The 9th Circuit has ordered a do over in the settlement of a class action over Bluetooth headsets that yielded $850,000 for class counsel and only $112,000 to benefit those who allegedly suffered hearing loss as a result of using the device.
“We agree that the disparity between the value of the class recovery and class counsel’s compensation raises at least an inference of unfairness, and that the current record does not adequately dispel the possibility that class counsel bargained away a benefit to the class in exchange for their own interests,” the court said in an opinion issued Friday.
The decision addressed 26 putative class actions against Motorola, Plantronics and GN Netcom that were consolidated in the U.S. District Court for the Central District of California.
The plaintiffs alleged that the defendants failed to disclose the risk of hearing loss associated with extended use of wireless Bluetooth headsets at high volumes. The named plaintiffs sought damages on behalf of millions of individuals who purchased Bluetooth headsets since June 30, 2002.
Rather than seeking compensation for personal injury, the plaintiffs asserted economic injury claims for amounts paid for the product, between $70 and $150 per headset.
Motorola and its co-defendants moved to dismiss, but the parties settled the case through mediation before the district court heard the motion.
Under the terms of the settlement, the defendants agreed to: (1) post acoustic safety information on their websites and in their product manuals; (2) pay $100,000 in cy pres awards to four non-profit organizations dedicated to the prevention of hearing loss; (3) pay notice costs up to $1.2 million; (4) pay costs to class counsel up to $38,000, or if notice costs fell below $1.2 million, no more than $50,000; (5) pay attorney fees not to exceed $800,000; and (6) pay an incentive award not to exceed $12,000, to be divided among the nine class representatives.
Under these parameters, the district court decided to award $850,000 to class counsel for fees and costs, and the maximum $12,000 for the representative plaintiffs.
Members of the class objected, arguing that class counsel had unfairly negotiated excessive attorney fees.
The objectors found a sympathetic ear in the 9th Circuit. First, the court concluded that the lower court needed to do more to assure itself that the fee award was not unreasonably excessive in light of the results achieved.
“Notably, the district court made (1) no explicit calculation of a reasonable lodestar amount; (2) no comparison between the settlement’s attorneys’ fees award and the benefit to the class or degree of success in the litigation; and (3) no comparison between the lodestar amount and a reasonable percentage award. On this record, we lack a sufficient basis for determining the reasonableness of the award,” the court said.
Moreover, in remanding the matter, the 9th Circuit concluded that there was more work to be done to ensure that class counsel had not betrayed class interests for their own benefit.
The court said that all the “warning signs” of collusion were present in the Bluetooth settlement.
In this regard, the court noted that “the settlement’s provision for attorneys’ fees is apparently disproportionate to the class reward, which includes no monetary distribution. The settlement included a ‘clear sailing agreement’ in which defendants agreed not to object to an award of attorneys’ fees up to eight times the monetary cy pres relief afforded the class. Moreover, the settlement also contained a ‘kicker’: all fees not awarded would revert to defendants rather than be added to the cy pres fund or otherwise benefit the class.”
The court concluded that “with these multiple indicia of possible implicit collusion, the district court had a special ‘obligat[ion] to assure itself that the fees awarded in the agreement were not unreasonably high.’” (In re Bluetooth Headset Products Liability Litigation)
— Pat Murphy