Class Settlement Providing for a Fee Award to Plaintiff’s Counsel Approved Despite Lack of a Monetary Recovery or any Change in the Terms of the Deal

On October 22, 2014, Justice Friedman of the New York County Commercial Division issued a decision in West Palm Beach Police Pension Fund v. Gottdiener, 2014 NY Slip Op. 32777(U), awarding attorney fees to class counsel.

In the underlying action, the plaintiff filed, on behalf of a class of all common stock holders, an action challenging a merger involving the financial adviser Duff & Phelps. Plaintiff alleged breach of fiduciary duty by the Duff & Phelps board, as well as the existence of material misrepresentations in the proxy statement. After substantial settlement discovery, the parties agreed on a settlement wherein Duff & Phelps would make additional disclosures in connection with the merger. Plaintiff moved without opposition to certify a settlement class, which the court granted.

Plaintiff also moved for an award of attorney fees under CPLR § 909. The parties had negotiated a cap of $500,000 on an attorney fee award. Plaintiff’s counsel demanded the full amount, and defendants did not object. However, the court, largely relying on Second Circuit case law, conducted its own analysis because “while the presence of an arms’ length negotiated fee agreement among the parties weighs strongly in favor of approval, such an agreement is not binding on the court. If the court finds good reason to do so, it may reject an agreement as to attorneys’ fees just as it may reject an agreement as to the substantive claims.” (Internal quotation omitted.)

The court applied the lodestar method rather than the percentage method (there was no money paid in the settlement anyway) and accepted all of the hours billed by class counsel and their hourly rates as reasonable, again without objection from the defendants. To reach their $500,000 demand, plaintiff’s counsel requested a 1.2 multiplier as an enhancement to their fees, but the court refused, finding that “the contingency risk that plaintiff faced was insubstantial, given the ubiquity of settlements in shareholder derivative actions challenging mergers based upon insufficient disclosures . . . [and] the risk of success [is] perhaps the foremost factor to be considered in determining whether to award an enhancement.” (Internal citation and quotation omitted.)

The court also quoted a decision by Delaware’s Chancellor Strine expressing a general disapproval attorney fee awards for class settlements “where there is no material change in the economic terms of deals and simply some additional disclosures” but still approving the fee award in the particular case. It seems as though Justice Freidman felt the same way.

Class Certification Denied for Failure to Submit Evidence Showing Numerosity

On September 5, 2014, Justice Bransten of the New York County Commercial Division issued a decision in Egan v. Telomerase Activation Sciences, Inc., 2014 NY Slip Op. 32416(U), denying a motion for class certification.

In Egan, “a putative class action, asserting deceptive acts and practices in the marketing of TA-65, a nutraceutical dietary supplement promoted for the treatment of aging,” the court granted reconsideration of its denial of class certification and on reconsideration denied class certification for several reasons, including finding that the plaintiffs had not submitted sufficient evidence to establish that they met the numerosity requirement for class certification, explaining:

Under CPLR § 901 (a)(1), the class must be so numerous that the joinder of all members as actual parties would be impracticable. There is no bright-line test governing this numerosity requirement.

Here, Plaintiffs allege that the potential class numbers over 10,000 people, citing to the deposition testimony of TA Sciences consultant Weiman Liu. Liu testified that he “believed” that there were over 10,000 customers taking TA-65 and that this belief was not based on any documents he had seen regarding customer numbers but instead upon revenue. Defendants do not challenge whether a class of 10,000 in and of itself satisfies the numerosity requirement. Instead, Defendants argue that Plaintiffs failed to provide evidence, aside from the statement of Mr. Liu, that any members of the proposed class, let alone 10,000, purchased TA-65 in New York State. The Court agrees.

Plaintiffs have failed to meet their burden to establish the evidentiary basis for satisfaction of the numerosity requirement. The Liu deposition testimony itself falls short of the mark. The only claim asserted by Plaintiffs is a violation of General Business Law § 349(a), which declares unlawful deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state. To state a GBL § 349(a) claim, some part of the underlying transaction must occur in New York State and the New York action of a defendant cannot merely be hatching a scheme or originating a marketing campaign in New York. The Liu testimony cited by Plaintiffs makes no reference to where the alleged 10,000 customers purchased TA-65. For the sake of this motion, in the absence of any evidence, the Court cannot assume, as Plaintiffs urge, that the purchases were made in New York or that any portion of the transaction occurred in the state. Plaintiffs state in their brief, without citation, that the TA-65 sales transaction takes place in New York and that some, if not all, parts of the purported class members purchase of TA-65 from TASI, were completed in New York. For the purpose of class certification, such conclusory statements are not enough.

(Internal quotations and citations omitted).

This decision shows the importance of developing admissible proof for all elements of a claim or defense. It is not enough that something be true. You have to show the court that it is true.

Claim Involving Mandatory Statutory Penalties Cannnot be Brought as a Class Action

On September 10, 2014, the Second Department issued a decision in County of Nassau v. Expedia, Inc., 2014 NY Slip Op. 06050, holding that a claim involving mandatory statutory penalties could not be brought as a class action under CPLR Article 9.

In County of Nassau, Nassau County brought a class action “on behalf of itself and 55 New York local governmental entities” against a number of “online sellers or resellers of hotel and motel accommodations” for underpayment of hotel and motel occupancy taxes. The Second Department reversed the trial court’s grant of class certification under CPLR Article 9, explaining:

Pursuant to CPLR 901(b), “Unless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action.” However, even where a statute creates or imposes a penalty, the restriction of CPLR 901(b) is inapplicable where the class representative seeks to recover only actual damages and waives the penalty on behalf of the class, and individual class members are allowed to opt out of the class to pursue their punitive damages claims. Nonetheless, the waiver exception to CPLR 901(b) does not apply where a penalty is mandatory and cannot be waived.

Here, the plaintiff cannot obtain class certification of this action because, under the plaintiff’s own Hotel Tax law, it is required to recover a penalty of 5% of the amount of the tax allegedly due from the appellants within the meaning of CPLR 901(b), the recovery of which in a class action is not specifically authorized in the Hotel Tax law, and the imposition of which cannot be waived, as conceded by the plaintiff’s representative during the deposition. Accordingly, the Supreme Court should have denied the plaintiff’s motion pursuant to CPLR article 9 for class certification of this action.

(Internal quotations and citations omitted) (emphasis added).

Class Not Certified When Plaintiff’s Evidence of Class Size is Insufficient

On June 24, 2014, Justice Platkin of the Albany County Commercial Division issued an opinion in Picard v. Bigsbee Enterprises, Inc., 2014 NY Slip Op. 51113(U), denying a motion for class certification for failure to establish numerosity.

In Picard, the plaintiff brought a class action “premised on alleged violations of New York Labor Law § 196-d.” The court denied the plaintiff’s motion for class certification on the ground that the plaintiff had not established the numerosity element for certification as a class action, explaining:

The first prerequisite to certification is that the class be so numerous that joinder of all members is impracticable. In seeking to establish this essential element, plaintiff offers the following averment: “Based on the number of servers employed, I believe it is probable that over the last six years, defendants employed more than 100 servers.”

Defendants recognize that it generally is accepted that a putative class of forty members is sufficiently numerous for certification. However, defendants assert that plaintiff has failed to come forward with an adequate evidentiary basis upon which to find numerosity.

The Court concludes that plaintiff has not met his burden of establishing numerosity on the present record. Plaintiff fails to offer a sufficient foundation for his belief as to the number of servers employed by defendants at pertinent times. Indeed, plaintiff was not employed by defendants during the first four years of the proposed class period, and plaintiff’s affidavit does not demonstrate personal knowledge of that period. Further, the equivocal nature of plaintiff’s averment — a mere belief regarding probability — is problematic. And contrary to the contention of plaintiff’s counsel, it is not defendants’ burden to establish the absence of numerosity, even if the relevant data may be within their possession. In fact, plaintiff was given the opportunity to take limited discovery on issues pertaining to class certification, but did not pursue data concerning numerosity. Finally, plaintiff may not offer new evidence for the first time in reply to meet his initial burden.

Accordingly, while it may well be that the proposed class is sufficiently numerous that the joinder of all members is impracticable, this essential prerequisite to certification has not been established on the present record.

(Internal quotations and citations omitted) (emphasis added).

This decision illustrates the importance of going beyond mere allegations and gathering (and presenting) factual support for any claim or relief, such as class certification.

Plaintiff may Waive Statutory Damages and Bring a Class Action Despite CPLR § 901(b)

On June 30, 2014, Justice Scarpulla of the New York County Commercial Division issued a decision in Pires v. Bowery Presents, LLC, 2014 NY Slip Op. 24174, denying a motion to dismiss a proposed class action.

The plaintiff and proposed class representative alleged that she had purchased a ticket to attend a play, but that the seller, Bowery, never issued her a paper ticket and prevented her from transferring her ticket to a friend by only “admit[ing] people to the event by checking their identification cards at the door against a list of people who originally purchased tickets.” Plaintiff alleged that this admissions policy violated section 25.30(1)(c) of the New York Arts & Cultural Affairs Law, which prohibits “any operator of a place of entertainment, or its agent, from employing a paperless ticketing system ‘unless the consumer is given the option to purchase paperless tickets that the consumer can transfer at any price, and at any time, and without additional fees, independent of the operator or operator’s agent.’ A consumer injured by a violation . . . ‘may bring an action in his or her own name to enjoin such unlawful act, an action to recover his or her actual damages or fifty dollars, whichever is greater, or both such actions’ and may also be awarded reasonable attorney fees.”

Defendant objected that Plaintiff was ineligible to bring a class action for violations of the ACAL because CPLR § 901(b) prohibits class actions based upon any statute that “creates or imposes a penalty or minimum level of recovery, unless the statute specifically authorizes such recovery in a class action.”

Plaintiff responded by arguing that, because she had waived her claim for statutory damages, her case was outside the coverage of CPLR § 901(b).

The court agreed, following Cox v. Microsoft Corp., 8 A.D.3d 39, 40 (1st Dept. 2004), where the First Department held that a plaintiff who waived statutory damages in a GBL § 349 case could bring a class action because CPLR § 901(b) no longer applied. The court rejected Defendant’s argument that the statutory language allowing plaintiffs to “recover his or her actual damages or fifty dollars, whichever is greater,” made recovery of the statutory damages mandatory in any case where the $50 was greater than the actual damages, holding that this argument was foreclosed by Cox.

This case shows plaintiffs’ attorneys that a class action is possible even where consumer protection laws provide for statutory damages, as long as the proposed class representative is willing to waive that particular claim.

Class Counsel Awarded Reduced Fees

On June 13, 2014, Justice Ramos of the New York County Commercial Division issued a decision in Schumacher v. NeoStem, Inc., 2014 NY Slip Op. 50919(U), awarding fees to class counsel in an amount significantly lower than that requested.

In Schumacher, the court was asked to certify a class, approve a class settlement and award class counsel attorneys’ fees. Class counsel represented to the court “that the total number of hours spent on” the “litigation was 455.25 and [sought] a multiplier of 1.75, totaling $477,817.16.” The court awarded only $125,000. It explained the factors it considered as follows:

Under CPLR 909, attorneys for a class that has been successful (through judgment or settlement) may be awarded reasonable attorneys’ fees. When granting fees, a trial judge has broad discretion in deciding whether, and in what amount attorneys’ fees should be awarded. Generally, the Lodestar” method is employed to calculate reasonable attorney’s fees, which is calculated by multiplying the reasonable hours expended on the action by a reasonable hourly rate.

Class counsel must establish through competent evidence that its fees were consistent with customary fees charged for similar services by lawyers in the community with like experience and of comparable reputation, or were reasonable.

In the event that the court finds that an attorney spent excessive or unreasonable hours, it may exclude that amount from the calculation.
. . .

Counsel for a prevailing party must exercise billing judgment, that is, act as he would under the ethical and market restraints that constrain a private sector attorney’s behavior in billing his own clients. From reviewing the billing records, is evident that a great deal of the expenses could have been avoided. Moreover, plaintiff’s counsel has not established by clear and convincing evidence that the time expended was necessary to achieve the results obtained. While it is widely acknowledged that a securities class action is by its very nature a complex animal, the complexity of the underlying issues of executive compensation do not appear extraordinary.

. . . A court may apply a multiplier to the lodestar figure to account for factors such as the risk of litigation and the performance of the attorneys.

Ultimately, the degree of a plaintiff’s success is the most critical factor in determining the reasonableness of a fee award.

Considering all of these factors, the court found that class counsel’s work was duplicative–both within the matter and between related matters–and that its success did not justify a multiplier.

It is often hard to have one’s work scrutinized after-the-fact. Perhaps the best lesson here is no matter how reasonable counsel might view its work when it is doing it, counsel seeking fees from an opponent should nonetheless expect that it will not recover for all of its billings.

Failure Timely to File for Class Certification Mandates Denial of Certification

On April 30, 2014, Justice Bransten of the New York County Commercial Division issued a decision in Egan v. Telomerase Activation Sciences, Inc., 2014 NY Slip Op. 31176(U), denying a motion for class certification as untimely.

In Egan, the plaintiffs commenced an action on July 23, 2012. The defendants answered on October 3, 2012, asserting affirmative defenses. On October 21, 2013, the Court granted the defendants’ motion to file an Amended Answer, adding a counterclaim. On December 23, 2013, the plaintiffs moved for class certification. The court denied the motion with prejudice as untimely, explaining:

To maintain an action as a class action, a plaintiff is required to seek an order certifying the class within sixty days after the time to serve a responsive pleading has expired for all persons named as defendants in the action. Failure to seek class certification within this sixty-day period mandates denial of the class certification motion with prejudice. Plaintiffs filed the instant class certification on December 23, 2013, nearly a year and a half after the commencement of this action and fifteen months after the filing of Defendants’ Answer. While the parties do not specify exactly when Plaintiffs served the Complaint on Defendants – and accordingly when Defendants’ responsive pleadings were due – this motion is nonetheless clearly untimely under CPLR 902. Even assuming for the sake of argument that Defendants interposed their Answer on the day that the Complaint was served, Plaintiffs’ filing of the instant motion nearly fifteen months later was plainly more than sixty days after the time Defendants’ Answer was due. Plaintiffs have offered no justification for this late filing. Accordingly, Plaintiffs’ motion for class certification is denied with prejudice . . . .

(Internal quotations and citations omitted) (emphasis added).

This is yet another example of the importance of tracking the procedural rules relating to an action, lest, as here, a party lose a claim simply through inadvertence.

Attempt To Certify Class Action by Tenants Injured By Hurricane Sandy Summarily Dismissed

On December 11, 2013, Justice Kornreich of the New York County Commercial Division issued a decision in Adler v. Ogden Cap Props., LLC, 2013 NY Slip Op. 23428, denying class certification to a plaintiff class purporting to represent all renters in the State of New York against a proposed defendant class of all landlords in the State of New York, with the goal of obtaining rent rebates for violations of the warranty of habitability, RPL § 253-b, caused by Superstorm Sandy.

The proposed class representatives asserted a number of claims, which Justice Kornreich addressed as follows:

  • The warranty of habitability is based in contract, so claims under RPL § 253-b cannot be brought against non-parties to the lease, such as landlords’ agents;
  • For the same reason, plaintiffs could not recover on their unjust enrichment claims, which cannot be brought where there is a contract between the parties;
  • Two of the plaintiffs who left their apartments before the storm—as opposed to being forced out afterwards because of uninhabitable conditions caused by the storm—were not eligible for warranty of habitability damages, because RPL § 253-b is intended to compensate people for living in an uninhabitable residence;
  • The plaintiffs who left before the storm were ineligible to serve as class representatives because they had no individual claim under RPL § 253-b;
  • Because each member of the proposed plaintiff class had vastly different damages, the proposed plaintiff class was so legally defective on its face as to not even merit class discovery, and the largest possible class that the court would even consider would be composed of the tenants of a particular building;
  • A defendant class would not be certified either, due to due process concerns and the factual differences between each landlord’s conduct;
  • Individual actions in the Housing Court were likely the most effective route to compensating tenants for warranty of habitability damages.

Based upon these holdings, all claims were dismissed. Those tenants who remained in their apartments during the storm were given leave to replead, but were cautioned that the court had serious misgivings about certifying any plaintiff or defendant class.