UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
In Re: DEPARTMENT OF VETERANS :
AFFAIRS (VA) DATA THEFT :
LITIGATION :
______________________________ : Misc. Action No. 06-0506 (JR)
: MDL Docket No. 1796
This Document Relates To: :
ALL CASES :
MEMORANDUM
In May 2006, burglars stole a laptop and an external
hard drive from the home of an employee of the Department of
Veterans Affairs. The external hard drive contained the names,
dates of birth, and Social Security numbers of some 26.5 million
veterans and their spouses. Affected veterans brought three
separate federal class action suits, alleging violations of the
Privacy Act, the Administrative Procedure Act, and the Fourth and
Fifth Amendments.
In November 2006, the Judicial Panel on Multidistrict
Litigation transferred the three suits to this Court for
consolidated proceedings. I dismissed all claims except the
Privacy Act claim, Dkt. 30, and referred the case to Magistrate
Judge Alan Kay for mediation. With Judge Kay’s able assistance,
the parties reached a settlement agreement, which I approved
preliminarily earlier this year. Dkt. 54.
The agreement creates a $20 million fund. Class
members can submit claims for 100 percent of their out-of-pocket
because of the hard drive theft. Eligible claimants receive a
minimum reimbursement of $75 and can receive a maximum of $1,500.
After valid claims are paid out, and attorneys’ fees and other
expenses are deducted, the money remaining in the fund will be
split equally between two cy pres recipients, the Intrepid Fallen
Heroes Fund and the Fisher House Foundation, both not-for-profit
charitable organizations that help military personnel, veterans,
and their families.
At the hearing on the parties’ joint motion for final
approval of the settlement, I asked for additional briefing on
two issues: the request of plaintiffs’ attorneys that I award
them 25 percent of the common fund ($5 million) in fees, and
their request that I require the sole objector to the settlement,
Tere Lawyer, to post an appeal bond that secured their attorneys’
fees and expenses.
A. Attorneys’ fees
An award of attorneys’ fees must be reasonable in light
of the results obtained. Hensley v. Eckerhart, 461 U.S. 424, 440
(1983). In a case such as this one, where the settlement
agreement creates a common fund against which individual
plaintiffs may make claims, I must “act as fiduciary for the
beneficiaries (who are paying the fee) . . . because few, if any,
of the action’s beneficiaries actually are before the court at
the time the fees are set,” and because “there is no adversary
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process that can be relied upon in the setting of a reasonable
fee.” Court Awarded Attorney Fees, Report of the Third Circuit
Task Force, 108 F.R.D. 237, 251 (1985).
In this Circuit, the “percentage-of the fund method
[rather than the lodestar method] is the appropriate mechanism
for determining the attorney fees award in common fund cases.”
Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 1271 (D.C. Cir.
1993). The question presented by the somewhat unusual facts of
this case is whether the fee should be a percentage of the total
common fund ($20 million) or of the funds that actually go to
class members. In support of the latter approach, the objector,
Mrs. Lawyer, notes that, as of the final fairness hearing this
July, only 2100 reimbursement claims had been filed with the
common fund administrator. Fairness Hearing Tr. (July 28, 2009),
at 11. Even if claims were to double before the claims period
ended, and the average claim were for $500 -- both generous
suppositions for the plaintiffs’ attorneys -- the class members
would only claim $2.1 million. Mrs. Lawyer argues that it would
be unfair to let the attorneys walk away with more than twice
what the individual class members would receive collectively.
She also submits that limiting the attorneys to a percentage of
actual claim would create an incentive for the attorneys and
their administrators to ensure that the class members receive as
much money as possible.
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Mrs. Lawyer’s arguments have intuitive appeal, but they
go against the weight of the relevant precedent. As Professor
William B. Rubenstein explains in his declaration accompanying
the plaintiffs’ briefing, the national trend, and the trend in
this Circuit, is toward awards that represent a percentage of the
total common fund, even when some portion of that fund will go to
a cy pres beneficiary. See Dkt. 75, Ex. 2, at nn.18-19 (citing
cases). Professor Rubenstein identifies three bases for this
approach:
First, courts reason that the efforts of
counsel created the entire fund and made it
available to the class. Second, courts
reason that the class itself benefits from
the cy pres award, as in this case, [where]
the veterans’ service organizations receiving
the cy pres funds provide services that the
members of the class would generally be
eligible to receive. Third, and more
generally, the primary purpose of small
claims class actions is not individual
plaintiff compensation but rather aggregate
deterrence of the defendant’s activities.
Compensation is not a primary goal because
each class member has been harmed such a
small amount that getting those funds to them
may be inefficient and/or class members are
unlikely to spend time coming forward to
claim such small amounts. However, the
aggregate effect of the defendant’s actions
may be significant and need to be deterred.
Creating a fund that truly penalizes the
defendant by fully disgorging a significant
amount of money serves this deterrent effect
regardless of where the funds are sent.
Id. ¶ 26.
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Professor Rubenstein does not have or cite to examples
of cases like this one, however, in which it seems likely that
the cy pres fund will turn out to have been by far the largest
component of the total fund. That factors, it seems to me,
should affect the selection of the percentage of the common fund
that should be set aside for the attorneys.
The majority of fee awards nationally appear to fall in
a range of 20 percent to 30 percent of the common fund. See
Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1050 n.4 (9th Cir.
2002), cert. denied, 537 U.S. 1018 (2002) (summarizing fees
awarded in 34 common fund settlements from 1996-2001); see also
Federal Judicial Center, Manual for Complex Litigation, Fourth
§ 14.121, at 188 (2004). Fees in this Circuit mirror the
nationwide numbers. See, e.g., In re Lorazepam & Clorazepate
Antitrust Litig., 2003 WL 22037741 (D.D.C. June 16, 2003) (30%
fee); In re Baan Co. Sec. Litig., 288 F. Supp. 2d 14, 17 (D.D.C.
2003) (28% fee); Swedish Hosp. Corp, 1 F.3d at 1272 (20% fee).
Plaintiffs’ attorneys’ request for 25 percent of the
common fund falls squarely within the standard range, but, as
noted above, this is not a standard common fund. The cy pres
contribution will likely dwarf the amount paid to class members.
It will benefit two worthy charities, but charities that do not
deal explicitly or exclusively with identity theft (or anxiety
about identity theft, or protection from identity theft). Here,
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I believe the proportional size of the cy pres contribution
counsels an award that is at the low end, or even below the low
end, of the standard range.
The Third Circuit has “suggested that district courts
cross-check the percentage award at which they arrive against the
‘lodestar’ award method,” to determine whether the percentage
award roughly reflects the time and expertise the attorneys
invested in the case. Gunter v. Ridgewood Energy Corp., 223 F.3d
190, 195 n.1 (3d Cir. 2000). An award of the requested 25
percent of the common fund would be $5 million -- almost three
times class counsel’s lodestar ($1.8 million) as of June 30,
2009. See Dkt. 61, at 21 n.48. There is no consensus about when
a multiplier is too high, but Judge Ginsburg has observed that an
award of more than three times the lodestar is enough to raise
some eyebrows. Swedish Hosp. Corp., 1 F.3d at 1273 (Ginsburg,
J., concurring in part and dissenting in part).
In this case, given the complexity of the issues, the
risk the attorneys assumed in taking the case on a contingency
basis, the result they secured for their clients, and the
peculiar balance between the return to class members and the size
and nature of the cy pres contribution, I find that an attorneys’
fee award of $3.6 million -- about two times the lodestar and
about 18 percent of the common fund -- is sufficient.
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B. Appeal bond
While the plaintiffs may be correct that I have the
authority to require a substantial appeal bond to secure the
costs of appeal, see Marek v. Chesny, 473 U.S. 1 (1985), I see no
reason to exercise that authority at this time.
* * *
The parties’ joint motion [#60] for final approval of
the class action settlement is granted, except as noted herein.
Counsel are instructed to submit a revised form of order and
final judgment (see #61-2) that is consistent with this
memorandum.
JAMES ROBERTSON
United States District Judge
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