The U.S. Supreme Court has been petitioned to examine whether the $667 million awarded in legal fees to plaintiffs' attorneys in a $2.7 billion class-action settlement with Blue Cross Blue Shield is excessively high. The settlement addressed accusations against the insurance giant for overcharging millions of subscribers nationwide due to an alleged non-compete agreement that violated antitrust laws.

The petition was initiated by David Behenna, a class member, who argued that the attorneys' fees were disproportionate. Behenna suggests that the fee should be capped at $194 million, reflecting the "lodestar" calculation— a method that multiplies the number of hours worked by a reasonable hourly rate. This figure starkly contrasts with the settlement's current fee allocation, which is based on a "percentage of the fund" method, amounting to 23.47% of the total settlement.

The issue of the legal fee came into sharper focus following an appeals court decision last year, which upheld the settlement, including its fee structure. The 11th U.S. Circuit Court of Appeals deemed the percentage awarded as falling within a "range of reasonableness" of 20% to 25%. However, Behenna’s Supreme Court challenge underscores a broader legal debate about the appropriate methods for calculating lawyers' fees in massive class-action settlements.

This legal dispute is part of ongoing litigation involving Blue Cross Blue Shield, which has seen various challenges at different judicial levels. In another related matter, Home Depot has also petitioned the Supreme Court, arguing that the terms of the same settlement are overly broad and could inhibit future lawsuits against Blue Cross Blue Shield for similar antitrust violations.

The contention over the legal fees highlights a significant division among U.S. appeals courts regarding whether trial judges should employ the lodestar approach or the percentage-of-fund method in cases where a common monetary fund is established for class members. Behenna's petition criticizes the federal courts for what he perceives as a failure to rigorously scrutinize fee applications in common-fund cases, suggesting that the courts often default to the percentage method without sufficient justification.

The Lodestar and Percentage of Fund Approaches to Attorney Fees

In class-action settlements, determining the appropriate amount of attorney fees is crucial to ensuring fair compensation for legal services while protecting the interests of the class members. The Lodestar Approach and the Percentage of Fund Approach are two common methods used to calculate these fees. Each method offers different advantages and is preferred under different circumstances.

The Lodestar method calculates attorney fees based on the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate. To determine what constitutes a reasonable hourly rate, courts often consider the rates prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation. The total may then be adjusted based on a variety of factors, including the complexity of the case, the risk of litigation, and the quality of the attorneys' work.

This approach is praised for its emphasis on transparency and accountability, as it requires detailed documentation of the work performed. It also attempts to match the fee to the effort and skill actually expended on the case, potentially preventing windfalls to attorneys. The Lodestar method is particularly favored in situations where the recovery of damages is uncertain or where the benefit to the class is non-monetary.

Alternatively, the Percentage of Fund method calculates fees as a proportion of the class-action settlement or judgment. Typically, this percentage varies depending on the size of the fund, with larger funds generally resulting in a lower percentage. Courts that use this method often cite its efficiency in calculation and its alignment with the interests of the class, as it directly ties the attorneys' fees to the success achieved.

This method is often preferred in common fund cases because it directly relates the attorneys' compensation to the results they achieve for the class. It also reflects a sort of contingent fee arrangement, which can be crucial in enabling plaintiffs to secure competent legal representation, especially in complex cases against well-funded defendants.

The choice between the Lodestar and Percentage of Fund approaches can be contentious, as seen in the current Supreme Court petition involving the Blue Cross Blue Shield settlement. Critics of the Percentage of Fund method argue that it can lead to excessively high payments to attorneys without sufficient regard to the actual effort involved or the benefit to the class. Proponents, however, argue that it better aligns the incentives of class counsel with those of the class members.

The debate also extends to the judicial discretion involved in choosing between these methods. Some courts prefer a hybrid approach, initially calculating the fee using the Lodestar method and then adjusting it based on the percentage of the recovery to ensure that the fee remains reasonable in proportion to the class benefit.

As the U.S. Supreme Court considers the petition in Behenna v. Blue Cross Blue Shield, the legal community and class action practitioners are closely watching to see how the Court will address these differing methodologies and what this could mean for future class action settlements. The decision could potentially standardize the approach used across the federal circuit courts, providing clearer guidance on how attorney fees should be calculated in class action settlements.

The case, David G. Behenna v. Blue Cross Blue Shield Association et al., is yet to be assigned a docket number, and responses from the plaintiffs’ lawyers and Blue Cross to Home Depot’s related petition are still pending.