Opinion
Civil Action No. 98-3599, Section "L"(2)
April 4, 2001
ORDER AND REASONS
Before the Court is plaintiffs and defendants Joint Motion for Preliminary Approval of Class Settlement and Administration. For the following reasons, the parties' joint motion is DENTED, reserving the right of the parties to refile their motion within fourteen (14) days.
I. BACKGROUND
On April 13, 2000, the Court certified a class of an estimated 5,000 plaintiffs on the basic of common issues of law and fact concerning a debt collection letter sent by defendants. The letter, prepared on letterhead from defendant David Huggins's law firm and signed by defendant Glenn Laigast, a non-attorney collection supervisor, seeks to collect on debts owed to De La Salle High School. Plaintiffs claim that defendants deceived them and violated the Fair Debt Collection Practices Act ("FDCPA") by using attorney stationery to send a collection letter signed by a non-attorney.
Following certification of the class, the parties entered into negotiations and reached a settlement as to the claims of all class members. The parties detailed the terms of their agreement in a joint motion for preliminary approval of class settlement submitted to the Court for approval pursuant to Rule 23(e) of the Federal Rules of Civil Procedure. The Court then requested further documentation from the parties on the issues of administering and distributing funds of the proposed settlement and on the hours worked and the nature of the work performed by counsel. Having received the parties' supplemental briefing, the Court now considers the Joint Motion for Preliminary Approval of Class Settlement and Administration.
II. ANALYSIS
Rule 23(e) of the Federal Rules of Civil Procedure requires federal district courts to approve all settlements of class actions. See Fed.R.Civ.P. 23(e); Evans v. Jeff D., 475 U.S. 717 (1986). When determining whether to approve a class action settlement, the Court conducts a two-step process. First, the Court makes a preliminary fairness evaluation of the proposed settlement. See Manual for Complex Litigation (Third) § 30.41 (1995). This preliminary hearing, conducted either before the Court or upon written briefs, is held to evaluate the likelihood that the Court would approve the settlement during its second review stage, the full fairness hearing. See id. During the preliminary evaluation, the Court will examine the submitted materials and determine whether the proposed settlement appears fair on its face. See In re Corrugated Container Antitrust Litig., 643 F.2d 195, 212 (5th Cir. 1981). If the Court finds portions of the proposed settlement problematic, it may indicate preliminary disapproval of the agreement and recommend that the parties make certain revisions or modifications. See In re Domestic Air Antitrust Litig., 148 F.R.D. 297, 313 (N.D. Ga. 1993); See Manual for Complex Litigation (Third) § 30.42 (1995).
The Court must review the provisions of the settlement for fairness, adequacy, and reasonableness. See Cotton v. Hinton, 559 F.2d 1326 (5th Cir. 1977). This duty includes "the obligation to explore the manner in which fees of class counsel are to be paid and the dollar amount for such services." Strong v. Bellsouth Telecomm., Inc., 137 F.3d 844, 849 (5th Cir. 1998) (quoting Foster v. Boise-Cascade, Inc., 420 F. Supp. 674, 680 (S.D. Tex. 1976), aff'd, 577 F.2d 335 (5th Cir. 1978)).
The Court assesses the reasonableness of attorneys' fees in class action settlements for two important reasons. First, the Court reviews attorney fees to protect class members from unfair settlements and to minimize conflicts of interest that may arise between class members and their attorney representatives. See id. Second, the Court examines counsel compensation to prevent promulgating a public perception that attorneys exploit the members of their class to obtain excessive fees. See id. "The Court's review of the attorneys' fees component of a settlement agreement is thus an essential part of its role as guardian of the interests of its class members." Id. at 850.
The review of attorneys' fees undertaken by the Court must be a detailed and independent inquiry. See id. The Court has broad discretion to determine the appropriate amount, and the calculation is "anything but an arithmetical exercise." Evans, 475 U.S. at 736; see Johnson v. Georgia Highway Express, Inc. 488 F.2d 714, 717-19 (5th Cir. 1974) (listing twelve factors to determine appropriate amount of attorneys' fees). Even when the parties submit an agreement as to the amount of attorneys' fees, as was done in this case, the Court "is in no way bound by the proposed stipulated sum in its determination of a reasonable fee to be awarded as part of the judgment." Foster, 420 F. Supp. at 684. On the contrary, the Court must examine the compensation agreement and "not merely ratify a pre-arranged compact." Strong, 137 F.3d at 849 (quoting Piambino v. Bailey, 610 F.2d 1306, 1328 (5th Cir. 1980)). The Court must thoroughly review the attorneys' fees stipulated to in the proposed settlement even when there exists no evidence of collusion, fraud, or other irregularities. See id. "Reasonableness" of the fees sought considering the facts and circumstances of the case is the benchmark by which the Court exercises its discretion. See 7B Charles Alan Wright, Arthur R. Miller Mary Kay Kane, Federal Practice and Procedure § 1803 (2nd ed. 1986).
The attorneys' fees arrangement presented by the parties in this case fails to satisfy the requirements of reasonableness and fairness because the attorneys' fees are grossly disproportionate to the class benefits. In the proposed settlement, defendants have agreed to pay plaintiffs a total of $37,750.00. The parties propose to allocate $8,000.00 of this sum to the settlement class and $25,500.00 to counsel for their costs and fees. of the $8,000.00 reserved to plaintiffs, the named plaintiffs (Copes) are to receive $4,250.00 with the remaining $3,750.00 distributed among the other 5,000 class members on a pro rata basis. Thus, the agreement awards class members other than the Copes less than $1 for each of their claims.
Plaintiffs' counsel, however, apportion $25,500.00 for attorneys fees and for costs of class administration. Even though this amount totals less than the fees and costs itemized in plaintiffs' Statement of Costs of Administration and Attorney Fees, the Court finds the proposed award for attorneys fees unreasonable. If approved, the parties' stipulation affords plaintiffs' counsel 67.5% of the settlement funds for fees and costs: An agreement to pay plaintiffs' counsel more than two-third (2/3) of settlement that allocate less than one dollar ($1) to the average class member benefits counsel more than clients and cannot be considered fair. See Ellis v. Flying Tiger Corp., 504 F.2d 1004, 1008-09 (7th Cir. 1972) (reducing $600,000.00 award for attorneys' fees which constituted 13% of settlement amount to $75,000.00); Spicer v. Chicago Bd. Options Exchange, Inc., 844 F. Supp. 1226, 1250 (D.C. Ill. 1993) (refusing to award 46.6% of settlement fund for attorneys fees because size of the award would primarily benefit counsel rather than member of the class). Accordingly, the Court recommends that Counsel revise their proposed Stipulation of Settlement to reflect an apportionment for attorneys' fees no greater than one-third of the total settlement fund.
The total amount of attorneys' fees calculated by plaintiff's counsel is $42,044.50, and the total amount of estimated administrative costs is $8,262.26. See Pls.' Statement of Costs of Admin. and Attorney Fees.
III. CONCLUSION
For the foregoing reasons, the parties' Joint Motion for Preliminary Approval of Class Settlement and Administration is DENIED, reserving the right of the parties to refile their motion within fourteen (14) days. If refilling their motion, counsel are encouraged to revise the apportionment of attorneys fees as discussed in this Order and Reasons and update the dates for notification and administration of class responsibilities.