It's not very often that I see a fee application in a settled class action in the Business Court that doesn't strike me as requesting approval of an overpayment for a less than successful result. Those are most often in the settlement of merger class action in which the only benefit for the class was the extraction of additional disclosures in a proxy statement.
But last week, looking at the Order approving a class action settlement and a fee petition in Elliott v. KB Home North Carolina, Inc., 2017 NCBC 37, I had exactly the opposite reaction. It was an excellent result for the class members, and the nearly $2 million in attorneys' fees approved by the Business Court were well earned.
I've written about the Elliott case three times: The class was certified by Judge Jolly in 2012. Judge Jolly ruled later that KB Home had waived its right to compel arbitration of the claims. After Judge Jolly's retirement, Judge McGuire ruled that he could modify the membership of the previously certified class due to a change in circumstances. The class members are homeowners in North Carolina living in houses built by KB Home. The houses were constructed with siding manufactured by HardiePlank that did not have a weather restrictive barrier (a WRB) behind the siding. The houses were then damaged by water infiltration.
This is not a settlement where the class members receive something like coupons towards a future home purchase. Instead, there is real and substantial money being paid to them. Depending on the square footage of their homes, class members who are current homeowners can be paid between $6500 and $17,000. In the alternative, these class members can have their existing siding and replaced with new HardiePlank, this time with the missing WRB.
There is also a subclass of class members who have already sold their homes. These subclass members are entitled to receive either a lump sum payment of $3250 or to prove that the selling price of their home decreased due to the lack of a WRB. This type of recovery is capped at $12,000.
There is no doubt that the lawyers worked hard to achieve this result, as detailed in the Affidavit of lead counsel in support of the fee petition. They filed or responded to twenty-seven briefs in the trial court and eight briefs in the appellate courts. They reviewed 46,000 pages of documents produced, and they took or defended or attended forty-four depositions in five states. Fee Affidavit ¶41.
Judge McGuire wrote in glowing terms of the qualifications of class counsel. He said that they had "decades of experience litigating construction product defect cases on an individual, multi-family, and class basis." He called one of the lawyers "one of the nation's most respected and experienced attorneys in these areas." Order ¶37.
As a part of the settlement agreement, the Defendants agreed that they would not oppose a request for fees and expenses not to exceed $1,925,00. That is exactly the amount requested by Plaintiffs' counsel: including $148,493.61 in out-of-pocket expenses and $1,776,506.39 in attorneys' fees.
That fee amounted yielded an "implied hourly rate" of $337.28 (based on 5,267 hours of work), which was approved as reasonable by Judge McGuire. Order ¶¶40-41. That hourly rate is within the ranges previously approved as reasonable by the Business Court -- like $325.04 per hour in Corwin v. British Am. Tobacco PLC, 2016 NCBC 14 at *15 and between $300 and $500 per hour in Nakatsukasa v. Furiex Pharms., Inc., 2015 NCBC 71 at *24.
I have a hard time reconciling this fee petition to the one from the lawyers representing the class in the Ehrenhaus case (which challenged the merger years ago between Wachovia and Wells Fargo). The Ehrenhaus lawyers asked for $1,975,00, almost the same as the request by the Elliott lawyers ($1,925,000). But the Ehrenhaus lawyers obtained nothing of value for that class. Also, they did not bother to submit any records regarding the hours worked on the case, other than to claim having spent 2300 hours on the case (less than half of the 5267 hours spent by the Elliott lawyers). They took four depositions (the Elliott lawyers took forty-four) and reviewed 9,500 pages of documents (far less than the 46,000 obtained by the Elliott lawyers). The Ehrenhaus settlement, moreover, came just a couple of months after the lawsuit was filed. The Elliott lawyers worked their case for eight years.
The Ehrenhaus fee petition of $1,975,000 ended up getting chopped down by Judge Diaz of the Business Court by nearly half (to $1 million).