Second Circuit Holds that District Court Erred in Failing to Exercise Discretion to Award Class Members Treble Damages in Sherman Act Class Action Settlement and Erred in Calculating Attorneys Fee Award on Percentage of Settlement Funds Claimed by Class Members Rather than on Total Amount of Settlement Proceeds Negotiated by Counsel
Plaintiffs filed a class action against several modeling agencies alleging violations of the federal Sherman Act and of New York state laws for conspiring to “uniformly charge models a commission of 20%” rather than 10% based on a “collusive scheme” to characterize themselves as “managers” and therefore exempt from the 10% cap imposed on “employment agencies” under New York state law. Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 2007 WL 28983, *1 (2d Cir. 2007). After extensive litigation, the district court certified the lawsuit as a class action and, eventually, the parties reached a settlement, id., at *1-*5. The district court approved the proposed settlement, but refused to exercise discretion to award class members treble damages under the Sherman Act based on its belief that under the terms of the settlement it did not have the discretion to do so, id., at *5-*6. The court also awarded attorney fees, but based the award on a percentage of the total funds claimed by class members rather than on the total amount of funds negotiated by plaintiffs’ counsel, id., at *7-*8.. The Second Circuit affirmed in part and reversed in part. We discuss below only those parts of the opinion that reversed the district court.
Plaintiffs argued that it was error for the district court “to award single, rather than treble, damages” and not “to award prejudgment interest” to class members. Masters, at *9. The district court refused plaintiffs’ request for these awards based on its belief “that the unambiguous terms of the Settlement Agreement made no provision for the distributions sought and that it was bound under the circumstances to approve or disapprove the Settlement negotiated by the parties.” Id. In fact, in denying reconsideration, the district court explained that the “four corners” of the 30-page settlement agreement were silent on treble damages or prejudgment interest, and that it refused to award them because “it would have been wrong to do so.” Id., at *11-*12. The Second Circuit disagreed, concluding that the “the District Court was not aware of its discretion, failing to recognize that it was empowered to allocate funds to the members of the class as treble damages.” Id., at *11. The Circuit Court agreed that prejudgment interest could not be awarded because such an award required a finding under the Clayton Act of “bad faith . . . causing a material delay,” id., at *12, but it could have awarded treble damages because of the existence of a cy pres fund and the requirement that such funds be placed to the “next best compensation use,” id. The Court therefore remanded the action to the district court to consider whether to award Excess Funds to class members as treble damages. Id., at *11.
With respect to the attorney fee award, both the district court and the Second Circuit noted a split of authority on whether attorney fees were to be computed “on the basis of claims made against the [settlement fund] rather than on the basis of the entire Fund,” Masters, at *13. The lower court believed that basing the award on the latter would result in a “windfall” to plaintiffs’ lawyers, id.; the Circuit Court held otherwise. The Second Circuit explained at page *13,
The entire Fund, and not some portion thereof, is created through the efforts of counsel at the instigation of the entire class. An allocation of fees by percentage should therefore be awarded on the basis of the total funds made available, whether claimed or not. We side with the circuits that take this approach. (Citations omitted.)
In reversing the district court, the Second Circuit rejected its reliance on the PSLRA and on CAFA, Masters, at *14. As the Circuit Court explained, the PSLRA is not applicable to antitrust cases, and CAFA addresses attorney fee awards only in the context of coupon settlements. Id.