And Eliminate 5% Award Holdbacks
December 19, 2017
Sheilla Dingus
In September, Harvard Law Professor William B. Rubenstein was appointed by Judge Anita Brody to weigh in on controversies surrounding attorney fees, including a 5% hold back that Co-Lead Class Counsel Christopher Seeger requisitioned as payment for future work in settlement implementation.
In a well-reasoned 47-page report, Professor Rubenstein recommended against withholding the additional 5% from Class Members monetary awards and advised a 15% cap on contingency feels from independently retained counsel. Judge Brody has given a January 3 deadline for responses to the expert opinion.
Withholding 5% of every award is unreasonable
Prior to Professor Rubenstein’s report, every other attorney who publicly expressed an opinion on the subject, as well as members of the class of retired NFL players expressed opposition to the proposed 5% holdback. Professor Rubenstein agreed. As the professor noted, Seeger felt that the $112.5 million common benefit (of which Seeger claims over $70 million) should go to pay for securing of the settlement and the 5% for implementation of it, but as Rubenstein said, “Class Counsel bear the burden of proving the need for a 5% set-aside, but their artificial bifurcation of settlement and implementation – and hence the justification for the 5% set-aside – fails to meet that burden for at least six reasons.”
Reason #1:
The first reason cited by Rubenstein is that the Settlement Agreement that Seeger as Lead Counsel and the NFL proposed settlement terms to the court in 2013, which were rejected, and the Settlement Agreement of June 2014 which was accepted by the court. Both of these documents shared a common 65 year arc. Nowhere in the first, rejected settlement did Seeger indicate that the $112.5 million designated for attorney fees was insufficient. “Only upon submission of the second Settlement Agreement in June 2014 did Class Counsel first suggest the need for $47.5 million more in fees over 65 years. There is no explanation in the second settlement papers explaining when Class Counsel and the NFL discussed this 5% set-aside in negotiating the second Settlement Agreement and thus no explanation why Class Counsel would negotiate this term with the NFL, given that the NFL is not involved,” writes Rubenstein. “Class Counsel nowhere contend that new terms in the second Settlement Agreement so enhanced their responsibilities over the 65-year life of the Settlement that the extra work warranted the need for an additional $47.5 million over those years.” Rubenstein notes that the same actuaries were used in both the rejected and accepted settlement agreements. “This history is troubling in that it implies that Class Counsel sought to significantly enhance their own fees without significantly enhancing their own work or, most importantly, their clients’ recoveries.” In Professor Rubenstein’s footnotes he adds that the second agreement tightened requirements for MAF payments to ensure against fraud, but not in a way that significantly increased Class Counsel’s work. Indeed, since this could be seen as a benefit to the NFL and not the Class it would seem unfair that the retired players should be forced to pay for the extra layer of difficulty in securing their awards.
Reason #2:
Rubenstein also points out that the “text of the second Settlement Agreement’s fee provision provides no support for the argument that the $112.5 million fee award was only meant to fund counsel’s work up to the effective date of the settlement.” He notes that the settlement effective date as referenced in the actual settlement is indicated as the time ‘after which Class Counsel could petition for this set-aside, not the time at which Class Counsel would start billing future work.”
Reason #3:
Professor Rubenstein chastises Seeger’s case law supporting an additional 5% and states the cases he cited indicate the opposite of what his is asking for. “[C]lass action law and practice provide no support for the argument that class counsel only do implementation work for extra money: countless cases state the class counsel’s fee pays for both settlement and implementation efforts.” He points out the difference in the cases on which Seeger bases his arguments and notes that “In response to objectors’ arguments on these points, Class Counsel concede that ‘there really are no other cases in exact parallel’ but that ‘[n]evertheless, it is helpful to highlight other cases wherein percentage set-asides in and around 5% were established.’ This is unconvincing both because the 5% common benefit fees in those cases are comparable to the 15.6% class action fee Class Counsel seek and because these aggregate fee awards generally fund counsel’s work securing and implementing aggregate settlements.”
Reason #4:
“Fourth, the $112.5 million magnitude of Class Counsel’s aggregate fee request further undercuts the argument that it only funds work securing the settlement, but that counsel must be paid extra to implement it. Fee awards at this level tend to purchase a far greater quantity of legal services than simply securing a settlement agreement,” writes Rubenstein. To illustrate this, Professor Rubenstein highlights the high discovery demands of a case in which Class Counsel received a similar fee award, which Class Counsel in the concussion settlement did not deal with since the case settled prior to discovery.
Reason #5:
While skeptical that the additional 5% is necessary, Professor Rubenstein emphasizes that the class should not bear the cost even if it should be deemed reasonable. “Class Counsel were – and remain – in the best position to secure more funding from the NFL. The Settlement Agreement that they negotiated states without qualification that ‘the NFL Parties shall pay class attorneys’ fees and reasonable costs.’ The rest of the provision simply provides that the NFL will not oppose an award of $112.5 million. . . nothing in the Settlement Agreement bars Class Counsel from seeking that amount [the 5% holdback estimated at approximately $45 million] from the NFL now, other than the fact that they would have to convince this Court, over the NFL’s objections, that they deserve that amount. If they are not confident they can make that showing, it hardly seems right to instead seek to extract the money from their own clients.”
Reason #6:
Stated succinctly by Professor Rubenstein, “[I]if there is a disjuncture between when Class Counsel seek to get paid and when they will have to finish the work embedded in that payment, the solution is not to pay them more money but to stagger their present payment to align with the work.”
To illustrate, the professor explains that in awarding Class Counsel $90 million of the $112.5 million fund now and then investing the remaining $22.5 million based on a 4.5% investment return the funds would allow payment to Class Counsel of $1 million per year for the duration of the 65 year settlement term.
The Court should set a presumptive 15% cap on all contingent [attorney] fee contracts.
The first 33 pages of Professor Rubenstein’s 48-page report focus on individual attorney fees and the 15% cap that he recommends. This issue is more nuanced and controversial that the 5% holdback which apparently only Mr. Seeger supported.
In the week following Professor Rubenstein’s recommendations, I spoke with numerous people – Class Members, Objectors, and individual counsel ranging from executive and steering committee members with hundreds (and cumulatively thousands) of clients to lawyers who represent only a small number of retirees or their representatives (most of whom spoke under conditions of anonymity) in order to gain as much perspective on the issue as possible. I did not contact Mr. Seeger for comment as he has not responded to me in the past. “We are reviewing the report and will respond per the schedule set by the court,” appears to be a blanket statement he has issued to various media in regard to Professor Rubenstein’s report.
Professor Rubenstein begins the explanation of his decision in regard to contingency fees with the following statement:
“I am aware my recommendations would reduce the amount of attorney’s fees that the class members in this case would be required to pay their lawyers. In making these recommendations, I strongly believe that contingent fee lawyers – and class counsel – serve a valuable social function. They deserve to be paid for that work. At the same time, the class action nature of this case means that the Court has a fiduciary duty to the absent class members:it must ensure that the legal fees that they pay are not unreasonable, particularly given the many different types of lawyers in a case of this structure.”
He emphasized his belief that controls are necessary in a class action such as this which deals with vulnerable plaintiff such as the cognitively impaired retired football players in this case.
To aid in his evaluation of whether or not it was proper for the court to limit contingency fees, Professor Rubenstein relied on Third Circuit precedent:
While the settlement is in fact, uncapped, Professor Rubenstein states that both Co-Lead Class Counsel and NFL Counsel are in agreement as to the “value” of the settlement as equal to the original amount of $720 million; Professor Rubenstein calculated accordingly. By his calculations the $112.5 million in a common fund for attorney fees, which the NFL agreed it would not contest, would bring the percentage of Class Counsel fees and expenses sought in this figure to about 15.6% of the settlement value.
Those who would stand to be compensated from this fund include the Court-appointed leadership structure of two Co-Lead Counsel (Christopher Seeger and Sol Weiss) as well as a six law firm Executive Committee, and eight lawyer Steering Committee, and three liason counsel. Of the attorneys here, Arnold Levin, Diane Nast, Gene Locks, and Steven Marks were designated as Sub-class counsel. Including and in addition to these attorneys and their firms, 24 firms were included in Chris Seeger’s fee allocation petition that would divide the common benefit money.
Before delving further into Professor Rubenstein’s report, it is worth stating that much confusion among the class of retired players and their representatives has arisen from this designation. A large number of class members felt that since the NFL was compensating attorneys from this fund they no longer owed the individual contingency fees they agreed to when they first hired their attorney, some not realizing that the work to be compensated here was on behalf of the entire class whereas the contingency represented work done for the individual client.
Further adding to the confusion Chris Seeger in his class action notice advised players that, “You do not have to hire your own attorney,” and at least one NFL team advised players not to hire private counsel. Furthermore it was represented to the players that the claims process would be simple enough for a neurologically impaired person to navigate. As a result, many players fired their attorneys. Others who weren’t quite ready to go it alone shopped around and found an attorney who charged lower fees than the counsel they had originally retained. Still, others were poached from the lawyer they started with by unscrupulous attorneys who thought there was easy money to be made. Many firms, in order to retain their clients, and in view of reduced risk after the settlement was agreed to, reduced their original contingency fees.
While much has been said questioning neurocognitively impaired players being able to comprehend the pitches of predatory lenders, much less has been said regarding the challenges of these same neurocognitively impaired men to be able to make sense of attorney fees in light of the chaos involved.
Later in the process, Seeger presented his proposed fee allocations in a lodestar and multiplier format which sought the lion’s share of $70.4 million of the $112.5 million of the common benefit for his own firm, leaving the remaining $42.1 million to be divided among the other 23 firms. In doing so, he discounted the contributions of the lawyers who initiated the early lawsuits and put the legal strategies in place, as well as those who sought to bring positive media to the players’ plight, and those who worked to inform the retired NFL community about the settlement; in other words, the groundwork that would force the NFL to settle after Seeger spent only ten days informal negotiation with the League was considered trivial by Mr. Seeger.
Seeger’s fee allocation proposal gave most of these firms a multiplier of “1” which would be a break-even point for the expenses and labor they submitted; four firms were given a “.75” multiplier which means that they will lose 25% of their investment in work for the case, leaving all of them still dependent on individual contingency fees should they hope to turn any profit from the years of work invested. This is in stark contrast to the 3.85 multiplier that he assigned his own firm.
Professor Rubenstein indicated that he sought to strike the correct balance in compensating the players for whom the settlement was reached and the attorneys who made it possible and explained that the NFL Concussion Settlement is atypical of most class actions:
“Class members rarely have individually retained lawyers because class suits typically involve small amounts of money. Indeed, it is the meager nature of most class members’ claims that underlies the need for aggregate litigation: in small claims situations, class members will attract legal representation only by aggregating their claims and funding the lawyer’s fees out of the joint recovery.”
This situation differs from the one described by the Professor in that the recoveries negotiated in the settlement are considerably larger and a vast majority of the plaintiffs were a part of other lawsuits for which their contingency fees were incurred, and had they not been consolidated into the MDL would have merited the individual litigation.
“The Court has a fiduciary duty to the absent class members not in the abstract but explicitly as to those class members’ relationships with their lawyers. While that duty typically focuses on class counsel, in a case of this structure, it does not end there. IRPAs [individually retained plaintiff’s attorneys] are each under this Court’s direct supervision as they are representing members of a class that this Court certified and seeking a share of client recoveries coming from funds administered by this Court. The Court has already involved itself in class members’ relationships to IRPAs by authorizing a notice that informed class members that they did not need their own attorneys. That notice may have confused class members who had already contracted with IRPAs about the residual meaning of those contracts. Class members contracting with IRPAs may also be unaware of the fact that Class Counsel is effectively seeking 15.6% of their recoveries, especially as the settlement is structured in a way that may obscure that fact.”
To simplify, Professor Rubenstein considers the $112.5 million common benefit fund for attorney fees part of the award to class members, and using the perceived value of the settlement arrives at the cost of this fund to class members at 15.6 percent of their cumulative settlement award, even though due to the settlement terms it is largely viewed separately and will not directly impact award money available. He added the amount of various contingency fees from independent counsel which in certain instances were up to 40% to conclude that a control needed to be set in place.
“In this case, Class Counsel settled the entire case after briefing one dispositive motion, without undertaking any formal discovery, without significant motion practice, without summary judgment briefings, and without preparing for, much less engaging in, a class (or even one bellwether) trial; no IRPA will need to undertake these tasks either. One of the firms designated as Class Counsel [Gene Locks ECF 8709] . . states that ‘[t]his is the only mega fund case in which there was no paper discovery, no depositions, no motion practice, no litigation, no trials, no trial activity.’ Given the relatively streamlined nature of the litigation, the clients’ total fee payments should be far less than, in some instances, 60+% of their recoveries.” [Rubenstein’s calculations consists of individual contingency fees plus the common benefit fund which he valued at 15.6%]
Questionable actuaries
Professor Rubenstein’s decision to cap individual attorney fees was also based on his study of the NFL’s actuaries on which anticipated payments are based:
“[D]espite the large dollar figures of potential individual recoveries in this case, the actuarial data prepared by the parties reveal that the vast bulk of the class will receive no money from the MAF and the vast bulk of the players who do receive money will receive relatively small amounts. While about 20,000 class members have registered for the settlement, the actuarial studies estimate that the MAF will make payments to a total of 3,488 players and that 2,123 of those (61%) will be paid at or after the age of 80. Most of those players (2,036) are expected to have Level 2 dementia, Alzheimer’s, or Parkinson’s and will likely receive $50,000, as adjusted for inflation, while another set (77) are expected to suffer from Level 1 dementia and will likely receive $25,000. Put more simply, about 61% of the players who will get paid are projected to receive $25,000–$50,000 (expressed in today’s dollars) at some future date – and each will be required to satisfy liens out of their recoveries as well. These recoveries are so small that permitting counsel to take 60+% would be particularly troubling. In a footnote, Professor Rubenstein adds: Class Counsel’s expert reaches similar conclusions. He predicts that 2,457 payments out of 5,899 (41%) will be made to players 80+ and that most will be for $50,000 illnesses. ECF No. 6167-3 at 55.
While Professor Rubenstein’s conclusions based on NFL and Co-Lead Class Counsel’s actuaries presented to him seems well thought out and completely reasonable, most people I’ve spoken with agree this represents an extremely low claims approval rate. Sources with access to the information tell me that currently $3.5 billion worth of claims are in the cue and most of these are players have pre-effective date, established diagnoses. The delays players are experiencing with their claims seem to be rooted in the fact that the NFL either doesn’t believe that many legitimate claims exist or if they do, they are working to mitigate their losses through the recent controversial changes to settlement terms which have been characterized as “procedures.”
Class action fees should be lower than separately litigated lawsuits
“[B]ecause this is a class action lawsuit, a class member’s fees should generally be lower than they would be if each player had needed to litigate separately,” Professor Rubenstein wrote, explaining, “Many litigation tasks can be done once, not 20,000 times.”
His assessment in this regard appears to be well reasoned, at least in regard to the class as a whole, and firms with large numbers of clients. For instance, an email notification to update class members can be composed and typed once and then sent out to numerous clients simultaneously. In regard to legal research for firms who contributed to securing the settlement, this is done once and the cost of the same could be considered distributed among the various plaintiffs. Other tasks cannot, however, be consolidated. Each phone call for general information or one regarding a specific claim must be handled on a one-on-one basis for each client. Medical records must be obtained and evaluated individually. The claims process has become more complex than anyone anticipated, therefore the handling of each claim has become very much an individualized and time-consuming effort.
Three Classes of Attorney Fees
In examining attorney fees Professor Rubenstein concluded that two key events divide the case into three phases for purposes of evaluating the reasonableness of contingent fees.
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Phase 1 – Individual litigation. Lawyers who contracted to represent players prior to the proposed consolidation of these actions into an MDL on November 15, 2011 faced the prospect of pursuing the entire case themselves, perhaps even through trial, and fee arrangements reflecting those large contingencies would have been expected and appropriate. In my data base of lien filings, 3.3% of the retainer agreements for which the attorney reported the contract date were entered into in this phase of the case, with an average fee of 40%.
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Phase 2 – MDL. Arguably, from the time that the NFL made its motion to consolidate these cases into an MDL (November 15, 2011) – and certainly, from the time the motion was granted (January 31, 2012) – lawyers contracting to represent clients were well aware that the costs of doing so had been greatly reduced: pre-trial proceedings would now be consolidated and undertaken once and the likelihood that any case would be remanded for trial declined significantly. In my database of lien filings, 60.2% of the retainer agreements were entered into after the NFL’s MDL consolidation motion and before the parties announced their first proposed settlement, and, despite the streamlined nature of the action, the average contingent fee remained at about a third of a client’s recovery (32.1%).
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Phase 3 – Class action settlement. Once the leadership committee in the MDL proposed an aggregate class action settlement in August 2013, and especially after the Court granted preliminary approval in July 2014, it became apparent that IRPAs would be primarily responsible only for processing their clients’ claims through the claims facility. In my database of lien filings, 8.6% of the contingent fee contracts were entered into following announcement of settlement but before preliminary approval was finally granted (still with an average fee of 31%) and then a full 27.9% of the contingent fee contracts were entered into after the class action settlement had been preliminarily approved on July 7, 2014, with lawyers seeking an average fee of 25.9% for assisting their clients in the claims process.
The primary factors involved in Professor Rubenstein’s decision to cap contingency fees seems to be based on Third Circuit direction to evaluate “whether events occurred after the fee arrangement was made which rendered a contract fair at the time unfair in its enforcement.” He appears to view the declining risk as the settlement as progressed through the three phases he described and now views the primary work as claims filing.
For the most part this is true, the attorneys who have been a part of the litigation since Phase 1 developed the legal strategies, worked with the media, addressed ethical concerns, and embarked on wide-scale communications with players in order to secure a potential class that would bring the NFL to the settlement table if the lawsuit became a class action and would have taken on the full responsibility of litigating for their clients had that not taken place. While Chris Seeger seemed to feel these actions were insignificant in regard to allocation of common benefit fees, Professor Rubenstein appears to disagree.
“Some IRPAs argue that they undertook significant amounts of important legal work on behalf of their individual clients prior to the creation of this MDL102 and/or accumulated so many clients that they really laid the groundwork for this band of cases and this settlement. To the extent those arguments are factually accurate, those lawyers may be entitled to more than a 15% fee. That said, it also seems somewhat unfair to their clients that those clients should pay a greater amount of their recovery because their lawyers were so important to the whole case. Accordingly, if these lawyers are able to demonstrate the importance of their individual work for the common good – Co-Lead Counsel disputes the value of these contributions – it would make more sense to compensate them from the common benefit fund than to tax their own clients for additional fees above the 15% cap.”
This seems to be a fair assessment. Since the work benefited the class as a whole, why should the clients of attorneys in this group bear the extra cost burden when funds have been allotted for this purpose? With the addition of Professor Rubenstein’s recommendation in this respect, hopefully, the court will concur with the logic and reject Seeger’s self-centric proposed allocations.
Professor Rubenstein states that he derived the 15% figure as a “market value” since numerous attorneys reduced their contingency fees to 20% – 25% after the settlement agreement was accepted by the Court. He deduced that since these attorneys recognized the possibility that a 5% holdback could be deducted from their fees (pro se class members would have this deducted directly from their award) this would equate approximately with the value they agreed to in their adjusted fees. Rubenstein opposes this additional 5% but recommends that should the Court approve it, attorney fees should be capped at 20% to compensate the difference.
Based on his study of prior cases, Professor Rubenstein came to the conclusion that the filing of claims would be a simple process that a lower-tier person at the law firm should be able to perform.
“[R]egardless of the ‘quality’ of an IRPA’s work, his or her efforts generally did not ‘substantially contribute’ to the “the results obtained” given the aggregate resolution of the case. It may be that if an IRPA provides ‘quality’ representation in shepherding her client through the class action claims process, her client’s recovery will be more fulsome and hence she could argue that she ‘substantially contributed’ to the ‘results obtained’” But since the claims’ values are pre-established and based on medical diagnoses, the most an IRPA can do is ensure her client receives his fair share. An IRPA should be able to serve her client to this level without need of 30–40% of that award.”
Whether the complexity of claims processing in the Concussion Settlement, especially in regard to the large number of dementia cases was known to Professor Rubenstein or not is unknown.
Law of unintended consequence?
As mentioned earlier, I polled a number of attorneys in regard to their opinions of Professor Rubenstein’s report. They expressed unanimous agreement with the professor’s recommendation to abandon the 5% set aside; of course this is not a surprise since from the beginning Chris Seeger was the only attorney supporting this.
Opinions were mixed in regard to the 15% cap. “Seeger won,” a couple of attorneys said as they feel their contributions as independent counsel were marginalized even further as Seeger has according to declarations on the court record and by account of numerous lawyers frozen what he apparently sees as competing counsel out of the decision making processes and kept them to large degree out of the information loop. For those who have been involved with the case since Phase 1, this could be somewhat rectified with a more equitable distribution of the common fund.
Others said the contingency fee cap would make it more difficult to provide the personalized service they wish to for their clients since the claims process is not “simple” as it was sold to the Class and even the other counsel. One lawyer told me that he would not be accepting any new settlement clients due to the amount of time necessary to properly submit and advocate claims for the relatively low return.
Attorneys must now become an expert at evaluating medical records and comparing the information to the ever-changing requirements for claims processing to ensure their clients have the best shot at approval. After submission, a battle with the Claims Administrator typically ensues, often on a daily basis for attorneys with numerous clients. Most, however, seem to be of the school of thought, “it is what it is,” and will continue to work diligently to shepherd their clients’ claims through the onerous process.
Others seem to be in agreement with Professor Rubenstein – that he “got it very right.”
While opinions are mixed, some attorneys seem to feel that Judge Brody is paying closer attention to the case and to Chris Seeger, and pulling the reins in a bit in order to get the settlement working as it should be. Special Masters have also entered two decisions (here and here) that seem well reasoned and fair. Attorneys and pro se plaintiffs have until January 3 to respond, either encouraging the court to accept Professor Rubenstein’s recommendations or voicing any objections to them. Professor Rubenstein has until January 22 to respond. I anticipate a ruling on the fees around mid-February. If Judge Brody does go with the Professor’s advice, this will be a positive sign that she is concerned for the well-being of the Class, and could be an indication of improvements in the near future. The settlement is at a critical juncture with only 10 percent of claims being approved and strong claims averaging about 9 months for approval. It is time for Judge Brody to protect the Class as well as her own legacy.
