In what is becoming oft-cited language, U.S. District Judge William H. Pauley III of the Southern District of New York recently stated regarding the Fair Labor Standards Act that,

A law is only effective to the extent it is enforced, and this increased litigation has been a positive development for many low-wage workers. The same is true for their lawyers. The danger to workers from underpayment by their employers is clear. The danger of overpaying their lawyers is more subtle. Fujiwara v. Sushi Yasuda, 58 F. Supp. 3d 424, 424 (S.D.N.Y. 2014) (emphasis added).

Fujiwara v. Sushi Yasuda

In Fujiwara, Judge Pauley granted final approval of a $2.4 million wage and hour class and collective settlement but substantially reduced the award of attorneys’ fees that plaintiffs’ counsel had requested. Judge Pauley’s November 2014 decision  was the first of three cases in late 2014 and early 2015 in which judges in the Southern and Eastern Districts of New York have more closely scrutinized fee awards requested by plaintiffs’ counsel in wage and hour class and collective actions.

Judge Pauley recognized that the trend in the Second Circuit is to award a percentage of settlement fund as attorneys’ fees, and when determining what is reasonable, a court considers the “Goldberger factors” (based on the 2000 case Goldberger v. Integrated Resources, Inc.): (1) the time and labor expended by counsel; (2) the magnitude and complexities of the litigation; (3) the risk of the litigation; (4) the quality of the representation; (5) the requested fee in relation to the settlement; and (6) public policy considerations. In Fujiwara, Judge Pauley also recognized that, within the Second Circuit, “courts often award one-third of a settlement fund as reasonable fees” in wage and hour class and collective actions, which is a figure that should be familiar to practitioners.

However, Judge Pauley remarked that he was “[s]truck by extreme similarities in the wording of” decisions awarding one-third of the settlement fund as attorneys’ fees in wage and hour class and collective actions and “discovered that many of the authorities cited by Plaintiffs’ counsel in support of [the one-third] fee application are in fact proposed orders drafted by the class action plaintiffs’ bar and entered with minimal, if any, edits by judges.” Judge Pauley limited the precedential value of these types of proposed orders masquerading as judicial decisions, stating that

the class action bar is in fact creating its own caselaw on the fees it is entitled to. Because Westlaw and Lexis sweep every order of any significance into their databases, these form orders appear as if they were decisions by the judges who signed them. No wonder that “caselaw” is so generous to plaintiffs’ attorneys.

Judge Pauley also noted the need for judges to act as fiduciaries for absent class members in evaluating attorneys’ fee awards, and thus turned to the lodestar amount as a “cross check” on the reasonableness of the requested one-third percentage, which was $800,000. The lodestar amount is calculated by multiplying the number of hours the attorneys worked by the attorneys’ hourly rates—either the rates the attorneys actually charged or, as is often the case when the attorneys who are requesting fees work on a contingent basis, rates deemed reasonable within the court’s jurisdiction. Judges can then adjust the lodestar amount up or down depending on the circumstances of the case by using a “multiplier” to enhance the fee award (or a “negative multiplier” to reduce it). Judge Pauley calculated the lodestar figure as $210,805 for the number of hours of work performed by plaintiffs’ counsel at rates found acceptable within the Second Circuit, which would require the court to multiply the lodestar figure by 3.8 to reach the requested $800,000 figure. (Judge Pauley reduced the hourly rates requested by plaintiffs’ counsel under the lodestar method—reducing lead counsels’ hourly rate from $650 to $450 per hour, the associates’ hourly rates from between $275 and $350 to $250 per hour, and the support staff’s hourly rates from between $150 and $185 to $100 per hour.) Based on the lodestar “cross check,” Judge Pauley determined that 20 percent of the settlement fund, which would result in a $480,000 award and a multiplier of 2.28 of the lodestar figure, would be a reasonable award of attorneys’ fees for the case.

Ortiz v. Chop’t Creative Salad Co. LLC

Shortly after Judge Pauley’s decision in Fujiwara, U.S Magistrate Judge Kevin N. Fox of the Southern District of New York, in Ortiz v. Chop’t Creative Salad Co. LLC 2015 WL 778072, at *6-20 (S.D.N.Y. Jan. 15, 2015) granted final approval of a wage and hour class and collective settlement while reducing the award of attorneys’ fees from one-third of the $800,000 settlement fund to 20 percent of the settlement fund. Relying on the Goldberger factors, Judge Fox reasoned that the fact that plaintiffs’ counsel overstated their time and labor and engaged in duplicative work, and the fact that the issues of law and fact in the case were not novel or complex weighed against a higher fee award. Judge Fox also reasoned that the risk of litigation was no more or less than any other litigation, which was thus a neutral factor, and that plaintiffs’ counsel adequately represented the class, which weighed slightly—but not heavily—in favor of a higher fee award.

Next, Judge Fox evaluated the public policy considerations of the requested one-third fee award. Relying on Fujiwara, Judge Fox found it troublesome that,

in the plaintiffs’ memorandum of law in support of the fee application, counsel relies and makes citation, almost exclusively, to their own previous cases. . . . Moreover, memoranda of law in support of the fee requests in cases litigated previously by the plaintiffs’ counsel are also almost identical to the memorandum of law in support of the instant request.

Based on the concerns first raised by Judge Pauley in Fujiwara and the other factors that weighed against the requested one-third fee award, Judge Fox reduced the award of attorneys’ fees to 20 percent of the settlement fund.

Flores v. Mamma Lombardi’s of Holbrook, Inc.

Most recently, U.S. Magistrate Judge Gary R. Brown of the Eastern District of New York granted final approval of a wage and hour class and collective settlement while dramatically reducing the award of attorneys’ fees. In Flores v. Mamma Lombardi’s of Holbrook, Inc. (E.D.N.Y. May 18, 2015), Judge Brown reduced the requested fee award of one-third of the $1.375 million settlement fund—$458,333 in requested fees—to $92,974, which amounted to 6.7 percent of the settlement fund. Relying on the principles articulated by Judge Pauley in Fujiwara, Judge Brown disapproved of the lack of support plaintiffs’ counsel provided in justifying its request for a one-third fee award (plaintiffs’ counsel initially failed to provide any contemporaneous time records of hours worked), remarking that,

Fee applications in common fund cases can pit the interests of class counsel against those of the very class members they represent, without the benefit of the illumination provided by adversarial fire.

. . .

Thus, a fee application in these circumstances . . . requires that counsel proceed with the utmost care and transparency.

Judge Brown also agreed with Judge Pauley’s observation (echoed by Judge Fox in Ortiz) that many of the “court decisions” granting a one-third fee award were actually plaintiffs’ counsel-drafted orders rubber stamped by the court. “Therefore, the purported ‘trend’,” the court found, “among district courts within the Circuit to award a flat 33 1/3% percentage fee in employment common fund class action cases . . . appears to be driven by plaintiffs’ counsel seeking high payouts at the expense of silent class members.” After examining the Goldberger factors and conducting a lodestar calculation, Judge Brown determined that the lodestar amount of $92,974—without any multiplier—was a reasonable fee award for the case.

However, Judge Brown noted that his dramatic reduction of the fee award was the result of several factors unique to the case, including the fact that plaintiffs’ counsel failed to submit time records in the first instance, submitted vague time entries when they were finally submitted, and sought hourly rates far above what plaintiffs’ counsel had recently sought in a similar case. Additionally, Judge Brown noted that, “in a further effort to shield the sought-after percentage fee from scrutiny, the Settlement Agreement expressly provides that ‘Defendants agree that they will not oppose any petition for an award of attorneys’ fees and costs.” Most significantly, Judge Brown found that plaintiffs’ counsel had attempted to bill for the hours that one attorney spent in the representation of a class member who objected to the very settlement that plaintiffs’ counsel had negotiated, which Judge Brown described as “antithetical” to the efficient and professional resolution of the matter, contrary to the interests of the class, and a possible breach of professional responsibility.

The Impact on New York Employers

Although New York employers generally are not heavily involved in plaintiffs’ counsel’s fee applications in wage and hour settlements, the issue of increased scrutiny and reduction of plaintiffs counsel’s fee awards bears attention, as this trend may affect how judges are likely to analyze the approval of negotiated settlement agreements. In addition, this issue may provide employers some ammunition against wage and hour class and collective actions, as increased scrutiny of fee requests may make such cases less lucrative to the plaintiffs’ bar. It should be noted, however, that increased scrutiny does not necessarily equate to a reduction in attorneys’ fees awarded. For example, one 2015 case out of the Southern District of New York, Sanchez v. JMP Ventures, LLC, cited Fujiwara and used the lodestar method as a “cross check” on plaintiffs’ counsel’s requested one-third fee award, but found that the requested award, which was a 1.12 multiplier from the lodestar amount, was reasonable.

On the other hand, increased scrutiny of plaintiffs’ counsel’s fee awards may cause plaintiffs’ counsel to simply demand more in settlement negotiations, knowing that a court may award a lower percentage of the settlement fund as attorneys’ fees than plaintiffs’ counsel was previously receiving. Lastly, employers and their counsel will have to be cognizant of the fact that terms that previously had been common in wage and hour class and collective action settlement agreements—such as a term agreeing that a defendant would not contest a plaintiffs’ counsel’s fee application—may need to be reevaluated. As was the case in Flores with Judge Brown, such a term may be viewed negatively by the court.

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