UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Transcription

1 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA RYAN RODRIGUEZ, REENA B. FRAILICH, ) LOREDANA NEXCI, JENNIFER BRAZEAL, ) CASE NO. CV R(MCx) And LISA GINTZ, on behalf of themselves ) And all others similarly situated, ) HON. MANUEL J. REAL ) Plaintiffs, ) ) v. ) ) OBJECTION TO CLASS ACTION WEST PUBLISHING CORP., a Minnesota ) SETTLEMENT, FEE PETITION Corporation d/b/a BAR/BRI, ) AND INCENTIVE AWARD and KAPLAN, Inc., a Delaware Corporation, ) PETITION, AND ) NOTICE OF INTENT TO APPEAR Defendants. ) COME NOW Class Members George Schneider, 94 Tyler Street, Apartment 5, Boston, MA, Jonathan M. Slomba, 90 Oakley Road, Belmont, MA, and James Puntumapanitch, 19 Sylvan Lane, Boylston, MA (hereafter the Massachusetts Objectors ), by and through undersigned counsel, and hereby object to the proposed Settlement and petitions for attorney s fees and incentive awards in this matter, and also give notice of their intent to appear at the final fairness hearing scheduled for June 18, 2007 through undersigned counsel. Proof of class membership for each of the objectors is attached hereto as Exhibit A. I. Class Counsel Is Not Adequate Because They Have Attempted To Buy Off The Lead Plaintiffs With Excessive Incentive Awards. In order to bind class members to a settlement, the named plaintiffs must be adequate class representatives. In Phillips Petroleum v. Shutts, 472 U.S. 797, 812 (1985), the Supreme Court held that the Due Process Clause of course requires that the named plaintiff at all times adequately represent the interests of the absent class members. Adequacy of representation depends upon the qualifications and conduct of the

2 representative plaintiff. See In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, (3d Cir. 1995)(adequate class representative must continuously monitor class counsel in order to protect absent class); Kirkpatrick v. J.C. Bradford & Co., 827 F.2d 718, (11 th Cir. 1987)(class representative may not abdicate to class counsel the conduct of the case); Vermont v. Homeside Lending, Inc., 826 A.2d 997, 1012 (Vt. 2003)(adequacy requirement intended to prevent situation where named plaintiffs merely lend names to suit controlled by class counsel; named plaintiffs must monitor class counsel and protect class against competing interests of attorneys). By Order dated May 15, 2006, this Court appointed Ryan Rodriguez, Reena B. Frailich, Loredana Nesci, Jennifer Brazeal, Lisa Gintz, Kari Brewer and Lorraine Rimson as representatives for the certified class. The February 2007 Stipulation and Settlement Agreement, however, is entered into by and among only plaintiffs Frailich, Brazeal, Brewer and Rimson (the Frailich Plaintiffs ). Gintz, Nesci and Rodriguez (the Gintz Plaintiffs ) did not agree to the Settlement in February The reason was disclosed in an article that appeared in the February 25, 2007 New York Times. The Gintz Plaintiffs fired off a strongly worded 10-page memorandum to their lawyers earlier this month, accusing them of an apparent breach of their fiduciary duties to the class. See Article attached hereto as Exhibit B, at p. 5. [Lead Counsel Eliot] Disner told them that he would seek to break up the company. Id. Plaintiff Gintz was quoted as saying: This suit said, we re going to fight for monetary damages, but we re also going to fight to keep this from happening to the people who are coming up after you, for those people who are next year s class With this settlement agreement, really, BAR/BRI hasn t made one change. Not one. Exhibit B at p. 2. Ms. Gintz and her fellow dissenting plaintiffs say that the case against BAR/BRI is strong, and that it is significant that the judge hearing the 2

3 case denied a summary judgment motion by Kaplan. Id. at p. 5. The Gintz Plaintiffs are fulfilling their fiduciary duties to oversee class counsel and to look out for the interests of absent class members. The Notice of Proposed Settlement of Class Action and Hearing Regarding Settlement ( Notice ) contains this puzzling disparity, at page 3: [A]n application will be made to the Court for an incentive award of $25,000 for Plaintiffs Frailich, Brazeal, Brewer and Rimson, and $75,000 for Plaintiffs Rodriguez, Nesci and Gintz to compensate them for their participation in, and prosecution of, this case on behalf of the Class, which included, among other things, producing documents, providing written discovery, consulting with Class Counsel and members of the Class, and appearing for deposition (the Incentive Award Petition ). What could the Gintz Plaintiffs possibly have done to earn an additional $50,000 above and beyond what the Frailich Plaintiffs were seeking? How many more documents must they have produced, how many more days of deposition sat for? Sadly, the answer lies in none of this. Not to put too fine a point on it, McGuire Woods is attempting to buy the Gintz Plaintiffs off. After they went public with their opposition to the Settlement, McGuire Woods offered to sweeten their incentive awards in order to persuade them to drop their objections. 1 1 The Settlement Agreement provides that Defendants agree not to oppose, directly or indirectly, any Incentive Award application seeking no more than $25,000. Settlement Agreement at 53. It is clear, therefore, that the parties contemplated that each of the named plaintiffs would receive no more than $25,000 at the time the Settlement Agreement was executed. It is not yet clear whether Class Counsel has secured Defendants agreement not to oppose the $75,000 incentive awards, or whether the Defendants will be filing objections as well. 3

4 Nothing about the Settlement has changed between February and March. There have been no amendments as a result of the Gintz Plaintiffs public opposition to the Settlement, and there still is no structural relief that would force BAR/BRI to break up its monopoly or to permit new entrants into the bar review course market. It is simply a matter of Class Counsel attempting to enrich the Gintz Plaintiffs financial prospects to the point that they would be willing to abandon their fight for absent class members and future law school graduates. The Ninth Circuit has condemned excessive incentive awards that have the effect of driving a wedge between named plaintiffs and absent class members. If class representatives expect routinely to achieve special awards in addition to their share of the recovery, they may be tempted to accept suboptimal settlements at the expense of the class members whose interests they are appointed to guard. Weseley v. Spear, Leeds & Kellogg, 711 F. Supp. 713, 720 (E.D.N.Y. 1989) [I]ndividual class members who have actively participated in the litigation are the ones likely to be most aware of the dynamic at the negotiating table, the strength of the class claims, and the costs of pursuing the litigation. If they support the settlement agreement and are treated equally in that agreement with other class members making similarly strong claims, the likelihood that the settlement is forwarding the class s interests to the maximum degree practically possible increases. If, on the other hand, such members of the class are provided with special incentives in the settlement agreement, they may be more concerned with maximizing those incentives than with judging the adequacy of the settlement as it applies to class members at large. Staton v. Boeing Co., 327 F.3d 938, (9 th Cir. 2003). No case has ever presented such a blatant demonstration of the abuse of incentive awards warned against in Staton than this one. Indeed, in Staton there was no direct evidence that any of the lead plaintiffs who were to receive exorbitant incentive awards in fact opposed the settlement in the absence of those awards. Here, in contrast, the Gintz Plaintiffs are on record with their opposition to the Settlement on the grounds that it fails to accomplish their objectives in filing the 4

5 suit, and also fails to reflect the strong litigation prospects of the case. The inference is unavoidable that the only reason that Class Counsel is now asking for $75,000 for the Gintz Plaintiffs is because of their hope that it might be enough to buy their silence, if not their endorsement of the Settlement. 2 This is an improper use of incentive awards. While incentive awards in moderate amounts may serve a legitimate purpose, the use of excessive incentive awards to buy the silence of lead plaintiffs is improper. Class Counsel has essentially raised the cost to the Gintz Plaintiffs of continuing to oppose the settlement to an intolerably high level. The Gintz Plaintiffs are recent law school graduates with significant law school student loan debts. What Class Counsel has offered them is enough to retire all of their law school debt, and perhaps much of their overall student loan debt. Few lead plaintiffs would have the commitment to idealism and fiduciary duty necessary to withstand such enticement. It is unfair for Class Counsel to even place the Gintz Plaintiffs in that position, through what amounts to economic coercion. Incentive awards are designed to reward lead plaintiffs for work undertaken in the past on the class behalf, not as payment for things not to be done in the future. The Gintz Plaintiffs are being paid $75,000 not for anything they did during the litigation, but for what Class Counsel hope they are not going to do at the fairness hearing namely, advance their sincerely held objections to the proposed Settlement. 2 Despite the enticement of $75,000 incentive awards, the Gintz Plaintiffs did not join in the Motion for Final Approval of Class Action Settlement, and are expected to object at the fairness hearing. 5

6 Even in the absence of evidence that the Gintz Plaintiffs in fact oppose the Settlement and were persuaded to abandon their opposition only by a large incentive award bribe, the requested awards are so shockingly excessive that they could not be allowed. See Staton, supra, 327 F.3d at 977 (condemning incentive awards of up to $50,000, with an average of $30,000). Indeed, even the $25,000 incentive awards proposed for the Frailich Plaintiffs are beyond the pale based upon Ninth Circuit jurisprudence, as they almost certainly exceed their substantiated litigation expenses, and identifiable services rendered to the class directly under the supervision of class counsel. Id. II. The Class Notice Should Have Included The 10-Page Gintz Memorandum. The Gintz Plaintiffs made their opposition to the inadequate proposed settlement a matter of public record. See Memorandum attached hereto as Exhibit C. The Massachusetts Objectors adopt in full the Gintz Plaintiffs objections to the Settlement expressed in Exhibit C. That Memorandum has yet to be filed with the Court or disclosed to absent class members. It was not posted on the Settlement website. The Court should have required the Memorandum to be included in the Class Notice, or at least to be posted on the Settlement website. It is the only honest assessment of the proposed Settlement s strengths and weaknesses that this Court or the Class is likely to receive from the parties. 6

7 III. The Proposed Settlement Is Inadequate Because It Does Not Contain Structural Relief, And Because The Likelihood of Success at Trial is High. A settlement is evaluated based upon how well it achieves the objectives of the plaintiffs who filed the lawsuit, and by how it compares with the class likely recovery if the case were litigated. On both measures, the proposed Settlement fares poorly. The objectives of the class representatives are a matter of pubic record. The Gintz Plaintiffs filed this lawsuit in order to keep this from happening to the people who are coming up after you, for those people who are next year s class. With this settlement, really, BAR/BRI hasn t made one change. Not one. Exhibit B at pp Attorney Disner stated that the goal of the suit is to restore competition in the market and break up BAR/BRI so that future law school grads will have a choice and will pay reasonable prices. See LawCrossing Article attached hereto as Exhibit D. The proposed Settlement does nothing to break up BAR/BRI s monopoly, to lower their prices, or to encourage competitors to enter the market. It leaves the monopolistic pricing schedule of up to $3100 per course intact. Judged by the objectives of the people who originally filed this suit, the Settlement is an abject failure. See Exhibit C. A settlement must also be compared to the lawsuit s prospects at trial. See Molski v. Gleich, 318 F.3d 937, 953 (9 th Cir. 2003). After all, if a case is weak, a marginal settlement may be the best possible result, regardless of the plaintiff s objectives. This is not a weak case. It has survived a motion for summary judgment, which is usually the primary hurdle for a plaintiff in an antitrust case. And, perhaps more importantly, it has been certified as a class action, which raises the stakes of the case considerably for the defendant. Defendants simply do not try certified class actions in bet-the-company 7

8 antitrust actions. The chances of obtaining a much higher settlement or judgment after trial are far higher than what the Settlement represents. Plaintiffs allege damages of an average of $1,000 for each of the approximately 300,000 class members, or not less than $300 million. First Amended Class Action Complaint at 48. Plaintiffs demand treble damages under the Sherman and Clayton Acts. Therefore, total recoverable damages in this action could be as much as $900 million. If the Settlement amount of $49 million is compared to the treble damage figure of $900 million, it represents only a 5% recovery. That is clearly inadequate in this extremely strong case that has already been certified as a class action. If the Settlement is compared with the single damages figure of $300 million, it still represents only a 16% recovery. Thus, the question becomes, does this case have a greater than 16% chance of success if it were to be litigated and tried? The Massachusetts Objectors, and the Gintz Plaintiffs, think the answer clearly is yes. How could this case not have a better than 16% chance of success at this advanced stage? After all, it had at least a 50% chance of success when filed, and since then it has survived a motion to dismiss and been certified as a class action. But even if it has only maintained the initial 50% likelihood of success, that would argue for a settlement in the amount of $150 million, not $49 million. The Plaintiffs have the burden of proving to this Court that this case has a less than 16% chance of success on the merits were it to be tried. That is difficult to square with the public comments that have been made both by the Gintz Plaintiffs and by attorney Disner. The Massachusetts Objectors fear that Class Counsel and attorney Disner will now be teaming up with Defendants to denigrate their own case, one that Mr. Disner 8

9 once described as a slam dunk, in an effort to persuade this Court that it is so weak that a $49 million settlement is better than the Class could do at trial. The proposed $49 million Settlement cannot be squared with the demands made in the Complaint and the successes thus far in the litigation. The proposed injunctive relief is more than worthless; it is insulting. BAR/BRI will now include a note on the forms it uses to enroll law students into its review courses: NOTE: By signing this Enrollment Form and making an initial payment to BAR/BRI, you are not committing yourself to taking the BAR/BRI review course or making full payment to BAR/BRI for such course. One must bear in mind that the recipients of this note are law students who are taking a course in Contracts as part of their first-year curriculum. To suggest that any first year law student would not be aware that a non-refundable deposit does not obligate him or her to actually take the course or make further payments to BAR/BRI presumes that they are failing Contracts. It is black letter contract law that there would be absolutely no consideration to support a promise to take a review course three years down the line, and no reliance damages by BAR/BRI that could possibly justify specific performance. What the Settlement should have done is to make the deposit refundable should a law student decide to take a course from a competitor. That would have been a meaningful form of injunctive relief that would have freed law students from their natural reluctance to walk away from the significant investment in BAR/BRI represented by their initial deposits. Indeed, the deposit itself is a form of anti-competitive activity, since a rational student would only decide to take a course from a lower-priced competitor if the difference between BAR/BRI s and the competitor s price was more than the deposit. The higher the amount of the deposit, the higher the barrier to potential market entrants. 9

10 IV. The Cap Placed On Claimants Recoveries Is Unreasonable. The Plan of Allocation limits each class member s maximum recovery to 30% of their Recognized Claim, which is simply the amount they paid for their BAR/BRI course. There is simply no legal or equitable reason for this limitation, other than an improper attempt by Class Counsel or Defendants to benefit favored cy pres groups at the expense of the class. First, if the 30% limitation is some misguided attempt to limit class members to no more than their actual damages, the limit is too low. Plaintiffs allege that each class member suffered damages of $1000, which is 37% of the $2700 cost of a BAR/BRI course in Therefore, at the very least, the cap on class members recoveries should be raised to 37% of the amount they paid for their courses, to be consistent with the allegations in the Complaint. But this is a case brought pursuant to the Sherman and Clayton Acts, for treble damages. Therefore, each class member s maximum recoverable damages are not 37% of the amount they paid for their BAR/BRI course, but 108%. Because each class member made a claim for three times the amount by which they overpaid for their BAR/BRI review courses, each class member should be permitted to recover up to that amount as part of the Settlement. The Second Circuit recently reversed and remanded a class action settlement of an antitrust case that established a single damages cap on class member s settlement recoveries, where amounts not claimed were to be paid to cy pres charities. See Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 434 (2d Cir. 2007). The Second Circuit noted that full restitution of plaintiffs losses is a no less central objective of the treble damage provision than the encouragement of private antitrust enforcement. Id. 10

11 (quoting Hydrolevel Corp. v. Am. Soc y of Mech. Eng rs, Inc., 635 F.2d 118, 127 (2d Cir. 1980)). The court held that, in cases brought under federal antitrust statutes for treble damages, class members may receive treble damages as part of a settlement, and such an allocation is preferable to allowing funds to default to cy pres. Id. at 436. Because the class members are not limited to recovery of single damages in this case, the arbitrary cap of 30% of their Recognized Claim placed on their recoveries is unreasonable and unfair, especially when the only effect of that cap is to increase the likelihood that settlement funds will be paid to cy pres recipients rather than to class members. The Plan of Allocation should be amended to remove any cap on class members recoveries up to the amount of their Recognized Claim, i.e. the total amount they paid for their BAR/BRI courses. V. The Attorney s Fees Requested Are Excessive. Class Counsel s Fee Petition leaves no doubt about who the primary beneficiary of the proposed Settlement is. Class Counsel seek to walk away with $12 million for a little under two years work, most of that performed by one solo attorney, Eliot Disner. It would be difficult for one attorney to bill more than $2 million in lodestar to a case in less than two years, even if he had no other cases. Where an attorney was working on more than one case, generating a $2 million lodestar in one of those cases would be nearly impossible. While this Circuit adheres to a 25% benchmark rate for percentage fees, the 25% benchmark rate, although a starting point for analysis, may be inappropriate in some cases. Vizcaino v. Microsoft Corp., 290 F.3d 1093, 1048 (9 th Cir. 2002). Calculation of the lodestar, which measures the lawyer s investment of time in the litigation, provides a check on the reasonableness of the percentage award. Where such investment is 11

12 minimal, as in the case of an early settlement, the lodestar calculation may convince a court that a lower percentage is reasonable. Id. at This is such a case. The settlement of this case in less than two years from filing argues for a percentage fee lower than the 25% benchmark. This Circuit also takes into account the results achieved. In Vizcaino, the settlement achieved exceptional results for the class and benefited employers and workers nationwide by clarifying the law of temporary worker classification, which justified an upward adjustment of the benchmark. Id. at Here, in contrast, the marginal monetary recovery compared to the strength of this certified class action, and the negligible injunctive relief, require a substantial downward adjustment of the benchmark. The displeasure of the Lead Plaintiffs with the results achieved must be factored into the equation. This Settlement looks more like surrender than fair compromise, much less victory. The lawyers who achieved the exceptional results for the class in Vizcaino after nine years of litigation were awarded 28% of the fund and a lodestar-multiplier of Id. at Using those figures as benchmarks for exceptional results, this settlement after less than two years of litigation would support a percentage fee award of no more than 15%, and a lodestar multiplier of no more than 1.5. Therefore, should this Court approve the settlement, Class Counsel should receive an attorney s fee of no more than $7.35 million, or 1.5 times their reasonable lodestar, whichever is lower. 12

13 CONCLUSION WHEREFORE, the Massachusetts Objectors pray that this Court VACATE its prior class certification order because Class Counsel is no longer adequate, DENY approval to the proposed Settlement, and/or award Class Counsel an attorney s fee that is no more than 1.5 times their reasonable lodestar. Respectfully submitted, George Schneider, Jonathan M. Slomba, and James Puntumapanitch, By their attorneys, C. Benjamin Nutley, Esq. (SBN ) KENDRICK & NUTLEY 468 N. Camden Drive, Suite 200 Beverly Hills, CA Tel: (310) Fax: (310) John J. Pentz, Esq. (pro hac vice pending) Class Action Fairness Group 2 Clock Tower Place, Suite 260G Maynard, MA Phone: (978) Fax: (707) Clasaxn@earthlink.net 13

14 CERTIFICATE OF SERVICE The undersigned hereby certifies that the foregoing document was served by on May 14, 2007 upon the following counsel: Eliot G. Disner McGuire Woods LLP 1800 Century Park East, 8 th floor Los Angeles, CA Steven F. Molo Shearman & Sterling LLP 599 Lexington Avenue New York, NY Bradley S. Phillips Munger Tolles & Olson LLP 355 South Grand Avenue Los Angeles, CA C. Benjamin Nutley 14