Dallas appeals court says injunctive relief in class action settlement was fair, denies attorneys’ fees

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by Jim Orr

Texas Rule of Civil Procedure 42(i)(2) applies to attorneys’ fee awards in class action lawsuits. It provides:

“If any portion of the benefits recovered for the class are in the form of coupons or other noncash common benefits, the attorney fees awarded in the action must be in cash and noncash amounts in the same proportion as the recovery for the class.”

Subsection (i)(2) was added to Rule 42 in 2003 after the legislature enacted section 26.003(b) of the Texas Civil Practice and Remedies Code:

(b) Rules adopted under this chapter must provide that in a class action, if any portion of the benefits recovered for the class are in the form of coupons or other noncash common benefits, the attorney’s fees awarded in the action must be in cash and noncash amounts in the same proportion as the recovery for the class.

TEX. CIV. PRAC. & REM.CODE ANN. § 26.003(b). Chapter 26 of the Civil Practice and Remedies Code, entitled “Class Actions,” was adopted as part of the sweeping tort reform implemented by House Bill 4 in 2003.

In Rocker v. Centex Corp., — S.W.3d —- (Tex.App.-Dallas August 10, 2012), the plaintiffs alleged only claims for injunctive relief. Two corporations, Centex and Pulte Homes, were proposing a merger. The Centex shareholders pursuing the lawsuit alleged in part that Centex should make additional, material disclosures in the final proxy statement sent to Centex shareholders soliciting their vote of approval for the merger with Pulte. The parties reached a settlement and Centex agreed to make the additional disclosures. An expert described the disclosures as “provid[ing] a more complete foundation for shareholders to assess the veracity of the process through which the Merger Agreement was reached; the reasonableness of the factors considered in the Boards’ recommendations for the transaction; and the reasonableness and accuracy of the analyses and factors considered by Goldman Sachs in issuing its fairness opinion.” The trial court approved the settlement and awarded attorney fees in the amount of $1.1 million to the attorneys who had represented the plaintiffs and class.

The Dallas Court of Appeals agreed that the settlement for injunctive relief was “fair, adequate and reasonable,” but reversed the trial court’s award of fees. The court of appeals construed Rule 42(i)(2) and section 26.003(b) as applying to the class claims for injunctive relief. In other words, the court of appeals concluded that a settlement for injunctive relief is a settlement for “other noncash common benefits.” Therefore, the court held that any attorney fees must also be “noncash.”

The court of appeals did note that, on remand, the trial court should hear evidence regarding “the value—if any—and proportions of the noncash common benefits recovered for the class.” However, the point of such an exercise on remand is unclear given that the court of appeals also stated:

Even if counsel established the pecuniary benefit to the class, section 26.003(b) requires that attorney’s fees “must be in cash and noncash amounts in the same proportion as the recovery for the class.” Here, if there was no cash recovery for the class, fees could not be awarded in cash, regardless of the value of the benefit to the class.

Just as judges, legislators, corporate executives and others are not expected to work for free, lawyers are also unlikely to work for free. The impact of the decision in Rocker will be to discourage lawyers from ever pursuing a broad variety of claims in Texas courts that would otherwise benefit a great many Texans.

Imagine a class action lawsuit against a car manufacturer for defective brakes. A settlement that the manufacturer will replace the brakes, free of charge, on every such car in the state would, of course, be a “noncash” settlement and thus the attorneys would not recover any fee. Indeed, the attorneys in this example would have a greater incentive to settle the claim for a mere $5 cash payment to each car owner (obviously “worth” far less than the cost of replacing the defective brakes) because then the attorneys might at least get paid something for their work since it would be a “cash” settlement.

More likely, a great many legal claims will simply never be pursued in Texas courts. There are significant types of class litigation that simply do not seek “cash” recoveries. Yet again, a “tort reform” that was packaged and sold to voters as being “for the good of consumers” is, in truth, directly contrary to the best interests of Texas consumers.