Indirect Purchaser Class v. Conner Erwin ( 2020 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE OPTICAL DISK DRIVE Nos. 17-15065
PRODUCTS ANTITRUST LITIGATION, 17-17439
D.C. No.
INDIRECT PURCHASER CLASS, 3:10-md-02143-
Plaintiff-Appellee, RS
v.
CONNER ERWIN,
Objector-Appellant,
v.
PANASONIC CORPORATION;
PANASONIC CORPORATION OF
NORTH AMERICA; NEC
CORPORATION; SONY CORPORATION;
SONY OPTIARC, INC.; SONY OPTIARC
AMERICA, INC.; SONY NEC
OPTIARC, INC.; HITACHI LTD.;
HITACHI-LG DATA STORAGE, INC.;
HITACHI-LG DATA STORAGE
KOREA, INC.,
Defendants-Appellees.
2 IN RE OPTICAL DISK DRIVE PRODS.
IN RE OPTICAL DISK DRIVE Nos. 17-15067
PRODUCTS ANTITRUST LITIGATION, 17-17436
D.C. No.
INDIRECT PURCHASER CLASS, 3:10-md-02143-
Plaintiff-Appellee, RS
v.
CHRISTOPHER ANDREWS,
Objector-Appellant,
v.
PANASONIC CORPORATION;
PANASONIC CORPORATION OF
NORTH AMERICA; NEC
CORPORATION; SONY CORPORATION;
SONY OPTIARC, INC.; SONY OPTIARC
AMERICA, INC.; SONY NEC
OPTIARC, INC.; HITACHI LTD.;
HITACHI-LG DATA STORAGE, INC.;
HITACHI-LG DATA STORAGE
KOREA, INC.,
Defendants-Appellees.
IN RE OPTICAL DISK DRIVE PRODS. 3
IN RE OPTICAL DISK DRIVE No. 17-15143
PRODUCTS ANTITRUST LITIGATION,
D.C. No.
3:10-md-02143-
INDIRECT PURCHASER CLASS, RS
Plaintiff-Appellee,
v. OPINION
BARBARA COCHRAN,
Objector-Appellant,
v.
PANASONIC CORPORATION;
PANASONIC CORPORATION OF
NORTH AMERICA; NEC
CORPORATION; SONY CORPORATION;
SONY OPTIARC, INC.; SONY OPTIARC
AMERICA, INC.; SONY NEC
OPTIARC, INC.; HITACHI LTD.;
HITACHI-LG DATA STORAGE, INC.;
HITACHI-LG DATA STORAGE
KOREA, INC.,
Defendants-Appellees.
4 IN RE OPTICAL DISK DRIVE PRODS.
Appeal from the United States District Court
for the Northern District of California
Richard Seeborg, District Judge, Presiding
Argued and Submitted October 21, 2019
Submission Vacated January 24, 2020
Resubmitted May 8, 2020
Portland, Oregon
Filed May 15, 2020
Before: Jerome Farris, Carlos T. Bea, and
Morgan Christen, Circuit Judges.
Opinion by Judge Christen
SUMMARY*
Class Action Settlement / Attorneys’ Fees
The panel vacated the district court’s award of attorneys’
fees and litigation expenses to class counsel, following
approval of two rounds of settlements in consumer class
action litigation concerning antitrust violations in the optical
disk drive industry, and remanded for further consideration
and findings.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
IN RE OPTICAL DISK DRIVE PRODS. 5
The claims of direct purchaser plaintiffs (DPPs) and
indirect purchaser plaintiffs (IPPs) were consolidated in
multidistrict litigation. Three groups of attorneys applied for
appointment as class counsel. The district court received
their bids under seal and appointed one group. The DPPs
obtained certification of a settlement class and entered into
settlement agreements resolving their claims. The district
court also granted the IPPs’ motion for class certification.
The IPP class reached a tentative settlement with four groups
of affiliated corporate entities, yielding a common fund.
Counsel moved for fees, proposing a percentage-of-recovery
fee structure different from the structure proposed in its
sealed bid. IPP class members objected that the requested fee
was excessive. The district court approved the first
settlement and the requested attorneys’ fees and litigation
expenses. The IPP class reached a second settlement with
three additional groups of affiliated defendants, resulting in
an additional common fund. The district court largely
adopted class counsel’s proposed order approving a second
motion for fees and expenses. The IPP class reached a third
settlement with two additional defendant groups, and the
district court approved counsel’s third fee request.
The district court’s approval of the first- and second-
round settlements was addressed in a separately filed
memorandum disposition. Objections to the third-round fee
award also were addressed in a separate memorandum
disposition.
In its opinion, the panel addressed objectors’ appeals
arising from the district court’s awards of fees and litigation
expenses for the first- and second-round settlements pursuant
to Federal Rule of Civil Procedure 23(h). The panel held that
in awarding fees, the district court properly considered the
6 IN RE OPTICAL DISK DRIVE PRODS.
size of the common funds, which qualified as “megafunds.”
The panel followed case law declining to adopt a bright-line
rule requiring the use of sliding-scale fee awards for class
counsel in megafund cases. The panel held that the district
court erred by failing to explain adequately the significant
variance between the fee grid included in counsel’s
appointment application and the actual awards. The panel
explained that it was difficult to tell what role the fee bid
played in the district court’s approval of the motions for fees
and expenses. Given the record and the fiduciary duty the
court owes to the class at the fee award stage, the panel
vacated and remanded the first- and second-round fee awards
for further consideration and findings.
The panel held that when class counsel secures
appointment as interim lead counsel by proposing a fee
structure in a competitive bidding process, that bid becomes
the starting point for determining a reasonable fee. The
district court may adjust fees upward or downward depending
on circumstances not contemplated at the time of the bid, but
the court must provide an adequate explanation for any
variance. Here, class counsel argued that an upward
departure from its bid was warranted in part because it did not
anticipate the need to litigate a second class-certification
motion or interlocutory appeals. Without more, these factors
were insufficient to justify a variance of the magnitude
approved in the first- and second-round fee awards. The
panel explained that the bid to become interim class counsel
clearly contemplated that counsel would move to certify the
plaintiff class, and it is not unusual for interim class counsel
to have to take more than one run at class certification. In
addition, the proposed fee structure in this case explicitly
contemplated appellate litigation.
IN RE OPTICAL DISK DRIVE PRODS. 7
The panel also vacated the district court’s award of
litigation-related expenses and remanded. The panel held that
the district court properly interpreted counsel’s bid as
encompassing all litigation expenses. Nonetheless, the record
was unclear about whether the district court had the
opportunity to take this into account when it reviewed the
expense requests associated with the first two settlement
rounds. Because the bid was under seal, objectors did not
have the information necessary to squarely raise this issue
before the district court, but the fiduciary duty the court owed
to the class required that the case be remanded so the class
could be assured the issue was considered.
COUNSEL
Robert Clore (argued) and Christopher A. Bandas, Bandas
Law Firm P.C., Corpus Christi, Texas, for Objector-Appellant
Connor Erwin.
George W. Cochran, Law Office of George W. Cochran,
Streetsboro, Ohio, for Objector-Appellant Barbara Cochran.
Christopher Andrews (argued), Livonia, Michigan, pro se
Objector-Appellant.
Kevin Kamuf Green (argued), Hagens Berman Sobol Shapiro
LLP, San Diego, California; Steve W. Berman, Hagens
Berman Sobol Shapiro LLP, Seattle, Washington; Jeff D.
Friedman and Shana E. Scarlett, Hagens Berman Sobol
Shapiro LLP, Berkeley, California; for Plaintiff-Appellee
Indirect Purchaser Class.
No appearance by Defendants-Appellees.
8 IN RE OPTICAL DISK DRIVE PRODS.
OPINION
CHRISTEN, Circuit Judge:
Objectors appeal the district court’s approval of two
rounds of settlements in this consumer class action litigation,
as well as the district court’s award of fees and litigation
expenses to class counsel. Objectors also argue that the
district court erred by allowing class counsel’s fee bid to
remain under seal when it considered the motions to approve
the settlements and awards of fees and expenses.
We have jurisdiction pursuant to 28 U.S.C. § 1291. In a
separately filed memorandum disposition, we affirm the
district court’s approval of the first- and second-round
settlements. Here, we vacate the awards of fees and litigation
expenses and remand for a more complete explanation of the
district court’s reasoning.
I.
In 2009, the Department of Justice disclosed that it was
conducting a criminal investigation into possible antitrust
violations based on price-fixing within the optical disk drive
(ODD) industry.1 As a result of the federal criminal
investigation, Hitachi-LG Data Storage (Hitachi) and several
of its senior officials pleaded guilty to criminal antitrust
violations. The DOJ investigation resulted in significant fines
and at least four prison terms.
1
Optical disk drives are hardware products that can read and write
data. They were once commonly included in computers and video game
consoles.
IN RE OPTICAL DISK DRIVE PRODS. 9
Several putative class claims were filed alleging civil
antitrust violations arising from the same activity that was the
focus of the DOJ investigation, and in April 2010, the panel
on multidistrict litigation consolidated the claims. The
consolidated case was assigned to Judge Vaughn Walker in
the Northern District of California. Two groups of plaintiffs
sought class certification—direct purchaser plaintiffs (DPPs)
and indirect purchaser plaintiffs (IPPs). The former
prospective class comprised individuals and entities who
purchased ODDs directly, such as personal computer
manufacturers; the latter included plaintiffs who purchased
products containing ODDs. The IPPs alleged that eleven
groups of associated corporate defendants had conspired to
restrain competition for ODDs. Objectors here are members
of the IPP class.
As firms jockeyed to represent the putative class of IPPs
in the consolidated action, the district court ordered
prospective class counsel “to provide information on any
subject pertinent to the appointment and to propose terms for
attorney fees and costs in representing a prospective class.”
The court reasoned that it was “appropriate to consider the
matter of fees and costs at the outset.”2 Three groups of
attorneys, including Hagens Berman, applied for appointment
as interim class counsel and the district court granted their
motions to seal their respective bids. The court explained that
“[b]ecause their applications contain attorney work product,
all three groups requested that the precise terms of their
2
For a discussion of the use of competitive bidding to select lead
counsel in class actions, see 3 William B. Rubenstein, Newberg on Class
Actions § 10:14 (5th ed. 2012). It appears this type of competitive bidding
process is not widely used by trial courts.
10 IN RE OPTICAL DISK DRIVE PRODS.
applications remain confidential during the pendency of this
litigation.”
Hagens Berman proposed a sliding-scale award for both
fees and costs based on the percentage-of-recovery method,
specifically citing the district court’s earlier decisions
endorsing this approach. See, e.g., Wenderhold v. Cylink
Corp., 188 F.R.D. 577, 588 (N.D. Cal. 1999) (“Wenderhold
I”); Wenderhold v. Cylink Corp., 189 F.R.D. 570, 572 (N.D.
Cal. 1999) (“Wenderhold II”). The firm’s sealed bid included
a grid with a sliding-scale fee calculated as a percentage of
the class recovery. One axis of the grid comprised four stages
of litigation. The grid called for lower fees for earlier-stage
recovery scenarios, and higher fees if the case proceeded to
trial and/or appeal. The grid’s other axis depicted the size of
the class recovery and showed a lower fee percentage as the
overall class recovery increased. The grid’s maximum fee
award was fourteen percent of the class recovery from each
defendant.
In June of 2010, the district court appointed Hagens
Berman interim class counsel pursuant to Federal Rule of
Civil Procedure 23(g)(3). The appointment order explained
that the competing firms’ applications focused primarily on
“their respective fee and cost proposals and an analysis of the
prospects for a recovery.” Without revealing the actual fee
percentages in Hagens Berman’s grid, the court’s
appointment order concluded that the fee proposals favored
Hagens Berman, and explained that the firm proposed
declining fees for larger recoveries, and its “proposal
entail[ed] one fee that covers both compensation of attorneys
[fees] and reimbursement of attorneys’ out-of-pocket
expenses.” The court’s order specifically observed that
IN RE OPTICAL DISK DRIVE PRODS. 11
Hagens Berman had proposed “folding expense recovery into
the fee.”
The IPPs’ putative class action was reassigned to Judge
Seeborg in October 2010, and the parties began extensive
discovery and litigation practice. Four years later, the district
court denied the motions for class certification filed by the
IPP and DPP putative classes. After our court denied
interlocutory review, DPPs obtained certification of a
settlement class and entered into settlement agreements
resolving their claims. Hagens Berman continued litigating
on behalf of the putative IPP class, and eventually prevailed
on its renewed motion for class certification in February
2016. Our court denied defendants’ request for interlocutory
review in June 2016.
During the period immediately before and after class
certification, the IPP class reached tentative settlement
agreements with four groups of affiliated corporate entities
(Hitachi, NEC, Panasonic, and Sony) that yielded a common
fund totaling $124.5 million.3 In its first motion for fees,
Hagens Berman requested twenty-five percent of the total
first-round recovery as attorneys’ fees, or $31.125 million,
and separately requested $3,704,323.97 for litigation
expenses. The motion for fees and litigation expenses was
filed six years after the district court’s appointment order.
The motion did not mention that the firm’s sealed bid had
proposed a different structure for fees and expenses. The
3
We refer to affiliated defendants by their primary names. For the
first-round settlements, Hitachi contributed $73 million, NEC contributed
$6.5 million, Panasonic contributed $16.5 million, and Sony contributed
$28.5 million.
12 IN RE OPTICAL DISK DRIVE PRODS.
motion stated that the request for a twenty-five percent fee
equated to a 1.29 lodestar multiplier.
Class members objected that the requested fee was
excessive because the common fund constituted a
“megafund,” and objector Conner Erwin asked the district
court to unseal class counsel’s fee bid so the class could learn
what fee arrangement the firm proposed when it sought
appointment. In response to the objections, class counsel
stated that it would have been awarded twelve to thirteen
percent of the first-round settlement fund pursuant to what it
called its “fee proposal structure.” Class counsel also argued
that Erwin and his attorney were professional objectors with
suspect motives.
The district court held a fairness hearing in December
2016 to consider the first-round settlements. With minor
modifications, the court adopted class counsel’s proposed
order granting final approval of the $124.5 million settlement,
as well as the requested fees and separate litigation expenses.
The district court did not require that counsel unseal its
original bid, and it overruled all objections in an order that
stated the “original fee structure does not apply.” The order
suggested the firm’s proposal had not contemplated that it
would have to litigate a second motion for class certification
and multiple appeals to the Ninth Circuit. One objector
appealed the approval of the first settlement: Christopher
Andrews. Three objectors appealed the order awarding fees
and expenses for the first settlement: Erwin, Andrews, and
Barbara Cochran.
While the appeal of the first-round settlements was
pending, the underlying ODD litigation continued, and in
2017, the class entered into a second round of tentative
IN RE OPTICAL DISK DRIVE PRODS. 13
settlement agreements with three additional groups of
affiliated defendants (PLDS, Pioneer, and Teac). The
second-round settlements resulted in an additional $55.5
million common fund.4 Class counsel moved for a fee award
of twenty-one percent of the common fund, or $11.655
million. The motion stated this was equivalent to a lodestar
multiplier of 1.53 for the cumulative fee award (a
$42,905,000 fee for the 76,772 attorney and non-attorney
hours that generated the cumulative, $180 million, common
fund). The motion also requested $1,368,718.95 for litigation
expenses incurred after the first-round settlements. As
before, the firm’s fee motion did not state that its request
diverged from its original fee and expense proposal. Several
objections were filed, including one by Erwin, who
complained that the class still did not have access to class
counsel’s original bid. Erwin also objected that the second
lodestar cross-check should be limited to the hours invested
since the last fee award, or the additional $3.7 million that
class counsel said it invested after its first motion for fees.
Erwin measured the requested fee against the $55.5 million
common fund and calculated the second lodestar multiplier at
3.08. In response to the objection that twenty-one percent
was too high, the firm represented that “[u]nder the interim
lead counsel application, the fee guide was 12 percent.”
A second fairness hearing was held in September 2017,
and the district court largely adopted class counsel’s proposed
order approving its second motion for fees and expenses. The
district court again denied Erwin’s request to unseal class
counsel’s fee bid, along with all other objections. The court
4
For the second-round settlements, PLDS contributed $40 million,
Pioneer contributed $10.5 million, and Teac contributed $5 million.
14 IN RE OPTICAL DISK DRIVE PRODS.
relied on class counsel’s lodestar cross-check, which used the
cumulative lodestar (all time invested) measured against the
total recovery ($180 million), but the court acknowledged
that if the second settlement were viewed in isolation, the
multiplier would be in line with Erwin’s calculation.
Erwin timely appealed the district court’s order awarding
fees and expenses for the second-round settlements. Andrews
objected to the second-round settlement agreements, but did
not assert specific objections to Hagens Berman’s motion for
fees and expenses arising from those settlements. Cochran
did not object to the second-round fee award.
Class counsel filed a third motion for fees in 2018 after
the IPP class reached settlement agreements with two
additional defendant groups (Samsung and Toshiba). At the
third fairness hearing, the district court stated that it had been
unable to find Hagens Berman’s bid in the court files and
directed the firm to submit a copy of the bid for in camera
review. The order approving Hagens Berman’s third fee
request was issued two weeks later, and it acknowledged that
the previous awards had been “substantially higher than . . .
the terms of [the firm’s] proposal.” The order partially
granted Erwin’s request to unseal class counsel’s bid,
requiring counsel to file the single page of the bid showing
the sliding-scale fee grid. The third order observed that
Hagens Berman’s original bid “offered to accept
representation on the terms that no separate expense award
would be made on top of any percentage-based fee award,”
and denied class counsel’s request for expenses “in light of
IN RE OPTICAL DISK DRIVE PRODS. 15
the total fee and expense recovery to date, and given that
Hagens Berman obtained the right to represent IPPs in part as
a result of the payment structure it proposed.” The order
approved the requested twenty percent fee, an additional
$5 million.
Six months later, Hagens Berman filed on the public
docket the single page of its bid showing the fee grid, but
other portions of its fee application remain under seal.5 The
objectors who appealed the firm’s fee and expense awards
arising from the first- and second-round settlements did not
have access to the sliding-scale fee grid when they briefed the
issues on appeal, but they did have the grid by the time oral
argument was held before our court.
In a separately filed memorandum disposition, we affirm
the district court’s approval of the first- and second-round
settlements. This opinion addresses the appeals filed by
Erwin, Andrews, and Cochran arising from the district court’s
awards of fees and litigation expenses for these settlements.6
Objections to the third-round fee award are also addressed in
a separate memorandum disposition.
5
Class counsel represented to us in a related appeal that the firm’s bid
was filed within twenty-four hours after the third fairness hearing. It may
be that, within twenty-four hours, the firm submitted a copy of the bid in
response to the district court’s request for in camera review, but the single
page of the bid that the court ordered unsealed did not appear on the
public docket until six months after the third fairness hearing.
6
All arguments raised by Cochran that we do not address here are
deemed waived because they were either inadequately briefed or raised for
the first time on appeal. See Yamada v. Nobel Biocare Holding AG,
825 F.3d 536, 543 (9th Cir. 2016).
16 IN RE OPTICAL DISK DRIVE PRODS.
II.
“[W]e review for abuse of discretion the district court’s
award of attorney’s fees and costs to class counsel as well as
its method of calculating the fees.” In re Hyundai & Kia Fuel
Econ. Litig., 926 F.3d 539, 556 (9th Cir. 2019) (en banc).
The factual findings underlying these decisions are reviewed
for clear error. Id. “In order for this [c]ourt to conduct a
meaningful review of the fee award’s reasonableness, . . . the
district court must ‘provide a concise but clear explanation of
its reasons for the fee award.’” Stanger v. China Elec. Motor,
Inc., 812 F.3d 734, 739 (9th Cir. 2016) (per curiam) (quoting
Hensley v. Eckerhart, 461 U.S. 424, 437 (1983)).
III.
Courts must ensure that attorneys’ fees awarded pursuant
to Federal Rule of Civil Procedure 23(h) are reasonable. In
re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 949 (9th
Cir. 2015). This duty exists independent of any objection
from a member of the class. Zucker v. Occidental Petroleum
Corp., 192 F.3d 1323, 1328–29 (9th Cir. 1999). District
courts have discretion to choose which method they use to
calculate fees, but their discretion must be exercised to reach
a reasonable result. In re Bluetooth Headset Prods. Liab.
Litig., 654 F.3d 935, 942 (9th Cir. 2011). We have approved
fee awards in class litigation using either the lodestar method
or the percentage-of-recovery method. Hyundai, 926 F.3d
at 570. And we have encouraged courts using the percentage-
of-recovery method to perform a cross-check by applying the
lodestar method to confirm that the percentage-of-recovery
amount is reasonable. Online DVD-Rental, 779 F.3d at 949.
IN RE OPTICAL DISK DRIVE PRODS. 17
Because the relationship between class counsel and class
members turns adversarial at the fee-setting stage, district
courts assume a fiduciary role that requires close scrutiny of
class counsel’s requests for fees and expenses from the
common fund. Vizcaino v. Microsoft Corp., 290 F.3d 1043,
1052 (9th Cir. 2002); see also In re Mercury Interactive
Corp. Sec. Litig., 618 F.3d 988, 994 (9th Cir. 2010) (“As a
fiduciary for the class, the district court must ‘act with a
jealous regard to the rights of those who are interested in the
fund in determining what a proper fee award is.’” (internal
quotation marks omitted) (quoting In re Wash. Pub. Power
Supply Sys. Sec. Litig., 19 F.3d 1291, 1302 (9th Cir. 1994)
(“WPPSS”))); 4 William B. Rubenstein, Newberg on Class
Actions § 13:40 (5th ed. 2012).
In Vizcaino, we identified several factors courts may
consider when assessing requests for attorneys’ fees
calculated pursuant to the percentage-of-recovery method:
(1) the extent to which class counsel achieved exceptional
results for the class; (2) whether the case was risky for class
counsel; (3) whether counsel’s performance generated
benefits beyond the cash settlement fund; (4) the market rate
for the particular field of law; (5) the burdens class counsel
experienced while litigating the case; (6) and whether the
case was handled on a contingency basis. 290 F.3d
at 1048–50; see also Online DVD-Rental, 779 F.3d
at 954–55.
Vizcaino did not establish an exhaustive list of factors for
assessing fee requests calculated using the percentage-of-
recovery method, but district courts have frequently referred
to the factors it identified when considering fee awards for
class counsel. See Online DVD-Rental, 779 F.3d at 955.
Ultimately, district courts must ensure their fee awards are
18 IN RE OPTICAL DISK DRIVE PRODS.
“supported by findings that take into account all of the
circumstances of the case.” Vizcaino, 290 F.3d at 1048; see
also id. at 1050 (affirming fee award where “the district court
considered the relevant circumstances”). Vizcaino recognized
that in some class action litigation, “lawyers compete for lead
counsel status and may even bid in a court-supervised
auction,” but because counsel in Vizcaino had not submitted
that type of fee proposal, our court did not have occasion to
consider how or whether such a bid should factor into the
analysis when requests for fees and expenses are considered.
Id. at 1049. Nor has our court had such an occasion since
Vizcaino.7
IV.
Class counsel’s motion for fees and expenses was
submitted over six years after Hagens Berman was appointed
interim class counsel, and nearly 2,000 district court docket
entries later, but it included just one reference to counsel’s
bid: “Had this case been successfully certified originally
according to typical proceedings projected at the outset of the
case, [Hagens Berman]’s lodestar and total attorneys’ fees for
resolution at that stage would have been less.” A twenty-
page attorney declaration accompanied the fee motion, but
the closest it came to mentioning the fee bid was the
7
Counsel and the named plaintiffs in Vizcaino had entered into
retainer agreements “promising to pay class counsel 30% of any
recovery.” 290 F.3d at 1049. The court noted that “[w]here evidence
exists . . . about the percentage fee to which some plaintiffs agreed ex
ante, that evidence may be probative of the fee award’s reasonableness.”
Id. at 1050. The circumstances here are different because counsel made
representations about its proposed fee structure directly to the district court
in a competitive bidding process. Its fee bid remained under seal at the
time objectors had an opportunity to weigh in on the motion for fees.
IN RE OPTICAL DISK DRIVE PRODS. 19
acknowledgment that “Judge Walker appointed Hagens
Berman as sole lead counsel on behalf of the indirect
purchaser class in a contested leadership fight.”
The motion for attorneys’ fees and litigation expenses
arising from the first-round settlements requested twenty-five
percent of the common fund, approximately double the
amount called for by the firm’s fee bid. Perhaps mindful that
we have said a twenty-five percent benchmark may be “of
little assistance” in megafund cases, Vizcaino, 290 F.3d
at 1048, the fee motion acknowledged that the request was
“not per se valid,” Online DVD-Rental, 779 F.3d at 955. But
the motion argued that each of Vizcaino’s enumerated factors
supported the requested award.
Erwin, Andrews, and Cochran objected to the first-round
request for fees and expenses on various grounds, and Erwin
sought disclosure of the sealed bid. Erwin argued that the
class had no way of knowing whether a fee less than twenty-
five percent had been proposed at the competitive bidding
stage. In response, class counsel disclosed that the firm
would have been awarded “12 to 13 percent” of the recovery
pursuant to its proposed fee structure, and also identified the
four stages of litigation on one axis of its fee grid: “(1) From
Pleading Through Decision on Motion to Dismiss; (2) After
Motion to Dismiss Through Adjudication of Class
Certification; (3) After Adjudication of Summary Judgment;
and (4) Through Trial Verdict and Final Appellate
Determination.” Counsel also argued that its original fee
structure did not apply, invoking Judge Walker’s statement at
the outset of the case that there were many “imponderables”
20 IN RE OPTICAL DISK DRIVE PRODS.
that could impact the litigation.8 The firm argued that its bid
had not contemplated the possibility that its first motion for
class certification might be denied, that it devoted an
additional two years to successfully litigate a second class
certification motion, and that the period following the denial
of the first certification motion was a period of heightened
risk. Class counsel argued that it invested $5.6 million in
hourly fees during that period, and it drew a favorable
contrast with the outcomes achieved by counsel for DPPs,
who settled after the district court declined to certify the
proposed DPP class.
The firm opposed objectors’ request that the bid be
unsealed, arguing that disclosure of the bid was unnecessary
because the court had a copy of the bid and the class had the
court’s original appointment order.9 The district court
8
Counsel’s reference to “imponderables” quotes Judge Walker’s
appointment order, which used “imponderables” to refer to the fact that
the ultimate size of class recovery was unknowable. It was in this context
that the district court’s appointment order explained that, in holding a
competitive bidding process for prospective counsel, the court
“understood fully that counsel, at this early stage of litigation, have limited
information concerning the probability of a recovery and the amount or
range of such recovery,” and that unlike other types of cases, “potential
recovery . . . in this litigation is subject to a greater variety of
imponderables.” The order observed that Hagens Berman’s bid presented
“a very impressive array of possible recovery scenarios that suggest a high
level of analysis of potential recoveries.”
9
In fact, it appears the district court did not have a copy of the firm’s
bid. The bids submitted by the firms competing for appointment were
filed under seal, and although there were docket entries showing they were
filed, the bids were not available on the public docket. It appears they
were stored separately.
IN RE OPTICAL DISK DRIVE PRODS. 21
overruled all objections to the first-round settlements,
approved the request for fees and litigation expenses, and
denied objectors’ request to unseal the bid. This order did not
discuss the variance between the actual amount the court
awarded and the amount class counsel would have received
pursuant to its proposal.
A similar process followed the request for fees and
expenses arising from the second-round settlements. The
motion sought twenty-one percent of the $55.5 million
settlement fund and an additional $1,368,718.95 in litigation
expenses. It discussed why the enumerated Vizcaino factors
supported counsel’s request, but it did not address the bid or
the variance from its proposed fee award, nor identify the
amount that would have been called for had the grid been
followed. Erwin again objected that Hagens Berman’s bid
should be unsealed, and class counsel again responded that
unsealing the bid would benefit the remaining defendants
without providing useful information to the class. The firm’s
response to the objectors represented that it would have been
entitled to a twelve percent award pursuant to its bid.
The district court’s order approving the second fee motion
adopted the firm’s analysis of the Vizcaino factors and
counsel’s arguments in favor of keeping the bid sealed.
Regarding the firm’s bid, the court’s written order stated that
The proposed order class counsel lodged approving its second-round
fee and expense request included the statement that the district court “did
not request the original proposed fee guidelines.” The district court struck
that line, but the record does not show whether the district court requested
a copy of the bid at that time. As explained infra, the district court stated
during the third fairness hearing that the sealed bid was unavailable in the
court file, and asked class counsel to file a copy.
22 IN RE OPTICAL DISK DRIVE PRODS.
“[t]he guidelines submitted at the outset of the case . . . have
remained relevant” because the court awarded less than
counsel’s twenty-five percent benchmark, “even though
absent those guidelines, an argument could be made that the
circumstances here might warrant an upward deviation from
the benchmark.” The order concluded that a lodestar cross-
check “confirms that an upward variance from the original
proposed fee guidelines is amply justified.”10
V.
We begin by considering objectors’ arguments that the
district court abused its discretion by approving Hagens
Berman’s fee requests. On appeal, objectors first argue the
district court erred by not taking into account the size of the
common fund, which they refer to as a “megafund,” when it
determined the appropriateness of the fee request. We have
not identified a bright-line definition for “megafund,” but the
first-round settlements here yielded a $124.5 million common
fund, and there is no question that a common fund of this size
qualifies. See Vizcaino, 290 F.3d at 1047; 5 William B.
Rubenstein, Newberg on Class Actions § 15:81 (5th ed. 2012)
(noting that “[m]ost courts define mega-funds as those in
excess of $100 million”). It is also clear that where a
megafund recovery is achieved, “fund size is one relevant
circumstance to which courts must refer” in determining the
10
With both motions for fees, counsel submitted summaries showing
the total hours worked and hourly rate for each timekeeper to support its
suggested lodestar cross-check. The firm offered to provide the district
court with time records, and one of the objectors argued that billing
records should be filed, but the district court determined that this was
unnecessary. Thus, the court’s references to lodestar cross-checks refer
to class counsel’s summary calculations.
IN RE OPTICAL DISK DRIVE PRODS. 23
fee award. Vizcaino, 290 F.3d at 1047. We have cautioned
that the twenty-five percent benchmark referred to in other
cases—and upon which Hagens Berman anchored its fee
requests—“is of little assistance” in megafund cases. Id. at
1047–48 (quoting WPPSS, 19 F.3d at 1297).
Objectors argue that a megafund settlement warrants a
lower fee percentage because “it isn’t ten times as hard to try
a $100 million case as it a $10 million case.” This argument
is consistent with our observation that “in many instances the
increase in recovery is merely a factor of the size of the class
and has no direct relationship to the efforts of counsel.”
Bluetooth, 654 F.3d at 943 (quoting In re Prudential Ins. Co.
Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 339
(3d Cir. 1998)). Other circuits have made the same general
observation. See, e.g., Wal-Mart Stores, Inc. v. Visa U.S.A.,
Inc., 396 F.3d 96, 122 (2d Cir. 2005) (reasoning that because
“economies of scale could cause windfalls in common fund
cases, courts have traditionally awarded fees for common
fund cases in the lower range of what is reasonable”).
Consistent with this case law, counsel’s bid for appointment
recognized and employed the same sliding-scale fee grid that
Judge Walker had approved in earlier cases. The bid also
quoted Judge Walker’s observation in Wenderhold II that
“increasing amounts of recovery do not require
correspondingly increased levels of attorney effort.”
189 F.R.D. at 572.
We agree with objectors’ contention that the district court
was required to consider the size of the first- and second-
round settlements, but the record does not support the
objectors’ assertion that the district court overlooked this
factor. During the first fairness hearing, the court recognized
that the percentage-of-recovery awarded as fees typically
24 IN RE OPTICAL DISK DRIVE PRODS.
declines as the size of the common fund increases. And when
the second-round settlements generated another $55.5 million
common fund, the district court correctly recognized that the
overall recovery had grown to $180 million. We are
persuaded by our review of the record that the district court
considered the size of the two settlements when it assessed
fees and litigation expenses for the first- and second-round
settlements.
Next, Erwin and Cochran urge this court to adopt a new
rule requiring a sliding-scale fee award. Specifically, they
advocate a rule requiring that percentage-based fee awards
must decline as the size of class recovery increases to account
for economies of scale in megafund settlements. But we have
already declined to adopt a bright-line rule requiring the use
of sliding-scale fee awards for class counsel in megafund
cases, and we are bound by circuit precedent. See Vizcaino,
290 F.3d at 1047.
Objectors separately argue that class counsel’s fee grid
was a critical factor in securing appointment as interim class
counsel, and they argue the court erred by failing to consider
it adequately. We agree that the proposed fee grid was a
relevant circumstance the district court was required to
consider, see id. at 1048–1050; Stanger, 812 F.3d at 739, but
the objectors do not persuasively argue that the district court
was bound by it. Objectors’ stronger argument is that the
district court erred by failing to explain adequately the
variance between counsel’s fee grid and the actual awards.
The variance was significant. Based on class counsel’s
approximation of the percentage that would have been called
for had the grid been applied, Erwin argues that the first fee
award was double what it should have been, and
approximately $21 million too high.
IN RE OPTICAL DISK DRIVE PRODS. 25
It is difficult to tell what role the fee bid played in the
district court’s approval of the motions for fees and expenses.
The record makes clear that Hagens Berman’s proposed fee
structure, while not the lowest-cost proposal, was an
important factor in Judge Walker’s decision to appoint the
firm as interim class counsel. But despite the bid’s
importance in the appointment process, the bid was likely not
available to the court during the first and second fairness
hearings. The district court’s order awarding $31.125 million
in fees from the $124.5 million in first-round settlements
stated that class counsel’s bid “does not apply,” but the
court’s second order awarding $11,655,000 in fees from the
$55.5 million in second-round settlements included the
statement that the firm’s bid “remained relevant.” Finally,
after the court requested a copy of the fee bid at the third
fairness hearing and had an opportunity to review it, the court
declined to award any expenses for the third-round
settlements because class counsel had “obtained the right to
represent IPPs in part as a result of the payment structure it
proposed.”
In the district court, part of class counsel’s rationale in
support of its fee award was its suggestion that it encountered
unanticipated litigation challenges during the course of the
litigation. Counsel cited the initial denial of its first class
certification motion and the need to litigate a discovery
dispute in an interlocutory appeal to our court. The latter was
undertaken jointly with DPPs to affirm the district court’s
order allowing plaintiffs to subpoena records from DOJ’s
criminal investigation.11 The firm cited the need for multiple
11
TSST-Korea, a joint venture between Toshiba and Samsung, and
an anonymous individual were included in telephonic conversations
26 IN RE OPTICAL DISK DRIVE PRODS.
interim appeals, but only the discovery dispute concerning the
DOJ investigation was litigated on an interlocutory basis—we
denied interlocutory review of the district court’s orders
regarding class certification. See In re Optical Disk Drive
Antitrust Litig., 801 F.3d 1072 (9th Cir. 2015). It appears that
both of these circumstances were contemplated by the stages
of litigation incorporated into the fee grid, which called for a
somewhat increased fee as the case advanced through the
various stages of litigation. If other unexpected difficulties
accounted for the district court’s fee awards, they are not
evident in the orders from which these appeals were taken.
Given this record and the fiduciary duty the court owes to
the class at the fee award stage, we remand the first- and
second-round fee awards for further consideration and
findings. Both parties now agree that the bid is a factor that
must be considered and that the bid may now be unsealed.12
We agree with Hagens Berman that the district court was not
bound by the original bid, but counsel’s continued reliance on
the twenty-five percent benchmark—the firm referred to the
benchmark as “granite” in its briefing on the third-round fee
award—misses the mark. We have expressly stated that this
benchmark is of little assistance in megafund cases. See
Vizcaino, 290 F.3d at 1047–48; WPPSS, 19 F.3d at 1297.
We now hold that when class counsel secures
appointment as interim lead counsel by proposing a fee
structure in a competitive bidding process, that bid becomes
recorded during DOJ’s criminal investigation. They sought to quash the
subpoena of these records.
12
The memorandum disposition in Case Number 19-15538 directs the
district court to unseal the bid on remand.
IN RE OPTICAL DISK DRIVE PRODS. 27
the starting point for determining a reasonable fee. The
district court may adjust fees upward or downward depending
on circumstances not contemplated at the time of the bid, but
the court must provide an adequate explanation for any
variance. See Stanger, 812 F.3d at 739. We do not endeavor
to create a comprehensive list of circumstances that may
warrant departure from a fee bid, but we note that a district
court would likely not abuse its discretion by departing from
a bid based on circumstances the bid did not contemplate.
Conversely, departure from a bid based on circumstances that
were known at the time the bid was filed may be an abuse of
discretion given the court’s fiduciary duty to members of the
class. Here, class counsel argues that an upward departure
from its bid was warranted in part because it did not
anticipate the need to litigate a second class certification
motion or interlocutory appeals. Without more, these factors
are insufficient to justify a variance of the magnitude
approved in the first- and second-round fee awards. The bid
to become interim class counsel clearly contemplated that
Hagens Berman would move to certify the plaintiff class and
it is not unusual for interim class counsel to have to take more
than one run at class certification. Finally, the proposed fee
structure in this case explicitly contemplated appellate
litigation.
VI.
We briefly address other arguments raised by objectors
because the district court is likely to encounter them on
remand.
First, the district court’s orders awarding fees adopted
class counsel’s contention that the DOJ criminal investigation
increased the litigation risk for the IPP class. Cochran and
28 IN RE OPTICAL DISK DRIVE PRODS.
Andrews contend that it was error to weigh the DOJ
investigation as a factor that increased the risk of this
litigation, because absent the discovery generated by the
criminal investigation, pursuing this consumer class action
would have required significantly more effort and risk. We
recognize the non-indicted defendants attempted to argue that
they were not civilly liable because they were not subjects of
the criminal investigation, but Hagens Berman did not offer
a plausible explanation in support of its contention that this
circumstance increased the litigation risk. That said, the court
cited other factors that amply supported its determination that
this litigation was very risky. Indeed, the last two non-
settling defendants ultimately prevailed over the class at the
summary judgment stage. See In re Optical Disk Drive
Prods. Antitrust Litig., 785 F. App’x 406 (9th Cir. 2019)
(concluding that the class did not advance sufficient evidence
of “pass-through,” and therefore failed to create a genuine
dispute of material fact as to injury, causation, and damages).
Overall, the district court did not err in assessing the Vizcaino
risk factor.
Second, class counsel’s descriptions of the sliding-scale
fee grid were not entirely consistent. Objectors noted some
of these inconsistencies, but they were not well positioned to
assess whether the discrepancies were significant because the
grid remained under seal. Some of the variables may seem
minor, but they can make a significant difference when
applied to a megafund case. Equally important, given that the
bulk of the fee proposal remains under seal, these
inconsistencies make it difficult for class members to have
confidence that a fair outcome is reached. For example, in its
response to objections raised to the first fee motion, class
counsel stated that its fee grid would have yielded an award
based on twelve to thirteen percent of the recovery. The firm
IN RE OPTICAL DISK DRIVE PRODS. 29
seems to have reached that estimate by treating each of the
four settlements comprising the first-round recovery as
separate awards, rather than inputting a lump-sum $124.5
million recovery. The text above the grid on the single
unsealed page of the firm’s proposal permits this approach,
but the firm applied the grid differently for the second
fairness hearing. There, it treated the second recovery as a
$55.5 million lump sum rather than plugging in the individual
components that made up the second settlement. Separately,
the firm asserted in a related appeal before our court, No. 19-
15538, that the award for the first-round settlements “would
have been in the range of 12% to 14% . . . had the grid been
dispositive,” rather than twelve to thirteen percent, as it
argued at the first fairness hearing. These discrepancies may
be addressed on remand.
Third, Erwin contends the district court erred by not
considering the role of future settlements when it approved
Hagens Berman’s first fee award. In particular, Erwin argues
that the first award should have been adjusted downward
because additional defendants remained in the case and there
were likely to be additional recoveries. We disagree. No
future settlements were guaranteed when the first settlement
was approved, and the district court was mindful that any
future settlement should take into account the firm’s
cumulative award. The court correctly reasoned that it could
address any potential double-counting if and when future
settlements materialized.
VII.
We next turn to the district court’s award of litigation-
related expenses. The district court awarded $5,073,042.92
in litigation expenses for the first- and second-round
30 IN RE OPTICAL DISK DRIVE PRODS.
settlements. By the time this appeal was argued, the district
court had conducted a third fairness hearing, requested that a
copy of the bid be filed, and decided not to award expenses
for the third settlement. The court explained that the firm
“offered to accept representation on the terms that no separate
expense award would be made on top of any percentage-
based fee award.” Before our panel, class counsel argued that
the original bid’s reference to “costs” did not encompass all
litigation expenses. Class counsel more specifically pressed
this position when it briefed the district court’s third-round
fee award. There, counsel argued that its original bid
proposed absorbing only the taxable costs, not the much
larger category of nontaxable costs, or litigation expenses.
Hagens Berman does not identify any language in its original
fee bid that supports this interpretation, and the record
squarely refutes it.13
Hagens Berman’s sealed bid proposed a single award for
attorneys’ fees and costs without specifying taxable or non-
taxable costs. Notably, the proposal cited Judge Walker’s
orders in Wenderhold I, 188 F.R.D. 577, and Wenderhold II,
189 F.R.D 570. In Wenderhold I, Judge Walker presided
over seven consolidated securities fraud class actions and
issued an order announcing that the court would select lead
counsel by sealed-bid auction. 188 F.R.D. at 578, 587. The
order specified that firms’ bids should describe their
experience and qualifications, as well as provide evidence
that the applicant had evaluated the securities case at bar,
including the range and probability of recovery. Id.
13
See 5 William B. Rubenstein, Newberg on Class Actions § 16:5
(5th ed. 2012) (observing that the terms “nontaxable costs” and
“nontaxable expenses,” as used in Rule 23(h)(1) and Rule 54(d)(2), are
interchangeable).
IN RE OPTICAL DISK DRIVE PRODS. 31
at 587–88. The district court’s order required that the firms’
bids identify the percentage of recovery the firm would
charge in the event of a recovery “as fees and costs for all
work performed in connection with the case set forth on the
Fee Schedule Grid[] affixed as Appendix A” to the order. Id.
at 588. One axis of the grid that appeared on the court’s
Appendix A exactly mirrors the four stages of litigation
reflected in the fee grid Hagens Berman submitted in this
case; the other axis identifies potential common fund
recoveries, from $500,000 up to any amount over
$20,000,000. Id. The sample grid in Judge Walker’s
Appendix A left the fee percentages blank. Id.
In Wenderhold II, Judge Walker issued a second order
explaining that just one bid had been received in response to
the court’s request for proposals, and the court rejected it.
189 F.R.D. at 571. The defect that rendered the bid
unacceptable was that it called for separate awards of fees and
expenses. Id. at 573. In particular, the court explained that
its first order solicited bids setting forth a percentage to be
charged as fees and costs for all work performed in
connection with the case. Id. at 572. Contrary to the court’s
invitation for bids, the rejected proposal stated that the
bidding firm would seek separate reimbursement for expenses
out of any fund created as a result of the litigation. Id. at
572–73. The court declined to allow fees and costs to be
“divorce[d],” because it reasoned that such an arrangement
could encourage counsel to categorize as costs “anything that
could conceivably be so considered.” Id. at 573. The district
court viewed computer database and internet connection
charges for research and investigation to be, in varying
degrees, substitutes for attorney or paralegal library work,
document review, and witness interviews. Id. The court
sought to incentivize the least costly mix of inputs, and
32 IN RE OPTICAL DISK DRIVE PRODS.
concluded “[c]ompensation which covers attorney effort and
all other expenses affords that incentive, while a percentage
award that omits non-attorney expenses does not.” Id.
We express no opinion on the appointment order’s
characterization of reasonable litigation expenses, but recite
the details of Wenderhold I and II to explain that the district
court correctly interpreted Hagens Berman’s bid. The
proposal clearly offered to absorb litigation expenses. The
orders entered in Wenderhold I and II, and the bid’s citations
to those orders, is important context supporting Judge
Walker’s statement that the firm’s bid proposed “one fee that
covers both compensation of attorneys [fees] and
reimbursement of attorneys’ out-of-pocket expenses.” Judge
Seeborg interpreted counsel’s bid the same way when he
described the firm’s bid as an offer “to accept representation
on the terms that no separate expense award would be made
on top of any percentage-based fee award.”
Though we agree with this part of the court’s
interpretation of the bid, the record is unclear about whether
the district court had the opportunity to take this into account
when it reviewed the expense requests associated with the
first two settlement rounds. Objectors did not have the
information necessary to squarely raise this issue before the
district court, but the fiduciary duty we owe to the class
requires that this case be remanded so the class may be
assured the issue is considered.
VIII.
District courts enjoy broad discretion to determine
reasonable fee awards, but the size of the variance between
the bid and the awards in this case requires more explanation.
IN RE OPTICAL DISK DRIVE PRODS. 33
More detailed findings are particularly important because the
bid remained under seal, putting objectors at a disadvantage
in trying to assess the reasonableness of the fees. Separately,
we reject class counsel’s assertion that it did not offer to
absorb litigation expenses. Therefore, we vacate the district
court’s award of fees and litigation expenses arising from the
first- and second-round settlements, and remand to the district
court for further proceedings consistent with this opinion.
VACATED AND REMANDED.