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Attorney Fee Awards in Class Action Cases-In re High Sulfur Content Litigation: Fifth Circuit Reverses Portion Of District Court Class Action Settlement Order Allocating Attorney Fees Among Class Action Plaintiff Lawyers For Procedural Defects

District Court Order Allocating $6.875 Million in Attorney Fees to 79 Class Action Plaintiff Lawyers Following Final Approval of Class Action Settlement Required Reversal because District Court “Abdicated its Responsibility to Ensure that the Individual Awards Recommended by the Fee Committee were Fair and Reasonable” Second Circuit Holds

Various plaintiffs filed class action lawsuits against Shell Oil alleging that its Louisiana refineries “produced contaminated gasoline that was purchased and used by thousands of motorists, damaging, inter alia, their fuel gauges.” In re High Sulfur Content Gas. Prods. Liab. Litig., 517 F.3d 220, 2008 WL 287347, *1 (5th Cir. 2008). The class actions were “consolidated in a federal class action,” id. Shell initiated a program to repair damaged fuel gauges, id. Eventually, the parties agreed to the terms of a class action settlement under which Shell agreed to expand its repair program, pay $3.7 million in damages for class members, and pay $6.875 million in attorney fees and costs: The trial court approved the class action settlement, and “appointed a five-member Fee Committee to allocate the fee award among approximately thirty-two law firms and seventy-nine plaintiffs’ attorneys who worked on the case.” Id. The Fee Committee presented its recommendations at an ex parte status conference – none of the other 74 class action plaintiff attorneys knew of the hearing and, also without their knowledge, the proposed order not only discussed allocation of attorney fees but “(a) placed under seal the document prepared by the Fee Committee listing each attorney’s fee award…; (b) prohibited each plaintiffs’ attorney from disclosing to anyone, including his clients and other attorneys, the amount of his award under penalty of sanctions to be imposed by the court; (c) required fees, costs, and expenses to be ‘distributed immediately;’ (d) mandated that fee award checks bear a full and final release; and (e) established the district court’s process for dealing with any objections to fee awards.” Id., at 1-2 (footnotes omitted). The ex parte hearing on allocation of the attorney fees under the class action settlement lasted 20 minutes; the court signed the proposed order “apparently without modification” and sealed the transcript of the hearing on the motion, id., at *3. Some of the attorneys, disgruntled that approximately half of the attorney fee award went to the law firms of the five members of the Fee Committee, requested that the district court reconsider its ruling and unseal the hearing transcript; that failing, they appealed the fee award. Id. The Fifth Circuit reversed.

As this case involves the narrow issue of the allocation of attorney fees only, we do not discuss it at length. We note simply that the court order is reviewed for abuse of discretion, and that the appeal involved but a single issue – “the procedures the district court used to allocate the $6.875 million lump-sum attorneys’ fee award among plaintiffs’ counsel.” In re High Sulfur Content, at *3. The Fifth Circuit reversed the fee allocation order, agreeing with the appellants that the district court “used flawed procedures to award individual attorneys’ fees and to review objections to those fees.” Id., at *4. The Circuit Court explained at page *4, “For all practical purposes the five-member Fee Committee controlled the allocation of attorneys’ fees in this case.” And while the federal court was entitled to appoint a committee to recommend allocation of attorney fees, “the appointment of a committee does not relieve a district court of its responsibility to closely scrutinize the attorneys’ fee allocation, especially when the attorneys recommending the allocation have a financial interest in the resulting awards.” Id. In this case, the Fifth Circuit held that “the district court abdicated its responsibility to ensure that the individual awards recommended by the Fee Committee were fair and reasonable.” Id.

The Fifth Circuit held at page *5, “Instead of closely scrutinizing the Fee Committee’s allocation, the court rubber-stamped the committee’s recommendation.” The district court aggravated the situation by sealing the records and placing a gag order on the plaintiffs’ lawyers. In re High Sulfur Content, at *5. Moreover, the Circuit Court noted that the district court was not required to hold a hearing on the allocation of attorney fees, but concluded that “the decision to convene an ex parte hearing was plainly unauthorized.” Id., at *7. Accordingly, it reversed, id., at *11.

NOTE: The Fee Committee claimed that the attorney fee allocations should be maintained under seal because “keeping the individual fee awards confidential would prevent lawyers from fighting over awards that they could not compare.” In re High Sulfur Content, at *1.

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