The class action has settled.  There is a possibility that a portion of the settlement fund, if otherwise unclaimed, will ultimately revert to the defendant.  Does this possibility give the defendant standing to object to class counsel’s fee award?

According to a recent Tenth Circuit opinion, the answer depends on a number of factors, the primary factor being the likelihood that any portion of the fund will indeed be returned to the defendant.  In Tennille v. Western Unionthe court held that any interest the defendant might have in the settlement fund was simply too attenuated to confer standing.

The case involved failed Western Union transfers—typically situations in which either the sender provided invalid contact information for the recipient or the recipient did redeem the money.  Western Union retains these funds, collecting interest and charging a monthly administrative fee, until the customer requests a refund or the money is subject to escheat under the relevant state’s laws.  The lawsuit challenged this practice.

Under the settlement agreement, Western Union agreed to place all unredeemed customer money in its possession, less administrative fees, into a settlement fund from which class members whose money had not yet escheated to the states could receive a refund of their remaining principal.  The settlement further provided for customers whose money was held during the relevant time to receive a payment roughly equal to the interest that accrued on their money.  The interest payments would be paid from either the settlement fund or a separate fund established by Western Union, depending on whether the particular claimant’s principal had escheated at the time of settlement.

Class counsel sought an award of 30 percent of the $135 million to be deposited into the settlement fund.  Western Union objected, claiming that the $135 million did not represent the benefit class counsel had obtained for class members because the settlement fund consisted of funds Western Union had always acknowledged belonged to the class members.  The district court heard Western Union’s objection but upheld the settlement.

On appeal, the Tenth Circuit declined to reach the merits of the settlement, holding instead that Western Union lacked standing to object.  Western Union claimed it had a “reversionary interest” in the settlement fund because (i) any money remaining in the fund after payment of claims, settlement administration fees, incentive payments to class representatives, and attorney fees would be placed into a cy pres fund; (ii) the money in the cy pres fund would be distributed in pro rata shares to individual states upon receipt of a release of Western Union’s liability under that state’s unclaimed property laws, and (iii) if any state declined to release Western Union, that state’s pro rata share would be deposited into a third fund, from which Western Union could seek payment to satisfy or defend against claims against it.  Western Union contended that its interest in this third fund was potentially affected by the challenged attorney fee award.

The court rejected Western Union’s argument, finding its interest “contingent and limited.”  Western Union’s interest depended not only the presence of remaining money in the settlement fund, thus necessitating the creation of the cy pres fund, but also the refusal of one or more states to accept their pro rata payments and release Western Union, thus necessitating the creation of the third fund.  Moreover, Western Union’s right to money from the third fund, should it be created, would be limited to reimbursement of costs and judgments actually incurred.

The court thus held that Western Union’s interest in payments from that fund was insufficient to give it standing to challenge the award of fees from the settlement fund.  The court further held that in the absence of any evidence of the likelihood that any state would obtain a judgment against Western Union, Western Union could not establish a substantial risk of injury from the attorney fee award.  Finally, the court rejected Western Union’s argument that a large attorney fee award, and the resulting diminution in value of the cy pres fund, would increase the likelihood that the states would be unhappy with their shares of the settlement and seek relief from Western Union.  The court found this theory of injury too speculative, and insufficiently traceable to the attorney fee award, to confer standing.

Western Union’s unsuccessful attempt to challenge the award begs the question why the proposed attorney fee award was not addressed in the settlement.  And it is a reminder that defense counsel who believe their client may be adversely affected by an unreasonable attorney fee award need to protect their client when the settlement is negotiated.