After an article called lawyer Ted Frank a "class action settlement scourge," he wrote on one of his several blogs that he should print that phrase on his business cards. The title — bestowed by our sibling publication The Am Law Litigation ­Daily — seems fair enough. Since he started his nonprofit Center for Class Action Fairness in 2009, Frank has filed challenges to 43 settlements in 39 cases. At press time, by his count he had won settlement improvements or attorney fee reductions in 25 challenges, and lost eight. In the process he’s established himself as a unique kind of objector to class action settlements — one who rarely seeks attorney fees for himself, but who regularly objects to the fees that plaintiffs lawyers negotiate for themselves.
Some critics have argued that he simply hates class actions. "I’m not sure anyone really believes he’s in it for the reason he states — that he cares about consumers," plaintiffs lawyer James Sabella told The Wall Street Journal in 2011, while defending a settlement with Sirius XM Radio against Frank’s objections. "He wants class actions to go away entirely." Frank maintains otherwise. A settlement "in which the class unambiguously is the main beneficiary" is okay, he says: "I don’t oppose plaintiffs attorneys recovering legal fees, but their recovery should be proportional to what they’ve achieved for the class." Frank adds, "The fundamental problem in class action settlements is a conflict of interest between class counsel and their clients." The court approval process for approving settlements — and the legal test for determining a settlement’s fairness — "doesn’t always adequately scrutinize the nature of that conflict," he says.
Frank’s challenges have helped create the precedents that he says didn’t exist before. His first big win came in 2011, when the U.S. Court of Appeals for the Ninth Circuit rejected a settlement of claims over Bluetooth headsets that would have given $850,000 to the plaintiffs lawyers and $100,000 in cy pres awards to nonprofit groups working on hearing loss — but nothing to class members. "The Bluetooth decision was important because that very much established that it wasn’t enough to simply count up factors, that you had to look at whether the attorneys were self-dealing," Frank says.
Frank has continued to object to cy pres awards, which are usually charitable donations paid from unclaimed settlement funds. On February 19 a panel of the U.S. Court of Appeals for the Third Circuit rejected a proposed $35.5 million settlement of an antitrust class action against manufacturers of baby products, largely because $18.5 million would have been given in cy pres awards to charities. (In the suit, plaintiffs firms had accused Toys "R" Us and Babies "R" Us of coercing manufacturers to inflate prices for car seats, strollers, and other high-end baby products.) According to Frank, the Third Circuit ruling was important "because it explicitly made the point that what the class actually recovered was a relevant part of the settlement inquiry, and there were a lot of judges who were simply ignoring that part of the equation."
The biggest target of Frank’s ire, however, are settlements that award what he sees as excessive legal fees to the plaintiffs attorneys. He’s currently challenging the proposed $590 million settlement of a class action brought in 2008 on behalf of Citigroup Inc. shareholders who accused the financial giant of misleading investors about the risks of its derivative business. Lead plaintiffs counsel firm Kirby McInerney has filed a request on behalf of all of the plaintiffs firms in the case that seeks $100 million in fees for 87,000 hours of work. The firm assumed a market rate of $350 – $500 per hour, which rose to almost $1,000 per hour after it applied a 1.89 lodestar multiplier.
Frank mounted a two-prong attack last December. He claimed that some of the attorneys who worked for Kirby McInerney on the case were contract lawyers with minimal expertise and experience, and contended that Kirby McInerney’s proposed hourly rate was simply out of whack for a contract attorney’s postrecession billing rate. A truer rate, he claimed, would be $25 – $40 per hour.
Kirby McInerney defended its fee request in a March 25 filing and wrote of Frank: "It is relatively easy for someone who did not do one stitch of work on the merits of the underlying case to come forward and belittle or demean the work of others." The firm argued that Frank was not qualified "to opine on the customary billing practices of the broader legal market."
Frank started his career as an asso­ciate at Kirkland & Ellis, Irell & Manella, and O’Melveny & Myers. At that last firm, he got to know politically connected partner Arthur Culvahouse Jr., before leaving in 2005 to head a liability project at the American Enterprise Institute, a conservative think tank. When John McCain asked Culvahouse to lead the vetting of potential vice presidential nominees in 2008, Culvahouse brought in Frank, who became a lead contributor to the campaign’s infamous vetting brief on Sarah Palin. In 2009 Frank left AEI to set up the Center for Class Action Fairness. The sole employee at first, he has since hired two part-time attorneys.
According to Frank, the majority of his center’s funding comes from donations, most made anonymously through a third party. He says that as far as he knows, he hasn’t received any compensation from companies involved in the settlements he’s challenged. "I haven’t asked any corporations for money, and I don’t intend on asking any corporations for money," he says. "We’ve never let our donors affect our litigation decisions." Because judges have sometimes determined that Frank’s settlements have resulted in a material benefit to the class, he has occasionally been awarded legal fees, but he says that they only account for about 10 – 20 percent of his center’s income. Since it is a nonprofit, he’s limited by tax law on how much he can ask for in fees. "If we were running this for profit, we would certainly be much, much more aggressive in fee requests," Frank says.
"But on the other hand," he adds, "because we’re a nonprofit, we don’t have to worry about, ‘Can we continue to challenge this case, or should we be asking the other side for a suitcase of money to go away?’ Because we’ve tied ourselves to the mast and we can’t ask for the suitcase of money to go away, we get better results."