Toyota Challenges ‘Outrageously Unreasonable’ Fees In Prius Class Action – Forbes

Posted: Thursday, March 20, 2014

A federal judge is scheduled to hear arguments early next month in an increasingly nasty fight over $1.7 million in fees five class-action law firms want for negotiating a settlement over allegedly defective Toyota Prius headlights.

The judge previously described their fee request as “outrageously unreasonable,” but the law firms, led by Gerard Gibbs of San Francisco and New York, think they deserve it for negotiating a  settlement worth about $3.8 million. Toyota offered to extend the warranty on about 200,000 cars and refunded repair costs for some owners under the agreement reached in late 2011.

Toyota’s challenge represents a rare case of a corporate defendant arguing against the fees class-action lawyers are seeking to settle a lawsuit. In most cases, those lawyers negotiate agreements under which the defendant can’t object to their fee request, a practice critics say encourages collusive settlements that enrich plaintiff lawyers at the expense of their supposed clients, the class members, or sometimes even benefits the defendant.

With less than 12,000 customers filing claims in the Prius case, U.S. District Judge Manuel Real found that the requested fee would work out to $272 per claimant, or three quarters of the $364 average payout in the case. He slashed their fee to $766,000 in late 2011, likening the plaintiff lawyers to negotiators who are entitled to no more than a talent agent’s 20% cut of the action.

“The amount of fees is unreasonably high, if not on the cusp of being an outrageously unreasonable fee,” the judge wrote.

The lawyers appealed, winning a decision from the Ninth Circuit Court of Appeals last December requiring the judge to recalculate their fee based on California law, which calls for a “lodestar,” or measure of the work the attorneys put into the case. In arguments to presented at an April 7 hearing, Toyota says the judge should stick with his original estimate, since the law firms reported hundreds of hours at billing rates as high as $710 an hour for duplicative and unnecessary work.

“The billing records and attorney declarations …are contradictory and unreliable, and are rife with evidence of inefficiency, duplication and make-work,” Toyota said in the filing. Toyota declined to comment beyond the court filings.

The other firms involved in the settlement are Cohen Milstein of Washington; Wasserman, Comden, Casselman & Esensten of Los Angeles; Initiative Legal Group; and Arias, Ozzello & Gignac.

Vehicle for legal fees? (Photo credit: Wikipedia)

Vehicle for legal fees? (Photo credit: Wikipedia)

Following the typical fashion in consumer class actions, all five law firms hopped on the case after the National Highway Safety Administration revealed an investigation into customer complaints about failing High Intensity Discharge headlights. They filed similar complaints — some with almost identical wording — in different courts around the country to try and get a piece of the fees that would come with any settlement.

Gerard Gibbs and Wasserman Comden filed the original case in federal court in California in May 2009. Cohen Milstein filed a copycat lawsuit later in New York, where the case was briefly transferred before returning to California. While the case was in flux, Gerard Gibbs filed another copycat suit in state court in California to try and keep the litigation there. All want to be paid for this work, even though it served their interests, not the interests of Toyota Prius owners looking to be paid for defective headlights.

Judge Real examined the actual work done in the case and decided that it wasn’t much.

“This is not a complex case,” he said. While he supported the settlement — most judges do, since they clear their docket of time-consuming and unproductive litigation — he said “the Court believes that Plaintiff’s degree of success was not because of Plaintiffs’ counsels’ effort.” It was Toyota’s rapid response to discovery demands and the work of federal investigators that mostly brought the case to a close, he said.

“There was no need for five law firms to be involved,” he said.

The 9th Circuit rejected his fee ruling, saying the judge should have referred to California law, which requires the lodestar method. That requires the law firms to supply billing records, however, and Toyota’s lawyers went through them with a fine-toothed comb. Here’s what they found:

  • The lawyers supposedly spent 520 hours, or 10.8 hours a day, seven days a week, negotiating the settlement over 48 days in 2010, racking up $228,686 in fees.
  • A Cohen Milstein associate billed the class members 72 hours to prepare and appear at a hearing over the transfer of yet another copycat lawsuit filed in New Jersey, even though the judge allotted all of the the parties a collective 5 minutes for arguments.
  • The lawyers billed for another 575 hours at $477 an hour after the settlement had been reached and all adversarial litigation stopped.

Toyota accused the lawyers of running up excessive bills knowing they would lose their chance to charge more once the settlement was approved.

The simple fact is that much of the work that was recorded in the billing records was for tasks that did not advance the litigation, for motions and court papers that were not filed, and for discovery that was never served. Moreover, rather than curtail the amount of billings after plaintiffs knew Toyota was agreeable to settlement, Plaintiffs collectively accelerated the pace of billing, presumably aware that they would be seeking payment for such fees once the case settled.

I called Gerard Gibbs, Cohen Milstein and Initiative Legal for comment but they either didn’t respond or declined comment. Toyota singled out Initiative Legal, run by G. Arthur Meneses, for particular criticism, saying the firm “personifies the concept of ‘piling on’ in this case.” Instead of working with the other firms, Toyota says, ILG demanded to do its own review of documents obtained in discovery and filed poorly drafted briefs that “actually inhibited the other law firms’ efforts.”

This isn’t the first time ILG has been accused of such tactics. A federal judge in California held the firm in contempt in November 2012 for violating a protective order in another case by using confidential class member data to solicit potential clients.


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