Call it a case of pro bono gone awry.
When Manhattan federal district judge Colleen McMahon issued an order approving a proposed settlement between a class of roughly 26,000 tenants—represented by a Jenner & Block team led by litigation partner Richard Levy—and New York–based property manager the Pinnacle Group on June 6, 2012 [PDF], the end of a six-plus-year legal battle appeared at hand.
The proposed settlement did not compel Pinnacle—which the plaintiffs claimed had harassed and imposed illegal rent increases on rent-controlled and rent-stabilized tenants in some of its nearly 15,000 New York apartments—to admit wrongdoing. The company did, however, agree to a lease audit and two-year injunction period during which it would be monitored to ensure adherence to terms of the settlement that called for class members to be compensated for past rent overcharges; unnecessary billings and fees stemming from eviction proceedings; and Pinnacle’s alleged harassment and violation of the aggrieved tenants’ rights. Pinnacle and its owner, Joel Wiener, also agreed to pay $2.5 million to cover the legal fees and counseling costs of specific legal and tenant-rights groups chosen to oversee the settlement’s enforcement.
Though McMahon called the settlement “fair, reasonable, and adequate,” its terms—and how they were reached—upset some members of the class. As a result, tenants who for years fought alongside the Levy-led team are now fighting to scuttle the agreement Jenner’s lawyers reached on their behalf. Among their complaints: that tenants did not have enough input in the proposed settlement; that the agreement does not clearly establish which tenants are entitled to compensation; that Pinnacle is only being held responsible for overcharge claims dating to 2004; that class members are being offered less in damages than similar claims brought in state court typically yield; that Pinnacle—rather than the tenants—got to pick which tenant groups will control the settlement funds; and that Jenner does not deserve the $1.25 million in fees and $200,000 it is slated to collect in connection with the settlement.
The objections are detailed in a pair of appeals filed with the U.S. Court of Appeals for the Second Circuit by two separate groups of class members seeking to upend the settlement—one made up of the five class representatives, the other composed of three other objectors—in July and consolidated in October. While appellate briefs in the case have now been filed, oral arguments have not yet been scheduled. In the meantime, Levy says, the objectors’ protests are undermining the enforcement of what he believes is a fair settlement.
“All these 26,000 people are simply being deprived not only of the dollar remedies but of the benefits of the injunction and so forth,” he says, adding that it is “pretty rare” in a class action for all of the class representatives to oppose a proposed settlement. (Matthew Chachere, an attorney representing some of the tenants appealing the settlement, agrees and says he could not find a record of it ever happening in the Second Circuit.)
Now in its seventh year, the Pinnacle case—and the ongoing dispute between attorney and client—appears to be something of an oddity in the annals of pro bono. “I think this is a relatively rare occurrence,” says Pro Bono Institute president and CEO Esther Lardent, while noting that class actions involving landlord-tenant and employment-related disputes are more likely than other kinds of cases to see plaintiffs chafing at settlement terms. Julie Carpenter, a Washington, D.C.–based Jenner litigation partner who serves as one of four cochairs of the firm’s pro bono committee, says she is unaware of any similar cases involving Jenner. “My sense is this is kind of uncharted territory,” says Carpenter, adding that she is most familiar with the D.C.–based matters the firm takes on.
That Jenner specifically would find itself in such a position is unusual as well. After all, the firm has topped The American Lawyer‘s annual pro bono survey four out of the last five years, with the latest edition showing Jenner lawyers compiling an annual average of nearly 155 pro bono hours apiece. The firm’s recent pro bono triumphs include helping client Juan Rivera win his freedom last year nearly two decades after his wrongful conviction for killing an 11-year-old Illinois girl.
As for Levy—a Chicago-based litigator who joined Jenner as a partner in 2002 after nearly 15 years with Kirkland & Ellis—his career highlights include arguing a 1961 antitrust case before the U.S. Supreme Court, as well as decades of insolvency work and experience representing financial institutions and real estate investment trusts. While he has periodically taken on pro bono matters, he says he has never before worked on one whose magnitude equaled the Pinnacle class action. His colleagues certainly believe he has handled the case capably: He was one of three Jenner attorneys awarded the firm’s annual Albert E. Jenner Jr. Pro Bono Award last year in recognition of his work on behalf of the tenants.
A Groundbreaking Deal Runs Aground
Jenner began work on the Pinnacle case in 2006 after being contacted by then–New York City Public Advocate Betsy Gotbaum, who had learned of the tenants’ claims that the landlord was violating the city’s rent control law in a New York Times article. Representing a group of tenants using the name Buyers and Renters United to Save Harlem (BRUSH), Jenner and Levy filed their original civil RICO suit in federal district court in Manhattan in July 2007. The complaint included allegations that Pinnacle had waged a campaign of harassment in an attempt to force low-income tenants out of their rent-controlled and rent-stabilized apartments in order to make way for new occupants who could be charged higher rents. The harassment, the tenants claimed, was part of a broader Pinnacle effort to raise the value of the company’s properties.
A motion by Pinnacle, represented by Gibson, Dunn & Crutcher, to dismiss the tenants’ claims was denied in September 2008. After the company’s subsequent move to appeal the court’s 2010 certification of the tenant class to the Second Circuit failed as well, the parties began to discuss a possible settlement. Those talks concluded in August 2011, with Jenner and Levy signing the proposed settlement agreement in their capacity as class counsel on behalf of the class at large.
Though the class representatives had by that point already raised objections to the agreement, Levy says there is ample precedent to support Jenner’s decision to override those objections. “Class counsel’s fiduciary and professional duty is to the class as a whole, not to the class reps,” he says. U.S. Magistrate Judge Ronald Ellis, whom McMahon appointed to mediate the settlement negotiations, signed off on the agreement later that August.
Less than a month later, The New York Times reported that “tenant advocates and housing experts hailed the settlement deal . . . for strengthening tenants’ legal rights in cases claiming harassment and unlawful evictions.” Ironically, Levy says, it was then that “things between Jenner and me on the one hand and the class reps really turned kind of bad.”
Some of the unhappy class members brought in lawyers to advocate on their behalf, including attorneys from the Urban Justice Center, the Northern Manhattan Improvement Corporation (NMIC), and White Plains litigation firm Yankwitt & McGuire. Ellis scheduled a fairness hearing so that class members could air their grievances. That paved the way for McMahon’s June 6 ruling.
Before approving the settlement, McMahon had ordered Jenner to send multiple notices, in both English and Spanish, detailing the terms to the entire tenant group and giving those who wanted to opt out up to five months to do so. That only about 150 of the 26,000 class members chose that option convinced McMahon that the deal was in the best interests of the class as a whole. In her order, McMahon specifically lauded the settlement’s simplified claims process, which let tenants seek damages without hiring individual counsel, as well as the provision establishing a process for monitoring how Pinnacle was to deal with tenants in the future. Noting the objections to the settlement raised by some class members, McMahon stated that the tenants would be unlikely to get the benefit of either the claims process or the injunctive relief if they proceeded with litigation. McMahon also acknowledged tenants’ complaint that damages awarded by the settlement would only double rent overcharges, rather than triple them as was typical in state court actions.
“This, of course, is why it is called a settlement,” she wrote. “[I]t nets the class members something that is generally less than they could get if they litigated individually in court—assuming they win.”
Lawyer and Client Square Off
Kimberly Powell, one of the five class representatives in the Pinnacle case, remains unpersuaded by McMahon’s logic. She is unhappy with the settlement’s terms and does not think the agreement should be approved just because only a handful of tenants did not sign on. “I take issue with the idea that somehow because very few people opted out that therefore the settlement was ripe for approval,” she says, arguing that many tenants objected to the settlement but didn’t know how to articulate their objections.
NMIC attorney Chachere—who, along with attorneys from the Urban Justice Center and Yankwitt & McGuire, represents the three objectors who filed the second appeal—says his clients agree with Powell’s assertion that confusion among tenants is one reason why so few objected to the final settlement agreement. He claims that even a revised class notice, sent out before McMahon issued her order approving the settlement, failed to adequately inform tenants of their options for pursuing claims on overcharges outside the class action. “If there’d been class notice that explained to people the range of options for them, including if they opted out or what their alternatives would be, you might have had a very different outcome,” he says.
One of the main complaints raised by Powell and her fellow class representatives is that the Jenner team allowed them to play only a minimal role in the settlement talks and did not properly apprise them of developments in the negotiations. The class representatives’ alleged in their initial appellate brief, which was filed on December 21 [PDF], that Jenner provided them with the ninth version of a draft settlement agreement in March 2011 without having provided any of the previous eight versions. (The other objectors in the case filed their appellate brief [PDF] on December 27.)
Levy takes issue with the assertion that the class representatives didn’t play a meaningful role in the negotiations. “We were in constant contact with [the class reps],” he says, adding that among thousands of documents related to the settlement negotiations that the Jenner team provided McMahon at her request was “a whole book of emails, phone calls, memos” of correspondence between class counsel and class representatives. (McMahon noted in her order that, as class counsel, Jenner met in person with the class representatives “several times” during the negotiations, held telephone conferences with individual members of the group, and participated in “at least three community meetings” that, in each instance, were attended by hundreds of class members.)
Powell also says the Jenner lawyers generally rebuffed any ideas or suggestions the class representatives passed along: “We knew something was terribly wrong that each time we went to the table and offered ideas we were categorically told ‘No. No. No. That’s not going to happen,’ rather than ‘I’ll get back to you and I’ll ask you.’ “
Levy counters that at least some of the class representatives’ goals were unrealistic, especially those connected to the compensation they sought, which Levy says ranged from $50 million to $75 million for the entire class. “That was out of the question because the law simply doesn’t permit that kind of thing,” he says.
Powell and the other class representatives are also critical of the settlement provision awarding Jenner $1.25 million in fees and another $200,000 in expenses—with both amounts being paid by Pinnacle separately from the payment the company is to make to the class. Powell claims the sum far exceeds what most individual class members can expect to see from the settlement: “They came in as pro bono and at some point they invited themselves to the lottery?”
According to a request for fees and expenses Levy submitted to the district court in September 2011 [PDF], more than 46 Jenner attorneys and staff spent a combined total of 8,471.75 hours on the Pinnacle case between June 2006 and the end of July 2011. Based on regular rates charged by the attorneys and staff at the time the work was performed, the filing states, the firm’s compensation for that time would top $4.15 million (a sum that suggests an average hourly rate of $490.48). Levy personally billed 1,652.5 hours for a total of almost $1.42 million, for an average hourly rate of roughly $857.41. (Levy states in filing that the rates for the attorneys and staff working on the case ranged from $230 per hour to $950 per hour at the time, and would have resulted in even greater total fees.) The request also notes that Jenner logged $208,520.19 in unreimbursed expenses—including travel, court reporting fees, and consultant fees—related to the case through August 2011.
Levy vigorously defends the firm’s fee request as appropriate, saying pro bono counsel often negotiates attorney fees and expenses into a settlement, and that the defendant in this case, Pinnacle, is not indigent. “We have spent over $5.5 million in time and well over $200,000 in expenses,” he adds. (In her ruling, McMahon called the class counsel’s payment reasonable and agreed that it is “a small portion” of what Jenner would normally receive for the work it has performed on this case.)
As the case drags into 2013, there is one additional twist. Dissatisfied with Jenner’s representation, the class representatives attempted to have a new pro bono counsel appointed for their appeal—a move that Levy—who argued in a court filing that bringing new counsel up to speed with the case would cause too much of a delay—asked the court to reject. When the class representatives’ request was denied, they found new counsel anyway, with Chachere enlisting the pro bono support of Marc Gross, managing partner of litigation boutique Pomerantz Grossman Hufford Dahlstrom & Gross.
Asked to comment about why he had decided to enter the case, Gross provided The Am Law Daily with the following statement: “Under the circumstances of this particular case, we believe that the settlement, which failed to include the named plaintiffs in any meaningful fashion in negotiations, as well as failed to provide any compensation to them as a result of the settlement . . . failed to meet the standard of fair, reasonable, and adequate.”
It is up to the Second Circuit now to decide whether that’s true. Either way, Levy is anxious to conclude the matter.
“Whether we’ll be successful or not only three judges on the court of appeals know,” he says. “Here we are [six] months later, and we’re just getting started.”