A federal judge has reviewed—and approved—an excessive fee settlement agreement, albeit with some modifications.
The participant-plaintiffs in this case are Salvador Aquino, Susan Ford, Monicalayle Garcia, Barbara Kraus, Martha Lopez, Francisco Martinez, Megan Sargent[i]—bringing suit on behalf of the 99 Cents Only Stores 401(k) Plan against 99 Cents Only Stores LLC and the Retirement Committee of the 99 Cents Only 401(k) Plan. They had sued the defendants for 1) breach of fiduciary duties of prudence and loyalty, and for 2) breach of fiduciary duties in violation of the duty to investigate and monitor investments and covered service providers—pretty standard, near cookie-cutter type allegations[ii] for this type proceeding.
The parties in the suit—filed on March 25, 2022—with a settlement announced just over a year later—had recommended $750,000 in cash, attorneys’ fees of 33 1/3% of the gross settlement (but set at a maximum of $250,000), attorney expenses of $82,000, and plaintiffs’ Case Contribution Awards of $10,000 for each of the plaintiffs named in the suit. The plan was smaller than most named in this type of litigation; just $76 million, representing the balances of some 5,700 participants.
That said, Judge Sherilyn Peace Garnett spent some time reviewing and commenting on the terms (Aquino v. 99 Cents Only Stores LLC, C.D. Cal., No. 2:22-cv-01966, order docketed 1/4/24). She noted that plaintiffs’ counsel adequately represented the class in pursuing the action, that it was the result of arm’s length negotiations (“the Parties have spent a substantial amount of time negotiating the specific terms of the Settlement Agreement”), that “continued litigation would likely be lengthy and complex, especially given the likely need for expert testimony from the Parties”—and a likely appeal. Moreover, she noted that while the “plaintiffs estimate a 100% success rate at trial for their claims of excessive recordkeeping fees and share class violations, but a 50% chance of success as to their claims regarding the Plan’s performance,” the agreement called for a recovery of 25% of the total potential damages to be sought at trial. “Given the lower estimated success rate, the high cost of continued litigation, and the independent fiduciary’s report, the proposed settlement amount appears fair and reasonable,” she wrote.
Attorneys’ Fees
As for the attorney[i] fees—requested at a third (33 1/3%) of the total recovery—Judge Garnett noted that “courts may adjust the percentage of the common fund as appropriate under the circumstances,” and that “if a requested award is an upward departure from the 25% benchmark, even if the defendant agrees to pay it, courts apply the following factors (the ‘Vizcaino factors’): ‘(1) the results achieved, (2) the risk of litigation, (3) the skill required and quality of work, and (4) the contingent nature of the fee and the financial burden carried by the plaintiffs”—and she chose to use the lodestar method[ii] to “cross-check” reasonableness.
Starting with the results, Judge Garnett noted that the settlement was 25% of the Class’s total potential damages for all claims of approximately $3,000,000, which she termed an “exceptional result,” a “significant benefit to the Class,” and “an impressive result.” She also found that as “continued litigation would likely be lengthy and complex,” the risk of litigation was high. As for the third factor (skill required and quality of work), she noted that “both counsel ‘for...Plaintiffs and Defendants have experience litigating ERISA claims, and their knowledge regarding the merits of the case is strong considering the extensive discovery conducted and the number of issues contested in this case.” However, with regard to the latter factor, she commented that “considering the relatively low number of hours spent working on this case…the Court finds that this factor does not weigh in favor of the upward departure.”
Speaking of which, that brings us to the lodestar reasonability check. Commenting that “to calculate the lodestar, the court must multiply the number of hours the attorneys reasonably spent on the litigation by the reasonable hourly rate in the community for similar work,” she noted that “the submitted hourly rate and hours worked are reasonable. Class Counsel’s submitted hourly rates range between $625 per hour and $925 per hour for attorneys and $215.00 per hour for her paralegal”—and she also felt that the multiplier was within the range approved by the Ninth Circuit.
“A lodestar cross-check confirms that a 1/3 fee award is reasonable as it only represents a slight multiplier of approximately 1.07,” Judge Garnett wrote. “On balance, then, the Court finds that the proposed upward departure for the attorney award is justified given the above factors.”
Service Awards
While the settlement proposed service awards of $10,000 each for the named plaintiffs in the action, Judge Garnett felt that was a bit high. She acknowledged that notice of that amount had been shared with the class with no objection, but “according to the Declarations filed, most of the named Plaintiff have spent “over 50 hours” litigating this case, though some “approximately 20 hours.” Moreover, in comparing that amount to the recoveries to class members, that would be “over twice the amount of the estimated highest gross settlement payment, which is $4,063.58, and roughly 115 times greater than the average gross settlement payment of $87.53.” She then commented that “given the average time spent for the named Plaintiffs as well as the proportion between the average gross settlement payment and the requested $10,000, $10,000 is not reasonable. Instead, the Court holds that $7,500 is a better reflection of Plaintiffs’ efforts, amount of time spent, duration of litigation, and personal benefits accrued.”
And approved the settlement agreement, as modified.
What This Means
As we’ve noted before, there’s little to be gleaned from the terms of a settlement, other than this judge’s review of the reasonableness of a an attorneys’ fee of a third of the settlement amount (where 25% was seen as a more “normal” range), and her decision to trim the proposed cash award given to the individuals named in bringing the suit with a comparative eye toward the amounts likely to be recovered at a participant level (a first, to my reading of these).
Beyond that, it seems worth acknowledging that the plan involved is relatively small—and the time from filing suit to reaching a settlement relatively short. Neither of which would seem to be encouraging portents.
[i] Christina Humphrey Law PC and Tower Legal Group PC.
[ii] Basically, the lodestar method involves multiplying the number of hours reasonably devoted to the case by a reasonable hourly rate—the latter may, of course, vary based on the geographical area, the nature of the services provided, and the experience of the attorneys. And, of course, what’s deemed “reasonable.”
