On July 18, the District Court for the Central District of California granted in part and denied in part a motion for attorneys’ fees, costs, and other payments in a Fair Credit Reporting Act class action suit.  The motion accompanied a proposed $400,000 settlement, with a third of the funds allocated to class counsel for fees.  Unsatisfied with the reasonableness of the fee request, the Court reduced the fee award and ordered more money be made available to class members.

The case, Smith v. A-Check America, Inc., arose from allegations that A-Check America, a consumer reporting agency, had improperly disclosed antiquated criminal information in background investigation reports it prepared.  The disclosures at issue, such as traffic violations or arrests occurring seven or more years before the report was compiled, are proscribed by Section 1681c(a) of the FCRA.  In the three-year class period, A-Check America made such disclosures in reports for over 2,700 individuals.

Before trial, the parties agreed to settle for a lump sum payment of $400,000, with nearly half going to fees, expenses, and administrative costs.  The parties submitted the agreement for the Court’s approval, and Smith moved for costs, fees, and expenses.  In deciding the motion, the Court held that class counsel’s attorneys’ fees – and as a result the proposed award to the putative class members – were unreasonable, and that departure from the Ninth Circuit’s benchmark of 25% for fees in class action suits was not warranted.

The Court first addressed the reasonableness of the settlement by applying the factors established in Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Cir. 1993).  Those factors include, among others, the strength of a plaintiff’s case; the risk, expense, complexity, and likely duration of further litigation; and the amount offered in settlement.  Particularly important to the Court’s decision was the amount offered in settlement – the Court found that the $133,333.33 intended for attorneys’ fees was unreasonable.  Instead of rejecting the proposed settlement, however, the Court relied on a provision of the agreement that allowed for reduction of an award without voiding the agreement.  As a result, the fee award was reduced to $100,000 – a fourth of the settlement fund.  The difference was pivotal to the Court, which wrote that “after the reduction to the attorneys’ fee award, the balance of factors favors final approval and that the settlement agreement is fair, reasonable, and adequate.”

The Court then took aim at the motion for attorneys’ fees, and its analysis primarily focused on the percentage-of-the-fund method, which the Smith plaintiffs sought to employ.  As the Court opined, the plaintiffs’ 33% attorneys’ fee award was contrary to Ninth Circuit precedent that set a benchmark of 25% for attorneys’ fees in class action suits.  Notwithstanding that benchmark, the Court observed that departure – either upward or downward – is permissible.  Specifically, the Court would consider a deviation based on the results achieved; the risks of litigation; the skill required and the quality of work; the contingent nature of the fee; the burdens of representing a class; and awards made in similar cases.

Applying those factors, the Court found that a departure from the benchmark was not warranted.  Noting an average range of $22 to $200 for class members in FCRA cases, the Court did not find this case to be an “exceptional one.”  Indeed, depending on the nature of the disclosure they suffered, class members could receive a maximum award of $114 but as little as $28.  Although the Court acknowledged that the case was staffed by skilled attorneys who had spent considerable time litigating, it rejected the plaintiffs’ contention that there was an unusual amount of risk as compared to other FCRA cases.  Most notable perhaps was the Court’s apparent disregard for class counsel’s contingent fee arrangement, which it did not consider to be a factor weighing in favor of upward departure. Similarly, the Court’s application of a lodestar cross-check did not change its analysis, and it concluded that plaintiffs’ counsel “ha[d] not met their burden to establish that the rates they seek [were] reasonable.”

In sum, the Court held that this case did not present the “unusual circumstances” to justify a departure from the Ninth Circuit’s 25% benchmark for attorneys’ fees awards in class action suits.  By doing so, the Court not only added to the available compensation for the class members, but also to the landscape of FCRA class action.