At least eight objectors have appealed approval of the $142 million class action settlement over Wells Fargo’s “fake accounts” scandal, many alleging that plaintiffs lawyers were not entitled to $21.3 million in legal fees.
The objector appeals, filed on Nov. 5 in the U.S. Court of Appeals for the Ninth Circuit, are the latest challenge to the settlement, which has been hamstrung by increased costs of administering the funds. The objectors argued that class counsel at Seattle’s Keller Rohrback spent limited time litigating the case, which settled after several government investigations found that Wells Fargo and Co. had set up unauthorized bank accounts for 3.5 million of its customers.
“This action did not uncover Wells Fargo’s wrongful conduct, but instead piggybacked on the state and federal enforcement actions to demand civil damages while the government actions sought fines,” wrote objector lawyer John Pentz, of Sudbury, Massachusetts, in his appeal. “A court abuses its discretion when it fails to appropriately discount attorney’s fees to account for government assistance that led to the settlement or contributed to the amount of the settlement.”
Other objectors raised issues with whether U.S. District Judge Vince Chhabria of the Northern District of California sufficiently analyzed the various state laws before certifying a nationwide class action settlement. They cited In re Hyundai and Kia Fuel Economy Litigation, a Jan. 23 order in which the Ninth Circuit de-certified a nationwide class action because the district judge had failed to analyze the consumer laws of several states before approving the deal.
“He didn’t do any analysis as to which if California law should govern or any really any analysis at all,” said Cameron Christensen of Christensen Young and Associates in Sandy, Utah, who filed an appeal on behalf of another objector. “He just breezed over that.”
Lead plaintiffs counsel Derek Loeser, a senior member at Keller Rohrback, did not respond to a request for comment. Other lawyers for the objectors either did not respond or declined to comment.
A spokesman for Wells Fargo, represented by David Fry at Munger, Tolles & Olson in San Francisco, declined to comment.
The case alleged that Wells Fargo opened accounts on behalf of its customers without their consent beginning in 2009. Wells Fargo fired thousands of employees. Several executives, including its CEO, resigned or appeared on Capitol Hill.
In 2015, Chhabria granted Wells Fargo’s motion to compel arbitration in one of the cases. While that order was on appeal, the company reached settlements with government regulators, including the Consumer Financial Protection Bureau, totaling $190 million. Only $5 million of that payment went to customers.
The consolidated class action originally settled for $110 million last year. Wells Fargo later upped that figure to $142 million. However, after Chhabria granted preliminary approval of the deal, an outside review discovered another 1.4 million unauthorized accounts, prompting a delay in final approval, which Chhabria eventually granted on June 14.
Chhabria also gave $21.3 million in fees to class counsel, concluding that the award, at 15 percent of the total settlement fund, was well below the Ninth Circuit’s benchmark of 25 percent.
But administering the Wells Fargo settlement has been a complicated task. Court records indicate Chhabria as well as several state attorneys general raised concerns about the notices sent to potential class members.
As a result, the costs of administering the settlement, a task undertaken by Rust Consulting, had increased substantially and, at times, resulted in what Loeser called “downright fighting,” according to a March 22 hearing transcript. Loeser predicted at that hearing that the costs of administering the settlement would exceed $10 million, though Wells Fargo had agreed to pay much of that.
The case raised what Chhabria called “a burgeoning concern about the administration of class action settlements.”
“I think it’s a real problem in class action settlements that the court grants final approval and then gets out of the process, in class action settlements,” he said at the March 22 hearing, according to the transcript. “I’m increasingly thinking that there needs to be, maybe, in a certain category of class action settlements, or maybe in all class action settlements—I’m not sure yet—a third level of review.”
At the settlement’s final approval hearing, on May 30, Chhabria declared that in all his class action cases, he would require plaintiffs lawyers to file a “notice of completion of duties at the end, after the settlement has been fully administered and everybody’s gotten their checks and all the money’s been accounted for.” Until those duties are completed, he noted he would withhold a certain percentage of attorney fees—in this case, 10 percent.
He followed that with an order on June 14. The order is similar to new guidelines issued on Nov. 1 by the Northern District of California that include providing data about class action settlements after final approval.
On Nov. 2, Loeser filed a motion to withdraw 25 percent of the attorney fees from the settlement fund, promising to repay the amount should the Ninth Circuit vacate the settlement.
In a separate appeal, S. Clinton Woods, of San Francisco’s Audet & Partners, representing two objectors, is challenging Chhabria’s May 29 order denying his request for nearly $1.3 million in legal fees due to “significant contributions” that his firm achieved for the settlement.