The Alabama Supreme Court recently vacated a substantial $124 million attorneys’ fee award in connection with a class action settlement (Lawler v. Johnson et al., No. 1151347, — So. 3d –, 2017 WL 4707517 (Ala. Oct. 20, 2017)). Lawler sets some important guideposts for attorneys’ fees in future class settlements in Alabama. The opinion also establishes that settlement objectors need not intervene as parties to have standing to appeal denial of objections. Litigants considering settlement of a class case, and their counsel, should take note.

Background

Lawler involved a claim arising out of the settlement of securities fraud litigation in 1999. The plaintiffs in the Lawler case alleged that the class in the earlier securities litigation was defrauded because the defendant and its insurer did not accurately disclose the amount of insurance available to settle the case. The Lawler litigation ultimately resulted in a $310 million class action settlement in May of 2016 that included an award by the trial court of fees to class counsel in the amount of 40 percent of the recovery, or $124 million.

A few more background facts are in order. The trial court’s preliminary approval order and “long-form” notice to class members that were posted to the settlement website (both approved by the trial court) provided that all objections to the settlement, including objections to class counsel’s fee request, had to be made in writing and on or before July 22, 2016. The order and long-form notice required class counsel to file their fee application by July 29, 2016, a week after the deadline for objections. The long-form notice advised only that class counsel would seek an attorney’s fee, to be paid out of the settlement proceeds, in an amount “not to exceed 40% of the settlement amount plus expenses not to exceed $3,000,000.”  No additional information about fees was disclosed prior to July 29, 2016, when class counsel filed their fee application requesting an award of 40 percent, or $124 million.

The “short-form” notice mailed to class members was inconsistent with the preliminary approval order and long-form notice with respect to the timing of objections. The short-form notice stated that class members could object to the settlement “by filing a written objection and/or by appearing at the settlement hearing.” The Supreme Court viewed this language as giving class members the option of doing either in order to timely object to any aspect of the settlement. No specific date for objections (other than appearance at the approval hearing) was set out in the short-form notice, though it did direct class members to the settlement website and long-form notice, which, as noted above, provided for a July 22 deadline for objections.

The schedule approved by the trial court and set out in the long-form notice required class members to make their objections to the fee request before class counsel was required to file their fee application. This meant that class members wanting to object to the fee request would have to do so without knowing the exact amount of the request, the amount of time expended by class counsel, or the nature of the work done by class counsel, and without having an opportunity to conduct discovery with respect to the fee request. Several objectors filed objections to the fee component of the settlement prior to the July 22 deadline. At least one objector filed an objection after the deadline and appeared at the approval hearing through his counsel. At the approval hearing, class counsel offered only generalized information regarding the time spent on the case and the specific work performed.

Following the approval hearing, the trial court approved the settlement as proposed, awarded class counsel the fees requested, and overruled all objections to the fee request. Several objectors appealed the attorney’s fee award to the Alabama Supreme Court.

The Ruling

The Supreme Court, in a lengthy opinion, overturned the trial court’s approval of the fee award and remanded for further proceedings.

• The Court held, first, that objectors need not have been intervenors (none of the appellants had sought to intervene as parties) to have standing to appeal the denial of their objections to a class settlement. In so doing, the Court adopted the rationale of the U.S. Supreme Court in Devlin v. Scardelletti, 536 U.S. 1 (2002), and applied that ruling to all class actions, not just to those in which class members do not have the right to opt out.
• Second, the Court held that objectors had the right to rely on the short-form notice, and that objections asserted at the fairness hearing could not be found untimely since that notice advised that class members could object “by filing a written objection and/or by appearing at the settlement hearing.” The significance of this holding is that ambiguities in and inconsistencies between various forms of notice given to class members will likely be construed in favor of objectors.
• Third, the Court held that it “is irregular and indeed unlawful” under the due process clause to require objections to class counsel’s fee request before the fee application is required to be filed. The Court rejected the argument that, because class members were told the award could be “up to 40%” of the settlement, they could have timely objected to the “expected request.”
• Fourth, the Court found that these procedural errors were not harmless, notwithstanding that objectors had full access to the filed fee application prior to the approval hearing and thus were able to respond to it at the hearing. The Court held that the time period between the filing of the fee application and the approval hearing (10 days or five business days) did not provide the objectors sufficient time to prepare their objections to the fee application. The Court noted that 10 days “surely borders on what due process requires.”
• Fifth, the Court also noted that the fee application did not provide specifics regarding the amount of time expended by class counsel and the nature of the work that was done. The court concluded that class members were entitled to this information before making their objections and that the trial court should consider the information in making its fee award.