The Second Circuit and Ninth Circuit recently issued opinions vacating class action settlements, with both courts taking issue with the attorneys’ fees awarded to class counsel. These decisions — Lowery v. Rhapsody Int’l, Inc., 75 F.4th 985 (9th Cir. 2023) and Moses v. New York Times, Co., 79 F.4th 235 (2d Cir. 2023) — teach an important lesson about courts’ willingness to scrutinize attorneys’ fees awards in class settlements, particularly where they appear disproportionate to the relief obtained by class members.
In Lowery, a putative class of individuals holding copyrights for musical compositions brought suit alleging that the music streaming service provider, Rhapsody International, had infringed their copyrights by reproducing and distributing their musical compositions without a license to do so. 75 F.4th 985, 989. Roughly three years after the suit was filed, the parties reached a settlement by which Rhapsody would pay around $50,000.00 to satisfy class members claims. Id. at 989–90.
Of course, Federal Rule of Civil Procedure 23(e) requires court approval of any class action settlement in federal court, including approval of any attorneys’ fees. Class counsel in Lowery asked the district court to approve more than $6 million in attorneys’ fees, but the district court approved an award of only $1.7 million. Id. at 990–91. Nonetheless, on appeal, the Ninth Circuit vacated the district court’s attorneys’ fees award, holding that even the lowered fee award was not reasonable given that “the $1.7 million fee award is more than thirty times larger than the amount paid to class members.” Id. at 990 (emphasis in original). The Ninth Circuit emphasized that when assessing the reasonableness of a fee award, courts must consider the actual value (both monetary and non-monetary) of the settlement to the members of the class to “assure that the counsel’s fee does not dwarf class recovery.” Id. at 994(quoting In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 945 (9th Cir. 2011)). The Ninth Circuit thus remanded the matter and instructed the district court to reassess the award’s propriety.
Similarly, in Moses, the Second Circuit also focused on the disparity between class relief and the attorneys’ fees award in vacating a class settlement between the New York Times and a class of subscribers claiming violations of California’s Automatic Renewal Law. 79 F.4th 235, 239, 243–46. The Second Circuit held that the district court erred in failing to consider the $1.25 million fee award when assessing the fairness of a settlement that provided roughly $395,000.00 to satisfy the cash claims of approximately 876,000 potential class members. Id. at 241. The court instructed the lower court on remand to apply the correct standard by “taking into account . . . the terms of [the] proposed award of attorney’s fees” when assessing whether the overall settlement was reasonable. Fed. R. Civ. P. 23(e)(2)(C)(iii).
Taken together, these recent decisions from the Second and Ninth Circuits serve as a reminder to practitioners to consider whether contemplated attorneys’ fees awards in class settlements are reasonable in light of the settlement’s benefit to the class. Failure to account for this consideration could result in wasted time, additional fees, and ultimately, the settlement’s rejection.