Docket number: 21-cv-08592-EMC (N.D. Cal.)
The Hamilton Lincoln Law Institute represented four intervenors who challenged plaintiffs’ counsel’s forum shopping tactics in MacClelland v. Cellco Partnership (Verizon).
Plaintiffs’ attorneys settled a nationwide class action that covers every Verizon post-paid wireless consumer—58 million Americans—in Middlesex County, New Jersey: Esposito v. Cellco Partnership. The attorneys previously litigated their claims in the federal courts, but, on November 10, 2023, after settling the federal class actions, they filed a new complaint in state court because they know they can likely get a 33.3% fee award approved out of the $100 million settlement fund with much less judicial oversight. If class attorneys had filed their settlement with their first-filed complaint, in the Northern District of California, controlling case law would allow no more than 25% attorneys’ fees, and likely less than that.
Intervenors Allison Hayward, Peter Heinecke, Lawrence Prince, and Will Yeatman oppose this forum shopping, which breaches the fiduciary duty that class counsel owes to maximize recovery to class members. The intervenors asked the original court to act within its equitable authority redistribute any excess attorneys’ fees that class counsel receives from the New Jersey court into a constructive trust for the benefit of all class claimants. The court would have the discretion to zero out fees entirely. In the alternative, the intervenors moved to file a class action complaint against plaintiffs’ attorneys themselves, and might have won $8.3 million or more for class members.
On April 18, 2024, the original court denied the motion to intervene.
Background
Plaintiffs first filed suit in the Northern District of California in 2021 concerning the $1.95 monthly “Administrative Charge” on Verizon’s monthly bills. The suit alleged that the $1.95 “Administrative Charge” was not actually imposed by government taxes as some of Verizon’s literature suggested but was an arbitrary amount for the sole profit of Verizon. Plaintiffs argued that this “Charge” and the true nature of it were not adequately disclosed to consumers.
Verizon moved to compel arbitration under their Customer Agreement, but the district court found that the agreement was unenforceable under California law because of how it “batches” arbitrations into groups of 25 with delays between each batch. The district court found “It is one thing to set up a bellwether system to adjudicate a group of cases with the purpose of facilitating global or widespread resolution via ADR. It is another to formally bar the timely adjudication of cases that do not settle.”
Commentators quickly appreciated the significance of this decision. Companies have been experimenting with batching provisions to make bulk arbitration filings more difficult. Oral argument was to occur in the Ninth Circuit on November 14, 2023, but on November 9 the parties cancelled the argument due to settlement.
But no settlement was filed in the original action. This is because the settlement agreement contemplated filing the action in New Jersey state court, where class counsel knows they will likely receive $33.3 million in fees, far more than what they could receive in the original federal court. The settlement agreement also prevented the settling parties from telling the media about the settlement—apparently so that no one could attempt to stop the parties from getting preliminary approval in a fee-friendly forum. And the parties did not comply with federal law requiring notification of appropriate state and federal officials regarding proposed settlements of federal class actions.
It turns out that the plaintiffs’ attorneys—who purported to vindicate consumers’ access to justice in their filings against Verizon’s arbitration agreement—agreed to prevent all consumers from litigating about “Administrative Charge” forever. All class members (meaning all Verizon post-paid customers who do not opt-out) “covenant” that they cannot bring claims about the “Administrative Charge” (now called the “Network Access and Maintenance Fee”) ever again. Not in courts or arbitration. The release covers claims “not yet mature, known or unknown, suspected or unsuspected,” and has no end date.
The settlement does not stop Verizon from charging “Network Access and Maintenance Fees,” and in fact Verizon recently increased the fee to $3.30/month. Plaintiffs’ counsel told the New Jersey court that the settlement provides “significant injunctive relief,” but in fact it only requires Verizon to revise a few words in its 6,700-word Customer Agreement, and the gist of the words is unchanged: Verizon makes up whatever fee it wants and can raise it whenever it wants. Except after final approval of the settlement, consumers “covenant” to never challenge the fees again.
In order to preserve future claims against Verizon’s arbitrary “Charge,” class members need to opt out, but the settlement requires that every class member mail individual forms with original signatures in order to do this. This obviously benefits Verizon. In the New Jersey court, class counsel joined with Verizon in attempting to disqualify the opt-outs filed by clients of an independent attorney who apparently got hundreds of his clients to send in these forms. (See Alison Frankel, Verizon’s $100 million settlement gets thumbs down from lawyers for 10,000 customers.)
The intervenors had no reason to believe that $100 million isn’t an adequately-sized settlement, but a 33.3% fee award exceeds the allowable fee under Ninth Circuit law. Plaintiffs’ counsel should not be rewarded for tactics to increase their own fees at the expense of class members, and for this reason intervenors seek court action against the class attorneys to equitably reallocate any excess fees awarded from the attorneys and back into the hands of consumer claimants.
No class members had previously attempted to challenge class attorneys’ cozy state court settlements of national class actions this way, but the Class Action Fairness Act was supposed to keep cases of national importance in federal courts. When plaintiffs’ attorneys use subterfuge to prevent review of their fee awards, class members should have tools to curb attorneys’ unjust enrichment at the expense of consumers.
On April 18, 2024, the district court denied the motion to intervene, finding that Middlesex County, New Jersey would have been an adequate forum.
HLLI still hopes to challenge forum shopping tactics that harm class members, and will continue to monitor settlements for such abuse in the future.
Case Documents
| Description | |
| Apr 18, 2024 | ORDER Denying Intervention |
| Apr 15, 2024 | OPPOSITION to Sur-Reply Arguments and Hearsay in Status Report |
| Apr 12, 2024 | TRANSCRIPT from Esposito Fairness Hearing Filed by Class Counsel |
| Mar 15, 2024 | REPLY in Support of Motion to Intervene |
| Mar 15, 2024 | REPLY in Support of Motion for Equitable Redistribution |
| Mar 15, 2024 | DECLARATION of Theodore H. Frank in Support of Motions |
| Feb 23, 2024 | MOTION to Intervene |
| Feb 23, 2024 | PROPOSED COMPLAINT of the Intervenors Against |
| Feb 23, 2024 | MOTION by Intervenors for Equitable Redistribution of Attorneys’ Fees to the Class |