Blawgletter®

Power to Veto Doesn't Equal Power to Pick Under PSLRA, Ninth Circuit Says

 
The case involved NVIDIA stock, which didn't do too well.

The Ninth Circuit chided a district court today for usurping a right that the panel held belongs to the "lead plaintiff" in cases under the Private Securities Litigation Reform Act of 1995 -- the right to choose counsel for the putative class.

The PSLRA, as you'll recall, all but directs district courts to award the lead plaintiff crown to the one that lost the most on his, her, or its securities investment due to the fraud.  The court may demur but only for excellent reasons -- as where the biggest loser has gone stark raving mad or lives in a prison cell due to his own financial shenanigans.

The statute also gives courts power to veto the lead plaintiff's choice of counsel for the class.

The district court in Cohen v. United States District Court, No. 09-70378 (9th Cir. Nov. 5, 2009), forgot that a veto doesn't divest the chooser of the right to select.  His Honor named two co-lead plaintiffs as well as two co-lead law firms.  Which seems fine.  But one of the co-lead plaintiffs objected on the ground that the court ignored his pick and appointed as one of the co-lead counsel a law firm he didn't want.  The court rejected his gripe.

The Ninth Circuit disagreed.  It held, on co-lead plaintiff Roberto Cohen's mandamus petition, that the district court lacked power to install its own choice of class counsel:

Although it cannot be contested that the district court had the authority to reject Cohen's choice of lead counsel, it does not follow that having done so it had the authority to select lead counsel of its own choosing.  This argument misses the fundamental point that the PSLRA unambiguously assigns this authority to the lead plaintiff.

Id., slip op. at 14917.

Blawgletter wishes to point out a bonus footnote in the court's opinion.  There the panel poked at an issue that "none of the parties raise" -- the question of whether the PSLRA allows more than one lead plaintiff.  "While the PSLRA allows a group to serve as lead plaintiff, it also consistentlly refers to the lead plaintiff and most adequate plaintiff in the singular, suggesting that the district court should appoint only one lead plaintiff, whether an individual or a group."  Id. at 14921 n.4.  Mmmmm.  Dicta.

Our feed picked a peck of pickled peppers.

Clients Must Pay Full Contingent Fee, En Banc Ninth Circuit Holds

 
Richard Burton, as Hamlet, fussed about "the law's delay". 

The Ninth Circuit spans a vastness on our spinning globe -- from Window Rock, AZ, to Merizo, GM; from Border Field State Park, CA, to Barrow, AK; plus a lot in between. 

The biggest U.S. court of appeals also claims, oh, nearly 30 circuit judges.

Let's not advert to the degrees of Their Honors' philosophical separation.

Today the court ruled in an en banc configuration (11 out of the nearly three dozen) that none of its 12 brethren/sisteren circuit courts would recognize as such (because all their judges sit together for their en banc sessions).  The mini-full-court held, by the thinnest of margins (six-to-five), that the district court erred as a matter of law (and fact) by awarding lawyers less (a lot less) than the 25 percent contingent fee their clients agreed to pay them for recovering Social Security payments from a stingy federal government.  Crawford v. Astrue, No. 06-55822 (9th Cir. Nov. 3, 2009) (en banc) (sort of).

Two of the judges limited their dissent to the factual part of the ruling.  They agreed with the majority that the district court erred (in the three cases before the court) when it started with the attorneys' lodestar -- hours x hourly rates -- instead of the fee contracts.  But they added that the court of appeals ought to have let the lower courts apply the right standard in the first instance. 

The other three judges dissented in toto, urging that the district courts' fact-findings about reasonableness of fees must prevail over the attorney-and-client's contract for a 25 percent rate.

Blawgletter notes that, in the newest of the three cases before the court, more than five years had passed since its filing.  The other two involved delays, respectively, of over eight and in excess of 10 years.

The trio of cases presented the question of how to balance the client's interest in keeping as much of the recovery as possible against her or his promise to pay 25 percent of that amount as an attorney's fee.  The lawyers asked for -- and, under the court's ruling, will receive -- less than the percentage their clients agreed on.  We see no injustice there.

The issue of whether the district court deserved to assess the facts, with more room than the majority allowed it, strikes us as worth talking about.  Judging consists at its core of doing a judge's best to get the law and facts right.

Did the magistrate judges do otherwise?  No.  But they did take an unduly stingy view of the weight the law gives to contingent fee contracts between lawyers and clients.  We agree with the Ninth Circuit's en banc correction of their mistake of the law.

Our feed wonders what light on yon window breaks.

Supremes Listen to Fee Fight

The U.S. Supreme Court today heard what "fiduciary" means for an investment adviser when it charges mutual funds more than institutional investors pay for similar services.  See Transcript, Jones v. Harris Assocs. L.P. , No 08-586 (U.S. Nov. 2, 2009).  Briefs here.

Blawgletter predicts a close decision -- probably by one vote -- in favor of mutual fund investors, who claim the adviser breached its fiduciary duty under section 36(b) of the Investment Company Act.

The system for setting fees looks odd to us.  Mutual funds come into the world through the will of a Fidelity, a Templeton, a Vanguard, or some other outfit that aims to make money by selling its investment advice.  The money-making part comes in the form of adviser fees, which the creator/sponsor more or less negotiates with mutual fund offspring.  An independent board must okay the pay. 

But can the board, however independent, guard against too-high fees ex post facto?  In 1970, Congress feared not.  It said "the investment adviser . . . shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services".  15 U.S.C. 80a-35(b).  Congress also created a cause of action to recover excessive fees.  And it provided that the board's clearing of the fees didn't end the inquiry but that the okay “shall be given such consideration by the court as is deemed appropriate under all the circumstances".  `15 U.S.C. 80a-35(b)(2).

The Justices grappled with the idea of a "fiduciary" duty that an independent board mediates but that a court may then review afresh.  Two of them -- Chief Justice Roberts and Justice Scalia -- vocally doubted the practicability of having judges second-guess board decisions.

Five others spoke more charitably about the excessive fee claim.  The petitioners, who lost in the district court and the Seventh Circuit, pointed out that the fees at issue far exceeded the fees that the same adviser charged its more savvy institutional investors for the same kinds of services.  Justices Breyer, GInsburg, Kennedy, Sotomayor, and Stevens seemed to want to give "fiduciary" more meaning than the courts below did.

AT&T Can't Beat Class by Offer to Lose $7,500 Penalty, Ninth Circuit Holds

Say you bought a cell phone.  Suppose the outfit that sold it to you said you'd get it for "free".  Say also the seller -- let's call it AT&T -- billed you 7.75 percent of what the phone would've cost if you'd purchased it at retail.  How would you feel about the freeness of the phone?

Not so good, Blawgletter guesses.  And yet the seller -- which we must still refer to as AT&T -- insists it did nothing wrong.

Alright.  Fine.  Okie dokie.

But AT&T takes things further.  It also adds to its contracts with customers like you a clause that bars you from suing on behalf of anyone else.  The attempt has worked in some states but seldom in federal court.

Which fact seems to have persuaded AT&T to add a sweetener, at least in the Golden State.  If you, the California customer, convince the arbitrator to award more than AT&T offered in settlement, you get a smacking $7,500.  But the district court and Ninth Circuit didn't accept the AT&T argument.  The latter said, in holding the class ban unconscionable under state law:

The $7,500 premium is available only if AT&T does not make a settlement offer to the aggrieved customer in a sum equal to or higher than is ultimately awarded in arbitration, and before an arbitrator is selected.  This means that if a customer files for arbitration against AT&T, predictably AT&T will simply pay the face value of the claim before the selection of an arbitrator to avoid potentially paying $7,500.  Thus, the maximum gain to a customer for the hassle of arbitratng a $30.22 dispute is still just $30.22. . . . As a result, aggrieved customers will predictably no file claims -- even if the odds are that after the letter-writing and arbitrator choosing they will get a $30.22 offer -- thereby "greatly reduc[ing] the aggregate liability" AT&T faces for allegedly mulcting small sums of money from many consumers.

Laster v. AT&T Mobility LLC, No. 08-56394, at 14397-98 (9th Cir. Oct. 27, 2009).

 Our feed admires the brevity of Circuit Judge Bea.

Supremes Will Hear Big Civil Cases Next Monday

The U.S. Supreme Court will hear arguments in a pair of key civil cases on November 2.  One involves a claim to recover "excessive" fees under the Investment Company Act of 1940, Jones v. Harris Assocs., No. 08-586; and the other concerns states' ability to bar class actions asserting state law claims in federal court, Shady Grove Orthopedic Assoc. v. Allstate Ins. Co., No. 08-1008.  The cases strike Blawgletter as leading indicators of how far the Court will go this Term in cutting back civil claims.  We'll listen with interest on Monday.

Second Circuit Revives Drug Monopoly Claims

DDAVP tablets help manage a form of diabetes.

Antitrust law seldom gets a boost in the federal courts any more.  Their Honors seem more afraid of the risk that ruling for the plaintiff hurts competition than of the danger that killing a case encourages anticompetitive conduct and deprive consumers of any remedy for it.  Fear of "false positives" beats worry about "false negatives".

The Second Circuit went against the trend last week.  In Meijer, Inc. v. Ferring B.V. (In re DDAVP Direct Purchaser Antitrust Litig.), No. 06-5525-cv (2d Cir. Oct. 16, 2009), the 3-0 panel upheld claims that the maker of an antidiuretic drug used an invalid patent to suppress competition from generic substitutes.  The court concluded that direct buyers of DDAVP (desmopressin acetate) had standing to sue under Sherman Act section 2, which bars monopolization and attempts to monopolize, and stated a viable section 2 claim.

The panel also dealt with a curious jurisdictional issue.  If an appeal raises a purely patent law issue, the Federal Circuit and only the Federal Circuit has authority to decide it.  The DDAVP panel noted that a key part of the monopolization claim -- that Ferring misused an invalid patent -- turned on patent validity, a core patent law issue.  But that didn't matter, the court held, because a sliver of the case didn't require proof of invalidity.  That piece asserted delay in getting generics to market due to Ferring's failure to withdraw a delay-causing petition with the Food and Drug Administration.

Supremes Debate Fees for Superb Work

Blawgletter has fussed before about judicial noticing of facts on the basis of wishful thinking.  Our prime targets have included the idea that class certification exerts "hydraulic pressure" for settlement and the notion that class actions involve little or no risk for plaintiffs' counsel.

Yesterday brought another instance -- although, with the decision pending and therefore in doubt, we can yet hope for a sensible outcome.

The case involved civil rights lawyers who did a world-class job against the State of Georgia.  The district court found for the plaintiffs and awarded their lawyers a fee above their "lodestar" -- hours times rates -- of around $6 million.  The Court heard argument on the Peach State's appeal from the award October 14.

We have court this morning and so can't give details on the back and forth but note, briefly, that the questions from several individual justices highlighted their inexperience with (a) working on a non-hourly basis, (b) representing plaintiffs, (c) how the market for legal services works in contingent fee settings, and (d) the imperfection of lodestars in reflecting a reasonable fee. 

One justice, for example, marveled that a law firm might pay a bonus, above hourly rates, for superior performance and results.  Another wondered how hourly rates could ever fail to capture the true value of lawyers' work.

The issue, as we understand it, turns on whether a "reasonable fee" means no more than the lodestar.  We tend to think Justice Sotomayor's questions aimed at the right answer.  If the market pays a premium for superior results, that premium reflects a reasonable fee.

JPML Adds Judge, Sprinkles Cases Across U.S.; Heading South?

The Judicial Panel on Multidistrict Litigation met in Richmond on September 24.  It has so far issued 19 orders -- 14 granting transfer and centralization of multidistrict cases and five not.

Blawgletter couldn't help noting that the Panel has lately added a seventh member -- bringing it (at last) back to full strength.  U.S. District Judge David G. Trager has sat in the Eastern District of New York since 1993.  He took senior status in 2006.

Judge Trager joins JPML Chairman John G. Heyburn, II (W.D. Ky.) and members Robert L. Miller, Jr. (N.D. Ind.), David R. Hansen (8th Cir.), Frank C. Damrell, Jr. (E.D. Cal.), Kathryn H. Vratil (D. Kan.), and W. Royal Furgeson, Jr. (N.D. Tex.).

The MDL Panel hasn't posted notice of its next hearing session, but Blawgletter expects the venue to wander southward (and likely palm tree-ward) as autumn marches towards winter.

The September session produced these rulings:

Transferred Litigations (.pdfs)

MDL No. 2084 -- IN RE: AndroGel Antitrust Litigation (No. II)  MDL No. 2085 -- IN RE: Air Crash Near Clarence Center, New York, on February 12, 2009  MDL No. 2086 -- IN RE: Pre-Filled Propane Tank Marketing and Sales Practices Litigation  MDL No. 2087 -- IN RE: Hydroxycut Marketing and Sales Practices Litigation  MDL No. 2088 -- IN RE: Fairfield Greenwich Group Securities Litigation  MDL No. 2089 -- IN RE: Airline Baggage Fee Antitrust Litigation  MDL No. 2092 -- IN RE: Chantix (Varenicline) Products Liability Litigation  MDL No. 2093 -- IN RE: DIRECTV, Inc., Early Cancellation Fee Marketing and Sales Practices Litigation  MDL No. 2094 -- IN RE: Cheerios Marketing and Sales Practices Litigation  MDL No. 2096 -- IN RE: Zicam Cold Remedy Marketing and Sales Practices Litigation  MDL No. 2098 -- IN RE: Kitec Plumbing System Products Liability Litigation  MDL No. 2099 -- IN RE: Stanford Entities Securities Litigation  MDL No. 2100 -- IN RE: Yasmin and Yaz (Drospirenone) Marketing, Sales Practices and Products Liability Litigation  MDL No. 2102 -- IN RE: Sony Corp. SXRD Rear Projection Television Marketing, Sales Practices and Products Liability Litigation

	Litigations Not Transferred (.pdfs)

MDL No. 2091 -- IN RE: Children's Personal Care Products Liability Litigation [Denied]  MDL No. 2095 -- IN RE: Porcine Circovirus (PCV) Vaccine Products Patent Litigation [Denied]  MDL No. 2097 -- IN RE: Listerine Agent Cool Blue Products Liability Litigation [Denied]  MDL No. 2101 -- IN RE: Wells Fargo Checking Account Overdraft Litigation [Denied]  MDL No. 2114 -- IN RE: ProShares Securities Litigation [Motion Withdrawn]

 Our feed limits its remarks to the Panel to fewer than five minutes.

Third Circuit Allows $567 Million Class Fee

 
Attorney Lionel Hutz graduated from Princeton School of Law.  He seldom won and cobbled shoes to pay the bills. 

The Third Circuit today affirmed orders that awarded about $567 million in "common fund" fees.  The money goes to law firms that helped win $6.44 billion in settlement funds.  The claims asserted that Wyeth's weight loss drugs, fen-phen (fenfluramine and phentermine) and dexfenfluramine, caused class members to develop valvular heart disease.  In re Diet Drugs (Fenfluramine/Phentermine/Dexenfluramine) Product Liability Litig., No. 08-2363 (3d Cir. Oct. 8, 2009).

The court made some points on matters that tend to confuse people about fees in class actions.  These include:

• In common fund cases, the court awards fees out of the valuable things -- usually cash -- that class counsel obtain for class members.  Common fund cases differ from fee-shifting cases, where a losing party has to pay the other side's fees on top of damages.  The court pointed out that Diet Drugs involved a common fund, rejecting an objector's argument to the contrary.
• The risk of a class action case varies over time.  At the outset, with uncertainty at its height, the risk of receiving nothing for pursuing class claims hits a peak.  But it doesn't go away.  As Diet Drugs shows, bad things can happen even after you ink a settlement.
• A risk multiplier in big class cases -- the successful ones anyway -- often ranges up to four times the "lodestar" (the lawyers' hours times their hourly rates).  The boost compensates for all manner of risk -- of losing on the merits, of losing on procedural grounds, of non-collection, and a great many other bad things that could thwart a recovery.

Supremes Clear Summer Backlog; 91 Pages of Orders

Their latest portrait.

The U.S. Supreme Court started its October Term 2009 a day ago -- although Their Honors did rehear a big case on September 9.

If you've waited the summer long to see how the Court would deal with your cert. petition, your mandamus application, your request for a writ of prohibition, your plea for habeas corpus relief, or even your motion to file an exhibit out of time or under seal, October 5 likely quenched your thirst.  Yesterday's Order List went on for just shy of 91 pages -- and disposed of around 2,000 cases.