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FEARS v. WILHELMINA MODEL AGENCY

May 6, 2005.

CAROLYN FEARS, DONNA GIBBS, CAROL McILVAINE (a.k.a. CAROL ALSTON), SHARON SIMON, and TIFFANY CONNOR, on their own behalf and on behalf of a class of similarly situated persons, Plaintiffs,
v.
WILHELMINA MODEL AGENCY, INC., FORD MODELS, INC., (f.k.a. FORD MODEL AGENCY), GERARD W. FORD, ELITE MODEL MANAGEMENT, INC., CLICK MODEL MANAGEMENT, INC., NEXT MANAGEMENT CORP., MFME MODEL MANAGEMENT CO., LTD. (a.k.a. COMPANY MANAGEMENT), BOSS MODELS, INC., ZOLI MANAGEMENT, INC., QUE MODEL MANAGEMENT, DNA MODEL MANAGEMENT, LLC, IMAGES MANAGEMENT, IMG MODELS, INC., and MODEL MANAGEMENT CORPORATION (f.k.a. INTERNATIONAL MODEL MANAGERS ASSOCIATION, INC.), Defendants.



The opinion of the court was delivered by: HAROLD BAER, JR., District Judge[fn1] [fn1] The Court assumes familiarity with the facts and allegations as set forth in Fears v. Wilhelmina Model Agency, Inc., No. 02 Civ. 4911, 2004 WL 1065543 (S.D.N.Y. May 11, 2004) (Pitman, J.) (sanctions); Fears v. Wilhelmina Model Agency, Inc., No. 02 Civ. 4911, 2004 WL 594396 (S.D.N.Y. Mar. 23, 2004) (Baer, J.) (summary judgment); Fears v. Wilhelmina Model Agency, Inc., No. 02 Civ. 4911, 2003 WL 21659373 (S.D.N.Y. Jul. 15, 2003) (Baer, J.) (class certification); Masters v. Wilhelmina Model Agency, Inc., No. 02 Civ. 4911, 2003 WL 21089073 (S.D.N.Y. May 13, 2003) (Pitman, J.) (strike opposition to class certification); Masters v. Wilhelmina Model Agency, Inc., No. 02 Civ. 4911, 2003 WL 1990262 (S.D.N.Y. Apr. 29, 2003) (Baer, J.) (motion to dismiss); Masters v. Wilhelmina Model Agency, Inc., No. 02 Civ. 4911, 2003 WL 145556 (S.D.N.Y. Jan. 17, 2003) (Baer, J.) (motion to dismiss); and will not repeat them here.

OPINION & ORDER

Following the December 20, 2004 Fairness Hearing, Plaintiffs move, pursuant to Rule 23 of the Federal Rules of Civil Procedure, for: (1) approval of the final proposed settlement, including incentive awards and distribution to claimants; (2) attorneys' fees and expenses; and, (3) distribution of residual funds. For the following reasons, Plaintiffs' motion is GRANTED in-part and DENIED in-part. I. SETTLEMENT APPROVAL

A. LEGAL STANDARD

  Pursuant to Fed.R.Civ.P. 23(e), a district court is required to approve any class action settlement once it is shown to be "fair, adequate, and reasonable, and not a product of collusion." Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 116 (2d Cir. 2005). In making this assessment, courts consider:
(1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; [and,] (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.
Wal-Mart Stores, 396 F.3d at 117 (quoting City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974)). In addition, "[t]here are weighty justifications, such as the reduction of litigation and related expenses, for the general policy favoring the settlement of litigation," Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir. 1982), and "a strong presumption of fairness attaches to proposed settlements that have been negotiated at arm's length." Thompson v. Metro. Life Ins. Co., 216 F.R.D. 55, 61 (S.D.N.Y. 2003) (Baer, J.); see also Denney v. Jenkens & Gilchrist, No. 03 Civ. 5460, 2005 WL 388562, at *8 n. 75 (S.D.N.Y. Feb. 18, 2005).

  B. SETTLEMENT APPROVAL

  1. Terms of the Settlement

  The final proposed Settlement Agreement ("Agreement") provides for the creation of a $21,855,000 Settlement Fund ("Fund") plus interest, to be paid collectively by the "Settling Defendants,"*fn2 and injunctive and equitable relief set forth in the Agreement and this Court's February 15, 2005 Order. (Dckt. 452). In addition, as part of its plan of reorganization, Elite Model Management, Inc. will contribute to the Fund in an amount comparable to the settlement amounts paid by defendants of similar size, culpability and financial resources (the "Elite Settlement"). See In Re EMMC, No. 04-10845 (Bankr. S.D.N.Y. 2004).*fn3

  The non-monetary portion of the Agreement may prove more valuable to the models than the monetary settlement and should not be overlooked in any analysis of the success of this lawsuit. In particular, the Agreement provides for a more transparent process between settling model and agent, not only for these claimants, or even the class, but also for all those men and women who enter the modeling profession through contracts with the Settling Defendants:
For a period of ten years from the date the Court enters the Final Judgment Order for the Settling Defendant, each of the Settling Defendants . . . will disclose to any and all Settling Defendant's all compensation received by it on all bookings made for that model, including but not limited to, the service charge(s), mother agent fee(s), the gross fee received for the booking, and any other charge(s) or deduction(s) from the model's compensation.
Agreement, ¶ B.7(c). To ensure an expedited and inexpensive resolution of model contract disputes, the Agreement creates an alternative dispute resolution mechanism that will be incorporated into all model contracts: [F]rom the date the Court enters the Final Judgment Order for the Settling Defendant, each of the Settling Defendants . . . will include in its contracts with models an initial alternative dispute resolution procedure of non-binding mediation (no longer than three (3) hours [in] duration, unless agreed to the contrary in writing), to try to resolve disputes regarding the interpretation of, or the parties' obligations under, the contracts, with the fees of the mediator to be borne equally by the parties to the mediation, except that Next Management Co., Ford Model Management, LLC, Images Management and Zoli Management, Inc. shall pay up to $1,000, with any fees in excess of that amount to be shared equally by the parties, and with both parties paying their own attorneys' fees and costs, provided that nothing shall limit the ability of the parties to include additional dispute resolution procedures in those contracts; other traditional remedies are not obviated by this provision.
 Agreement, ¶ B.7(e). Models will also be provided with clear notice of the percentage commission charged by the Settling Defendants:
For a period of ten years from the date the Court enters the Final Judgment Order for the Settling Defendant, each of the Settling Defendants . . . during the negotiation of any oral Model Contract or written Model Contract . . ., will advise its models that the percentage commission charged the models on bookings for them (as a contractual term) is a negotiable term.
Agreement, ¶ B.7(f).

  Class members are a notoriously peripatetic group. Consequently, to ensure proper administration of the Agreement, following Court approval of the Agreement, the Court appointed claims administrator, Hefler, Radetich & Saitta (the "Claims Administrator"), will maintain a record of payments to class members, including whether checks have been cashed. (See Ltr. from Hayes, Att'y for Pl., to Judge Baer, dated Apr. 5, 2005.) In particular, the Claims Administrator will maintain a database that contains all relevant information about each claimant, including name, address, tax identification number, amount of claim, and the claimants former agency. To ensure receipt of payment, each un-cashed check will "be traced back to a particular claimant" and "if a check has not been cashed after three months, the Administrator will check the address again and send the claimant a reminder." (Ltr. from Hayes, Att'y for Pl., to Judge Baer, dated Apr. 13, 2005.) After a reasonable time, if the Claim Administrator's reminder fails, and the claimant has not deposited the funds, "the claimant will be contacted by phone to see if he or she has moved, has been traveling abroad, has been unable to check mail, lost the check, or something else." Id. If all else fails, and the claimant fails to cash payment, "the Administrator will also use a claimant's social security number to trace a potential change of address." Id.

  To ensure proper payment of claims, Class counsel will also "submit periodic reports to the Court on the administration of the Settlement, including receipt of final payments from each settling defendant . . . any appeals, and any further submissions from class members who did not file timely claims." (See Ltr. from Hayes, Att'y for Pl., to Judge Baer, dated Apr. 5, 2005.) This is not without cost. To date, the Claims Administrator has incurred $25,000 in expenses, and has estimated an additional $50,000 to $75,000 in reimbursable fees and expenses related to the distribution of funds, tracking the issuance and deposits of checks to class members, and preparation of interim and final reports. (See Ltr. from Hayes, Att'y for Pl., to Judge Baer, dated May 2, 2005.)

  2. Incentive Awards

  The Agreement also provides for the distribution of the Fund on a pro rata basis to general class members. The Agreement includes incentive awards in the amount of $25,000 for each named plaintiff who was deposed (Carolyn Fears and Tiffany Connor), and $15,000 for each trial witness (Sheila Johnson and Mary Anne Fletcher) and each class representative (Donna Gibbs, Ann Rogan, Monica Walker, Carol Alston, Laura Shoemaker, Rachel Shea, Sharon Simon, and Angela Shelton). See Denney v. Jenkens & Gilchrist, No. 03 Civ. 5460, 2005 WL 388562, at *31 n. 248 (S.D.N.Y. Feb. 18, 2005); RMED Intern., Inc. v. Sloan's Supermarkets, Inc., No. 94 Civ. 5587, 2003 WL 21136726, at *2 (S.D.N.Y. May 15, 2003) ("$25,000 incentive award requested for [Plaintiff] is reasonable"). The amount of the incentive award is related to the "personal risk incurred by the individual or any additional effort expended by the individual for the benefit of the lawsuit." Dornberger v. Metro. Life Ins. Co., 203 F.R.D. 118, 124 (S.D.N.Y. 2001); see Sheppard v. Consolid. Edison Co. of N.Y., Inc., No. 94 Civ. 403, 2002 WL 2003206, at *6 (E.D.N.Y. Aug. 1, 2002) (citing cases approving incentive awards ranging from $336.00 to $303,000, with most awards being in the $10,000 to $50,000 range).

  3. Overall Agreement Approval

  This case involves an alleged price-fixing scheme in the modeling industry by some of the industries' most powerful agencies. The issues were thoroughly investigated and aggressively litigated. Plaintiffs' success was never assured and, if the case had continued, plaintiffs would have had to prove a complex conspiracy to artificially fix the commission structure in the modeling industry. See, e.g., In re Visa Check/Mastermoney Antitrust Litig., 297 F. Supp. 2d 503, 511 (E.D.N.Y. 2003) ("The complexity of federal antitrust law is well known"). Settlement negotiations were conducted over months, at arm's length, and between experienced and skilled attorneys with frequent pretrial conferences and motion practice.

  Based on all these findings, the Agreement is reasonable.

  II. ATTORNEYS' FEES

  A. FUNDS AVAILABLE vs. FUNDS CLAIMED

  Before determining the appropriate attorneys' fees, it is important to determine whether class counsel are entitled to a fee award based on Funds claimed or the Funds available. Currently, there is a split in the circuits "on how to deal with the arguable necessity of a rational connection between the size of the actual distribution to the class and the amount of requested attorneys' fees." In re Arakis Energy Corp. Sec. Litig., No. 95 Civ. 3431, 2001 WL 1590512, at *15 (E.D.N.Y. Oct. 31, 2001).

  The Ninth Circuit, in Williams v. MGM-Pathe Commun. Co., 129 F.3d 1026 (9th Cir. 1997), and the Eleventh Circuit, in Waters v. Int'l Precious Metals Corp., 190 F.3d 1291 (11th Cir. 1999), have held that attorneys' fees should be calculated as a percentage of the total fund,*fn4 however, decisions within this Circuit prohibit the "allowance of attorneys' fees in an amount greater than the sum actually claimed by the class." In re Arakis, 2001 WL 1590512, at *15.*fn5 Indeed, court authorization of what can be analogized as a windfall to the attorneys would violate the "express goal of Grinnell" and the Second Circuit's clear intention to avoid such awards. See Goldberger v. Integrated Res., Inc., 209 F.3d 43, 49 (2d Cir. 2000).

  Moreover, while this Court is loath to speculate as to how the Supreme Court may resolve the issue, at least one justice indicated her view. When the Supreme Court denied certiorari in Waters, Justice O'Connor at least hinted at her view when she wrote that the Court has "had no occasion . . . to address whether there must at least be some rational connection between the fee award and the amount of the actual distribution to the class." Int'l Precious Metals Corp. v. Waters, 530 U.S. 1223 (2000).

  While the Agreement here is not the product of a securities class action, the Private Securities Litigation Reform Act of 1995 ("PSLRA") provides insight into Congress's views with respect to the relationship between total funds claimed in a class action and attorneys' fees. See PSLRA, Pub.L. No. 104-67, 109 Stat. 737 (Dec. 22, 1995). The PSLRA dictates that attorneys' fees reflect actual damages paid to claimants:
(6) RESTRICTIONS ON PAYMENT OF ATTORNEYS' FEES AND EXPENSES. — Total attorneys' fees and expenses awarded by the court to counsel for the plaintiff class shall not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class.
15 U.S.C. § 78u-4(a)(6) (emphasis added). See In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 300 (3rd Cir. 2005).
  Congressional intent is also pretty clear in the more recent Class Action Fairness Act ("CAFA"). See Class Action Fairness Act of 2005, Pub.L. 109-2 (Feb. 18, 2005). There, the language used urges the calculation of attorneys' fees based on a percentage of the class claims. The legislation evidenced congressional desire to reform the tort system and limit exorbitant attorneys' fees. Congressional action was unequivocal; it expanded federal diversity jurisdiction, addressed unfair class settlements, inflated attorneys' fees, and state court class action abuses:
Class actions were originally created to efficiently address a large number of similar claims by people suffering small harms. Today they are too often used to efficiently transfer the large fees to a small number of trial lawyers, with little benefit to the plaintiffs.
151 Cong. Rec. H723, H725 (2005) (statement of Rep. Sensenbrenner (Rep.-R), Chair., H.R. Comm. on the Jud.). Members of both political parties shared this sentiment. See 151 Cong. Rec. H723, H727 (2005) (statement of Rep. Boucher (Rep.-D), H.R. Comm. on the Jud.). Consequently, an award of attorneys' fees in excess of the claims made by the class would contradict the clear public policy of awarding settlement funds to claimants and not attorneys.

  Here, the total common fund will likely be in excess of $21,855,000 and, as of March 23, 2005, the number of claims preliminarily certified by the Claims Administrator comes to $9,338,958.29. (Aff. of Chiango, Claims Administrator, at ¶ 3, dated Mar. 23, 2005.)*fn6 In short, attorneys' fees here will be calculated so as to bear a relationship to funds claimed by class members, rather than a percentage of the entire Fund. To do otherwise would not only be inequitable, but may provide an incentive for attorneys to be less aggressive in their attempts to attract class members to submit claims.

  B. REASONABLE ...


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