Lucy Koh – Photo by Diego M. Radzinschi/ALM

Final approval hearings in class action settlements, which follow preliminary approval months before, and awards of attorney’s fees often are sedentary proceedings. Not so when plaintiffs’ attorneys in In re Anthem a few weeks ago walked into a hornet’s nest in Judge Lucy Koh’s courtroom in the Western District of California seeking $38 million in fees and $2 million for disbursements. This litigation centered on a data breach of insurance provider Anthem’s computer systems releasing personal information concerning 78.8 million people, triggering more than 100 lawsuits all consolidated before Judge Koh. After two years, four lead counsel with court approval had settled the case for $115 million. Subtracting the requested $40 million for fees and disbursements and additional millions for related costs, including $23 million paid to one firm to administer the settlement, this would leave 45 percent of the putative settlement for class members, but not for cash. Instead they will receive free credit monitoring services for two years in addition to the two years of monitoring Anthem gave when it made the breach public. Counsel claimed this would be worth up to $500 million if everyone signed up, because if customers sought such coverage on their own they would pay at least $250. In fact, only 1.86 percent of class members signed up. Those not signing, if they file claims, would get all of $50, for which there is a total pot of $13 million. Anthem also agreed to conduct twice yearly adversarial simulations mimicking a malicious attacker and triple its security spending over three years, for which another $17 million is allocated. The net result of all this, according to one critic, is 65 cents per class member.

In their defense, the class action attorneys asserted that to achieve this remarkable settlement, they spent more than 78,000 hours of work, took 200 depositions and reviewed 3.8 million pages of documents, briefed class certification and successfully defeated motions to dismiss in the absence of precedent certifying a data breach class. None of this convinced  Judge Koh or made her happy. Imagine counsels’ consternation when they were greeted by Judge Koh: “I’m deeply disappointed.” “I would never have appointed you [counsel’s spokesperson and co-lead counsel] had I known you were going to pile on 53 law firms on this case.” She added: “It does bother me that 55% [of the settlement amount] would go to attorney fees and administrative costs and only 45% goes to class members.” And to emphasize her disappointment, she added: “I’m going to keep that in mind if you apply for appointment of counsel in another case with me.”

Competitive Enterprise Institute blew the whistle on this application, and rightly so. Anthem’s disclosure of the data breach triggered dozens of lawsuits all over the country. They were consolidated in Judge Koh’s court. Eight firms competed for leadership positions; she trimmed the list to the four applicants. Their steering committee originally assured her “No one other than the attorneys and firms proposed here will necessarily work on this case” but they brought 49 more firms into the case. They passed out $3.5 million in work to the four firms the court had excluded, and another $10 million to 45 other firms, and then they engaged 53 law firms. “If I thought eight was too many, what made you think I wanted 53 firms churning on this case?” Judge Koh asked. They paid 329 lawyers (100 were partners) millions of dollars, more than two dozen of whom were contract attorneys charging $300-$400 per hour to perform low-level work such as document review for which $50 per hour is the usual fee. “I would like you to find a single paying client that would have approved these types of markups in a contract attorney!” Judge Koh challenged.

The court has appointed a special master to review the fee applications and report his conclusions and recommendations for appropriate fee awards. He certainly will scrupulously review the requested fees of the more than 100 partners and two dozen contract attorney who charged $300-400 for their pedestrian work. Maybe, one commentator facetiously has suggested, “the Special Master can bring on a few $400 contract attorneys to help sort through the bills faster?” We commend Competitive Enterprise Institute and Judge Koh for a step toward restoring public confidence in the cost of the litigation process.