Friday, July 25, 2003
Appeals Court Overturns $16 Million Vitamin Litigation Fee Award
By DAVID WATSON, Staff Writer
An award of $16 million in attorney fees and nearly $700,000 in costs to more than 50 law firms in 34 coordinated class actions involving overpricing of vitamins was overturned yesterday by the First District Court of Appeal.
The appellate court sent the case back to San Francisco Superior Court Judge John E. Munter with instructions to reconsider whether the fee agreed on when the cases were settled for $80 million was excessive. In particular, the justices told Munter to review:
•Whether firms which were not on the plaintiffs’ executive committee, but accounted for nearly one-quarter of the fees and more than one-third of the costs used in justifying the fee award, “materially contributed” to the settlement;
•Whether plaintiffs’ liaison counsel should be permitted to depart from the figures used in the fee calculation in distributing the fee award;
•Whether one lawyer’s claim for six hours of work at $1,000 per hour was appropriate; and
•Whether the litigation involved enough risk to justify a lodestar multiplier of 2, effectively doubling the fee award.
Writing for Div. Two, Justice Paul R. Haerle expressed particular concern about approximately 20 of the cases in which there were three or more law firms representing the plaintiffs.
“Here, the sheer number of private putative class actions resolved by this settlement—34—and the number of law firms seeking attorney fees—52 or more —raises the specter of duplicative and superfluous litigation and hence unnecessary fees and costs....In light of this record, we are concerned that affirmance of the trial court’s award of attorney fees, without further review by that court, might further encourage what we frankly fear happened here: the filing of many substantially duplicative class actions manned by multiple law firms.”
The justice noted that the state court vitamin cases followed and benefited from similar federal court litigation and a price-fixing criminal prosecution brought by the U.S. Department of Justice. The state court settlement provided for distribution of $38 million to charitable, governmental and non-profit health promotion organizations on behalf of consumer plaintiffs and $42 million to companies that purchased bulk vitamins at inflated prices.
Guilty pleas and settlements in the federal cases considerably reduced the risks faced by the firms in prosecuting the state cases on a contingent fee basis, making the trial court’s acceptance of a multiplier doubling the fees questionable, Haerle said.
“[T]he risks presented by this case were not as large as plaintiffs’ counsel would portray them,” the justice explained. “[T]his case was both resolved without the risks of trial and was similar to litigation filed throughout the country....Indeed, at oral argument in this case, lead plaintiffs’ counsel conceded that ‘several’ of the ten law firms on the plaintiffs’ executive committee were also plaintiffs’ counsel in the federal direct purchaser cases against the vitamin-producing defendants, the cases coordinated in federal court for the District of Columbia. She also conceded that a single, central document depository, i.e., one serving both the federal direct purchaser cases and the state indirect purchaser cases, was utilized by both direct and indirect purchasers’ counsel.”
The fee award was challenged by a single member of the plaintiff class.
Haerle said it was “troubling” that while Munter approved the fee award partly based on claims by the lawyers involved that they would have additional work to do in administering the settlement, the judge did not give any basis for estimating the value of that work, and the fee award was assigned to the two classes of plaintiffs proportionally to their share of the settlement.
“[T]he amount of additional work required by the two classes is surely not represented by such a calculation because the settlement provides for two very different resolutions of the Consumer and Commercial Class claims. The Consumer Class settlement requires distribution of funds to non-profit organizations, whereas the Commercial Class settlement permits individual claims to be made against a portion of the commercial settlement fund. In fact, [plaintiff] attorney [William] Bernstein’s declaration submitted in support of the motion for attorney fees emphasized solely the additional attorney effort that will be required to calculate the opt-out reduction for the Commercial Class. Thus, an assumption that the value of continuing services is somehow related to the size of the award is without foundation in this record.”
Haerle said it was also a “major concern” to the appellate court that the lead counsel for plaintiffs proposed to make actual distribution of the fees to the 50-plus firms in accordance with a determination of the “relative contribution” of each to the litigation, with adjustments intended to reward efficiency and compensate for “disparate billing practices,” rather than by using the fee estimates presented to Munter in justifying the award.
“[T]he fact that co-liaison counsel intends to distribute the attorney fees award to the law firms in a manner independent of the lodestar underscores the very concerns we have regarding the value of the services of all of the attorneys and law firms who were involved in these actions,” the justice wrote. “Those issues should be resolved by the trial court before an award of attorney fees, rather than by co-liaison counsel afterwards.”
Justice James Lambden and Presiding Justice J. Anthony Kline concurred.
Steven M. Tindall of Lieff, Cabraser, Heimann & Bernstein in San Francisco, one of the lawyers representing the plaintiff class, said yesterday he continued to believe the fee award was reasonable.
“We are confident we can make the showings the Court of Appeal has asked for,” Tindall said.
Lawrence W. Schonbrun of Berkeley, who represented the class member who challenged the fee award did not return a call for comment yesterday.
The case is In re Vitamin Cases, 03 S.O.S. 3903.
Copyright 2003, Metropolitan News Company