A judge who balked at a $2 million Federal Trade Commission settlement that included no admission of wrongdoing by the defendant, and then approved it with unusual conditions, has ordered that some of the money go to defense counsel Venable for fees.
But U.S. District Judge Renee Bumb in Camden slashed the fee request by almost half, finding misplaced the firm’s reliance on a National Law Journal survey of billing rates to show its fees were reasonable, rather than submitting affidavits from lawyers practicing in the relevant market: southern New Jersey.
“[T]his court affords no value to that survey because it: (1) is unsworn and based on self-reported figures by firms; (2) provides only a broad range of attorney’s fees, without regard to the nature of the work performed or experience or skill of those performing it; and (3) contains no information as to reasonable rates for non-attorney personnel,” Bumb said in a decision handed down Monday.
She held Venable was entitled to $129,095 in fees, a bit more than half the $250,077 it sought, on top of the $150,000 in retainer fees already paid.
The case, FTC v. Circa Direct, 11-cv-2172, accused Circa Direct of Margate and its principal, Andrew Davidson, of using fake online news sites to market acai berry diet products. The sites, with addresses like onlinenews6.com, were designed to resemble legitimate news portals, featuring purportedly objective reports by fictional reporters and commentators about dramatic weight loss achieved using acai berry.
Bumb signed a temporary restraining order and the parties later stipulated to a preliminary injunction.
In February, the FTC asked Bumb to approve a settlement that would make the injunction permanent and impose an $11.5 million judgment, which would be suspended if the defendants provided honest information about their financial condition and turned over assets valued at more than $2 million.
The settlement said it was without admission or finding of wrongdoing or liability. Although judges routinely approve settlements where no one admits doing anything wrong, Bumb balked.
She cited a Nov. 28, 2011, decision by U.S. District Judge Jed Rakoff in the Southern District of New York, in which he refused to sign off on a $250 million settlement resolving a Securities and Exchange Commission suit against Citigroup over marketing of collateralized debt obligations. Rakoff said that without an admission of wrongdoing, he could not determine if the resolution was fair, adequate and reasonable.
On Feb. 22, Bumb directed the parties to file supplemental briefs on whether she should use Rakoff’s “fair, adequate and reasonable” standard and if so, whether the settlement met it.
In the meantime, the U.S. Court of Appeals for the Second Circuit had stayed Rakoff’s decision, finding that the SEC and Citigroup, which both appealed the settlement’s rejection, had shown a likelihood of success on the merits.
On Sept. 11, Bumb approved the Circa Direct settlement, swayed by the FTC’s argument that otherwise it would have to spend a lot of time and money trying the case. But she conditioned approval on the FTC creating a web page by Oct. 12 that would put the allegations “before the public for evaluation and discussion.”
The FTC questioned her authority to do so but complied by the deadline, setting up a page, www.ftc.gov/os/caselist/1123059/notice.shtm, that summarizes the allegations and links to the complaint, supporting documents and the case record.
The settlement said a portion of the client funds Venable was then holding in escrow could be used to pay its “fees and costs reasonably incurred” for work in the case, contingent on FTC approval or court order.
The firm tried to justify its tab of more than $400,000 by claiming the FTC took a more aggressive approach than usual and that it encountered difficulty in complying with discovery requests.
Venable reviewed more than 21,500 documents and had to gather material from scores of third-party web hosts that carried the defendants’ advertising and in some instances, had deleted it or denied access when Circa Direct stopped paying or provided it in an unworkable form, the firm contended.
The fee request included charges for Edwin Larkin, who typically bills at $800 per hour, fellow partner Thomas Cohn, $650, and associate Heather Maly, $415, all of them in New York. Venable, based in Washington, D.C., has offices in four states, but none in New Jersey.
Venable discounted those rates to $600 for partners and $300 for associates, but they were still too high for Bumb. Saying she was exercising her discretion, she set rates of $400 an hour for Larkin and Cohn, $375 for a less-experienced partner, and $275 for Maly and another fourth-year associate.
She called those rates reasonable in light of other fee applications granted in the district and what the FTC conceded was reasonable in declarations it submitted opposing Venable’s request.
She concluded that Venable was entitled to a total of $279,095, $150,000 of which had already been paid, resulting in the $129,095 award.
FTC lawyer Laura Sullivan says, “We brought the case to stop ongoing harm and we stopped it” and “obtained strong financial relief.”
There was “nothing more we would have been able to get at trial” and the absence of an admission of wrongdoing “doesn’t render the relief we obtained as not in the public interest,” she says. “Ultimately, Judge Bumb agreed.”
Sullivan adds that the web page required “was consistent with what we do and within our discretion to do it, and so we did it.”
Larkin, now with Edwards Wildman in New York, did not return a call. Neither did Maly.
The Second Circuit has not yet decided the appeal of Rakoff’s ruling in the Citigroup case.
In September, Circa Direct came up in an FTC suit against Google in the Northern District of California for allegedly misleading G-mail users over how it would collect and use their personal information. Google allegedly violated an October 2011 consent order by using cookies in the Safari browser.
Consumer Watchdog, a Santa Monica, Calif.-based advocacy group, cited Circa Direct in objecting to an agreement under which Google would pay $22.5 million but admit no liability.
On Nov. 16, U.S. District Judge Susan Illston approved the deal in U.S. v. Google, 12-cv-4177, saying the idea that a consent decree requires an admission of liability “is contradicted by legal history and precedent” and pointing out that the Circa Direct settlement was ultimately approved without it.