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FedEx objectors didn’t improve settlement by retaining own counsel, so fees denied

By Lorene D. Park, J.D.

A federal court in Indiana that has overseen high stakes multidistrict litigation (MDL) against FedEx for over a decade refused to grant a $388,006 attorneys’ fee request by class representatives who retained their own counsel to litigate their objections to an approved class settlement of the New Jersey case. The case was one of many class actions claiming that FedEx misclassified its drivers as independent contractors and failed to pay overtime in violation of the FLSA and various state laws. In denying the objectors’ motion, the court explained that their efforts did not improve the settlement received by the class. Moreover, some of their tactics were “vexatious” (Tofaute v. FedEx Ground Package Systems, Inc., June 12, 2017, Miller, R., Jr.).

High stakes MDL litigation. Between 2003 and 2009, FedEx drivers in states across the U.S. filed lawsuits alleging that they were FedEx employees but the company misclassified them as independent contractors and failed to pay them overtime wages, among other claims under both federal and various state laws. The Judicial Panel on Multidistrict Litigation centralized the actions in the Northern District of Indiana (MDL court), but the cases weren’t consolidated (so, for example, each proposed settlement had to be examined separately). The MDL court’s docket grew to 40 cases and it appointed attorneys from three law firms to serve as co-lead counsel. Attorneys from three other firms were appointed to complete the plaintiffs’ steering committee. As explained by the MDL court in an April 2017 opinion, the “stakes were enormous. Not only did the plaintiffs’ co-lead counsel seek to represent upwards of 10,000 arguably under-compensated drivers, but the attack on drivers’ independent contractor status threatened FedEx Ground’s entire business model.”

Consistent with those high stakes, discovery was extensive. In 2007 and 2008, the court certified 26 classes of the then-40 cases. Sixty summary judgment motions followed. On the parties’ recommendation, a Kansas class action by 479 Kansas drivers (Craig v. FedEx Ground Package Systems, Inc.) was designated as the lead case, or “quasi-bellwether” on the issue of employee status. In answer to a certified question, the Kansas Supreme Court found that the drivers were “employees” of FedEx under the applicable state statute. Based on that, the Seventh Circuit reversed the MDL court’s conclusion otherwise. Beyond the Kansas case, rulings in other courts were also trending toward findings of employee status. Many cases were resolved through separate mediations.

Tofaute case from New Jersey. The class action at issue here was filed in the District of New Jersey in May 2005 and was centralized in the MLD court that August. Class certification was granted in October 2007 and FedEx was granted summary judgment in 2010, after the MLD court found that the plaintiffs were independent contractors under New Jersey law. The class appealed and the parties reached a proposed settlement in June 2016.

NJ settlement. The proposed settlement was reached as a result of arms’ length, mediated negotiations, and after consulting an expert in accounting and damages. Under its terms, FedEx would pay $25,500,000 to the plaintiffs. For each workweek of 35 or more hours during the class period, each class member would receive $72.39; for each workweek of 16-35 hours, each class member would receive $25.34. No class member would receive less than a $250 lump sum. The average recovery per class member would be $19,301, with the highest share being $71,194. No part of the settlement fund would revert to FedEx Ground if anything were left over.

Class reps object, get their own attorneys. After preliminary approval was granted, all seven class representatives retained their own firm to object to the fairness of the agreement on grounds that class counsel undervalued the drivers’ claims under the New Jersey Consumer Fraud Act when it settled those claims for nothing, and under the remaining claims when class counsel settled them for about 55 percent of class counsel’s estimate of their potential value. Thereafter the objectors demanded additional class notice, including notice that they didn’t agree with the settlement. Ultimately, despite their objections, the MDL court granted final approval of the settlement in April 2017. This included $7,627,500 in attorneys’ fees for class counsel.

Objectors denied attorneys’ fees. Thereafter, the attorneys retained by the objecting class representatives requested $388,006 in attorneys’ fees and $7,836 in costs, to be paid from the fees that were designated for class counsel. Denying the motion, the MDL court first explained that Rule 23(h) allows for objectors’ counsel “who contribute materially to the proceeding to obtain a fee.” The objectors must “produce an improvement in the settlement worth more than the fee they are seeking, otherwise they have rendered no benefit to the class.” Also, just as class counsel acts on a contingency basis, so too do the objectors. “If their work doesn’t benefit the class enough to justify paying them, they lose the gamble and don’t get paid.”

Here, the benefit produced by the objecting class representatives was “modest.” They caught errors in the class notice, which understated average recovery and indicated the class reps supported the deal. As a result of the objectors’ efforts, the class became better informed, but there was no other area where their litigation could be considered a “success” in that it actually resulted in an improvement for the class. They certainly didn’t produce an improvement in the settlement worth more than the fee sought. Without a tangible benefit to the class, the court found no basis for a fee award.

Moreover, in the court’s view, “some of the objectors’ tactics were vexatious” and ran counter to precedent. They selectively quoted from cases, conveniently ignoring language that outright contradicted them. The court also expressed disappointment with the objectors’ accusations of collusion between class counsel and FedEx on a total payout for the entire MDL, regardless of the strength of the individual state-law claims. Class and co-lead counsel worked on these cases for over a decade, including appeals and an appearance before the Kansas Supreme Court, and the fact that the fees they were awarded were large did not indicate collusion. Nor was there any other foundation for the objectors’ accusation, which the court believed undermined faith in the proceedings. Based on the foregoing, the objecting class representatives were not entitled to an award of fees for the attorneys they retained.