California District Court Rejects FLSA Settlement Due to 78% Fee Award

by BakerHostetler

. . . but is the problem the courts’ use of percentages?

Without settlements, class action litigation would likely grind the work of our nation’s courts to a halt. One impediment, however, to settlement in many cases is the amount of attorney fees. Particularly in smaller cases, or cases involving relatively minor alleged violations (e.g. minimal off-the-clock-time), the fees may quickly dwarf the claimed amount of recovery. Thus, in a case with, say, an opt-in class of 50 employees claiming 15 minutes a day of off-the-clock time, the parties will face many of the expenses of class or collective litigation, but a relatively small potential recovery. And, what if discovery reveals that the off-the-clock time is really closer to 5 minutes, or may result in no recovery at all, i.e. where employees earn above the minimum wage and have no overtime even with the claimed unpaid minutes?

With that in mind, it’s easy to argue both ways about the decision in Villa v. United Site Services of California, Inc., Case No. 12-CV-00318-LHK (N.D. Cal. Nov. 27, 2013). In that case, the parties settled state and federal wage and hour claims involving claimed missed rest periods for a total of just short of $350,000. The plaintiffs’ attorney fees were $220,000, and they had an additional $50,000 or so in attorney expenses, leaving the class with only about $80,000, or 22% of the settlement funds.

The docket reflects that the case was aggressively litigated by both sides. The plaintiffs successfully requested conditional certification of the FLSA claim, and filed two motions (one successful) to certify all or a portion of the class under state law. There was also an apparently “testy” dispute, to put it politely, over company interviews of putative class members. Citing the Ninth Circuit’s 25% guideline, the district court rejected the settlement because 78% of the settlement fund was allocated to the attorneys’ fees and costs. 

But, setting percentages aside, did the plaintiffs’ attorneys earn a $220,000 fee? OK, it is a large percentage to be sure, but $220,000 also does not seem unreasonable given the work and successes by the plaintiffs’ attorneys. And, what if the $80,000 for the class was a fair estimate of the amounts they might have recovered had the case proceeded to trial?

This is one of the problems of using percentages as a yardstick for attorneys’ fees in class action litigation. At one extreme; litigated cases with relatively small amounts in dispute per claimant and complex issues in which set percentages may not be enough. At the other; larger cases with greater amounts that settle quickly that may result in a windfall. Of course, few courts analyze the reasons why a defendant might settle – including the ever-increasing costs of litigation holds, e-discovery, and its own attorney fees, but when a court refuses to approve a settlement on a percentage basis, both sets of parties become hostage to the litigation.

Class actions can be complicated things. So, too, their settlements. It’s easy to scoff at an award such as that sought in Villa (I did, too, before I started delving into the facts), but the real issue is whether, under the circumstances, the fee is reasonable. Percentages are easy, but they are a rough yardstick at best, particularly at the extremes.

The cynic’s bottom line: Courts should rely less on percentages to determine attorney fees in class action settlements than on reasonableness.

The more practical bottom line: Parties should support attorney fee awards in settlements with something more tangible than mere percentages.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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