Wednesday, November 27, 2002
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Ninth Circuit Throws Out Boeing Class Action Settlement as Unfair
By KENNETH OFGANG, Staff Writer/Appellate Courts
A class action settlement in which Boeing Company agreed to pay up to $15 million to remedy discrimination against black employees at its facilities in 27 states was thrown out yesterday by the Ninth U.S. Circuit Court of Appeals.
A divided panel said that U.S. District Judge John Coughenour of the Western District of Washington abused his discretion by approving a settlement agreement that appears to give too much money to the class lawyers and contains unjustified discrepancies in the amounts awarded to different claimants.
The deal that Coughenour approved three years ago would have given the Seattle firm of Harrell, Desper, Connell & Roesch about $3.85 million for representing the class of about 15,000 employees.
The claimants would have gotten about $7.3 million, the Philadelphia firm of Spector Gadon & Rosen—whose clients brought a separate class action that would have been covered by the settlement, which they opposed—would have received $200,000, and Boeing would have spent $3.65 million over three years on programs to prevent bias, harassment, and retaliation and assist African Americans in moving up within the company. Some $750,000 of the attorney fees awarded would compensate class counsel for monitoring the programs.
About 500 workers had opted out of the settlement, reducing the size of the fund by about $800,000.
Judge Marsha Berzon criticized the procedure established for distributing the funds, calling it the type of “gross inequity” that will justify the rare step of reversing a district judge’s approval of a settlement. The appellate jurist noted that some 200 claimants, many of whom had made periodic payments to help finance the litigation, would receive specific awards averaging $16,500 each, while another 3,400 class members who made claims would have to go through an arbitration procedure that would leave them with an average of $1,000 each.
“The record before us does not reveal sufficient justification…for the large differential in the amounts of damage awards,” Berzon wrote.
While there was no showing of collusion between Boeing and class counsel, she said, the circumstances demonstrate the “real dangers in the negotiation of class action settlements of compromising the interests of class members for reasons other than a realistic assessment of usual settlement considerations such as the strength of their legal claims, the desire for immediate rather than delayed relief, and the costs of litigation.”
Class members, she noted, cannot be consulted en masse during the negotiations process, nor is their approval of a settlement required, although there is an opportunity to object.
The district judge, Berzon went on to say, should have more closely scrutinized the fee award.
There was no attempt to justify the amount using the “lodestar” method—multiplying the number of hours expended by a reasonable hourly rate based on the lawyers’ skill and experience, Berzon noted. And she questioned the conclusion that since it amounted to only 28 percent of the total settlement, the award was reasonable under a “common fund” theory.
It was improper, she said, to consider equitable relief, such as the money being spent on anti-bias programs, to be part of the common fund. Also, in order to protect against class counsel negotiating fees that reduce the class recovery, common fund attorney fees should not be negotiated between counsel and the defendant, but should be reserved for determination by the court after the settlement is approved, Berzon said.
Berzon was joined by Judge Donald Lay, an Eighth Circuit senior judge sitting by designation. Judge Stephen S. Trott dissented, saying the supposed conflict between the interests of class counsel and class members was an “illusion.”
Trott cited, among other evidence, a declaration by the Rev. Jesse Jackson, who had extensive discussions with Boeing officials about the case, in which the civil rights leader strongly urged that the settlement be approved.
Berzon and Lay, the dissenting jurist argued, got “lost in unfamiliar trees” and failed “to see the forest for what it really is.” The settlement, he said, promised the the plaintiff class “clear future value…working for one of our nation’s largest and most important employers.”
The case is Staton v. Boeing Company, 99-36086.
Copyright 2002, Metropolitan News Company