Case No. 09 Civ. 01029 (CM)
DECISION AND ORDER FINALLY APPROVING SETTLEMENT, INCLUDING CLASS COUNSEL'S REQUEST FOR FEES AND COSTS
Pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, Plaintiff Michael Guippone ("Plaintiff"), and Robert L. Geltzer, the Chapter 7 Trustee (the "Trustee") for the bankruptcy estates of BH S&B Holdings LLC ("Holdings") and BHY S&B Intermediate Holdco LLC ("Holdco" and together with Holdings, the "Debtors"), defendants in the above-captioned action, move for a final order approving the settlement (the "Settlement") preliminarily approved in this Court's July 27, 2011 Order (ECF No. 99), and approving Class Counsel's request for fees and costs. The motion, which is unopposed, is granted.
In this Class Action, the Plaintiff seeks to recover sixty (60) days pay and ERISA benefits for himself and each of the Class Members who were terminated without cause on November 17, 2008 and thereafter as a result of the mass layoff that occurred on that day (the "WARN Claims"). For purposes of this Settlement, the Parties have stipulated that each Class Member's WARN Act damages and proportionate share of all distributions received pursuant to this Settlement shall be reduced by the amount of all pay and ERISA benefits received on account of work performed by such Class Member on behalf of Holdings after November 17, 2008, pursuant to 29 U.S.C. § 2104(a)(2)(A).
On November 18, 2008, Plaintiff filed a civil action before the United States District Court for the Southern District of New York (the "Civil Action"). The case was titled Guippone, et al. v. BH S&B Holdings LLC, et al. (Case No. 08-cv-10007 (CM)).
On November 19, 2008, the Debtors filed their petitions for relief under Chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code") before the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). The Bankruptcy Cases are being jointly administered.
On November 20, 2008, Plaintiff filed an adversary proceeding (the "Adversary Proceeding") against the Debtors and each of the above-captioned defendants (each a "Defendant" and together the "Defendants") in the Bankruptcy Court as a class action adversary proceeding (Adv. Proc. No. 08-01747 (MG)). The allegations in the adversary proceeding were substantially the same as those in the Civil Action, except that Holdco was added as an additional Defendant.
On November 24, 2008 the Civil Action was voluntarily dismissed by Plaintiff pursuant to Civil Rule 41(a)(1)(A)(i).
On February 19, 2009, with the consent of Plaintiff and all Defendants, this Court withdrew the reference of the Adversary Proceeding to the Bankruptcy Court. As a result, the Adversary Proceeding has been administered by this Court, which has exclusive jurisdiction over the Adversary Proceeding.
On January 25, 2010, Plaintiff filed a First Amended Complaint. (ECF No. 24). On March 19, 2010, the Debtors filed their Answer to the First Amended Complaint. (ECF No. 38). On November 16, 2010, the Bankruptcy Cases were converted to proceedings under Chapter 7 of the Bankruptcy Code, and the Trustee was appointed as the Chapter 7 trustee of the Debtors' bankruptcy estates.
The Settlement Negotiations
In 2010, after service of discovery and the production of documents and responses to interrogatories among the parties, the Plaintiff and the Debtors commenced discussions regarding a possible settlement of Plaintiff's Adversary Proceeding. The parties were not able to reach an agreement on the value of the case, however, and resumed discovery, while continuing to explore the possibility of settlement.
With depositions yet to be taken, the imminent filing of summary judgment motions, and the prospect of the Debtors' estates incurring tens of thousands of dollars in costs in further litigation, the Parties concluded that in order to avoid the cost and uncertainty of lengthy litigation, the delay incident to that litigation and the dissipation of the Debtors' estates by professional fees in defense of the Class Action, it was in the best interests of the Debtors, their creditors and the putative Class to seek a settlement of the WARN Claims. The settlement negotiations between the Parties were protracted, conducted in good faith and at arms' length, and resulted in the Settlement that is the subject of the instant Motion.
The principal terms of the Settlement can be summarized as follows:
• The Debtor consents to certification of the Class for purposes of settlement only. The term "Class" shall mean: all former employees of Holdings terminated on, or within ninety (90) days of, November 17, 2008, in anticipation of, related to, or as the foreseeable consequence of, the mass layoffs or plant closings ordered by Defendants on or about November 17, 2008, and who are affected employees, within the meaning of 29 U.S.C. § 2101(a)(5), excluding all former employees who voluntarily terminated their employment with Holdings and all former employees of Holdings terminated for cause.
• The Class will receive an allowed unsecured claim against the Debtor's estate in the amount of $900,000 (the "Allowed Claim"), which shall be entitled to priority to the extent permitted pursuant to section 507(a)(4) of the Bankruptcy Code and payable in accordance with, and at the time established for distribution to, similar claims.
• The Class or Class Counsel shall be responsible for administering this Agreement, including any costs associated with such administration ("Administrative Costs"). The Class or Class Counsel may employ a third party (an "Administrator") to administer this Agreement, with the costs of such third party payable from amounts distributed on account of the Allowed Claim. The Class, Class Counsel or any Administrator shall also arrange for the withholding and payment of any tax obligation of the Debtors associated with distributions made to any party pursuant to this Agreement, including, but not limited to the Debtors' portion of federal social security and Medicare obligations and unemployment compensation obligations, ("Employer Taxes") and such Employer Taxes shall be paid exclusively from amounts distributed on account of the Allowed Claim.
• The Plaintiff, as Class Representative, will receive a $10,000 payment (the "Representative Payment") as compensation for his services on behalf of the Class. The Trustee, as trustee of Holdings shall issue a Form 1099 and shall assume no liability for Plaintiff's individual tax or withholding obligations with respect to the Representative Payment.
• Class Counsel will seek approval from this Court for (a) reasonable out of pocket expenses and (b) attorneys' fees of one-third of the Allowed Claim, after deducting the Representative Payment ("Class Counsel Fees"). Payment of Class Counsel Fees shall be made exclusively from funds of the Holdings' estate distributable by the Trustee on account of the Allowed Claim, shall be a part of and not in addition to the amount of the Allowed Claim and shall not be an administrative expense of the Debtors' estates.
Payment of Class Counsel Fees is subject to this Court's approval.
• Any Distribution by the Trustee from Holdings' estate on account of the Allowed Claim shall be made to Class Counsel, the Class Representative or Class Members, as applicable, in accordance with section 726 of the Bankruptcy Code and any applicable orders of the Bankruptcy Court regarding distributions on account of claims against Holdings' estate. The Trustee shall make Distributions on account of the Allowed Claim to the Class Members and pay any local, state or federal tax obligation of the Debtors related to such Distributions and withhold all appropriate local, state and federal tax obligations, garnishments and similar withholding obligations of each individual Class Member receiving such Distributions pursuant to this Agreement. All Employer Taxes shall be paid exclusively from property distributable on account of the Allowed Claim. Neither the Trustee, the Debtors nor the Debtors' estates shall be liable for any personal tax obligation of any Class Member arising from or related to any Distribution. All Distributions shall be made to the last known address of any Class Member according to the Debtors' books and records or any alternative address provided to the Trustee by Class Counsel.
• Except for the rights and obligations arising out of, provided for, or reserved in this Agreement, the Plaintiff and all other Class Members, for and on behalf of themselves and their respective predecessors, successor, assigns, affiliates and subsidiaries (collectively, the "Releasing Parties"), do hereby fully and forever release, discharge and covenant not to sue the Trustee, the Debtors, their estates, and their respective officers, directors, shareholders, agents, employees, partners, members, accountants, attorneys, representatives and other agents and all of their respective predecessors, successors and assigns, (each a "Released Party" and together the "Released Parties"), of and from any and all claims and rights of any kind that arise from the allegations set forth in the Complaint or similar factual allegations, the Allowed Claim and the Individual WARN Claims, demands, debts, liabilities, obligations, liens, actions and causes of action, costs, expenses, attorneys' fees and damages of whatever kind or nature, at law, in equity and otherwise, whether known or unknown, anticipated, suspected or disclosed, that the Releasing Parties may have as of the date of this Agreement against the Released Parties arising out of the factual allegations raised in the First Amended Complaint or similar factual allegations, the Allowed Claim and the Individual WARN Claims, including, those asserted, or that could have been asserted, by any individual Class Member relating to any claim to compensation on account of the termination of such Class Member's employment by Holdings, the Allowed Claim, the Individual WARN Claims, the Civil Action and the Adversary Proceeding; provided, however, that claims filed by former employees that do not arise from or relate to the WARN Act or similar state or federal laws or regulations, including, but not limited to, any
claims arising from or related to pre-petition wages, salaries or benefits earned by former employees shall not be released hereby. Nothing in the Agreement shall be construed to constitute a release by the Class Members, the Class Representative or any former employees of any claims against the other Defendants in this action, namely, BHY S&B Holdco, LLC, Bay Harbour Management LC, Bay Harbour Master Ltd, BH S&B Inc, York Capital Management, L.P. and YSOF S&B Investor, LLC.
After the parties submitted documentation requesting preliminary approval of the Settlement, this Court entered an Order on July 27, 2011, preliminarily approving the Settlement and appointing Class Counsel (the "Preliminary Approval Order"). (ECF No. 99.) The Preliminary Approval Order additionally: (1) approved the form of Notice, including the September 23, 2011 opt-out date for members of the class; (2) ordered that Class Counsel mail the notices by August 19, 2011; and (3) ordered a fairness hearing to take place at 9:30 a.m. on October 28, 2011.
In accordance with the Preliminary Approval Order, Class Counsel caused the Notice to be mailed to the Class members. The opt-out date has passed, and Counsel avers that no class member has opted out. (Decl. of Roupinian ¶ 4.)
Class Counsel moved for final approval of the Settlement contemporaneously with its motion for preliminary approval. There has been no opposition filed to any part of Counsel's motion.
A. The Legal Standard
Numerous courts have emphasized that "to minimize litigation and expedite the administration of a bankruptcy estate 'compromises are favored in bankruptcy.'" In re Auto Tower, Inc., No. 05-10578, 2006 Bankr. LEXIS 2220, at *9 (Bankr. S.D.N.Y. June 28, 2006) (citing In re Martin, 91 F.3d 389, 393 (3d Cir. 1996)); see also In re Culmetech, Ltd., 118 B.R. 237, 238 (Bankr. M.D. Pa. 1990) ("[C]ompromises are favored in bankruptcy and . . . much of litigation in bankruptcy estates results in settlement"). Bankruptcy Rule 9019 authorizes a bankruptcy court to approve a compromise or settlement after notice and a hearing. Fed. R. Bankr. P. 9019(a). Section 105 of the Bankruptcy Code empowers a court to issue any order that is "necessary or appropriate." 11 U.S.C. § 105(a).
The requirements for approval of a settlement are set forth in Rule 9019(a) of the Bankruptcy Rules, which provides, in pertinent part, that "[o]n motion by the trustee and after notice and a hearing, the court may approve a compromise or settlement." Fed. R. Bankr. P. 9019(a). Rule 9019(a) does not, however, specify the criteria to be used for consideration of a particular compromise or settlement.
As the Second Circuit has found, "courts have developed standards to evaluate if a settlement is fair and equitable, and, to that end, courts in this Circuit have set forth factors for approval of settlements based on the original framework announced in Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (1968). See also 10 COLLIER ON BANKRUPTCY ¶ 9019.02 (15th ed. rev.) (citing TMT Trailer Ferry). Those interrelated factors are:
a. the balance between the litigation's possibility of success and the settlement's future benefits;
b. the likelihood of complex and protracted litigation, "with its attendant expense, inconvenience, and delay," including the difficulty in collecting on the judgment;
c. "the paramount interests of the creditors," including each affected class's relative benefits "and the degree to which creditors either do not object to or affirmatively support the proposed settlement";
d. whether other parties in interest support the settlement;
e. the "competency and experience of counsel" supporting, and "[t]he experience and knowledge of the bankruptcy court judge" reviewing, the settlement;In re WorldCom, Inc., 347 B.R. 123, 137 (Bankr. S.D.N.Y. 2006); see also TMT Trailer Ferry, 390 U.S. at 424; In re Iridium Operating LLC, 478 F.3d 452, 462 (2d Cir. 2007) (citations in original).
f. "the nature and breadth of releases to be obtained by officers and directors"; and
g. "the extent to which the settlement is the product of arm's length bargaining."
A Court evaluating a settlement under these standards "should form an educated estimate of the complexity, expense, and likely duration of such litigation, the possible difficulties of collecting on any judgment which might be obtained, and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise[, including comparing the compromise] with the likely rewards of litigation." In re Iridium Operating LLC, 478 F.3d at 462 n.15 (quoting TMT Trailer Ferry, 390 U.S. at 424-25).
The Second Circuit has emphasized that in evaluating a settlement, a bankruptcy judge need not decide the numerous questions of law and fact raised by the settlement, but rather, should "canvass the issues and see whether the settlement falls below the lowest point in the range of reasonableness." In re W.T. Grant Co., 699 F.2d 599, 608 (2d Cir. 1983) (internal quotation omitted). This standard means that a bankruptcy court is not required to know all the relevant facts in deciding whether to approve a settlement. See Weinberger v. Kendrick, 698 F.2d 61, 74 (2d Cir. 1982) ("The Supreme Court could not have intended that, in order to avoid a trial, the judge must in effect conduct one.").
Finally, in determining whether to approve a trustee's application to settle a controversy, a bankruptcy court should not substitute its judgment for that of the trustee, but rather the Court may "give weight to the opinions of the trustee, the parties, and their attorneys." In re Heissinger Resources Ltd., 67 B.R. 378, 383 (C.D. Ill. 1986); In re Carla Leather, 44 B.R. 457, 465 (Bankr. S.D.N.Y. 1984); In re East 44th Realty, LLC, 2008 U.S. Dist. Lexis 7337, *23 (S.D.N.Y. 2008) (citations in original). B. The Settlement is in the Best Interests of the Debtor and its Estate.
The Court finds that the Settlement is within the range of reasonableness, and it is fair and in the best interests of the Debtors' estates.
Here, the Settlement Agreement provides that the Class shall be entitled to a maximum distribution of $900,000 with respect to its allowed priority Class Claim. If there are sufficient funds in the estates the allowed Class Claim distribution shall be $900,000, but it may be less if there are insufficient funds.
On balance, the Trustee's likelihood of success does not outweigh the benefits of the Settlement Agreement because the allowed Class Claim reflects a reduction attributed to the value of the Affirmative Defenses. Here, the Parties' efforts focused on determining the Debtors' maximum potential WARN Act liability and valuing the Affirmative Defenses. The Parties spent a significant amount of time identifying the terminated full- and part-time employees who worked at the relevant facilities and calculating the total damages based on their individual compensation. Ultimately, the Parties agreed that, without valuing the Affirmative Defenses, the Debtors' WARN Act liability would not exceed $2.0 million.
If the case did not settle, it is likely that the litigation surrounding the Affirmative Defenses would be complex and protracted. Litigating the value of the Affirmative Defenses has already required significant discovery for the WARN claims against the non-settling defendant BH S&B Holdco, LLC ("Holdco"). It has involved a significant number of depositions and the review and analysis of thousands of documents, emails and other electronic data. If not for this settlement, this litigation would have burdened, and would continue to burden the Debtors' estates with significant Chapter 7 expenses, reducing any potential distribution available to the estates' creditors and unnecessarily delaying the closure of these cases.
The Plaintiff, as Class Representative, supports the Settlement and there have been no opt-outs or other opposition to the Settlement as preliminarily approved.
As noted above, Class Counsel has significant experience in litigating employment matters including WARN Act class actions, and avers that this Settlement Agreement is fair and equitable because its terms do not deviate in any material way from other similar WARN Act class actions.
Finally, the releases provided for in the Settlement Agreement are narrowly tailored to the specific facts and do not extend to any other defendant or any of the Debtors' former officers and directors. C. Payments to the Named Plaintiff For Their Service to the Class Are Reasonable and Routinely Awarded.
Courts acknowledge that named plaintiffs in class and collective actions play a crucial role in bringing justice to those who would otherwise be hidden from judicial scrutiny. See, e.g., Parker v. Jekyll & Hyde Entm't Holdings, L.L.C., No. 08 Civ. 7670 (BSJ)(JCF), 2010 WL 532960, at *1 (S.D.N.Y. Feb. 9, 2010) ("Enhancement awards for class representatives serve the dual functions of recognizing the risks incurred by named plaintiff and compensating them for their additional efforts."); Velez v. Majik Cleaning Serv., No. 03 Civ. 8698, 2007 WL 7232783, at *7 (S.D.N.Y. June 22, 2007) ("in employment litigation, the plaintiff is often a former or current employee of the defendant, and thus, by lending his name to the litigation, he has, for the benefit of the class as a whole, undertaken the risk of adverse actions by the employer or co-workers"); Clark, 2010 WL 1948198, at *9; McMahon, 2010 WL 2399328, at *8-9; Khait, 2010 WL 2025106, at *9; Roberts v. Texaco, Inc., 979 F. Supp. 185, 200 (S.D.N.Y. 1997) ("The guiding standard in determining an incentive award is broadly stated as being the existence of special circumstances including the personal risk (if any) incurred by the plaintiff-applicant in becoming and continuing as a litigant, the time and effort expended by that plaintiff in assisting in the prosecution of the litigation or in bringing to bear added value (e.g., factual expertise), any other burdens sustained by that plaintiff in lending himself or herself to the prosecution of the claims, and, of course, the ultimate recovery.").
"Incentive awards . . . are within the discretion of the court." Frank v. Eastman Kodak Co., 228 F.R.D. 174, 187 (W.D.N.Y. 2005) (discussing service awards in a Rule 23 class action settlement). In examining the reasonableness of service awards, courts consider: (1) the personal risk incurred by the named plaintiff; (2) time and effort expended by the named plaintiff in assisting the prosecution of the litigation; and (3) the ultimate recovery in vindicating statutory rights. See id. Here, the named Plaintiff satisfies all three factors.
First, in this settlement on behalf of a Rule 23 class, the named Plaintiff agreed to bring the action in his name, to be deposed and to testify if there was a trial. In so doing, he assumed the risk of retaliation. See Frank, 228 F.R.D. at 187 (Incentive awards are "particularly appropriate in the employment context . . . [where] the plaintiff is often a former or current employee of the defendant, and thus, by lending his name to the litigation, he has, for the benefit of the class as a whole, undertaken the risk of adverse actions by the employer or co-workers"); Silberblatt v. Morgan Stanley, 524 F. Supp. 2d 425, 435 (S.D.N.Y. 2007) ("A class representative who has been exposed to a demonstrable risk of employer retaliation or whose future employability has been impaired may be worthy of receiving an additional payment, lest others be dissuaded.").
Even where there is not a record of actual retaliation, notoriety, or personal difficulties, class representatives merit recognition for assuming the risk of such for the sake of absent class members. See Frank, 228 F.R.D. at 187-88 ("Although this Court has no reason to believe that Kodak has or will take retaliatory action towards either Frank or any of the plaintiffs in this case, the fear of adverse consequences or lost opportunities cannot be dismissed as insincere or unfounded.") Today, the fact that a plaintiff has filed a federal lawsuit is searchable on the internet and may become known to prospective employers when evaluating the person.
Second, the named Plaintiff should be awarded service payments for the work he undertook on behalf of the class members. He assisted with the preparation of the complaints, provided counsel with relevant documents in their possession and assisted counsel in the investigation of his claims. The named Plaintiff was deposed by defendant Holdco. Courts recognize the important factual knowledge that named plaintiffs bring to employment class actions, including information about employer policies and practices that affect compensation. See Frank, 228 F.R.D. at 187-88 (recognizing the important role that class representatives play as the "primary source of information concerning the claims[,]" including by responding to counsel's questions and reviewing documents).
Last, the amount of the service awards agreed to by the parties is consistent and reasonable with awards given in WARN class actions in bankruptcy court. Mochnal v. EOS Airlines, 08-08279-ASH (Bankr. S.D.N.Y) (awarding $ 15,000 service payment to the class representative in settlement fund comprised of $350,000 cash plus 35% of general unsecured distributions on behalf of 375 class members); Binford v. First Magnus Capital, Inc., 08—bk-01494-GBN (Bankr. D. Ariz. 2010) (awarding eight class representatives service payments of $7,500 from settlement fund of $2.6 million cash plus $2.9 million contingent proceeds); Updike v. Kitty Hawk Cargo, Inc., Case No. 07-04179 (Bankr. N.D. Tex. 2007) (awarding $10,000 service payments to two class representatives in a settlement of $1.4 million on behalf of a certified class of 392 members); Bridges v. Continental AFA Dispensing Co., Case No. 08-45921 (Bankr. E.D. Mo. 2008) (awarding $10,000 service payment to class representative in a class settlement of $1.5 million for approximately 325 employees); Aguiar v. Quaker Fabric Corporation, Case No. 07-51716 (Bankr. D. Del. 2007) ($15,000 service payment to class representative on behalf of a certified class of 900 for $1 million).
In this case, the Class Representative performed important services for the benefit of the class. In addition to incurring the risks inherent in serving as named plaintiff, he provided information during interviews regarding the structure of the company, the jobs and compensation of themselves and others, the physical locations he worked at and other locations he were aware of, the integration of the parent and subsidiary companies and their businesses, and the events surrounding their termination and demise of the company. He produced relevant documents and materials, and worked with Class Counsel throughout the case. Accordingly, the $10,000 payment is appropriate and justified as part of the overall Settlement in light of their services to and risks taken on behalf of the Class. Moreover, the Trustee does not oppose this proposed award of service payments to the Class Representative. D. Under the Settlement Agreement , Class Counsel is entitled to a reasonable fee of one third of the Settlement Proceeds .
In addition to their service payments, the Class Representatives will be authorized to participate in the settlement as Class Members.
Counsel for a class is entitled to be paid a fee out of the common fund created for the benefit of the class. Fed. R. Civ. P. 23(h); Boeing Co. v. Van Gemert, 444 U.S. 472, 478-79 (1980) (The Supreme Court has consistently recognized the common fund doctrine to permit attorneys who obtain a recovery for a class to be compensated from the benefits achieved as a result of their efforts); Blum v. Stenson, 465 U.S. 886, 900 n. 16 (1984) (Calculation of fees based on the common-fund doctrine is based on a percentage of the common fund recovered). An award of attorney fees is committed to the sound discretion of the district court.
In the Second Circuit, the trend is to use the percentage-of-recovery method for class counsel fee awards in common fund cases, and one-third has been held to be a "fair and appropriate award." Stefaniak v. HSBC Bank USA, N.A., 2008 U.S. Dist. LEXIS 53872, at *9-10 (W.D.N.Y. June 28, 2008). In class settlement funds like this one, courts prefer to award fees as a share of the fund. Strougo ex rel. Brazilian Equity Fund, Inc. v. Bassini, 258 F. Supp. 2d 254, 261-62 (S.D.N.Y. 2003) (collecting cases); In re NASDAQ Market-Makers Antitrust Litigation, 187 F.R.D. 465, 483-85 (S.D.N.Y. 1998) (collecting cases).
Regarding the "percentage of the award method." The court stated in Frank v. Eastman Kodak Co.:
Under the percentage method, the court awards counsel a percentage of the total award received by the plaintiff. To calculate the percentage, the court considers the effort expended and risks undertaken by plaintiffs' counsel and the results of those efforts, including the value of the benefits obtained for the class.228 F.R.D. at 188 (citations omitted).
In class settlement funds like this one, a one-third award of the settlement proceeds is considered typical and reasonable. In finding one-third to be reasonable, the Stefaniak court noted that a one-third award is "typical in class action settlements in the Second Circuit," and that "[t]he attorneys' fees requested were entirely contingent upon success. Proposed Class Counsel risked time and effort and advanced costs and expenses, with no ultimate guarantee of compensation." Id. See also, Gilliam v. Addicts Rehabilitation Center Fund, 2008 U.S. Dist. LEXIS 2301614 (S.D.N.Y. Mar. 24, 2008) (court found the one-third award to be reasonable without engaging in a lodestar cross-check, stating that an award of one-third "is consistent with the norms of class litigation in this circuit"); Strougo, 258 F. Supp. 2d at 262 (finding reasonable an award of one-third the common fund valued at over $1.5 million); In re Blech Sec. Litig., No. 94-CV-7696, 2002 U.S. Dist. LEXIS 23170 (S.D.N.Y. Dec. 4, 2002) (the court approved a one-third attorneys' fees award stating that it was consistent with awards in similar cases); Adair v. Bristol Tech Sys., No. 97-CV-5874, 1999 U.S. Dist. LEXIS 17627 (S.D.N.Y. Nov. 16, 1999) (court noted the trend towards applying the percentage method and found one-third award reasonable and consistent with percentage awards in recent decisions); Frank, 228 F.R.D. at 188 (court granted a fee request of 40%, recognizing that it is "[t]he trend in the Second Circuit," and "directly aligns the interests of the class and its counsel and provides a powerful incentive for the efficient prosecution and early resolution of the litigation") (citing Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 121 (2d Cir. 2005)).
The Court finds that the award of a fee of one-third of the common fund is appropriate. See Mochnal v. EOS Airlines, Inc., Case No. 08-08279 (Bankr. S.D.N.Y. 2008)(awarding attorneys' fees of 33 1/3% of settlement of approximately $1.7 million); Rasheed v. American Home Mortgage Corp., Case No. 07-51688 (Bankr. D. Del. 2007) (awarding undersigned co-class counsel a fee of 33 1/3% of the settlement fund of $6.5 million); Binford v. First Magnus Capital, Inc., 08 - bk-01494 - GBN (Bankr. D. Ariz. 2010) (despite Ninth Circuit attorneys' fees benchmark of 25%, awarding attorneys' fees of 33 1/3% of settlement of $2.6 million case and $2.9 million contingent proceeds); Updike v. Kitty Hawk Cargo, Inc., Case No. 07-04179 (Bankr. N.D. Tex. 2007) (awarding attorneys' fees of 33 1/3% of $1.4 million); Bridges v. ContinentalAFA Dispensing Co., Case No. 08-45921 (Bankr. E.D. Mo. 2008)(awarding attorneys' fees of 33 1/3% of $1.5 million); Johnson v. First NLC Financial Services, LLC, Case No. 08-01130 (Bankr. S.D. Fla. 2008)( awarding attorneys' fees of 33 1/3% of $400,000); and Aguiar v. Quaker Fabric Corporation, Case No. 07-51716 (Bankr. D. Del. 2007) (awarding attorneys' fees of 33 1/3% of $1 million). And in more than 30 WARN actions class counsel was awarded a one-third fee.
See, e.g. In re Consolidated Freightways Corporation, Case No. 02-24284-MG (Bankr. C.D. Cal.); Powell v. Creighton Incorporated, Case No. 1:01CV779 ( M.D.N.C.); In re CTC Communications Group, Inc., Case No. 02-12873 (PJW) (Bankr. D. Del.); Madley v. Florida Cypress Gardens, Inc., Case No. 8:03-CV-00795-T-17TBM (M.D. Fla.); In re Dollar Land, Inc., Case - No. 02-14547 (Bankr. E.D.Pa); Johnson v. GMAC Mortgage Group, Inc., Case No. C04-2004-LRR, (D. N.D. Iowa); Morris v. Greenwood Mills. Inc., Civil Action No. 8:02-221-24, (D. S.C.); In re Inacom Corp, Case No. 00-2426 (PJW) (Bankr. D. Del.); Teligent, Inc., Case No.: 01-12974 (SMB) (S.D.N.Y.); Bandel v. L.F. Brands Marketing, Inc., Civil Action No. 04 CV 1672 (CSH) (S.D.N.Y.); Baker v. The National Machinery Company, Case No. 3:02CV7444 (N.D. Ohio); Deninno v. PennAmerican Coal Company, L.P., Civil Action No. 03-0320 (D. W.D. Pa.); In re Pliant Systems, Inc., Case No. 01-01264-5 ATS (Bankr. E.D.N.C.); Adkins v. Pritchard- Brown, Case No. 5:03CV129-OC 10 GRJ, (M.D. Fla.).; Gibson v. Sonic Foundry, Incorporated, Case No.CV-03-4062 SVW (C.D. Cal.); In re Thomaston Mills, Inc., Case No. 01-52544 (RFH) (Bankr. M.D. Ga); Ballentine v. Triad International Maintenance Corporation, Case No. 0 1-1 0357 (E.D. Miss.); Trout v. Transcom USA, Case No. 1 :03-cv-0537-LJM-WTL, (S.D. Ind.); Padgett v. Wireless Retail, Inc., Case No. CV04-1170 PHX-SR, (D. Ariz.). --------
In evaluating attorneys' fees, courts in the Second Circuit are guided by the six factors articulated in Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 50 (2d Cir. 2000), which are:
a. the time and labor expended by counsel;
b. the magnitude and complexities of the litigation;
c. the risk of litigation . . .;
d. the quality of representation;
e. the requested fee in relation to the settlement; and
f. public policy considerations.Id., at 50 (quotations omitted).
All of the Goldberger factors weigh in favor of granting approval of Proposed Class Counsel's attorneys' fees and expenses.
(i) Class Counsel's Time and Labor
Although the parties settled relatively early in the litigation process, Class Counsel nonetheless devoted a substantial amount of time and energy to the case. Class Counsel was called upon by Steve & Barry's employees on the day the layoffs began, and Class Counsel spoke to many of them in order to advise them concerning pay, benefits and other issues, including their WARN Act rights. Class Counsel investigated the facts concerning the scope of locations of the layoff by speaking with dozens of Steve & Barry's employees who called for advice from the affected sites. Many signed individual retainer agreements with Class Counsel on a contingency fee basis.
After filing the Complaints in District Court, and then Bankruptcy Court, Class Counsel moved jointly with the defendants to remove the reference. Defendants moved twice to dismiss the action on Rule 12(b)(6) grounds, resulting in two orders of this Court. Class Counsel also moved for class certification before this Court prior to the conversion to Chapter 7.
Besides serving discovery on the defendants, Class Counsel reviewed more than 10,000 pages of documents and deposed four witnesses in preparing this case in discovery, in addition to defending the deposition of the named Plaintiff.
The settlement negotiations between Trustee's predecessor, the Chapter 11 debtor, and the Trustee were, together, protracted and conducted in good faith and at arms' length. These negotiations involved the exchange of their respective legal theories and research, and the exchange of a multitude of settlement proposals via telephone and mail, when initial negations were unsuccessful, before an agreement was ultimately reached.
Following a review and analysis of the documents produced and answers to interrogatories, and applicable law, the parties concluded that in order to avoid the cost and uncertainty of lengthy litigation and the delay incident to that litigation, it was in the best interests of the Trustee, other creditors and the Plaintiff and putative class to seek to settle to the WARN claims on behalf of the members of the Class.
In furtherance of negotiations, Class Counsel and the Trustee, compiled and vetted of the list of Class Members, investigated and evaluated the benefits and compensation of the class members, and structured a feasible settlement within the parameters of the Chapter 7 estate given its limited resources and the uncertain outcomes of the claim fixing and liquidation process. Due to the limitations of the personnel data kept by the company, Class Counsel did mailings and made hundreds of telephone calls in order to gather information in order to determine the number of eligible class participants who worked at the Ohio distribution center of Holdings.
The requested attorney fee is not based solely on time and effort already expended; rather, it is meant to compensate Class Counsel for all of the time it has spent and will be required to spend taking part in administering the settlement in the future. Administering class settlements of this nature and size requires a substantial and ongoing commitment of time. For example, many of the class members who have received notice of the proposed settlement will have questions regarding the terms of the settlement and their inclusion in the class.
(ii) Magnitude and Complexity of the Litigation
As to the size of the class and the recovery, the Class consists of about 300 members and the recovery is an allowed $900,000 priority claim. This case was complex because it involved mixed questions of fact and law. When a case involves questions of both fact and law, the case is inherently more complex and weighs in favor of granting the requested attorneys' fees. See Frank, 228 F.R.D. at 189 (noting that mixed questions of fact and law increase the complexity of a case). For example, in its answer, the Debtors denied the material allegations of the Complaint and asserted various affirmative defenses including the "unforeseeable business circumstances" defense, the "faltering company" defense. The "unforeseeable business circumstances" exception to the WARN Act's 60-day notice requirement allows reduced notice, but the employer must prove that the plant closing or mass layoff was the result of business circumstances that were not reasonably foreseeable at the time 60 days notice would have been required. 29 U.S.C. § 2102(b)(2)(A).
(iii) Risk of Litigation
"Courts of this Circuit have recognized the risk of litigation to be 'perhaps the foremost factor to be considered in determining the award of appropriate attorneys' fees.'" Taft, 2007 WL 414493 at *10 (quoting In re Elan Sec. Litig., 385 F. Supp. 2d 363, 374 (S.D.N.Y. 2005)). Indeed, "[t]he risk of success in the litigation effort may be the most important factor to be considered in determining a reasonable attorneys' fee." Hicks, 2005 WL 2757792 at *9 (citing In re Global Crossing, 225 F.R.D. at 467). In this case, both liability and damages were contested by the Chapter 11 Debtor and the Trustee and there was no guarantee of (1) class certification, (2) ultimate recovery, or (3) collectability of an award due to the Debtor's bankruptcy. Plaintiff bore the burden of ultimately demonstrating to the Court that a group of employees existed with common questions of law and fact such that the case could be maintained as a Rule 23 class action.
Large-scale WARN Act cases may be complicated and time-consuming. A lawyer undertaking representation of large numbers of affected employees in WARN Act actions often invests a great deal time, energy and resources. Due also to the contingent nature of the customary fee arrangement, lawyers must be prepared to make this investment despite the possibility of an unsuccessful outcome and no fee of any kind. Given the Debtor's bankruptcy, there is a real possibility that Class Counsel would prevail on liability, be awarded an allowed claim, which would be uncollectible because the estate is insolvent.
The risk of non-payment at the outset was substantial as it was not known at that time whether a class would be certified and whether there would be sufficient funds available to pay these claims. In addition, the risk of non-payment was increased by the defenses that the Debtors and Trustee asserted.
Proposed Class Counsel stood to gain nothing in the event the case was unsuccessful. The fact that much of the settlement will be funded from the collection of accounts receivables and preference actions, and that there is little or expected payment to the general unsecured creditors, is further support for the substantial risk of non-payment had the litigation continued. Because Class Counsel took an a significant risk to bring about this favorable settlement, the Court grants the requested attorneys' fees.
(iv) Quality of Representation
"To determine the 'quality of the representation,' courts review, among other things, the recovery obtained and the backgrounds of the lawyers involved in the lawsuit." Taft v. Ackermans, 2007 U.S. Dist. LEXIS 9144, at *28 (S.D.N.Y. Jan. 31, 2007) (citing In re Global Crossing, 225 F.R.D. at 467).
Here, that Class Counsel has effectively managed the litigation and brought it to a favorable conclusion for the Class. Class Counsel has substantial experience in prosecuting large scale class and collective actions on behalf of employees and, specifically, WARN Act class actions such as this one. Class Counsel was retained by the Class Representatives based on the firm's experience, expertise, and willingness to expend the time necessary to litigate this case. These facts support a finding that this factor is satisfied.
Moreover, the amounts allocated to each Class Member under the Settlement are significant. Class Members on average stand to receive approximately $3,500 in settlement of their alleged WARN damages if the Allowed Claim is satisfied in full. In light of the legal and factual complexities of this case, this is a favorable settlement for Class Members. Moreover, these amounts are available to Class Members without the uncertainty of trial, and are being delivered through this Settlement rather than through additional and potentially lengthy litigation, further establishing the quality of Class Counsel's representation.
Finally, as noted above, the Class Representative supports the Settlement and no Class member has opted out of the Settlement or otherwise objected.
(v) Fee in Relation to the Settlement
"As the size of the settlement fund increases, the percentage of the fund awarded as fees often decreases so as to prevent a windfall to plaintiffs' attorneys." Hicks, 2005 WL 2757792 at *9 (citation omitted). New York courts routinely award fee percentages around thirty percent in cases with settlement funds substantially larger than this case. See Hicks, 2005 WL 2757792 (awarding 30% fee from a $10 million fund); Maley v. Del Globals Technologies. Corp., 186 F. Supp. 2d 358, 370 (S.D.N.Y. 2002) (awarding 33 1/3% fee on fund valued at $11.5 million); In re Warnaco Group, Inc. Sec. Litig., No. 00 Civ. 6266, 2004 WL 1574690 at *3 (S.D.N.Y. July 13, 2004) (awarding 30% fee on a $12.85 settlement); Taft, 2007 WL 414493 at *10 (awarding 30% fee on a $15 million settlement) (collecting cases holding same).
Thus, Class Counsel's one-third fee is not an uncommon share of the Fund. The cases above granted a fee in this percentage range, and involved substantially higher settlement funds. This Court accordingly finds that Class Counsel's requested attorneys' fees are reasonable.
As to the percentage likely to have been negotiated between private parties in a similar case, Class Counsel did negotiate and were retained by the Class Representative and approximately 300 other former employees of the Debtor on a one-third contingency basis, plus expenses. Class Counsel has been consistently retained in other WARN class actions on a one-third contingency basis.
Public policy weighs in favor of granting Class Counsel's requested fees. As outlined above, but for the work of Class Counsel and their willingness to bear the entire risk of bringing this litigation to fruition, Class Members likely would receive nothing on their claims. The WARN Act is a remedial statute designed to protect the rights of employees. Local Union 7107 v. Clinchfield Coal Co., 124 F.3d 639, 640 (4th Cir. 1997) ("Because WARN is remedial legislation, its exceptions are construed narrowly") (citations omitted); Washington v. Aircap Industries, Inc., 860 F. Supp. 307, 315 (D. S.C. 1994) (holding that because WARN is remedial, exceptions to its application "are to be narrowly constructed") (citations omitted); Bradley v. Sequoyah Fuels Corp., 84 F. Supp. 863, 867 (E.D. Okla. 1994) ("WARN is a remedial statute and must be broadly construed."). Fair compensation for attorneys who take on such litigation furthers the remedial purpose of such statutes. Moreover, awarding Class Counsel's requested percentage of the fund encourages prompt and efficient resolution of class litigation such as this. See, Swedish Hospital Corp. v. Shalala, 1 F.3d 1261, 1268 (D.C. Cir. 1993).
Each of the factors to be weighed in considering a fee request favor the award of one-third of the WARN Component.
(vi) Reasonableness of Requested Attorneys' Fees
The payment of attorneys' fees as provided by the Settlement Agreement is reasonable. The Agreement provides that Class Counsel is entitled to one-third of the common fund after deduction of legal costs, subject to the Court's approval, which is consistent with the norms of class litigation in this circuit. See Gilliam v. Addicts Rehab. Ctr. Fund, 2008 U.S. Dist. LEXIS 23016 (S.D.N.Y. Mar. 24, 2008); Strougo ex rel. Brazilian Equity Fund, Inc., 258 F.Supp.2d 254, 262 (S.D.N.Y. 2003) (33 1/3% of settlement fund approved for attorneys' fees); In re Blech Sec. Litig., No. 94 Civ. 7696, 2002 WL 31720381, at *1 (S.D.N.Y. Dec. 4, 2002) (33 1/3% of settlement fund approved for attorneys' fees, plus costs); Adair v. Bristol Technology Sys., No. 97 Civ. 5874, 1999 WL 1037878, at *4 (S.D.N.Y. Nov.16, 1999) (33% of settlement fund approved for attorneys' fees, plus costs); Cohen v. Apache Corp., No. 89 Civ. 0076, 1993 WL 126560, at *1 (S.D.N.Y. Apr. 21, 1993) (33 1/3% of settlement fund approved for attorneys' fees); In re Gulf Oil/Cities Service Tender Offer Litigation, 142 F.R.D. 588, 596-597 (S.D.N.Y. 1992) (33 1/3% of settlement fund approved for attorneys' fees); In re Avon Prods. Inc., Sec. Litig., No. 89 Civ. 6216, 1992 WL 349768, at *3 (S.D.N.Y. Nov. 6, 1992) ("The request for 30% is in line with numerous awards in this Court and elsewhere in recent litigation."); In re Crazy Eddie, 824 F. Supp. 320, 326 (E.D.N.Y. 1993) (33.8% of settlement fund approved for attorneys' fees, plus costs). All the Goldberger factors justify granting Class Counsel's requested fees as reflected in the Agreement.
(vii) The Reaction of the Class
The reaction of the class can be ascertained through the number of opt-outs or objections received following notice to the class. Craft v. County of San Bernardino, 624 F. Supp. 2d at 1122. As already indicated, there have been no opt-outs or other objections. This positive reception weighs strongly in favor of approval of the requested fee. E. The Settlement is Finally Approved
Federal Rule of Civil Procedure 23(e)(1)(C) provides that,
The court may approve a settlement, voluntary dismissal, or compromise that would bind class members only after a hearing and on finding that the settlement, voluntary dismissal, or compromise is fair, reasonable, and adequate.
In Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974), the Second Circuit articulated the nine factors that are to be weighed in determining whether a settlement should be approved as fair reasonable and adequate to class under Federal Rule of Civil Procedure 23(e)(1)(C) as follows:
• The complexity, expense and likely duration of the litigation.
• The reaction of the class to the settlement.
• The stage of the proceedings and the amount of discovery completed.
• The risks of establishing liability.
• The risk of establishing damages.
• The risk of maintaining the class action through trial.
• The ability of the defendants to withstand a greater judgment.
• The range of reasonableness of the settlement fund in light of the best possible recovery.Id. at 157.
• The range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risk of litigation.
The settlement is approved pursuant to Bankruptcy Rule 9019 as set forth above, and is also also be approved as fair, reasonable and adequate to the Class under the nine factors enumerated by the Second Circuit, for the following reasons:
• As set forth previously above, the litigation would have been complicated, protracted and expensive, thereby depleting the Debtors' estates and delaying and diminishing distributions to the creditors, including Class Members.For all these reasons, the Settlement is approved as fair, reasonable and adequate to the Class.
• The Plaintiff, as Class Representative, supports the Settlement and the other Class Members will have had a favorable reaction to the Settlement.
• The Settlement was reached after the essential facts had been thoroughly investigated by Class Counsel through interrogatories, document requests, interviews of witnesses, and the informal exchange of legal and factual theories with counsel.
• The Settlement is well within the range of reasonableness given the uncertainty of establishing liability and the ability to recover against a bankrupt employer.
For the reasons set forth above, the Court grants the motion for an order granting final approval of the proposed Settlement, including attorneys' fees in the amount of 33 1/3% of the remaining balance of the Settlement Fund after reimbursement of these expenses and payment of any awards to the Class Representatives; and awards to Class Representative for their services in prosecuting the Action, as set forth in the Settlement Agreement. Dated: October 28, 2011
U.S.D.J. BY ECF TO ALL COUNSEL