Class Action Countermeasures : Class Action Lawyers & Attorneys : McGuireWoods Law Firm : Complex Litigation, Mass Torts

Paul Karlsgodt over at ClassActionBlawg.com has an outstanding post up that outlines his thinking on when (and how) a defendant should challenge the certifiability of a class.  He explicitly recognizes that 

[T]here is also an art to defending class actions, and part of the art is in knowing whether to challenge class certification at each available opportunity. Of course, because this is about the art and not the science, there is no single answer to this question, but below I have tried to sketch out some of the possible considerations in making the decision to use various different procedural devices at different phases of the litigation.

(Emphasis in orginal.)  The general advice that follows is a very helpful summary of the different opportunities to challenge the certification of a class.  

I'd quibble with only two aspects of his post: (1) Paul and I have slightly differing opinions on the usefulness of the motion to strike class allegations.  (2)  I would really have liked to see his take on whether to file a motion to deny certification (a rare, but increasingly useful strategic option).  

But these are quibbles.  What Paul has done here is what co-author Brian Anderson and I were aiming at with The Class Action Playbook: he's given an excellent summary of each opportunity to challenge a class, and set out his views of the risks and benefits to each challenge.  

Go, read it for yourself.  I assure you, it's time well-spent.  

[Dislcosure: Paul gave this blog an early boost, and provided a very nice review of the Playbook.]

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Skadden attorneys John Beisner, Jessica Miller, and Jordan M. Schwartz have drafted a white paper for the Institute for Legal Reform titled "Cy Pres: A Not So Charitable Contribution to Class Action Practice."  Relying heavily on Martin Redish's critique of cy pres recovery, they trace cy pres relief from its "pre-Christian" origins as a means of distributing estates to its most recent abuses. Their final recommendation is interesting, and fairly moderate:

in order to mitigate the legal and ethical concerns associated with cy pres awards, any application of the cy pres doctrine—even in the context of settlements—should be subject to two critical limitations. First, whenever a settlement agreement includes a cy pres component, the fees awarded to class counsel should be tied to the value of money and benefits actually redeemed by the injured class members—not the theoretical value of the cy pres remedy. Such a restriction would be consistent with the intent of the Class Action Fairness Act (“CAFA”), which mandates that any portion of plaintiffs’ counsel’s fees that is based on the value of coupons awarded to class members “shall be based on the value to class members of the coupons that are redeemed,” rather than the theoretical value of the coupons available to class members. Extending the CAFA coupon requirement to class action settlement cases involving cy pres would help ensure that plaintiffs’ attorneys vigorously represent and defend the interests of absent class members by maximizing the benefits actually redeemed by the class members.

Second, the parties (rather than the court) should determine whether residual settlement funds should be disposed of through cy pres—and if so, to what charities. Such an approach will minimize the risk that judges will use their influence to steer cy pres funds to their preferred charities.

(Internal footnotes omitted.)  

So what can defense lawyers use in this white paper? It provides a cogent summary of the best arguments against cy pres relief. More specifically, it offers an argument against those plaintiffs who seek certification by arguing that using cy pres relief will avoid the need to confront individualized issues in a case:

extending cy pres to litigated class actions would violate the Rules Enabling Act—and threaten the integrity of the judicial process—by using Federal Rule of Civil Procedure 23 to dramatically alter the substantive law. Under the Rules Enabling Act, a rule of procedure or evidence may not “abridge, enlarge or modify any substantive right.” This is so because using a procedural rule to alter the substantive law would interfere with the powers of Congress and state legislatures to decide governing laws. Notably, courts have rejected other efforts to transform substantive law in the context of aggregate litigation in similar contexts; of most relevance here, courts have rejected “fluid recovery” theories—under which plaintiffs seek to prove “class” damages rather than individual damages of each class member—as violating the Rules Enabling Act.

(Emphases added; internal footnotes omitted.) This situation is more than just a hypothetical. Most notably, Judge Jack Weinstein tried to use this tactic to avoid confronting individualized issues when certifying a class tobacco purchasers, a decision that was heavily criticized at the time. (The Second Circuit eventually reversed him.) It's also a good example of the growing trend of relying on the Rules Enabling Act to argue against sloppy certification analyses that effectively change the fundamental rights of the parties.

(Hat tips to Ted Frank and Jordan LeClerc for spotting.)

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The tactic is more common that one might imagine: when plaintiffs file their motion for certification, they may include an expert report from a noted law professor, testifying that their case is ideally suited for certification under Rule 23. Now, on one side of the certification debate, you have practicing lawyers zealously representing their client, and on the other, a ostensibly neutral expert in civil procedure. How can a defendant effectively oppose a motion like this?

By excluding the expert, which is easier than it first appears. Take the case of Walsh v. Principal Life Insurance Co., 266 F.R.D. 232 (S.D. Iowa 2010). In this ERISA class action, the plaintiff alleged that the the defendants had violated the statute by persuading her (after letting her go from her job) to roll over her 401(k) [http://en.wikipedia.org/wiki/401(k)] contributions in order to buy their "proprietary" investment products.

To support her motion for class certification, the plaintiff offered two experts: Robert Klonoff, Dean of Lewis & Clark Law School in Oregon, and Mark Johnson, a "sought-after speaker on the topic of ERISA and benefits plans." She offered each expert to testify about how the case had met the standards of Rule 23. The defendants challenged the admissibility of both experts' testimony. They did not question their expertise on ERISA or Rule 23. (Nor could they credibly. Dean Klonoff, for example, is the author of Class Actions and Other Multi-Party Litigation in a Nutshell, and co-author of the casebook Class Actions and Other Multi-party Litigation: Cases And Materials.). But they did point out that both experts had been offered to testify about a legal conclusion: whether certification was appropriate in this case. And that is the one area for which expert testimony is not admissible because it cannot help the court. The court largely agreed:

"[E]xpert testimony on legal matters is not admissible. Matters of law are for the trial judge, and it is the judge's job to instruct the jury on them." S. Pine Helicopters, Inc. v. Phoenix Aviation Managers, Inc., 320 F.3d 838, 841 (8th Cir. 2003) (citing United States v. Klaphake, 64 F.3d 435, 438-39 (8th Cir. 1995)); see also Burkhart v. Washington Metro. Area Transit Auth., 112 F.3d 1207, 1213, 324 U.S. App. D.C. 241 (D.C. Cir. 1997) ("Each courtroom comes equipped with a 'legal expert' called a judge."). In distinguishing admissible testimony from inadmissible testimony, the task for the Court is to ask whether the expert's opinions bear on some factual inquiry or whether they bear solely on the legal conclusions that are urged. In other words, "an expert may offer his opinion as to facts that, if found, would support a conclusion that the legal standard at issue was satisfied, but he may not testify as to whether the legal standard has been satisfied." 

(Internal quotations left in to preserve the Burkhart parenthetical.) The court did find that Johnson had made some factual observations about ERISA plans, so it allowed his testimony for that limited purpose.  Then it denied plaintiff's motion for certification, because the question of how the defendants persuaded each class member was necessarily individualized.

So what's the takeaway in this case? When faced with an "expert" on Rule 23, remember: "Each courtroom comes equipped with a 'legal expert' called a judge." And his is the only opinion that matters.

[Full disclosure: Dean Klonoff very generously provided a blurb for The Class Action Playbook (first under Editorial Reviews).]

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 I've written before about the the growing defense tactic of filing early challenges to class certification. Last week, Law360 reporter Leigh Kamping-Carder reported on the trend. (Subscription required.) While she interviews a plaintiff's attorney (who wonders if everyone went to the same seminar), the most interesting part is the interviews with defense attorneys about the strategic concerns involved in filing a motion to strike. 

"If you can resolve class issues before conducting discovery, that's tremendously advantageous to a defendant,' [Dykma Gossett PLLC attorney J. Kevin] Snyder said. "As a defense lawyer doing mostly defensive class actions, you're always looking for ways to save your clients money," he added.

On the other hand, the lawyers Kamping-Carder interviews also express concern about the disadvantages to moving early. Leaving aside the mixed success rate with motions to strike, they worry about what happens if the court denies the motion:

"Then you've basically just given the plaintiffs a road map of what you're going to say," as well as a month to take discovery to oppose your best arguments," [Venable LLP partner Daniel B.] Chammas said.

If the motion backfires and defendants lose, they have a court on record holding that the case should proceed as a class action, [Mannatt Phelps & Philips attorney Brad W.] Selling said."

In general, I would say that excessive caution about motions to strike class allegations is not necessary. If the defendant frames it properly, as a challenge to flaws that are apparent on the face of the complaint , then the effect of a denial are the same as a denial of a motion to dismiss. The defendant will not have given away its strongest fact-based arguments, and a denial of arguments based on plaintiff's allegations is not likely to hold that the plaintiff is entitled to certification as a matter of law. At the same time, the motion to strike gives the defendant a chance to prime the court to think about the difficulties involved in certifying a class. Like all of these lawyers advised, one should only move to strike class allegations when one has strong arguments; but assuming the defendant has not asserted weak arguments, the benefits of moving to strike class allegations largely outweigh the risks.

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In re Hydrogen Peroxide was an antitrust class action. Hydrogen peroxide is a chemical that is often used a bleach for pulp and paper. In this case, the plaintiffs, all purchasers of hydrogen peroxide and other chemicals, sued their suppliers, alleging that the defendants had sold them more expensive chemical grades when less expensive ones would have been sufficient.

Following extensive discovery, 3 plaintiffs moved to certify a class of direct purchasers of hydrogen peroxide, sodium perborate, and sodium percarbonate, over an eleven-year class period. In support of class certification, plaintiffs offered the opinion of an economist. Defendants, opposing class certification, offered the opinion of a different economist. Defendants separately moved to exclude the opinion of plaintiffs' economist as unreliable under Daubert v. Merrell Dow Pharmaceuticals, Inc. Concluding plaintiffs' expert's opinion was admissible and supported plaintiffs' motion for class certification, the District Court certified a class of direct purchasers of hydrogen peroxide, sodium perborate, and sodium percarbonate under Fed. R. Civ. P. 23(b)(3).

The defendants appealed, claiming that the district court had erred when it found that common issues predominated over individualized issues. The Third Circuit found that the trial court had committed three errors:

First, it had wrongly held that it could not inquire into the merits of plaintiffs' claims where they affected the certification inquiry.

An overlap between a class certification requirement and the merits of a claim is no reason to decline to resolve relevant disputes when necessary to determine whether a class certification requirement is met. Some uncertainty ensued when the Supreme Court declared in Eisen v. Carlisle & Jacquelin, that there is "nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action." Only a few years later, in addressing whether a party may bring an interlocutory appeal when a district court denies class certification, the Supreme Court pointed out that "the class determination generally involves considerations that are 'enmeshed in the factual and legal issues comprising the plaintiff's cause of action.'" As we explained in Newton, Eisen is best understood to preclude only a merits inquiry that is not necessary to determine a Rule 23 requirement.

(Internal citations omitted.)

Second, the district court had wrongly presumed that-when in doubt--it should err in favor of certifying an antitrust class action:

the District Court reasoned, "it is well recognized that private enforcement of antitrust laws is a necessary supplement to government action. With that in mind, in an alleged horizontal price-fixing conspiracy case when a court is in doubt as to whether or not to certify a class action, the court should err in favor of allowing the class." These statements invite error.

(Internal citations omitted.)

And finally, the district court had wrongly put off resolving the "battle of the experts" until trial, even though the experts disagreed about whether a class should be certified in the first place.

Expert opinion with respect to class certification, like any matter relevant to a Rule 23 requirement, calls for rigorous analysis. It follows that opinion testimony should not be uncritically accepted as establishing a Rule 23 requirement merely because the court holds the testimony should not be excluded, under Daubert or for any other reason. Under Rule 23 the district court must be "satisfied" or "persuaded" that each requirement is met before certifying a class. Like any evidence, admissible expert opinion may persuade its audience, or it may not. This point is especially important to bear in mind when a party opposing certification offers expert opinion. The district court may be persuaded by the testimony of either (or neither) party's expert with respect to whether a certification requirement is met. Weighing conflicting expert testimony at the certification stage is not only permissible; it may be integral to the rigorous analysis Rule 23 demands.

(Internal citations omitted.)

The Third Circuit was not the only (or even the first) court to find that the "rigorous analysis" required for class certification might require an inquiry into the merits. But it was the one to explain most clearly how various courts had misread Eisen to prohibit any merits inquiry whatsoever. And it also explained in very succinct terms why a court must look into the merits of an expert's testimony if that will bear on whether it is appropriate to certify a class. Because of the clear way in which it describes how each of these factual inquiries is necessary to certification, In re Hydrogen Peroxide has earned the designation of Classic Case.

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As I've written before, it's rare for something to qualify as breaking news in the world of class action practice. This, however, qualifies. This afternoon, the three-judge panel that had ruled that the Class Action Fairness Act requires at least one class member to have suffered $75,000 in damages--thus turning itself into an outlying circuit on the question of class-action jurisdiction--reversed itself in a per curiam opinion:

On July 19, 2010, we issued an opinion in this case. Cappuccitti v. DirecTV, Inc., No. 09-14107, slip op. (11th Cir. July 19, 2010). We based our decision on our interpretation of the jurisdictional requirements of the Class Action Fairness Act of 2005 (“CAFA”), Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.), which we have elsewhere called a “statutory labyrinth.” Lowery v. Ala. Power Co., 483 F.3d 1184, 1199 (11th Cir. 2007). Subsequent reflection has led us to conclude that our interpretation was incorrect. Specifically, CAFA’s text does not require at least one plaintiff in a class action to meet the amount in controversy requirement of 28 U.S.C. § 1332(a). Accordingly, we construe both parties’ petitions for rehearing en banc to include petitions for panel rehearing,1 vacate our earlier opinion, and replace it with this one.

(Emphasis added.)  The court then proceeded to address the arbitration provision that had actually been before it in the original case, finding that DirecTV's arbitration provision was not unconscionable.

The court erred. As Cappuccitti readily conceded in opposing DirecTV’s motion to compel arbitration, attorney’s fees and litigation expenses would be available to him if he prevailed on the theory that the early cancellation fee is invalid as “[u]nfair or deceptive” under O.C.G.A. § 10-1-393(a). The JAMS Rules provide for the award of attorney’s fees and litigation expenses if allowed by state law, and O.C.G.A. § 10-1-399(d) authorizes them.

In light of this, it is apparent that the district court’s order denying arbitration must be vacated and the case remanded for further proceedings consistent with this opinion.

With this ruling, the Eleventh Circuit has brought itself back into line with other federal courts on the question of which class actions qualify for federal jurisdiction under CAFA. 

We now return you to your (hopefully) class-action-free weekend.

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 On Monday, I reported on the passing of Vanderbilt Professor Richard Nagareda. Given the widespread recognition of his contributions to studying aggregated litigation, it seemed appropriate to revisit one of his better articles: Aggregation and Its Discontents: Class Settlement Pressure, Class-Wide Arbitration, and CAFA, which originally appeared in the Columbia Law Review in 2006. 

In this article, Professor Nagareda took three debates over class-action practice -- (1) do class actions create undue settlement pressure? (2) can arbitration clauses override the use of the class-action device?; and (3) did the passage of CAFA threaten to abrogate the Supreme Court's holding in Klaxon v. Stentor Electric Manufacturing Co. (1941) that federal courts must apply state choice-of-law principles -- and used them to ask a broader question posed by class-action practice:

When should the law become concerned, as a normative matter, that the affording or withholding of aggregation is not a matter of mere procedural format but amounts instead to an unauthorized, back-door method of reform for substantive rights?

After a careful examination of the (then-) state of the law for each of these issues, Professor Nagareda came to the following conclusion:

The debates over class settlement pressure, waivers of class-wide arbitration, and CAFA each pose questions about the relationship between aggregate procedure and substantive law. In these high-stakes disputes, one side or the other seeks to characterize the availability of aggregation as merely a cosmetic matter, whereas the opposing side seeks to probe its practical effects. Interestingly enough, plaintiffs and defendants make different arguments along these lines in different settings.

The law should cut through the advocacy on both sides by situating all three debates along a common metric of institutional authority. Each is ultimately a debate over when the affording or the withholding of aggregation is not merely a matter of procedural format, but also a way to alter substantive law.

Each of Professor Nagareda's questions has gradually been answered by the evolution of class-acton doctrine and civil procedure doctrine. While undue settlement pressure is always a concern, defendants have been handed better tools (like the much-used Iqbal ruling) with which to minimize the in terrorem effect of large but meritless cases. The Supreme Court has granted certiorari to hear the Concepcion case, which should provide an answer to whether arbitration clauses can preclude classwide consumer litigation in certain circumstances. And, while the Shady Grove decision did not directly address the clash between CAFA and Klaxon, it does provide guidance for how federal class-action rules should interact with state substantive law.

That said, there's still a great deal that class-action lawyers can take from this article. First, Professor Nagareda did an outstanding job of picking apart the tactics that underlay each side's approach to these three issues. There is a reason that this article is generally considered seminal.

Second, Professor Nagareda identifies an important rhetorical technique, which is the sliding scale each side employs in characterizing the effect of class-action rulings. In essence, the bigger the change a side wants, the more likely they are to gloss it as "cosmetic." Class-action defense lawyers have long known that one of the best ways to show a court the problems with a class proposal is to focus on how the case would actually be tried.  Professor Nagareda brought both scholarly rigor and intellectual honesty to bear on how that argument plays out under various circumstances.  

And finally, Professor Nagareda's article provides an excellent reminder that there is much to be said for standing back from the nitty-gritty of the rules at times and asking the larger question of what each of your arguments actually means. As he illustrates here, sometimes the answer really will be surprising.

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 A number of courts have held that Rule 23(a)(4)'s adequacy requirement mandates two inquiries:

(1) whether there are irreconcilable conflicts of interest between the class representative and the absent class members, and
(2) willingness and ability of the representative to take an active role in and control the litigation and to protect the interests of absentees.

The law on what constitutes a conflict of interest is well-developed. But what does "willingness and ability" mean? The Eighth Circuit recently shed some light on the question in the course of deciding an appeal in a civil-rights lawsuit, Rattray v. Woodbury County.

In 2006, Maureen Rattray was arrested for misdemeanor driving under the influence. While processing her after arrest, Woodbury County officials subjected her to strip and cavity searches. Rattray sued, and, eight months after filing her original complaint, she requested leave to amend her complaint to add class allegations because discovery had revealed Woodbury County had a policy of subjecting arrestees to strip searches. Six months later, Rattray filed a motion for class certification.

Woodbury County opposed the motion. As one might expect, it argued that individualized issues predominated over common issues. But it also argued that she was an inadequate class representative. Specifically, it

challenged Rattray's assertion that she did not move for class certification earlier because she did not learn of the blanket strip search policy until discovery. Paragraph 40 of Rattray's initial complaint, according to the County, showed that Rattray was aware of the policy when she filed the complaint. While not questioning the capabilities of Rattray's counsel, the County argued that the delay in moving for class certification suggested that Rattray did not meet Rule 23(a)(4)'s requirement that the class representative would "fairly and adequately protect the interests of the class."

The district court accepted the County's argument, noting that the six-month delay between the filing of the amended complaint and the motion to certify indicated that Rattray lacked the necessary zeal to represent a class, and her counsel lacked the necessary experience.

Rattray appealed, arguing that the "many depositions" and "hundreds of pages of documents" her discovery efforts had unearthed indicated that she was willing and able to pursue a class action. But the Eighth Circuit was unconvinced. As it put it:

Rattray's failure to move to certify with alacrity undermines confidence in the zeal with which she would represent the interests of absent class members. A failure of the putative class representative to assure the court that it will vigorously pursue the interests of class members is a sufficient basis to deny certification.

So what can we learn from this case? In some cases, adequacy requires timely action. If a plaintiff drags her heels in prosecuting a class action, that may serve as evidence that she is not an adequate class representative.

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I'm hardly the only one to note the untimely passing of Vanderbilt law proforessor Richard Nagareda this weekend, but in situations like these, one more voice rarely hurts.  Nagareda was a brilliant scholar, who handled tough issues in mass torts and class actions with little apparent effort.  I've relied on his work heavily on this blog, in other writing, and in briefing class-action issues in various cases.  

Vanderbilt's statement is particularly appropriate:

Richard was a personal friend as well as an esteemed colleague, and those of us who were fortunate enough to know him and work with him for the past several years are devastated by his death,” Dean Chris Guthrie said. “The legal academy has lost a gifted scholar, and our students an extremely talented teacher. Our faculty members have lost a good friend and exemplary colleague, and his family a beloved husband, father and son.

I did not know Professor Nagareda personally.  But over the last few years, I feel like I've come to know his work pretty intimately.  He will be very missed.  My sincere condolences to his family and friends.

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Screenwriter/former stand-up comedian (and executive producer of the affable heist show Leverage) John Rogers wrote a great piece five years ago on how Democrats--then the party in the political wildnerness--needed to "Learn to Say Ain't."  I'm linking to the whole, but the nutshell version is: Rogers, a Boston-raised physics geek, was having trouble winning over audiences in heartland comedy clubs until an experienced road comedian named "Boats" Johnson gave him two concrete pieces of advice:

(1) Bring a beer with him onstage and sip from it during his set, and

(2) Learn to say "ain't."

After that, Rogers didn't die onstage so often, because both of these things signalled to his audience that, no matter what the jokes he made, he shared some common ground with them. Or, as he put it:

My bigger point, leaving all the fancy policy stuff to the wonks who delight in them, is that the art of politics is convincing people to connect with you. When you have an idea, and the other guy has an idea -- if you don't connect in some primal way with the listeners your idea is never even going to get considered, no matter how much better it is on a rational level.

(Emphasis in original.)  Rogers made this point even more effectively in a follow-up post a year later: 

Learn to Say Ain't isn't about being something you're not, or all things to all people. (and if that's how you read it, you were really just looking for something to disagree with in order to reinforce your own beliefs. Sorry.) what Boats taught me back then is that we all have common ground, and if you want to communicate your idea clearly, you need to start with the common ground of your audience and then get them to meet you halfway. It's about boiling your idea down to what really matters. This is not about lying -- this is about telling the truth in a more effective manner.

(Emphasis in original.) Rogers has expressed surprise at how popular this post has been. He shouldn't. It's one of the best examples of practical rhetoric out there. This is a guy who did standup in small clubs far from home for years; he had to learn the practical stuff.

Rogers was talking about politics in particular, class-action lawyers could benefit from this advice as well. Complex litigation is, for lack of a better word, complex. A lot of lawyers, when they're briefing or arguing a class action get caught up in the minutiae of the argument, and lose sight of the themes that are going to make sense to a judge (or, should the case progress, a jury). Plaintiffs' lawyers in class actions have a few natural advantages: for example, their cases often loosely fit the "David versus Goliath" story.  Defense lawyers--whose main point often boils down to "it's more complicated than that"--will have a harder time figuring out what really matters.  But that hardly means they should stop trying. Paradoxically, the best way to explain why a case is too complicated to try to a single jury is often to find a simple theme that unites the various problems with trying the case.  

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One of the larger points of contention in class-action settlements is the size of the attorneys' fees. Indeed, with a few exceptions, no one defends the size of attorneys fees, and the most heated criticisms decry the size of the fees compared to the recovery the class actually receives. Which is what makes a recent case from the Ninth Circuit, In re Mercury Interactive Corp. Securities Litigation, so surprising: it turns out that Rule 23 already has one simple, often-ignored measure for limiting the amount of fees class counsel can charge.

The Mercury case arose after public disclosures that Mercury's then-CEO, CFO, and General Counsel had participated in a scheme to backdate stock options. (Backdating, for those who remember the bull market, is a practice of revising the date that individuals were granted stock options to allow for the largest possible profit on the stock. In other words, someone who was backdating options would revise the grant date to reflect the lowest possible stock price. When the grantee exercised the option, he'd pay a lower price for valuable stock.)

Like with many (but not all) securities class actions, this one settled quickly. As part of the settlement approval process, the district court held a fairness hearing, and provided a deadline for objections. However, the court set the deadline for objections before the plaintiffs' counsel's fee application deadline. That, as one might guess, presented a problem for the objectors: without seeing the details of plaintiffs' fee proposal, it was extremely difficult for them to evaluate whether it was properly justified.

One of the objectors, the New York State Teachers' Retirement System, nonetheless tried to challenge plaintiffs' fees, submitting a generalized objection to the anticipated 25% contingency fee. The district court approved the fee anyway, stating in part that:

[The objectors] do not object to any line item of work that was done, but rather they simply believe that the amount of the contingency fee should be 18 percent rather than 25 percent.

Teachers appealed, arguing that, in approving plaintiffs' fees, the district court had violated Rule 23(h). Rule 23(h), which governs awards of fees and taxable costs, provides that:

In a certified class action, the court may award reasonable attorney's fees and nontaxable costs that are authorized by law or by the parties' agreement. The following procedures apply:

(1) A claim for an award must be made by motion under Rule 54(d)(2), subject to the provisions of this subdivision (h), at a time the court sets. Notice of the motion must be served on all parties and, for motions by class counsel, directed to class members in a reasonable manner.
(2) A class member, or a party from whom payment is sought, may object to the motion.
(3) The court may hold a hearing and must find the facts and state its legal conclusions under Rule 52(a).
(4) The court may refer issues related to the amount of the award to a special master or a magistrate judge, as provided in Rule 54(d)(2)(D).

The Ninth Circuit reversed, holding that the district court had abused its discretion by violating Rule 23(h). In fact, it went even further, stating that

the practice borders on a denial of due process because it deprives objecting class members of a full and fair opportunity to contest class counsel's fee motion.

Why would this rise to the level of a due process violation?  As the Ninth Circuit pointed out

During the fee-setting stage of common fund class action suits such as this one, plaintiffs' counsel, otherwise a fiduciary for the class, becomes a claimant against the fund created for the benefit of the class. This shift puts plaintiffs' counsel's understandable interest in getting paid the most for its work representing the class at odds with the class' interest in securing the largest possible recovery for its members.

(Internal quotations omitted.) As a result, by requiring plaintiffs to submit a fee request before objections are due, Rule 23(h) provides an important check on plaintiffs' counsel at exactly the moment their interests diverge from those of the class.

Allowing class members an opportunity thoroughly to examine counsel's fee motion, inquire into the bases for various charges and ensure that they are adequately documented and supported is essential for the protection of the rights of class members. It also ensures that the district court, acting as a fiduciary for the class, is presented with adequate, and adequately-tested, information to evaluate the reasonableness of a proposed fee.

This may seem like an obvious point, one that hardly requires an entire blog post. But a number of trained lawyers have missed it over the years, and not just the lawyers and courts that have made submitting objections before fee requests "a common practice." When Professor Brian Fitzpatrick defended "quick-pay" provisions--and when I critiqued that defense--neither of us took into account the obvious problem; quick-pay provisions (which pay plaintiffs' counsel before the settlement has been approved) clearly violate the procedure dictated by Rule 23(h).

So what's the takeaway for this case? Always read the rules. Rule 23 exists to enable class actions, but also to ensure that, at all times, absent class members are adequately protected. And those protections often exist to rein in the excesses of plaintiffs' counsel.

EDITED AT 11:30 AM TO ADD:

Ted Frank, of the Center for Class Action Fairness, has commented to point out that the majority of quick-pay provisions allow payment after approval, but before appeals have been exhausted, which means that they would not facially violate Rule 23(h).  And I should note that Professor Fitzpatrick accurately described the timing of payment in his article.  The takeaway from this?  Bloggers should reread old posts if they're going to revisit them later; especially if it turns out they were right the first time.

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Today, The Class Action Playbook is available for sale.  Yesterday, I posed what is probably the biggest objection to buying the book: why would plaintiffs' lawyers be interested in what a pair of defense lawyers have to say bout class action?  So, from the introduction:

Our best answer is that we hope the proof is in the reading. In writing this book, we have aimed to provide an unbiased analysis of the strategic choices involved for both sides in class actions. To that end, we have tried not to speculate about plaintiffs or their motives. Our discussions of the plaintiff’s side of class-action litigation rely heavily on personal interviews with plaintiff’s lawyers, or statements or writing by plaintiff’s lawyers. We also have tried to be explicit about our assumptions and our biases.

In the end, we have either succeeded in providing an unbiased analysis or we have not. If we have, that should be reason enough to trust our analysis. If we have not, our biases still may make for useful reading. Defendants should get a good sense of strategy from their fellow-traveler authors, and plaintiffs should get an extensive view of how the other side thinks.

And what does that "unbiased approach" look like?

There is a deep ideological divide between plaintiffs’ and defense lawyers. Given the high stakes and high visibility of aggregated litigation, it is not surprising that class actions are controversial. Advocates see class-action litigation as a way for large numbers of victimized “Davids” to collectively obtain justice from a misbehaving “Goliath” when individualized lawsuits are economically impractical. Opponents see class-action litigation as a means by which profit-motivated lawyers exploit the in terrorum nature of an aggregated case to extort windfall settlements from unpopular companies or industries. The primary reason for these different caricatures of class actions is that plaintiffs and defendants live in worlds that are structured differently. (There are arguably different personality types separating most plaintiffs’ lawyers from most defendants’ lawyers, which result in each side approaching the risks of litigation in different ways. But it is difficult to say whether the structures attract the personality types, or are the product of them.)

In this book, we refrain from judging the motives of either side. Rather than argue about whether class actions prompt greedy plaintiff’s lawyers to extort nuisance settlements from blameless defendants, or empower socially conscious plaintiff’s lawyers to take on unethical corporations, we assume that some lawsuits are closer to the former caricature, and some to the latter. From a strategic standpoint, it matters less which side is in the right than which side is making the right moves. We will talk about goals and incentives, but those discussions are general and descriptive. Generally, plaintiffs’ counsel wants to win the largest possible recovery for his clients at the minimum possible expense, while defense counsel wants to put the litigation behind his client with a minimum of expense and effort.

Ideally, that approach should sound familiar to readers of this blog.  

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