Lawyers’ Payday Dooms Nissan Settlement Bid

SAN FRANCISCO (CN) - A federal judge said "the tail is clearly wagging the dog" in denying a $4 million settlement that primarily benefits "direct participants" of a class action over faulty brakes brought against Nissan North American.

Consumers sued Nissan in April 2011, claiming the brake booster known as a "Delta Stroke Sensor" in certain models manufactured between 2004 and 2008 are defective.

They say the defect, which affected over 263,000 vehicles, prevented their cars from slowing down when the brakes were applied.

The Ninth Circuit denied Nissan's request for permission to appeal a certification order for the nationwide class, and the parties subsequently entering settlement negotiations in 2014.

A federal judge in San Francisco deferred ruling on the plaintiffs' motion for final settlement approval, which would have awarded consumers with valid class claims a total of $278,056.41, and a second motion for $3,425,000 in attorneys' fees, earlier this year.

U.S. District Judge Phyllis Hamilton denied both motions last week, citing a 2011 class action brought by consumers against three manufacturers of Bluetooth headsets alleging fraud for failure to adequately warn of hearing loss risk.

In a groundbreaking opinion, the Ninth Circuit rejected a proposed settlement agreement in that case, which would have provided zero recovery to the class, $100,000 in cy pres awards, injunctive relief and $850,000 in attorneys' fees. The Ninth held that the lower court failed to justify the attorneys' fees and "the questionable settlement provisions that protected those fees."

Hamilton said the nearly $3.5 million in attorneys' fees in the Nissan case is not justifiable in light of a proposed settlement that would pay 1,540 consumers between $20 and $800 each, based on the mileage of their respective cars when the brake defect was reported, constituting an average claim of $180.56.

"As in Bluetooth, much of the objectors' challenge to the fairness of the settlement relates to the imbalance between the proposed fee award and the benefit going to the class," Hamilton wrote in a 23-page order. "For instance, one objector emphasized the 'obscene amount of money to attorneys and the paltry amount to the actual consumers,' while another complained that 'the value of the proposed settlement and the portion paid to the claimants is too low,' and that the 'lawyers are not entitled to 68.5 percent of the payout.'"

Hamilton questioned the methodology used by the plaintiffs' attorneys in calculating their fees and pointed to a possible deal cut between themselves and Nissan that would also provide $20,000 to each class representative and $542,508 to the settlement administrator.

She said class counsel would have walked away with almost 84 percent of the $4,265,564.55 constructive common fund if the proposed settlement were approved.

"Simply put, a proposed settlement where 93.5 percent of the total payout goes to those directly participating in the litigation (i.e., class counsel, the settlement administrator and the class representatives) creates the impression that the proposed settlement has been negotiated for their benefit, at the expense of the unnamed class members," Hamilton said. "Put another way, where 6.5 percent of the payout goes to the class members, and 80.2 percent goes to the attorneys purporting to represent those class members, the tail is clearly wagging the dog."

Attorney for the plaintiffs, Michael Ram of Ram Olson Cereghino & Kopszynski, in San Francisco, did not immediately return a phone call on Monday.

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