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The concept of fiduciary duties has existed since the inception
of the legal profession and plays an integral role in class
actions. Class counsel serve as both advocates and fiduciaries to
members of the class and are charged with acting in the best
interests of the class. The court also serves in a fiduciary
capacity to members of the class. What happens when class counsel
acknowledges that "mistakes were made" in violation of
their fiduciary duties to their clients?
"Mistakes were made" constitutes the ultimate in
lawyer-speak. The phrase acknowledges wrongdoing, yet manages to
pin the blame on absolutely nobody. In Plumbers Union Local No. 12 Pension Fund v.
Ambassadors Group, Inc., a recent securities class action
that settled in the Eastern District of Washington, class counsel
admitted that "mistakes were made" in computing
reimbursements for expenses. These mistakes, in turn, caused the
judge to don his auditor's hat and to examine the firm's
billed hours and hourly rates before concluding that the law
firm's "mistakes" amounted to more than mere
"oversights."
The instant case came before the court when class counsel filed
a motion for settlement approval. Faced with what the court found
to be excessive fees and expenses, the court sua sponte
issued an interim memorandum in late February 2012 detailing its
concerns over class counsel's proposed fees and ordering class
counsel to respond to the court's concerns so that the court
could determine future actions. The court highlighted that in class
action cases, it possesses a fiduciary duty to members of the
class. In its fiduciary role, the court bears the responsibility of
ensuring that the attorneys receive "necessary and
reasonable" attorney fees.
In a subsequent opinion, the court wholeheartedly embraced its
fiduciary role. In determining "necessary and reasonable"
fees, the court placed values on the amount of time it estimated
each particular lawyer task would take. The court estimated that
one of the partners overbilled the clients by 40 hours for
completing settlement documents. The court also determined that the
rates charged by the firm were excessive.
The court then chided class counsel for attempting to claim
reimbursements for excessive expenses. Among other examples, the
firm charged its clients for a pre-mediation dinner for four
totaling $402 that included two bottles of $70 wine and a $60 tip.
The firm also purchased first-class, cross-country airline tickets
for investigators and attorneys involved in the case on several
occasions, prompting the court to note drily, "From personal
experience the court knows that an attorney or judge can accomplish
his or her work requirements while flying in the coach section of
an aircraft." In total, the court determined that the firm had
over-claimed reimbursement expenses by over $100,000.
Faced with such egregious overbilling, the court determined that
class counsel acted with "reckless disregard" to accuracy
of its submittals for reimbursement and formally notified counsel
of its intention to apply sanctions in the form of a formal
admonition or a formal written reproval. While class counsel had
obtained a fair and reasonable settlement for its clients, and
while it was still entitled to reasonable attorneys' fees and
actual expenses, the court nevertheless reiterated the importance
of properly fulfilling fiduciary roles to avoid unnecessary delays
like the present one in distributing settlement proceeds to class
members.
Counsel in class actions must remain aware of their dual roles
as advocates and as fiduciaries for their clients. Counsel should
also remain aware of the court's role as an additional
fiduciary to members of a class. Moreover, although the fee issue
did not derail the settlement in this case, defense counsel need to
recognize that inappropriate fee provisions may endanger approval
of a settlement.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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