IN RE: TRANS UNION CORP. PRIVACY LITIGATION (January 14, 2011)
A number of Fair Credit Reporting Act class actions against Trans Union were consolidated in the Northern District of Illinois. Lawyers for some of the plaintiffs ("MDL Counsel") agreed with Trans Union in 2006 to settle the case for $40 million (including $20 million cash). Dawn Wheelahan was counsel for another set of plaintiffs. She and counsel for yet a third set of plaintiffs ("Texas Counsel") opposed the settlement and persuaded the district court to reverse its earlier approval of the settlement. A few years later, the case settled for $110 million (including $75 million cash). The settlement agreement capped lawyers' fees at $18.75 million (17% of the settlement amount), which the lawyers asked for. Judge Gettleman (N.D. Ill.) reduced the fees to $10.83 million but then referred the matter to a special master and approved the special master's recommendation of a $13 million award, allocated 63% to MDL counsel, 22% to Wheelahan, and 15% to Texas counsel. Wheelahan appeals.
In their opinion, Judges Posner, Kanne, and Wood modified and remanded. The Court noted that the special master relied on four things in quantifying the amount of his recommended award: a) an academic study that found an average fee award of 17.6-19.5% in settlements between $79-$190 million, b) a group of securities cases (that have higher discovery costs and therefore should allow for higher fees) from which he extrapolated a fee award of 3.8-23.2% in a settlement this size, c) the fact that the settlement contained $35 million in non-cash value (which he viewed as having less value than cash and on which he awarded only a 5% fee), and d) the risk of losing. The Court found that the special master erred in at least three ways. He did not resolve the wide range of fees in the securities cases or quantify a reduction for the reduced cost of discovery. His reduction of the fee award for the non-cash component of the settlement was arbitrary and unwarranted. His analysis of the risk of losing was weak and inconclusive. The Court noted that simply eliminating the discount on the non-cash value brought the fee award back up to $16.5 million. But it ultimately concluded, because of the combination of errors, that the master’s rationale for reducing the $18.75 million originally requested was not persuasive. Turning to the allocation recommendation, the Court stated that the special master gave MDL Counsel full credit for the $40 million component and 50% credit for the additional $70 million component. The master also noted that MDL Counsel's investment in the case was valued at 4.3 times Wheelahan's investment. The Court noted that this ratio is considerably higher than the fee recommendation and ultimately concluded that the special master's allocation recommendations were appropriate. Against the backdrop of an appropriate allocation but an unsupported reduction in total award, the Court turned to Wheelahan's request. It concluded (applying “rough justice”) that she was entitled to her allocation recommended by the master (22%) but that she was entitled to that percentage of the amount originally requested. Therefore, the Court ordered that she be awarded an additional $1.425 million.