(CN) – Lawyers may have sold out their clients in negotiating a settlement for consumers who suffered noise-induced hearing loss from using Bluetooth headsets, the 9th Circuit ruled Friday, tossing the deal that would have given attorneys eight times as much as the plaintiffs.
The consolidated class action against Motorola, Plantronics and GN Netcom derived from 26 lawsuits around the country. Millions of consumers had claimed that the companies failed to disclose that extended use of their Bluetooth headsets could lead to noise-induced hearing loss.
As the case proceeded in California’s Central District Court, the class sought actual damages in the amount paid for the product – between $70 and $150 per headset -an injunction, restitution, punitive damages, attorneys’ fees and costs.
Lawyers eventually reached a settlement that would award the class $100,000 to be split among four nonprofits working to prevent hearing loss, and $12,000 to divide among nine class representatives.
Their attorneys, however, stood to take home as much as $850,000, plus more than $1 million to notify consumers about the agreement.
These terms outraged at least 50 of the “millions of potential class members,” but U.S. District Judge Dale Fischer found nothing amiss in the huge gulf between the class award and the attorneys’ fee set-aside.
The objectors then appealed to the 9th Circuit, which reversed and vacated the settlement.
“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,” Judge Michael Daly Hawkins wrote for the unanimous three-judge panel sitting in Pasadena.
The federal appeals court found that the lower court had failed, in essence, to show its work, lamenting the “absence of explicit calculation or explanation of the district court’s result.”
Also, the agreement contains all the “warning signs” of predatory counsel, according to the panel.
“The settlement’s provision for attorneys’ fees is apparently disproportionate to the class reward, which includes no monetary distribution,” Hawkins wrote. “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.”
“Given the questionable features of the fee provision here, the court was required to examine the negotiation process with even greater scrutiny than is ordinarily demanded, and approval of the settlement had to be supported by a clear explanation of why the disproportionate fee is justified and does not betray the class’s interests,” Hawkins added.
The panel sent the settlement agreement back to the District Court to recalculate attorneys’ fees.