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In re Inphonic

December 18, 2009

IN RE INPHONIC, INC., WIRELESS PHONE REBATE LITIGATION
THIS DOCUMENT RELATES TO: ALL CASES



The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge

MDL Docket No. 1792

MEMORANDUM OPINION AND ORDER

Before the Court is the Motion for Payment of Attorneys' Fees and Expenses by plaintiffs Edwin Davis, Walter Cover, Jonathan Feldman, Stanley J. Heller, Barbara McGivney, Luis Morales, Joshua Pevnick, Paul Rock, Melinda Roquemore, Shelly Salzman, Ryan Sutherland, Iona Workman, and Hongyi Yu. Having considered plaintiffs' motion and the opposition filed by defendants Helgeson Enterprises ("Helgeson"), David A. Steinberg, and Brian T. Westrick, the Court will grant the motion in part.

BACKGROUND

In 2006, several of the instant plaintiffs filed putative class actions in this District alleging that InPhonic, Inc. ("InPhonic"), a provider of wireless communication services based in the District, had violated, inter alia, the District of Columbia Consumer Protection and Procedures Act ("DCCPPA"), D.C. Code §§ 28-3901 to -3913, and the Racketeer Influenced and Corrupt Organizations ("RICO") Act, 18 U.S.C. §§ 1961-1968, through InPhonic's allegedly fraudulent consumer rebate practices. Some of these complaints also named as a defendant Continental Promotion Group, Inc. ("CPG"), which served as one of InPhonic's rebate processors. Other plaintiffs filed lawsuits in federal court in Arizona, Illinois, New Jersey, alleging similar causes of action, including claims under their respective states' consumer protection laws, against InPhonic, CPG, and Helgeson, another rebate processor.

On June 8, 2006, the D.C. Attorney General's Office ("DCAGO") sued InPhonic in D.C. Superior Court over its rebate practices. Several weeks later on June 26, InPhonic moved the Judicial Panel on Multidistrict Litigation ("JPML"), pursuant to 28 U.S.C. § 1407, for an order centralizing the multidistrict ("MDL") rebate litigation against it in this District. On October 25, the JPML issued an order consolidating and transferring the MDL litigation to this Court. See In re InPhonic, Inc., Wireless Phone Rebate Litigation ("In re InPhonic"), 460 F. Supp. 2d 1380, 1381 (J.P.M.L 2006).

On January 26, 2007, this Court appointed Steven A. Hart of Segal McCambridge Singer & Mahoney, Ltd. ("the Segal Firm"), Kevin P. Roddy of Wilentz, Goldman & Spitzer, P.A. ("the Wilentz Firm"), and John R. Climaco of Climaco, Lefkowitz, Peca, Wilcox & Garofoli Co., L.P.A. ("the Climaco Firm") as interim co-lead and liaison counsel for plaintiffs pending a decision on class certification. On February 15, the DCAGO announced that it had settled its lawsuit against InPhonic. On February 26, plaintiffs filed their first consolidated amended class action complaint ("FAC"), naming InPhonic, CPG, and Helgeson as defendants. During a March 14 status conference, the Court suggested that the parties engage in mediation, which the parties commenced in April with a private mediator. On April 27, the Federal Trade Commission ("FTC") announced that it had also been investigating InPhonic's rebate practices, and that InPhonic had entered into a consent agreement with the agency. See FTC Agreement Containing Consent Order, In the Matter of InPhonic, Inc., a corporation ("InPhonic"), File No. 062-3066, 2007 WL 1406416 (F.T.C. Apr. 27, 2007) (unpaginated). On June 4, the FTC gave final approval to that consent agreement. See FTC Decision and Order, InPhonic, Dkt. No. C- 4192, File No. 62-3066, 2007 WL 1740924 (F.T.C. June 4, 2007) (unpaginated).

On November 26, 2007, InPhonic notified the Court that it had filed for federal bankruptcy protection earlier that month. Thereafter, on March 21, 2008, plaintiffs filed their second consolidated amended class action complaint ("SAC"), naming as defendants Helgeson, CPG, and five former InPhonic corporate officers: Brian J. Curran, George Z. Moratis, David A. Steinberg, Brian T. Westrick, and Andrew B. Zeinfeld. On April 24, Helgeson and CPG moved to dismiss the complaint, and plaintiffs filed their opposition on May 21. On August 15, individual defendants Moratis, Steinberg, Westrick, and Zeinfeld also filed a motion to dismiss, which was opposed by plaintiffs.

On November 14, 2008, CPG filed for bankruptcy and notified the Court of this fact on January 29, 2009, and on February 23, the Clerk of the Court entered a default against defendant Curran, who had failed to respond to the summons and complaint On April 6, after hearing argument on the motions to dismiss, the Court issued an order denying CPG's motion because of the automatic bankruptcy stay; dismissing all claims against Moratis and Zeinfeld; and granting Steinberg and Westrick's motion to dismiss with respect to plaintiffs' claims for breach of contract, unjust enrichment and disgorgement of profits, and equitable relief, but denying their motion with respect to plaintiffs' statutory claims under the DCCPPA, other states' consumer protection laws, and RICO, as well as plaintiffs' common law claims of civil conspiracy and negligent misrepresentation.

On August 6, 2009, the thirteen instant plaintiffs ("the MDL plaintiffs") and five other individual plaintiffs who were not parties to the MDL litigation ("the non-MDL plaintiffs") entered into a settlement agreement with defendants. Under the agreement, the MDL plaintiffs will receive $39,000 ("the Settlement Amount") "in full satisfaction of all claims" against defendants, InPhonic, CPG, Curran, Moratis, Zeinfeld, or any other person or entity who could have been named as a defendant in the rebate litigation. (See Pls.' Mot. for Payment of Attorneys' Fees and Expenses ["Mot."], Ex. A ("Settlement") at 2 ¶ 1.) The agreement also permits plaintiffs to file a petition seeking up to $950,000 in attorney's fees and costs incurred the MDL litigation ("the Fee Award"),*fn1 and defendants are permitted to oppose that petition. (Id. at 2 ¶ 2.) On September 29, plaintiffs Heller, McGivney, Rock, Salzman, Workman, and Yu filed a stipulation of dismissal with prejudice of all claims against defendants.*fn2 [See Dkt. 86-89, 91.] On September 30, plaintiffs filed a motion seeking payment of $950,000 in fees and costs accompanied by three declarations and billing invoices. (See Mot., Ex. B (Decl. of Kevin P. Roddy) ("Roddy Decl.") & Attachment ("Wilentz Invoices"); id., Ex. C (Decl. of Steven A. Hart) ("Hart Decl.") & Attachment ("Segal Invoices"); id., Ex. D (Decl. of James R. Climaco) ("Climaco Decl.") & Attachment ("Climaco Invoices").)

On October 30, 2009, defendants filed an opposition in which they contend that plaintiffs are not entitled to attorney's fees. Defendants argue that the "American rule" disfavors fee awards; that none of the judicially recognized exceptions to that rule "mandate a fee award" in connection with the settlement; and that even if an exception could be applied here, plaintiffs are not "'prevailing part[ies]' who qualify for a fee award." (Defs.' Opp'n to Mot. ["Opp'n"] at 7-8, 12.) In the alternative, defendants contend that if plaintiffs are entitled to some fees, such awards must be reasonable in relation to the "success" achieved, and therefore, any fee award must be de minimis,because plaintiffs did not achieve what they sought when they initiated the litigation as a class action with potentially hundreds of thousands of class members. (Id. at 10, 13; see, e.g., Mot. at 5 (asserting that "hundreds of thousands of consumers nationwide" were affected by defendants' acts).) Defendants also argue that even if plaintiffs are entitled to more than a de minimis fee award, it should not exceed $196,881.07 (defendants' calculation of fees reasonably incurred since the SAC was filed), less "further across-the-board reductions for vague time entries and block billing." (Id. at 23.)*fn3

ANALYSIS

I. THE DCCPPA AUTHORIZES AWARDS OF ATTORNEY'S FEES AND COSTS

Under what has come to be known as the "American rule," parties must ordinarily "shoulder their own counsel fees and other litigation expenses absent statutory or contractual authority for an alternative allocation." Lipsig v. Nat'l Student Mktg. Corp., 663 F.2d 178, 180 (D.C. Cir. 1980) (citing Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247-257 (1975)); see also United States v. Wade, 255 F.3d 833, 835 (D.C. Cir. 2001) ("[U]nder what is known as the 'American Rule,' each party to a lawsuit usually bears its own attorney's fees 'unless there is express statutory authorization to the contrary.'" (quoting Hensley v. Eckerhart, 461 U.S. 424, 429 (1983))).

The DCCPPA provides that "[a] person, whether acting for the interests of itself, its members, or the general public, may bring an action . . . seeking relief from the use by any person of a trade practice in violation of a law of the District of Columbia and may recover or obtain" various remedies, including "treble damages, or $1,500 per violation, whichever is greater, payable to the consumer," "reasonable attorney's fees," and "any other relief which the court deems proper." D.C. Code § 28-3905(k)(1)(A), (B) & (F). To the extent that the statutory reference to "fees" does not include an attorney's "costs," the Court concludes that an award covering such expenses would be permitted as "other relief which the court deems proper" under § 28-3905(k)(1)(F).

Through the DCCPPA, the D.C. Council declared its opposition to deceptive advertising and other commercial misrepresentations as a policy matter, regardless of "whether or not any consumer is in fact misled, deceived or damaged thereby . . . ." D.C. Code § 28-3904; cf. DeBerry v. First Gov't Mortgage & Investors Corp., 743 A.2d 699, 700, 703 (D.C. 1999) (observing D.C. Council's "broad remedial purpose" in creating statute). The DCCPPA's legislative history further explains that "'reasonable attorneys' fees are recoverable in order to encourage the private bar to take such [consumer protection] cases.'" Williams v. First Gov't Mortgage & Investors Corp., 225 F.3d 738, 745 (D.C. Cir. 2000) (quoting Report of the Council of the District of Columbia, Committee on Public Services and Consumer Affairs, on Bill No. 1-253, "The District of Columbia Consumer Protection Procedures Act," at 23 (Mar. 24, 1976)). Accordingly, the Court concludes that because the DCCPPA serves substantive "public policy interests," id. at 747, it constitutes statutory authority for departing from the American rule.*fn4 Cf. Camacho v. Texas Workforce Comm'n, 445 F.3d 407, 412 (5th Cir. 2006) ("In light of the American Rule, generally applied in federal court, we have been instructed that state law does not always control the issue of attorney's fees. Rather, we are to apply state attorney's fee law only when it 'embod[ies] a substantive policy.'" (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 52 (1991)) (internal citation omitted)).

II. SETTLEMENT IS NOT A BAR TO PLAINTIFFS' RECOVERY OF FEES AND COSTS

Defendants contend that plaintiffs cannot seek attorney's fees as "prevailing parties," because "[a] settlement agreement standing alone is insufficient for fee-shifting purposes . . . ." (Opp'n at 12.) This argument is unpersuasive, because it presumes incorrectly that the DCCPPA's fee provision is legally indistinguishable from federal statutory fee provisions such as 42 U.S.C. § 1988(b). Under such federal provisions, a "prevailing party" may only recover fees following a judgment on the merits or a court-ordered consent decree. See Buckhannon Bd. & Care Home, Inc. v. West Virginia Dep't of Health & Human Resources, 532 U.S. 598, 604 (2001); see generally Hensley, 461 U.S. at 433-36 (setting forth standards governing meaning of "prevailing party" under § 1988).

The Supreme Court has explained that "[i]n designating those parties eligible for an award of litigation costs, Congress employed the term 'prevailing party,' a legal term of art." Buckhannon, 532 U.S. at 603. The DCCPPA is not a federal statute, nor does it use the phrase "prevailing party." Rather, the D.C. Council chose to permit recovery of "reasonable attorney's fees" by those who "bring an action . . . seeking relief from" an unlawful trade practice. D.C. Code § 28-3905(k)(1). Thus, the availability of fees under § 28-3905(k)(1) is not governed by the Supreme Court's interpretation of a legal term of art that is not found in the statute. Cf. Hensley, 461 U.S. at 433 n.7 ("The standards set forth in this opinion are generally applicable in all cases in which Congress has authorized an award of fees to a 'prevailing party.'").

The District of Columbia Court of Appeals has observed that the DCCPPA "allow[s] the [C]court to award a successful plaintiff attorney fees." Brandywine Apartments, LLC v. McCaster, 964 A.2d 162, 169 (D.C. 2009) (emphasis added). However, nothing in the text of § 28-3905(k)(1) requires that this success must be achieved by trial or court order. In addition, to interpret § 28-3905(k)(1) so as to make settlement a bar to recovering fees would discourage private counsel from bringing consumer protection actions and thus contravene the D.C. Council's stated purpose. Therefore, the Court concludes that § 28-3905(k)(1) does not bar the recovery of attorney's fees and costs where, as here, the parties voluntarily settle the litigation. Cf. Judicial Watch, Inc. v. Bureau of Land Mgmt., 562 F. Supp. 2d 159, 162, 165-66, 172-75 (D.D.C. 2008) (awarding attorney's fees to plaintiff under recently amended FOIA provision permitting such awards where "the complainant has substantially prevailed,'" where "the parties settled all claims without court intervention" after they filed pleadings and agency released relevant documents, and where Supreme Court's decision in Buckhannon was inapplicable to FOIA fee provision). By obtaining monetary compensation in "satisfaction of all claims" (Settlement at 2 ¶ 1), plaintiffs have obtained "relief" for their alleged harms within the meaning of the DCCPPA. Thus, they may seek attorney's fees and costs under § 28-3905(k)(1). Cf. Sierra Club v. E.P.A., 322 F.3d 718, 719 (D.C. Cir. 2003) (granting motion for attorney's fees as "appropriate" under Clean Air Act following settlement after concluding that the Act, "unlike statutes that authorize fee awards only to 'prevailing part[ies],' permits awards to so-called catalysts -- parties who obtain, through settlement or otherwise, substantial relief prior to adjudication on the merits").

III. PLAINTIFFS' REQUEST FOR FEES AND EXPENSES.

A. Applicable Legal Principles

"The initial estimate for attorneys' fees is calculated by multiplying the number of hours reasonably expended on the litigation times a reasonable hourly rate. A strong presumption exists that the product of these two variables -- the 'lodestar figure' -- represents a reasonable fee." DL v. District of Columbia, 256 F.R.D. 239, 242 (D.D.C. 2009) (internal quotation marks, citation, and footnote omitted).

Two key principles govern the Court's determination of how many hours plaintiffs' counsel reasonably expended on this litigation. First, the fees awarded on a successful claim "must be reasonable in relation to the success achieved." Williams, 225 F.3d at 746; see also Goos v. Nat'l Ass'n of Realtors ("Goos I"), 68 F.3d 1380, 1387 (D.C. Cir. 1995) ("[I]f the district court determines and explains why the total hours expended were not reasonable in relation to the results obtained -- regardless of the number of claims raised -- the court has discretion to reduce fees."). In Williams, the D.C. Circuit affirmed a post-trial award of damages and fees to a plaintiff who had successfully sued the lender that had refinanced the mortgage on his home. The jury had awarded the plaintiff $8,400 in damages under the DCCPPA, which the district judge increased to $25,200, as authorized by the treble damages provision of § 28-3905(k)(1)(A). See 225 F.3d at 743. The district court also granted the plaintiff's subsequent motion for $199,340 in attorney's fees. Id. When the defendant challenged the fee award on appeal, the D.C. Circuit observed that "'[t]here is no precise rule or formula' for determining the reasonableness of the relation between the fee requested and the relief obtained." Id. at 747 (quoting Hensley, 461 U.S. at 436) (citation omitted). Rather, a court may consider "not only the damages . . . recovered," but also "'[t]he vindication of rights, whether constitutional or statutory.'" Id. (quoting district court). The D.C. Circuit further explained that "[g]iven the public policy interests served by the [DC]CPPA," it is not appropriate "to read a 'rule of proportionality' into that statute. Such a rule 'would make it difficult, if not impossible, for individuals with meritorious . . . claims but relatively small potential damages to obtain redress from the courts.'" Id. (quoting City of Riverside v. Rivera, 477 U.S. 561, 578 (1986)). A fee award may therefore be reasonable in relation to the success achieved even though the plaintiff's fee award may be "disproportionate to the damages he recovered . . . ." Id.

The second governing principle is that a plaintiff may only recover fees "for work related to the claim" on which the plaintiff was successful. Williams, 225 F.3d at 746. Where a plaintiff has achieved success on some claims but not others, "'[f]ees for time spent on claims that ultimately were unsuccessful should be excluded only when the claims are "distinctly different" in all respects, both legal and factual, from plaintiff's successful claims.'" Id. (quoting Morgan v. District of Columbia, 824 F.2d 1049, 1066 (D.C. Cir. 1987) (quoting Hensley, 461 U.S. at 434))). Although "'there is no certain method of determining when claims are "related" or "unrelated,"'" id. (quoting Hensley, 461 U.S. at 437 n.12), a court may look to whether "'[m]uch of the work done by plaintiff's counsel would have been required to litigate any one of his claims against any single defendant,'" such as where there was "overlap" among the successful and unsuccessful causes of action. Id. (quoting district court). In Williams, for example, the D.C. Circuit approved the district court's finding that it was appropriate to award fees for time spent on the plaintiff's unsuccessful claims for violations of the federal Truth in Lending Act ("TILA") and for fraud, because those claims sufficiently overlapped with the plaintiff's successful claims under the DCCPA and the common law of contract unconscionability. See id. The district court had observed that "'all the claims against all the defendants involved a "common core of facts" and "related legal theories,"'" id.,citing as an example that ...


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