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WARNELL v. FORD MOTOR COMPANY

June 11, 2002

ROSALIND WARNELL, SUZETTE WRIGHT, MADONNA HOWARTH, CYNTHIA SMITH, BERYL PARKER, SHARON DUNN, VERA BOYLAND AND LATANJA MANSON, EACH INDIVIDUALLY AND ON BEHALF OF OTHER SIMILARLY SITUATED PERSONS, PLAINTIFFS,
V.
FORD MOTOR COMPANY, DEFENDANT. ALTHEA RAPIER, JODI FARRIS, RHONDA EVANS, GWANJUANA GRAY, VICTORIA WILLIAMS AND DEANNE HARRIGAN, INDIVIDUALLY AND AS CLASS REPRESENTATIVES V. FORD MOTOR COMPANY, DEFENDANT.



The opinion of the court was delivered by: Elaine E. Bucklo, United States District Judge.

MEMORANDUM OPINION AND ORDER

I here resolve a dispute between the named plaintiffs in these two class actions and their counsel about the enforcement of contingent fee agreements. Attorneys have fiduciary duties to their clients, not least when they represent a class of plaintiffs. They also have an obligation, as officers of the court, to disclose any potential conflicts of interest with their clients when they seek an award of attorneys' fees out of the proceeds of a class settlement. I find that, at a minimum, the attorneys for the plaintiffs in this case violated the latter duty by failing to disclose their intent to enforce contingent fee agreements against the named plaintiffs' recovery from the settlement fund.

I.

Of the $9 million dedicated solely to the benefit of the class, only $4,946,000 has actually been distributed directly to class members: $3,050,000 to the named plaintiffs pursuant to ¶ 12 of the settlement agreement, and $1,986,000 to class members who filed claims in the claims process. The remaining $4,054,000 in the residual fund will be used to fund a scholarship program and a job training program for members of the class who are still employed by Ford; this excludes all but two*fn2 of the named plaintiffs.

On January 18, 2002, eleven of the named plaintiffs filed a "motion to stop settlement agreement/claims process," complaining of unfair results of the claims process and raising a number of other grievances related to the administration of the settlement. I held a hearing on the motion on January 25, 2002, and the named plaintiffs stated that their attorneys had forced them to resign as a condition of settlement. Of the class counsel, only Keith Hunt, counsel to the Warnell plaintiffs, received sufficient notice of the motion to appear at the hearing. In the course of the hearing it came to my attention that class counsel had enforced contingent fee agreements with the named plaintiffs, although no intent to do so had ever been disclosed to me prior to my approval of the settlement. Counsel had collected a total of $635,000 in contingent fees,*fn3 above and beyond what I had awarded under the settlement. I ordered class counsel to respond to these allegations.

Keith Hunt and Darnley Stewart filed affidavits in which they admit that they failed to disclose their intent to enforce the contingent fee agreements, see Hunt Aff. ¶ 3, Stewart Aff. ¶ 14, and they also admitted at a hearing on February 25, 2002, that they did not disclose their intent to enforce them. Transcript of 2/25/02 Hearing at 5, 7. They argue that the failure was innocent, and was not intended to deceive. I find otherwise.

Counsel argue that they disclosed the existence of the fee agreements to me, although they admittedly did not explicitly disclose their intent to enforce them. The memorandum in support of the application for attorneys fees mentioned contingency agreements three times: twice to emphasize the contingent nature of the representation in order to demonstrate the risk borne by counsel, Fee Mem. at 7, 15-16, and once to compare average awards in private contingent litigation (30%-40%, plaintiffs had agreed to 33 1/3%-40%) to what counsel was asking for here, Fee Mem. at 9. However, in the application for attorneys fees, counsel said that "[t]he attorneys['] fees will not be paid out of the Settlement Fund. Instead, the fees will be paid by Ford separately, and the amount of fees will not affect the monetary awards to members of the Class or Class representatives. Ford has agreed to pay $9 million to the class, and a separate $3 million in fees and expenses." Fee Mem. at 2 (emphasis in original); see also Fee Mem. at 11 (stating that all $9 million of the Settlement Fund "will go to Class members, and to no one else."). The settlement agreement itself says that the $3 million portion of fund is "for all services, expenses and administrative and other costs incurred to date of this Settlement Agreement and for all services, expenses and administrative and other costs which are reasonably necessary to Class Counsel's role in implementing this Settlement agreement . . . ." ¶ 20 (emphases added).

No reasonable reading of these statements leads to the conclusion that counsel intended to enforce their rights to contingent fees out of the named plaintiffs' recovery from the $9 million portion of the fund, in addition to the attorneys' fees awarded out of the $3 million portion of the fund. Counsel argue that they viewed the fee petition as only relating to their efforts on behalf of the class and not the named plaintiffs, Hunt Aff. ¶ 16, 36; Stewart Aff. ¶ 14, but this distinction is disingenuous; the settlement agreement sets aside $9 million for the class, from which named plaintiffs received their awards, ¶ 12, and a separate $3 million for all attorneys' fees. "All" means "all," not "some" or "part." See Knott v. McDonald's Corp., 147 F.3d 1065, 1067 (9th Cir. 1998). I reject the assertion that the failure to disclose the intent to enforce the contingent fee agreements was innocent. The evidence is that it was intentionally deceptive, and I so find.

II.

What remains to be resolved is the remedy for non-disclosure. Counsel argue that the fee agreements are enforceable on top of the fee award, and argue that I need only consider whether the total fee — the $2.75 million award plus the contingent fees — was reasonable. The only authority they cite for the proposition that the contingent fee agreements are enforceable is Venegas v. Mitchell, 495 U.S. 82 (1990), which held that an attorney who recovers attorneys' fees under the fee-shifting provision of 42 U.S.C:. § 1988 may still enforce rights to a share of the plaintiff's recovery under a contingent fee agreement. Id. at 87-88. Counsel's reliance on Venegas is misplaced; Venegas involved an individual award after a judgment, not a common fund after a class action settlement, and the Seventh Circuit has specifically held that the principles governing attorneys' fees under fee-shifting statutes are different than those that govern the award of attorneys' fees from a common fund in a class action settlement. See Skelton v. General Motors Corp., 860 F.2d 250, 252, 255 (7th Cir. 1989).*fn4 See also Alexander v. Chicago Park Dist., 927 F.2d 1014, 1025 (7th Cir. 1991) ("[T]he case law regarding statutory fees under 42 U.S.C. § 1988 is largely irrelevant" in common fund cases.).

Because a statutory fee award is separate from the plaintiff's recovery, there is no conflict of interest between the individual plaintiff and her counsel. Id. at 253. In a common fund case, however,

once the attorneys secure a settlement for the class, they petition the court for compensation from the same fund. Thus "their role changes from one of a fiduciary for the clients to that of a claimant against the fund created for the clients' benefit." The court becomes the fiduciary and must carefully ...

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