counsel represent that the
highest billable rate is $575 per hour, applicable only to
certain Class Counsel and MLP Lead Counsel, and that the blended
average of all billable rates is $360 per hour.
80
Pet. for Fees
21-22.
Counsel helpfully itemize the hours and rates of all
individual attorneys and staff who worked toward the settlement
of this action.
They have submitted a total of 46,904 hours,
for a total lodestar of $16,907,591.25.
Id.
Assuming these
calculations are correct, the multiplier on the first $101
million of the settlement at the requested fee amount of 30%
($30,300,000) is approximately 1.79.
Importantly, this
multiplier rests on one crucial assumption: that the entire
guaranteed fund will be completely exhausted by Simple Claims,
Check Distributions, Individual Review Claims paid out of the
guaranteed fund, and finally additional payments to Simple
Claimants.
While the likelihood of these claims exhausting the
guaranteed funds is high, it is not certain.
Furthermore, when including the additional $50 million
contingent fund agreed to by the parties, for which counsel seek
a 25% fee of all claims paid, the maximum possible compensation
rises to $42,800,000 and the maximum possible multiplier to
2.53.
It is true that compensation on the contingent $50
million is speculative and that it is unlikely that claimants
will exhaust the contingent fund given the more complex claims
process for contingent claims.
Still, the proposed multiplier
can fairly be characterized as ranging from a low of 1.79 to a
high of 2.53.
This multiplier is in fact at the border of the
81
range usually deemed reasonable by courts where common funds
reach similar magnitudes.
4.
Final Balancing
The award of attorneys’ fees “is within the judicial
discretion of the trial judge.”
Barber v. Kimbrell’s, Inc., 577
F.2d 216, 226 (4th Cir. 1978) (citing Lea v. Cone Mills Corp.,
467 F.2d 277, 279 (4th Cir. 1972)).
Importantly, “the
reasonableness of the claimed lodestar can be tested by the
court’s familiarity with the case.”
Goldberger, 209 F.3d at 50.
Put differently, the cross-check does not “‘supplant the court’s
detailed inquiry into the attorneys’ skill and efficiency in
recovering the settlement. . . .’”
Kay, 749 F. Supp. 2d at 470.
That inquiry, detailed in subsection (ii) above, demonstrates
that counsel have not provided compelling reasons for awarding a
fee with a 5% surplusage over a putative 25% level that is
itself generous for class actions of this size.
In summary of that inquiry, the court finds that the
public benefit afforded by the settlement, the skill and
diligence of the attorneys, and the risks of nonpayment do
combine to mitigate in favor of an above-average fee award.
Above-average does not, however, equate to a 30% fee.
Rather,
there is evidence that an above-average fee on a common fund of
this size is anything higher than 19.4%.
82
See Eisenberg &
Miller, Attorney Fees . . . 1993-2008, supra.
Public policy
generally cautions against awarding too high a fee, and the
court finds that awards in similar cases as well as the
complexity and duration of this particular litigation
demonstrate that the requested fee of 30% is too high.
Furthermore, a lodestar of 1.79 is not so low as to be an
absolute floor below which the fee cannot go.
In fact, awarding
a fee of 25% would result in a lodestar of approximately 1.5, a
figure squarely within the empirical literature’s normal range
of 1 to 2.
See Fitzpatrick, supra, at 833–34.
Accordingly, the court is persuaded that a 25% fee
award is appropriate rather than the requested 30% award in this
case.
The public benefit obtained and the scope of the
litigation justify a fee at the higher end of the usual range.
See, e.g., Faught, 668 F.3d at 1242–43 (suggesting that class
actions normally award fees ranging from 20% to 25%).
In
conjunction with the other factors analyzed in subsection 2
above, however, they do not justify an unusually high fee of 30%
in a case of this size.
See, e.g., In re Microstrategy, Inc.,
172 F. Supp. 2d 778, 790 (E.D. Va. 2001) (reducing a requested
27% fee to 18% fee on a common fund “valued at $98.5-137.5
million”).
The court therefore declines to award the fee
structure requested by counsel.
Instead, assuming that the
83
current settlement proposal retains its basic structure in any
renewed motion for preliminary approval, the court will approve
preliminarily an award of a 25% fee on the guaranteed funds and
a 25% fee on any amounts paid out of the contingent fund.
In evaluating the fee award, the court further
observes that fees may be awarded either on the actual payout to
claimants or on the total common fund made available to class
members.
In at least one other context, Congress has clarified
that fees should be tied to the actual payout:
Congress has changed [the approach to awarding fees]
for coupon settlements in federal court. Under the
Class Action Fairness Act, fees that are tied to the
value of coupons must be calculated according to the
value of the coupons actually redeemed. Predicted
redemption, or (worse) face value, no longer can be a
basis for a percentage attorneys’ fees award in
federal court. Fees are tied to actual results.
Report on Contingent Fees, 25 Rev. Litig. at 473.
See 28 U.S.C.
§ 1712.
Congressional concerns over coupon settlements
likewise obtain in a settlement like the one proposed here,
where the awards contemplated by the settlement require
verification through a claims process — referred to as a
“claims-made” settlement.
Of course, a “claims-made” settlement
confers some benefit on the class even if no class member
exercises the right to recovery.
84
Boeing Co. v. Van Gemert, 444
U.S. 472, 480 (1980) (“[Class members’] right to share the
harvest of the lawsuit upon proof of their identity, whether or
not they exercise it, is a benefit in the fund created by the
efforts of the class representatives and their counsel.”).
Still, the American Bar Association’s Task Force has highlighted
the importance of Congress’s concerns over coupons even outside
the coupon settlement context:
The Task Force endorses the policy of payment of class
counsel fees only as and when class members receive
compensation. The Class Action Fairness Act creates
such a system for coupon settlements, but the policy
behind that change is generally applicable to
settlements in which payments are made in uncertain
amounts over time.
Report on Contingent Fees, 25 Rev. Litig. at 476 (emphasis
added).
Class Counsel do not discuss, and the court to this
point has not critiqued, the quite troubling provision in the
Settlement Agreement that calls for additional contingency fees
for an attorney who aids the filing and presentation of an
Individual Review claim.
Attorneys engaged prior to October 31,
2016, as most of them will have been, are under no limitation.
Those engaged after October 31st are limited to 15% and, for
them, the net payment to the claimant must exceed the applicable
Simple Claim amount, if there is one.
The additional fee of 15%
for some, and the unlimited fee for most others, would send the
85
total attorneys’ fees in this case soaring well above the 25%
figure preliminarily approved by the court.
The parties must
bring all attorney fees in this case under control.
That
includes the added premium of 25% on Individual Review claims
paid out of the Eastman Fund, for which the court has not been
provided a rational basis.
The court understands that counsel for nearly all
prospective claimants have reached a joint prosecution
agreement.
An exception is understood to be some West Virginia
Hospitality claimants.
The court is unaware of the terms of
that agreement, but has assumed it is a fee sharing arrangement
under which the overall award of 25% would be divided among all
participating counsel.
The court entertains some doubt about
the breadth of that understanding inasmuch as there was received
on June 12, 2017, a motion to intervene and to stay these
proceedings on the ground that the motion for attorneys’ fees
now under consideration fails to reflect the hours of the Bell
Law Firm and three other firms claiming to represent some 300
class members.
The motion was withdrawn eight days later, from
which the court infers that the demands of the movants were met.
Perhaps there are still others with whom no agreement has been
achieved.
86
B.
Administrative Costs
It is appropriate for courts to award administrative
costs out of a common fund when reasonable.
See, e.g., Staton
v. Boeing Co., 327 F.3d 938, 974 (9th Cir. 2003) (approving
award of notice costs out of a common fund).
However, the
record must develop evidence by which the court can assess the
amounts and reasonableness of proposed costs.
In re Katrina
Canal Breaches Litig., 628 F.3d 185, 195 (5th Cir. 2010)
(overturning district court’s approval of settlement where there
“[wa]s no indication in the record as to what these attorneys’
costs and expenses will be”).
Costs should “reflect a
reasonable amount of expenditures for a case of [a certain]
magnitude . . . and also bear a reasonable relationship to the
time and effort expended and the result achieved.”
Jones v.
Dominion Res. Servs., Inc., 601 F. Supp. 2d 756, 767 (S.D.W. Va.
2009) (citations and quotation marks omitted).
Counsel have not provided support for the
administrative costs necessarily implicated by this proposed
Settlement Agreement in their petition for costs and fees.
Pet. for Fees 24-25.
See
They have, however, independently lodged
with the court a separate Fee Letter detailing the
administrative costs incurred under the settlement.
They
submitted a fee schedule provided by the proposed Settlement
87
Administrator, SCH, and estimated administrative costs to
include $1,973,500 of settlement administration costs for SCH
and $681,591 in notice costs for the Notice Administrator.
The
notice cost estimates have been submitted directly by the Notice
Administrator, and the court will presume them to be reasonable.
The entire class numbers over 100,000 residential and business
addresses, and such a large volume of notices will no doubt
incur substantial costs.
Notice will also necessitate tracking
down and advertising for class members who have relocated from
the addresses that WV American Water had for them as customers —
no mean feat.
The costs of mailings and advertising will likely
be substantial, and the court is not inclined to question the
notice cost estimates at this stage.
With respect to settlement administration costs,
however, the parties appear to anticipate a lower “take rate”
than suggested previously to the court.
They estimate the
number of Simple Claims at 37,000 residential and 5,000 business
claims, out of a set of 105,000 eligible residential households
and 7,000 possible business claims.
They further anticipate
approximately 2,700 residential, and 400 business, Individual
Review Claims, as well as distributing 57,000 checks to
customers who fail to file claims.
The so-called “take rates”
for residential and business claimants on these assumptions
88
amount therefore to 38% of residential claimants and 77% of
business claimants filing claims.
Assuming these take rates,
the settlement administration cost estimate of $1,973,500 may be
reasonable, although the attorneys have not submitted any
documentation or satisfactory rationale in support of this
amount.
The court will require counsel to file with any renewed
motion for approval of attorneys’ fees and costs an analysis of
administrative costs — to be distinguished from “litigation
costs” already incurred in the course of this litigation by the
various firms.
See Katrina Canal, 628 F.3d at 195.
C.
Litigation Costs and Incentive Awards
Courts regularly award reasonable litigation costs to
counsel seeking remuneration in an action for which they request
attorneys’ fees.
The Fourth Circuit has held that such costs
may include “those reasonable out-of-pocket expenses incurred by
the attorney which are normally charged to a fee-paying client,
in the course of providing legal services.”
Spell v. McDaniel,
852 F.2d 762, 771 (4th Cir. 1988) (quotation marks omitted).
Generally, lawyers tend to bill “variable costs” associated with
the specifics of a particular case separately from the labor
costs covered by the attorneys’ fees.
InvesSys, Inc. v. McGraw-
Hill Cos., Ltd., 369 F.3d 16, 23 (1st Cir. 2004).
Courts within
the Fourth Circuit have found costs such as “necessary travel,
89
depositions and transcripts, computer research, postage, court
costs, and photocopying” to be reasonable.
Andrade v. Aerotek,
Inc., 852 F. Supp. 2d 637, 644 (D. Md. 2012).
See also In re
The Mills Corp., 265 F.R.D. at 265 (reasonable costs include
expert fees).
Here, the parties submit litigation costs totaling
$2,377,376.93.
Pet. for Fees 24.
This is consistent with
litigation cost awards in similarly sized cases.
See, e.g., In
re Microstrategy, 172 F. Supp. 2d at 791 (approving costs of
$2.63 million where the common fund totaled $98.5 to 137.5
million).
The parties’ submission provides a list of experts,
but does not identify the industry or services performed by each
expert.
Additionally, it appears to identify numerous law firms
that incurred various types of costs, including expert costs.
Some costs appear to have been incurred by a litigation fund,
with which the court is unfamiliar.
The petition for costs and
fees appears to include, in the reimbursement request,
litigation fund contributions from several firms.
However, some
of those firms appear to request reimbursement of what has
actually been spent from the litigation fund, and others
reimbursement of whatever they contributed to the fund.
Compare, e.g., Pls.’ Mot. for Award of Attys.’ Fees Ex. 1 ¶ 10
with Ex. 3 ¶ 9.
Only costs that have been actually expended by
90
the litigation fund should be reimbursed out of the settlement
monies.
Any contributions by the various firms to the
litigation fund that are not expended need to be remitted to
those firms by that fund itself and should not be included in
those firms’ litigation costs tallies.
Consequently, without
further information on the nature of various expert services and
of the litigation fund, the court can only conditionally approve
the litigation costs submitted to date.
Counsel will need to
provide further analysis of litigation costs, including an
explanation of any litigation fund costs, prior to final
approval.
Courts also appropriately reward class representatives
who come forward to protect the rights of the class as well as
their own rights.
See Thornton v. E. Texas Motor Freight, 497
F.2d 416, 420 (6th Cir. 1974).
Incentive awards are routinely approved in class
actions to encourage socially beneficial litigation by
compensating named plaintiffs for their expenses on
travel and other incidental costs, as well as their
personal time spent advancing the litigation on behalf
of the class and for any personal risk they undertook.
Domonoske v. Bank of Am., N.A., 790 F. Supp. 2d 466, 476–77
(W.D. Va. 2011) (quotation marks omitted).
Courts in other
contexts have approved awards of $15,000, the amount sought by
each of the fourteen plaintiffs in this case, and the court
finds that such amounts, as well as awards of $10,000 to ten
91
named plaintiffs in the state court case In re Water
Contamination Litigation, No. 16-C-6000, may be reasonable in
this case.
See, e.g., Kay, 749 F. Supp. 2d at 473 (awarding
$15,000 incentive awards to six class representatives); Berry,
807 F.3d at 614 (affirming award of $5,000 to each of seven
class representatives); Glass v. UBS Fin. Servs., Inc., No. C06-4068 MMC, 2007 WL 221862, at *16 (N.D. Cal. Jan. 26, 2007),
aff’d, 331 F. App’x 452 (9th Cir. 2009) (awarding $25,000
incentive awards to four named plaintiffs).
Before
preliminarily approving their awards, the court will require
Class Counsel to file declarations explaining why each of the
twenty-four to be compensated is entitled to awards at the level
requested.
See, e.g., Barbosa v. Cargill Meat Sols. Corp., 297
F.R.D. 431, 454 (E.D. Cal. 2013) (approving a $15,000 award for
class representatives after they each filed declarations).
92
v.
Civil Action No. 15-14025
THE DOW CHEMICAL COMPANY LONG TERM DISABILITY PROGRAM,
an Employee Welfare Benefits Plan,
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON,
a Massachusetts Corporation, and
CONCLUSION
DOES 1 THROUGH 10, inclusive,
Defendants.
For the foregoing reasons, it is ORDERED that the
ORDER AND NOTICE
parties’ Joint Motion for Preliminary Approval of Class
Pursuant to L.R. Civ. P. 16.1, it is ORDERED that the
Settlement, dates are hereby fixed as the timeDirecting Notice to
following Conditional Class Certification, by or on which
certain events must occur:
the Class, and Entry of Scheduling Order be, and it hereby is,
01/28/2016
Motions under F.R. Civ. P. 12(b), together with
supporting The parties are directed to file other
denied without prejudice. briefs, memoranda, affidavits, or such
such matter in support thereof. (All motions
unsupported by memoranda will be denied without
modified settlement agreement as they may wish that is consistent
prejudice pursuant to L.R. Civ. P. 7.1 (a)).
with this opinion and order. Rule 26(f) meeting.
02/08/2016
Last day for
02/15/2016
Last day to file Report of Parties= Planning
Meeting. See ORDERED P. plaintiffs’ Motion for
Additionally, it is L.R. Civ.that 16.1.
Award of Attorneys’ Fees, Reimbursement of Costs, and the Robert C.
02/22/2016
Scheduling conference at 4:30 p.m. at Incentive
Byrd United States Courthouse in Charleston, before
Awards be, and it hereby is, denied in part and grantedcounsel in
the undersigned, unless canceled. Lead in part
directed to appear.
accordance with Part II of this opinion.
02/29/2016
Entry of scheduling order.
03/08/2016
Last day to serve F.R. Civ. P 26(a)(1) disclosures.
The Clerk is requested to transmit copies of this order
The Clerk is requested to transmit this Order and
to all counsel of record and any unrepresented parties.
Notice to all counsel of record and to any unrepresented
parties.
DATED: July 6, 2017
DATED: January 5, 2016
John T. Copenhaver, Jr.
United States District Judge
93
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