Seyfarth Synopsis: In an opinion laced with frustration over a third appeal in a class action involving attorneys' fees, the Seventh Circuit ruled that an objector was entitled to recover attorneys' fees from class counsel's fee award. "Unless the parties expressly agree otherwise," the Seventh Circuit explained, "settlement agreements should not be read to bar attorney fees for objectors who have added genuine value." The Seventh Circuit's recent ruling in In Re Southwest Airlines Voucher Litigation is a good reminder for companies negotiating class settlements to account for objector fees in settlement agreements up front, or run the risk that an objector will sandbag the settlement by requesting fees later.
The Background Of The Decision
In In Re Southwest Airlines Voucher Litigation, No. 17-3541, 2018 WL 3651028, at *1 (7th Cir. Aug. 2, 2018), the Seventh Circuit addressed the third appeal relating to attorneys' fees in the settlement of a class action involving Southwest Airline's cancelled drink vouchers. In the first appeal, the Seventh Circuit modified class counsel's fee award because class counsel had failed to disclose a potential conflict of interest. After the appeal, however, class counsel sought a supplemental fee award, along with a 1/5 multiplier, for his time spent appealing – a maneuver the Seventh Circuit called "astonishing." Id. The district court declined to award the multiplier, but nonetheless awarded class counsel one-third of the requested amount, or roughly $455,294.
Subsequently, an objector, Gregory Markow, sought to vacate the settlement agreement and the supplemental fee award. Markow eventually appealed but then dismissed his appeal in exchange for class counsel's agreement to take half of the supplemental fee award. The district court approved the new settlement, and Southwest distributed the vouchers and paid class counsel.
Then, in what must have come as a complete surprise to class counsel (and the corporate defendant), Markow sought to recover $80,000 in attorneys' fees, which were to come out of class counsel's fee award. The district court denied Markow's fee request, and Markow appealed that denial.
The Seventh Circuit's Ruling
In this third appeal, the Seventh Circuit reversed and remanded. The Seventh Circuit noted that the underlying settlement agreements were silent on issue of objector's fees. In the absence of a settlement agreement that addresses objector fees, the Seventh Circuit explained that it looks to the law. "Objectors who add value to a class settlement may be compensated for their efforts," explained Circuit Judge David Hamilton, writing for the unanimous panel. Id. at 2. "Unless the parties expressly agree otherwise, settlement agreements should not be read to bar attorney fees for objectors who have added genuine value." Id.
Relying on the common fund doctrine to fill in the gap left by the parties' agreements, the Seventh Circuit ultimately concluded that it would be inequitable for Markow's lawyer to receive nothing despite negotiating, in exchange for dropping the second appeal, a tripling of relief to the class and a significant cut to class counsel's fees.
Despite its remand, the Seventh Circuit expressed frustration over resolving yet another appeal involving attorneys' fees. "[W]e expect this case to end, 'so that the tail can stop wagging the dog,'" it warned. Id. at *4. (citation omitted). The Seventh Circuit determined that it was "difficult to reconcile [class counsel's] rapacious requests for fees in the district court with our decision in the prior appeal that reduced its already generous fee award as a modest penalty for failing to disclose a potential conflict of interest." Id.
Implication For Employers
Although objectors are often labeled extortionists by virtue of opportunistic obstacles they create to securing approval of class-wide settlements, the ruling in In Re Southwest Airlines Voucher Litigation is clear that objectors are entitled to attorneys' fees when they add value to the class settlement. Employers navigating class settlements, therefore, should account for objector fees in the settlement agreement. Failure to do so could result in an objector sandbagging the settlement by requesting fees later.
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