Second Circuit Sets New Standards for Counsel Fees and Excess Fund Allocation in Class Action Settlements

Second Circuit Sets New Standards for Counsel Fees and Excess Fund Allocation in Class Action Settlements

Introduction

In the landmark case Fears v. Wilhelmina Model Agency, Inc., the United States Court of Appeals for the Second Circuit addressed pivotal issues concerning the distribution of excess funds and the calculation of attorneys' fees in class action settlements. This case involved a class of professional models who alleged that various modeling agencies conspired to fix commissions in violation of the Sherman Act. The appellate court's decision provided significant insights into the equitable distribution of settlement funds and established important precedents for the calculation of counsel fees in similar litigations.

Summary of the Judgment

The plaintiffs, professional models, filed a class action against leading modeling agencies, alleging price-fixing conspiracies that inflated commission rates from 10% to 20%, thereby violating the Sherman Act. After extensive litigation, the District Court approved a settlement that created a $21,855,000 fund for distribution to class members based on their actual losses. However, excess funds—those remaining after full compensation of actual losses—were allocated to various charitable organizations under the Cy Pres Doctrine. Additionally, the District Court awarded attorneys' fees to the plaintiffs' counsel based on a percentage of the claims made against the settlement fund.

Upon appeal, the Second Circuit vacated the District Court's decisions regarding the distribution of excess funds and the method of awarding counsel fees, remanding the case for reconsideration. The appellate court held that the District Court erred in not considering the allocation of excess funds as treble damages, which are a crucial component of antitrust remedies, and in calculating counsel fees based solely on claims made rather than the entire settlement fund.

Analysis

Precedents Cited

The judgment referenced several key precedents, including IN RE VISA CHECK/MASTERMONEY ANTITRUST LITIGATION, which underscores the complexity of federal antitrust law, and Hydrolevel Corp. v. American Society of Mechanical Engineers, Inc., highlighting the significance of treble damages in antitrust cases. Additionally, the court considered the principles outlined in Goldberger v. Integrated Res., Inc. and Wal-Mart Stores, Inc. v. Visa, USA Inc. concerning the calculation of attorneys' fees in class actions.

Legal Reasoning

The Second Circuit emphasized that while the District Court had discretion in allocating excess funds, it did not fully appreciate its authority to consider awarding treble damages—a remedy particularly pertinent in antitrust litigation. The court criticized the District Court's reliance on the Private Securities Litigation Reform Act (PSLRA) and the Class Action Fairness Act (CAFA), noting their inapplicability to antitrust cases.

Regarding attorneys' fees, the appellate court held that calculating fees based solely on claims made against the settlement fund was erroneous. Instead, fees should be based on the entire fund, as it represents the collective effort and success of the counsel in securing the settlement. The court underscored that the PSLRA’s fee restrictions apply exclusively to securities class actions and do not govern antitrust litigation.

Impact

This judgment clarifies the parameters within which excess funds can be allocated in class action settlements, particularly in antitrust cases. By affirming the necessity to consider treble damages, the Second Circuit reinforces the role of enhanced remedies in deterring corporate misconduct. Additionally, the decision sets a precedent for the calculation of attorneys' fees based on the total settlement fund, ensuring that counsel is fairly compensated for their efforts in securing significant settlements for class members.

Complex Concepts Simplified

Cy Pres Doctrine

The Cy Pres Doctrine allows courts to direct the distribution of class action settlement funds to charitable organizations when it is impractical to distribute the funds directly to class members. This ensures that the funds still achieve the intended benefit of the settlement.

Treble Damages

Treble Damages triple the amount of actual damages awarded, serving as a deterrent against corporate misconduct and compensating plaintiffs for the difficulties of enforcing antitrust laws through private litigation.

Lodestar Method

The Lodestar Method is a traditional approach for calculating attorneys' fees in class actions. It multiplies the number of hours reasonably expended by a reasonable hourly rate to determine a base fee, which judges can then adjust based on various factors.

Conclusion

The Second Circuit's decision in Fears v. Wilhelmina Model Agency, Inc. marks a significant development in the realm of class action litigation, particularly concerning antitrust claims. By affirming the importance of treble damages and advocating for the calculation of counsel fees based on the entire settlement fund, the court ensures that class members receive fair compensation and that attorneys are adequately rewarded for their role in protecting public interests. This judgment not only reinforces existing legal principles but also provides clearer guidance for future class action settlements, promoting fairness and accountability within the legal system.

Case Details

Amanda MASTERS, on her own behalf and on behalf of a class of similarly situated persons, Justin Klentner, on own behalf and on behalf of a class of similarly situated persons, Lorelei Shellist, on own behalf and on behalf of a class of similarly situated persons, Barbara Cheeseborough, on own behalf and on behalf of similarly situated persons, Carla Gross, on own behalf and on behalf of a class of similarly situated persons, doing business as Sebastian Cardon, Simon Beardmore, Szuzanna Boros, Thomas Bradley, Jennifer Curran, Valarie Gardanao, Bill Goins, Eleanora Miller, also known as Elle Miller, Virginia Nelson, Alicia Pine, Anne Rogan, Angela Shelton, Shoemaker Laura, Todd Snyder, Hillary Sway and Monica Walker, Plaintiffs, Carolyn Fears, Donna Gibbs, Sharon Simon, Carol McIl v. ine, also known as Carol Alston and Tiffany Connor, on their own behalf and on behalf of a class of similarly situated persons, Plaintiffs-Appellants, Boies, Schiller Flexner LLP, Appellant, Amy Haberman, Thomas Preston and Edmund Flory, Consolidated Plaintiffs,
Year: 2007
Court: United States Court of Appeals, Second Circuit.

Judge(s)

Roger Jeffrey Miner

Attorney(S)

Paul R. Verkuil (Christina M. Lewicky, on the brief), Boies, Schiller Flexner LLP, New York, NY, for plaintiffs-appellants and appellant. David Elbaum (Kenneth R. Logan, on the brief), Simpson, Thacher Bartlett LLP, New York, NY, for defendants-appellees Ford Models, Inc. and Gerard W. Ford. Philip Bentley (Jack Hazan, on the brief), Kramer, Levin, Naftalis Frankel LLP, New York, NY, for defendant-appellee EMMC, Inc., f/k/a Elite Model Management Corporation. Jerome Gotkin, Mintz, Levin, Cohen, Ferris, Glovsky Popeo P.C., New York, NY, for defendant-appellee Next Management, LLC, f/k/a Next Management Company. Aaron Richard Golub, Law Office of Aaron Richard Golub, New York, NY, for defendant-appellee Click Model Management, Inc. Andrew W. Hayes, Andrew W. Hayes P.C., New York, NY, Anthony J. Bolognese, Bolognese Associates LLC, Merill G. Davidoff, Berger Montague P.C., Philadelphia, PA, Olav A. Haazen, Boies, Schiller Flexner LLP, Armonk, NY, for plaintiffs-appellants. David Bosman, Boss Models, Judah S. Shapiro, Law Offices of Judah S. Shapiro, New York, NY, for defendant-appellee Boss Models, Inc. Richard S. Oelsner, Wilson, Elser, Moskowitz, Edelman Dicker LLP, White Plains, NY, for defendant-appellee IMG Models, Inc. Sandor Frankel, (M. Breeze McMennamin, on the brief), Frankel Abrams, New York, NY, for defendant-appellee Wilhelmina Model Agency, Inc., a/k/a Wilhelmina Artist Management LLC. Thomas M. Lopez, Katsky LLP, New York, NY, for defendant-appellee DNA Model Management LLC. David Blasband, McLaughlin Stern LLP, New York, NY, for defendant-appellee Zoli Management, Inc.

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