CALIFORNIA CLASS ACTION LAW

The Ninth Circuit Court of Appeals yesterday clarified the timing of objections to class counsel’s fee requests under Fed. R. Civ. Proc. Rule 23(h), holding that objectors must be given a deadline to object after plaintiff’s fee application is submitted.  The litigation in In re Mercury Interactive Corp. Securities Litigation, No. 08-17372, — F.3d —-, 2010 WL 3239460 (9th Cir. Aug. 18, 2010), which involved stock option backdating, settled early on, at the motion to dismiss stage.

A settlement class was certified, the settlement of $117.5 million in cash was approved, and attorneys’ fees of 25% ($29.375 million) were awarded pursuant to the settlement agreement.  No objections were made to the settlement itself, but two objections were made to the proposed attorneys’ fees.  Id. *2.  The court described lead counsel’s fee application as follows:

The memorandum and declarations supporting the motion state that lead counsel and other law firms worked a total of 17,001.06 hours on the case, valued at $8,396,593.20. Counsel did not provide time sheets detailing how many hours were spent by each attorney on specific tasks. Instead, it provided tables listing a lawyer, his or her hourly rate, and the number of hours he or she expended on the case. The declarations supporting these fee requests only broadly summarized the work done by each firm, including descriptions such as “prepared for mediation,” “negotiating and finalizing a global settlement with all Defendants for $117.5 million,” and “prepared and filed discovery motions.”

Id. *2.

The district court set the objection deadline for class members on a date before the deadline for lead counsel to file their fee motion.  Id. *5.

The Ninth Circuit reversed.  The court held the district court misapplied Rule 23(h) in “setting the objection deadline for class members on a date before the deadline for lead counsel to file their fee motion.”  The court found that this practice “borders on a denial of due process because it deprives objecting class members of a full and fair opportunity to contest class counsel’s fee motion.”  The Ninth Circuit described the District Court’s duties as follows:

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.” Id. Included in that fiduciary obligation is the duty to ensure that the class is afforded the opportunity to represent its own best interests. When the district court sets a schedule that denies the class an adequate opportunity to review and prepare objections to class counsel’s completed fee motion, it fails to fulfill its fiduciary responsibilities to the class.

Id. *6.

The court concluded:

When $29.375 million is at stake, and the interests of class counsel are in conflict with the interests of the class, it is the obligation of the district court to ensure that the class has an adequate opportunity to review and object to its counsel’s fee motion and, potentially, to conduct discovery on its objections to the fee motion if the district court, in its discretion, deems it appropriate. We do not adopt a bright-line rule of a time period that would meet Rule 23(h)’s requirement that the class have an adequate opportunity to oppose class counsel’s fee motion. Obviously, that period will vary from case to case, and the district court is better positioned to make that decision after consideration of all of the circumstances in the case. But a schedule that requires objections to be filed before the fee motion itself is filed denies the class the full and fair opportunity to examine and oppose the motion that Rule 23(h) contemplates.

Id. *6.

Judges and Attorneys

Judge A. Wallace Tashima wrote the opinion for the court.  Judge Susan P. Graber concurred.  Judge Jay S. Bybee dissented.

The appeal was taken from the United States District Court for the Northern District of  California, Jeremy D. Fogel, District Judge, Presiding.

Ryan A. Stippich represented objector-appellant New York State Teachers Retirement System.

Louis Gottlieb represented plaintiff-appellee Mercury Pension Fund Group.

Robert A. Long, Jr. represented amicus curiae Council of Institutional Investors.

By CHARLES H. JUNG