Stephen Stetson v. West Publishing Corp. , 821 F.3d 1157 ( 2016 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
STEPHEN STETSON, individual and Nos. 13-57061
all others similarly situated; SHANE 13-57159
LAVIGNE, individual and all others
similarly situated; CHRISTINE LEIGH D.C. No.
BROWN-ROBERTS, individual and all 2:08-cv-00810-
others similarly situated; VALENTIN R-E
YURI KARPENKO, individual and all
others similarly situated; JAKE
JEREMIAH FATHY, individual and all OPINION
others similarly situated,
Plaintiffs-Appellees/
Cross-Appellants,
and
WEST PUBLISHING CORPORATION, a
Minnesota Corporation, DBA
BAR/BRI; KAPLAN, INC.,
Defendants-Appellees/
Cross-Appellants,
v.
SETH BRYANT GRISSOM; JAMES
RALPH GARRISON, III; DUSTIN
KENNEMER; NATHAN HUNT; JOHN
KELLEY; JOHN AMARI,
Objectors-Appellants/
Cross-Appellees.
2 STETSON V. GRISSOM
Appeal from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding
Argued and Submitted
February 2, 2016—Pasadena, California
Filed May 11, 2016
Before: STEPHEN REINHARDT, RICHARD A. PAEZ,
and MILAN D. SMITH, JR., Circuit Judges.
Opinion by Judge Milan D. Smith, Jr.
SUMMARY*
Settlement / Attorneys’ Fees
The panel vacated the district court’s order reducing class
counsel’s fees following a settlement.
The panel held that in a class action, an objector need not
establish standing to object to an award of attorneys’ fees by
the district court. If the objector seeks to appeal the award,
however, then he must demonstrate standing. An objector
has standing to appeal a denial of his own request for fees.
Here, the objectors were not yet entitled to any fees because
the panel vacated the district court’s order awarding
attorneys’ fees to class counsel.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
STETSON V. GRISSOM 3
The panel held that in this common-fund case, the district
court acted well within its discretion in using the lodestar
method to calculate fees. The district court abused its
discretion, however, in failing specifically to articulate the
reasoning supporting the large disparity between the
requested fees and the awarded fees. In addition, the district
court’s reduction of class counsel’s costs was based on
clearly erroneous findings of fact.
The panel vacated the district court’s award of costs and
fees and remanded with instructions for the district court to
(1) clearly provide reasons for the factors in its lodestar
computation; (2) expressly consider both a risk multiplier and
the Kerr reasonableness factors; and (3) base its decision on
facts supported by the record. The panel directed that the
case be reassigned to a different district judge on remand.
COUNSEL
Joseph L. Tucker (argued), Jackson & Tucker PC,
Birmingham, Alabama, for Objectors-Appellants/Cross-
Appellees.
Alan Harris (argued), Harris & Ruble, Los Angeles,
California; Perrin F. Disner (argued), Law Offices of Perrin
F. Disner, Los Angeles, California, for Plaintiffs-
Appellees/Cross-Appellants.
4 STETSON V. GRISSOM
OPINION
M. SMITH, Circuit Judge:
We consider in this disposition whether, when a common-
fund settlement agreement has been reached in a class action
and fees have been awarded to class counsel, a non-
participating class member who objects only to the fee award
has standing to appeal the denial of his own request for fees.
We also consider a cross-appeal concerning the district
court’s reduction of Plaintiffs’ attorney’s fees and costs. We
vacate and remand.
FACTS AND PRIOR PROCEEDINGS
This case is before us for the third time. Plaintiffs Stetson
et al. first appealed the district court’s order dismissing their
complaint in May 2008. After oral argument, we referred the
case to mediation. A settlement was reached, and we
remanded the case to the district court “for the limited
purpose of considering approval of and approving the
settlement agreement between the putative Class and
Defendants.” The district court rejected the proposed
settlement, and we reasserted jurisdiction. We then reversed
the district court’s order of dismissal (the order from which
the appeal had originally been taken) but again referred the
case to mediation. By February 2013, a new settlement had
been reached, and we issued our mandate, returning
jurisdiction to the district court.
The parties presented the new settlement agreement—
which included a $9.5 million gross settlement fund—to the
district court for approval. Plaintiffs’ attorneys (Class
Counsel) sought $1.9 million in fees as compensation, which
STETSON V. GRISSOM 5
represented approximately 20 percent of the common fund.
Class Counsel also sought $49,934.89 in costs. Certain class
members (Objectors) objected to the fee request (but not to
the underlying settlement), asserting that Class Counsel were
entitled to no more than $380,000 in fees. Objectors then
sought 20 percent of any reduction in Class Counsel’s fees as
their own fee award, as well as $1,000 in incentive awards for
each individual objector.
The district court granted $585,000 in fees to Class
Counsel, which reflected a reduction of requested fees of
approximately 70 percent. It also reduced Class Counsel’s
costs reimbursement to $20,588.17. The district court
announced its reasoning from the bench, as follows:
The Court finds that the lodestar method is
preferable in the circumstances of this case. In
re Bluetooth Headset Prods. Litig., 654 F.3d
936 (9th Cir. 2011).
Using the lodestar method, the Court first
determines the reasonable fee by multiplying
the reasonable hourly rate by the reasonable
hours expended in the litigation. Here, class
counsel has provided a declaration with the
schedule of hourly rates charged by each
attorney who worked on the matter and how
many hours were expended by those
attorneys. After review of the timesheet
submissions and declarations of counsel, the
Court finds that the hourly fee and hours
expended are not reasonable.
6 STETSON V. GRISSOM
First, the hourly fee charged by counsel is
beyond the prevalent market rate. The Court
finds that a reasonable hourly fee for an
attorney with the experience of class counsel
dealing with a case of this magnitude and
degree of difficulty in the Central District is
$450 per hour. See Trevinu v. Gates, 99 F.3d
911 (9th Cir. 1996).
Second, the Court finds that many of the
hours billed by class counsel were redundant,
excessive, or otherwise unnecessary. Hensley
v. Eckerhart, 461 U.S. 424 (1983).
For instance, Class Counsel Disner’s time
sheet does not separate and describe the time
and tasks performed by each attorney; indeed,
it appears that on many entries two attorneys
billed for the same work. In sum, the Court
finds that class counsel’s reasonable fee is
$585,000. This is using the $450 per hour rate
applied across all counsel and to the total
1300 hours reasonably spent on this case.
Further, taking account of class counsel’s
experience, skill in litigating this case, the
complexity of the issues involved, and the
customary fees charged by counsel in similar
cases, the Court finds that the lodestar fee is
reasonable and, on balance, the Kerr factors
do not justify an upward or downward
adjustment. Kerr v. Screen Actors Guild, Inc.,
526 F.2d 97 (9th Cir. 1975).
STETSON V. GRISSOM 7
The district court also found that Class Counsel
“inadequately supported its claim for expert fees; specifically,
with the exception of Mr. Rook, class counsel has not
provided the Court with information regarding how crucial or
indispensable the unnamed experts were to the litigation.”
Finally, the district court denied Objectors’ fee request in its
entirety, finding that Objectors’ role was not “even minimally
material in bringing about the successful settlement” because
Objectors “did not add anything to the Court’s independent
analysis.”
Both Plaintiffs and Objectors appealed.
DISCUSSION
We review an award of attorney’s fees for abuse of
discretion. Stanger v. China Elec. Motor, Inc., 812 F.3d 734,
739 (9th Cir. 2016). A district court abuses its discretion
when it applies an incorrect rule of decision, or when it
applies the correct rule to factual conclusions that are
“illogical, implausible, or without support in the record.”
Rodriguez v. Disner (Rodriguez II), 688 F.3d 645, 653 (9th
Cir. 2012). Findings of fact are reviewed for clear error;
conclusions of law are reviewed de novo. Stanger, 812 F.3d
at 738.
I. Objectors’ Standing to Appeal
In a class action, an objector need not establish standing
to object to an award of attorney’s fees by the district court.
The district court has “the authority and duty to pass upon the
fairness of the attorneys’ fees settlement independently of
whether there was objection.” Zucker v. Occidental
Petroleum Corp., 192 F.3d 1323, 1329 (9th Cir. 1999). The
8 STETSON V. GRISSOM
objector therefore needs only a procedural vehicle with which
to place his arguments before the district court, which is
provided by Federal Rule of Civil Procedure 23(h)(2): “A
class member, or a party from whom payment is sought, may
object to the motion [for class counsel’s fees].”
If, however, an objector seeks to appeal an award of fees
to class counsel, he “must independently satisfy Article
III”—that is, he must demonstrate standing to appeal
independent of his ability to object before the district court.
Knisley v. Network Assocs., Inc., 312 F.3d 1123, 1126 n.1
(9th Cir. 2002). Where an objector has participated in the
common-fund settlement, he has standing to appeal because
a reduction in class counsel’s fees will likely increase his own
award from the common fund. Id. at 1126. Even where an
objector has not participated in the common fund settlement,
he may still have standing to appeal the settlement: if he
prevails, a better settlement might be obtained on remand in
which he could participate. Thus, his injury is likely
redressable on appeal. Id. By contrast, an objector who has
refused to participate in the common-fund settlement and who
objects only to class counsel’s fees generally will not have
standing to appeal the fee award: Because he has not
participated in the settlement, a reduction in class-counsel
fees will not benefit him, and therefore (barring some unusual
terms in the settlement agreement) he has no injury that is
redressable. Id. at 1126–27.
Nevertheless, an objector has standing to appeal a denial
of his own claim for fees. If the district court reduces class
counsel’s fees but denies fees to the objector, that denial
creates a particularized injury to the objector that can be
redressed on appeal. A particularized, redressable injury of
that sort is sufficient to confer standing. Knisley, 312 F.3d at
STETSON V. GRISSOM 9
1126–27. Thus we concluded in Rodriguez II that even if an
objector does not submit a settlement claim, he nevertheless
has standing to appeal the denial of his request for fees
because “an attorney who confers a benefit on the class is
entitled to fees based on equitable principles of unjust
enrichment, and has standing to challenge the denial of such
fees, regardless whether the attorney’s client will receive any
of the savings.” 688 F.3d at 660 n.11.
Here, Class Counsel challenge Objectors’ standing to
appeal the denial of their petition for fees. Objectors concede
that they “did not file a claim to receive a share of the
settlement proceeds.” However, their appeal does not concern
the district court’s award of fees to Class Counsel. They
appeal only the district court’s denial of their own petition for
fees, which is a particularized injury to the Objectors we can
redress. Thus, Knisley is distinguishable, and as in Rodriguez
II, Objectors have standing to appeal the district court’s
denial of their petition for fees.
Class Counsel also assert that Objectors’ objection was
untimely. All agree that Objectors filed their objection on
July 29, 2013. The district court’s order setting forth the
relevant deadlines is ambiguous. In one paragraph, the order
provides that a putative objector, “no later than twenty-one
days before the August 19, 2013, Final Settlement Hearing
(presently, July 29, 2013), must file a written notice of
intention to object” (emphasis added). Elsewhere, however,
it provides that “[a]ll Claim Forms, objections, and exclusion
requests, if submitted by Class Members via U.S. mail, must
be postmarked no later than July 8, 2013; all Claim Forms, if
submitted online, must be submitted no later than July 8,
2013” (emphases added). Adding to the confusion, the
Settlement Agreement approved by the district court provides
10 STETSON V. GRISSOM
that objections must be lodged “no later than twenty-one (21)
days before the Final Settlement hearing”—which
corresponds with the July 29 date. All relevant documents
were drafted by Class Counsel. Thus, in accordance with the
general principle of contra proferentem, we construe the
ambiguity against them. See generally, e.g., United States v.
Transfiguracion, 442 F.3d 1222, 1228 (9th Cir. 2006) (plea
agreement); In re Kahan, 28 F.3d 79, 82 (9th Cir. 1994)
(bankruptcy schedules). Objectors’ objection is deemed
timely.
However, to be entitled to funds, an objector must
“increase the fund or otherwise substantially benefit the class
members.” Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1051
(9th Cir. 2002); see also Rodriguez II, 668 F.3d at 658. In
Part II, infra, we vacate and remand the district court’s
decision reducing Class Counsel’s fees. Objectors are
therefore not yet entitled to attorney’s fees. On remand, if the
district court again reduces Class Counsel’s fee award, it can
also determine—with specificity—the extent to which
Objectors’ arguments influenced its decision. For now,
therefore, we vacate and remand the district court’s decision
concerning Objectors’ entitlement to fees.
II. Class Counsel’s Petition for Fees and Costs
“In class action litigation, a district court ‘may award
reasonable attorney’s fees and nontaxable costs that are
authorized by law or by the parties’ agreement.’” Rodriguez
v. Disner (Rodriguez II), 688 F.3d 645, 653 (9th Cir. 2012)
(quoting Fed. R. Civ. P. 23(h)). In the absence of a
contractual or statutory basis for awarding fees, the district
court may award reasonable fees as a matter of federal
common law when class counsel has recovered a “common
STETSON V. GRISSOM 11
fund.” Id. (citing Boeing Co. v. Van Gemert, 444 U.S. 472,
478 (1980)). A “common fund” exists when “each member of
a certified class has an undisputed and mathematically
ascertainable claim to part of a lump-sum judgment recovered
on his behalf.” Boeing Co., 444 U.S. at 479. Fees awarded out
of the common fund are thus apportioned among the class. It
is not disputed that this is a common-fund case.
To calculate the fee in a common-fund case, the district
court “has discretion to apply either the lodestar method or
the percentage-of-the-fund method in calculating a fee
award.” Fischel v. Equitable Life Assurance Soc’y, 307 F.3d
997, 1006 (9th Cir. 2002). Under the former method, the
district court “multiplies a reasonable number of hours by a
reasonable hourly rate”; under the latter method, the
“benchmark” award is 25 percent of the fund, which the
district court may “adjust[] upward or downward to account
for any unusual circumstances involved in the case.” Id.
(quotation marks and alteration omitted). There is a strong
presumption that the lodestar is a reasonable fee. Id. at 1007.
In general “the choice to apply the lodestar method, rather
than the percentage-of-fund method, [is] well within the
district court’s discretion.” Stanger v. China Elec. Motor,
Inc., 812 F.3d 734, 739 (9th Cir. 2016).
Stanger was also a class action involving a common-fund
settlement, and it was an appeal from the same district judge
that decided this case. In Stanger, the district judge drastically
reduced class counsel’s fees with only minimal reasoning and
analysis. Id. at 739. We explained that
[i]n order for this Court to conduct a
meaningful review of the fee award’s
reasonableness . . . the district court must
12 STETSON V. GRISSOM
“provide a concise but clear explanation of its
reasons for the fee award.” The district court
must state not only the grounds on which it
relied, but also how it weighed the various
competing considerations. . . . Especially
“where the disparity between the requested
fee and the final award is larger, a more
specific articulation of the court’s reasoning is
expected.”
Id. (quoting Hensley v. Eckerhart, 461 U.S. 424, 437 (1983);
Moreno v. City of Sacramento, 534 F.3d 1106, 1111 (9th Cir.
2008)) (citations and alteration omitted). We therefore held
that we had “no choice” but to vacate and remand. Id. at 740
(quotation marks omitted). Because the district court’s
decision was materially similar to the situation here, Stanger
largely controls the outcome of Class Counsel’s appeal of
their fee and costs award in this case.
A. Fees
The district court used the lodestar method to calculate
fees, and it acted well within its discretion to do so. See
Stanger, 812 F.3d at 739; Fischel, 307 F.3d at 1007. But the
disparity between the requested fees ($1.9 million) and the
awarded fees ($585,000) is $1,315,000—a nearly 70 percent
reduction from the requested fees and a 36 percent reduction
from Class Counsel’s computed lodestar fee. Such a large
disparity requires a relatively specific articulation of the
court’s reasoning. Stanger, 812 F.3d at 739 (requiring a more
specific articulation for a 30 percent reduction in hours);
Costa v. Comm’r of Soc. Sec. Admin., 690 F.3d 1132,
1136–37 (9th Cir. 2012) (similar); Moreno v. City of
Sacramento, 534 F.3d 1106, 1111–13 (9th Cir. 2008)
STETSON V. GRISSOM 13
(similar). Failure to do so is an abuse of discretion. See
Stanger, 812 F.3d at 739. There are a number of areas in
which the district court here should have been more specific
as to its reasoning.
1. Hours. The district court reduced Class Counsel’s
declared time expended by 241.2 hours, asserting that “many
of the hours billed . . . were redundant, excessive, or
otherwise unnecessary.” As in Stanger, “[w]hile the court
noted one or two considerations that might have supported its
decision, it failed to explain how it weighed those
considerations when calculating the final award.” 812 F.3d at
739. Specifically, the court provided no explanation for why
it reduced the lodestar by 241.2 hours, “as opposed to any
other number of hours.” See id. On remand, the district court
should take into account the reality that some amount of
duplicative work is “inherent in the process of litigating over
time.” Moreno, 534 F.3d at 1112.
2. Hourly fee. As in Stanger, the district court’s
declaration that a reasonable hourly fee for Class Counsel is
$450 per hour “gives us no clue on whether it relied on Class
Counsel’s current or historic rates.” 812 F.3d at 740. The
district court provided no reasoning other than an offhand
citation to Trevino v. Gates, 99 F.3d 911 (9th Cir. 1996). To
the extent that the district court relied on the evidence in
Trevino that “the reasonable hourly rate in the community for
experienced private attorneys handling complex litigation
ranged from $250 to $550/hour,” id. at 924, relying on a 1996
case to determine prevailing hourly rates in 2013 was clear
error. See Fischel, 307 F.3d at 1010; Moreno, 534 F.3d at
1115. The lodestar should be computed either using an hourly
rate that reflects the prevailing rate as of the date of the fee
request, to compensate class counsel for delays in payment
14 STETSON V. GRISSOM
inherent in contingency-fee cases, or using historical rates
and compensating for delays with a prime-rate enhancement.
Stanger, 812 F.3d at 740; Fischel, 307 F.3d at 1010. The
district court’s failure to do either (or to explain what it was
doing) was also an abuse of discretion.
3. Risk multiplier. “The district court must apply a risk
multiplier to the lodestar ‘when (1) attorneys take a case with
the expectation they will receive a risk enhancement if they
prevail, (2) their hourly rate does not reflect that risk, and
(3) there is evidence the case was risky.’ Failure to apply a
risk multiplier in cases that meet these criteria is an abuse of
discretion.” Stanger, 812 F.3d at 741 (quoting Fischel,
307 F.3d at 1008) (emphasis added). Here, there is some
evidence of risk—after all, the district court initially
dismissed the case before being reversed on appeal—but the
record is not developed on the extent of that risk, or on the
other two elements. The district court failed entirely to
consider whether Class Counsel’s representation merited a
risk multiplier. On remand, the decision to apply a risk
multiplier—or not—remains within the district court’s
discretion, but in either event it “must fully and adequately
explain the basis for its decision.” Stanger, 812 F.3d at 741.
4. Kerr factors. The district court also has discretion to
adjust the lodestar upward or downward using a multiplier
that reflects “a host of ‘reasonableness’ factors, including the
quality of representation, the benefit obtained for the class,
the complexity and novelty of the issues presented, and the
risk of nonpayment.” In re Bluetooth Headset Prods. Liab.
Litig., 654 F.3d 935, 941–42 (9th Cir. 2011) (quotation marks
omitted). These factors are known as the Kerr factors. See
Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 70 (9th Cir.
1975), abrogated on other grounds by City of Burlington v.
STETSON V. GRISSOM 15
Dague, 505 U.S. 557 (1992). Class Counsel provided a
detailed analysis of these factors on pages 16–21 of their
motion for attorney’s fees; the district court briefly mentioned
the factors and then, without any analysis, dismissed them.
On remand, the court “must explicitly discuss why the Kerr
reasonableness factors do or do not favor applying a
multiplier (positive or negative) in this case.” See Stanger,
812 F.3d at 740.
B. Costs
The district court found that Class Counsel had
“inadequately supported its claim for expert fees.”
Specifically, the court found, “with the exception of Mr.
Rook, class counsel has not provided the Court with
information regarding how crucial or indispensable the
unnamed experts were to the litigation.” In a declaration
submitted to the district court on August 12, 2013, however,
Class Counsel named two other experts—Dr. Safir and Dr.
Gikas—and explained that they were consulted on “the range
of possible damages and the various ways in which settlement
might be achieved.” Class Counsel provided almost two full
pages explaining how these experts were used and why their
input was crucial or indispensable. The district court’s
reduction of Class Counsel’s costs was therefore based on
clearly erroneous findings of fact.
Thus, for all the foregoing reasons, the district court’s
award of costs and fees to Class Counsel is vacated as
arbitrary and remanded for further consideration. On remand,
the district court should (1) clearly provide reasons for the
factors in its lodestar computation; (2) expressly consider
both a risk multiplier and the Kerr factors; and (3) base its
decision on facts supported by the record.
16 STETSON V. GRISSOM
CONCLUSION
As we previously observed, this case is before us for the
third time. Moreover, in a related matter before the same
district judge, decimations and denials of attorneys fees have
been appealed three times, and each time we have reversed
the district court, at least in part. See Rodriguez v. W. Publ’g
Corp. (Rodriguez III), 602 F. App’x 385, 387 (9th Cir. 2015);
Rodriguez II, 688 F.3d at 660; Rodriguez v. W. Publ’g Corp.
(Rodriguez I), 563 F.3d 948, 969 (9th Cir. 2009). In addition,
we have already mentioned the similarity of the district
judge’s decision in Stanger to his reasoning in this case.
In light of the history of this case and related litigation, it
is clear to us that the district judge would have “substantial
difficulty in putting out of his . . . mind” his previously
expressed, erroneous findings and conclusions, and that
“reassignment is advisable to preserve the appearance of
justice.” See United States v. Atondo-Santos, 385 F.3d 1199,
1201 (9th Cir. 2004) (quotation marks omitted). Accordingly,
exercising our supervisory powers under 28 U.S.C. § 2106,
the award of attorney’s fees and costs to Class Counsel and
the denial of attorney’s fees to Objectors are VACATED and
REMANDED with direction that the case be reassigned to a
different district judge. Each party shall bear its own costs on
appeal.